PILCOM v. COMMISSIONER OF INCOME TAX (C.I.T.)
A.I.R. 2020 S.C. 204
Bench: Justice Uday Umesh Lalit and Justice Vineet Saran
SIGNIFICANCE OF THE CASE:
With an increase in various International Sporting events such as the Indian Premier League (IPL), Pro Kabaddi, Indian Super League (ISL), etc, which are been held in India, the entry of many foreign sports associations with its players to participate in such events has increased. It has become the need of the hour for the amicable settlement on the administration of the tax statutes over foreign association players on the participation of such sporting events. Under the Income Tax Act, Sec. 115BBA and Sec. 194E exclusively discuss the deduction of tax at source over the income receivable by any non-resident sportsperson or sports association who has played any sport or game in India.
This Judgment delivered by the Hon’ble Supreme Court in the year 2020 dates back or has its place from the year 1996 when the World Cup Tournament was jointly hosted by India, Pakistan, and Sri Lanka. After many adjournments and appeals by the parties, this judgment has its significance in the area of direct taxation with regards to the Chargeability of Tax in connection with the Source of Income.
Nevertheless, there already exists a clear statute and provisions regarding the chargeability of tax against the income or guarantee money received by the non-resident sports association in India, this judgment clarifies all such uncertainties that arise while carrying on with the deduction of tax at source by the payer.
As a prudent man of law, it would be obligatory to know how the income received by the non-resident cricket players is taxed by the state which is known for its sports & games. Another noteworthy part of the judgment, although not argued by the parties is the applicability of the Double Taxation Avoidance Agreement (DTAA) where it was held that the mandate to withhold tax under the provision of Sec. 194E is not influenced by the DTAA. The advantage of the DTAA can only be considered by the assessee and if found reasonable the taxes deducted could be claimed as a refund. Although, such treatment of deduction does not exonerate the payer from carrying out mandatory withholding of the tax under the Income Tax Act.
Therefore, this decision by the Hon’ble Supreme Court is remarkable in its entirety and it is cogent in its perspective as the decision is coherent and logical in determining the Chargeability of Tax in connection with the Source of Income and hence significant in essence.
BACKGROUND OF THE CASE:
PILCOM also called PAK-INDO-LANKA, Joint Management Committee is a Committee established by cricket associations or cricket boards of three countries namely India, Pakistan and Sri Lanka to host the World Cup Tournament in the year 1996. The above-mentioned three countries were chosen by the International Cricket Council (ICC) as the host countries through competitive bids, for jointly hosting the Cricket Tournament.
This PILCOM was mandated to pay assorted amounts to different countries as well as to the ICC which has its Headquarters in London for the purpose of conducting the preliminary rounds of the World Cup tournament and further for promoting the tournament in such countries.
For this purpose, two bank accounts were opened by PILCOM in London which is to be operated jointly by the cricket associations of India and Pakistan, i.e., Board of Cricket Control of India (BCCI) and Pakistan Cricket Board (PCB). Further, certain amounts were transferred to the host countries from the London bank account for the payment of umpire fees, prize money, and for meeting the miscellaneous expenses. The surplus amount if any was to be divided as per the mutual agreements by the host countries.
Additionally, to discharge the functions, regulate and control the cricket matches that were to be played in India, following the World Cup Tournament, the Board of Cricket Control of India (BCCI) appointed its own committee which in short knows as the INDICOM that was headed by a Convener-Secretary, who was discharging his functions from the state of Calcutta. For this purpose, a bank account in the name of INDICOM was opened in Calcutta.
It is a matter of fact that the Income Tax Offices (I.T.O) (TDS) conducted an inquiry regarding the same, during which it was found that the PILCOM had made payments to the ICC as well as to the different cricket associations which are the member countries of the Council from both its bank accounts situated in London, against which the ITO issued an order to show cause the reason for which the PILCOM hasn’t deducted any amount on the above-mentioned payments under Sec. 194E of the IT Act.
The reason given by PILCOM was not agreed by the I.T.O and he held that, as the tax was not deducted at source with reliance to Sec. 115BBA and Sec. 194E of the Act, accordingly the ITO passed an order under Sec. 201(I) making the PILCOM liable for the payment of consideration that was to be deducted with the payment of interest on such amount till the actual payment date.
Deprived by the order of the I.T.O the PILCOM appealed against such order to the CIT(A) which abruptly disposed of the appeal by its order. Hence, PILCOM further appealed to the ITAT which set aside the order of CIT (A) and restored the matter to CIT (A) to give the opportunity of being heard and for redeciding the case accordingly and the transactions were listed out by the CIT (A) as given below:
|Guarantee money paid to 17 countries that did not participate in the World Cup matches.||17,00,000|
|Amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries.||1,20,000|
|Payment to ICC as per Resolution||3,75,000|
|Payment for ICC Trophy for qualifying matches between ICC Associate members held outside India.||2,00,000|
|Guarantee money paid to South Africa and the United Arab Emirates both of which did not play any match in India.||3,60,000|
|Guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya with whom double taxation avoidance agreements exist||8,85,000|
|Guarantee money paid to Pakistan, West India, Zimbabwe, and Holland.||7,10,000|
OBSERVATION BY CIT (A) – THE REDECIDING FACTOR:
The CIT (A) while taking into consideration all the transactions by the PILCOM held that, the 2nd transaction of 1,20,000 Pounds from London to Pakistan and Sri Lanka for disbursement of prize money in those countries were given only for the matches which are played outside India and shall not be bought under the ambit of Sec. 115BBA of the Act or under tax deduction and hence ordered the deletion of the same from the gross total.
Further, it held that the rest six transactions would attract Sec. 115BBA as all the cricket associations or cricket boards would fall under the scope of Sec. 115BBA r/w Sec. 9(I) (I) of the Act. But the transactions made by PILCOM were gross total payments made to all the countries and such gross total will not attract the deduction of tax at sources, only the income to such cricket boards that are deemed income in the hands of the non-residents as cleared under Sec. 115BBA r/w Sec. 9(I) (I) will be liable for deduction.
Thus, it was found that only 17 out of 37 matches of the tournament were played in India and hence the same proportion of 45.94% of the gross total shall only be attracted in this scenario. Both the parties were aggrieved by this order and hence approached the Tribunal.
OBSERVATION BY THE TRIBUNAL:
The Tribunal accepted the view taken by the CIT (A) in respect of the 2nd transaction. In connection with the 1st and 5th transaction which is the Guarantee money paid to 17 countries that did not participate in the World Cup matches and Guarantee money paid to South Africa and the United Arab Emirates both of which did not play any match in India the tribunal observed that the income to the Cricket boards or associations of those countries cannot be construed to have the source of Income in India as they did not play itself or didn’t play in India and with regards to the 3rd transaction, the payment was made to ICC only as per the resolution was partly for tournament expenses and cricket development and any income if arisen out of this payment shall not have any relation on the Income of ICC that is taxable in India.
As the transaction relating to the Payment for ICC Trophy for qualifying matches between ICC Associate members held outside India is concerned, it doesn’t have any connection with matches played in India and hence shall not be deemed to have any source in India.
In respect of the last two transactions, it was observed that the guarantee money paid to the cricket associations or boards of all those countries was in consonance with some activity that they did in India and can be considered to have earned the income through such activities alone and hence it was held that the payment made by PILCOM to those associations are only for the cricket matches played by them in India.
As they also played in Pakistan and Sri Lanka, the proportion of matches played in India with that of the total matches shall be taken into consideration and such percentage of the total amount are liable for deduction of tax at source by PILCOM. Both the parties were aggrieved by this order and hence approached the High Court.
OBSERVATION OF THE HIGH COURT:
The High Court accepted the view of the Tribunal by dismissing the appeal and held that once the income accrues deduction is a matter of course. Therefore, any money including the guaranteed money is paid to any non-resident cricket association or boards in relation to any match played in India, the said income has to come under the ambit of Sec. 115BBA and is liable to deduction of tax at source.
Further, with regards to the Double Taxation Avoidance Agreement (DTAA), the court though not argued by the parties clarified that deductions aren’t assessment of tax and hence if there is any agreement regarding the non-eligibility of deduction, the amount deducted will be refunded back with interest if applicable.
Also, the plea of DTAA can only be taken by the assessee and not the payer while deduction of tax at source and hence irrespective of the existence of Double Taxation Avoidance Agreement the mandate under Sec. 195E has to be cleared once the income accrues under Sec. 115BBA of the IT Act. Aggrieved by this order the appellant has approached the Hon’ble Supreme Court.
Section 115BBA and Section 194E of Income Tax Act
Whether the payment as mentioned in serial no (vi) and (vii) falls under the ambit of Section 115BBA & Sec. 194E of the Income Tax Act?
For Appellant – Mr. J.P. Khaitan, learned Senior Advocate
For Revenue – Mr. Vikramjit Banerjee, learned Additional Solicitor General
ARGUMENTS IN FAVOUR OF APPELLANTS (ASSESSEE):
The main contention of the appellants being the payment made by them to other Cricket Board Association was made for grant of a privilege and not for the matches they played. They conveyed to the apex court that, the reason for making payment to those teams was for the grant of privilege of such Cricket Control Board/ Association with a purpose to promote the game to such countries.
The other argument put forth by the appellant was that the payment made by the PILCOM were not from the appellant in India but were made by the Appellant through the London Bank accounts. They tried to convince the court that the payments as mentioned in (vi) and (vii) were made in accordance with the decision taken at the ICC meeting in London, which were agreed upon by the parties, and mainly the payment made by the appellant were from England. Since, the matter of tax deduction as per Sec. 115BBA would only be taken into consideration, if and only if such income were accrued in India, which in our instant case has not happened, therefore such payment of income is not attracted under Sec. 115BBA.
The appellant relied upon the decision of the apex court in the case of G.E. India Technology Centre Pvt. Ltd, wherein the court held that “a person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Income Tax act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the receipt and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the Income Tax Act.”
The appellant argued with reliance on the principle stated above that, only when an income is chargeable under the provisions of the act, the deduction of tax at source can be made applicable (Sec. 195). In furtherance, the appellant held that in the instant case since the payment was made outside India, they are not chargeable under the Income Tax Act, which means the applicability of deduction of tax at source as mentioned in Sec.194E would not be applicable, and thus the order under Sec. 201 will not be applicable.
The appellant relied upon the case of Metallurgical and Engineering Consultant (India) Ltd v. Commissioner of Income Tax, wherein the appellants were to acquire technical “know-how” and use the acquired “know-how” in the design of the contract. As per the agreement the appellant had to acquire this special knowledge and the necessary skills on the job placement based on the foreign company, in respect of which the appellant had to pay a certain amount to the foreign company. The issue, in this case, was whether the payment made by the appellant was in nature to the U.S. Company accruing or arising in India. The Tribunal had held that there exists no connection between the payment made to the foreign company and the job placement in a foreign country to acquire necessary skills.
With reliance on the case of Commissioner of Income Tax v. Manjoo and Co, the appellant had substantiated his argument. In the above-mentioned case, a wholesale distributor of lotteries organized by the state as per the agreement is obliged to bear the loss in the case where the lottery tickets were not sold before the draw date. Some of the unsold tickets emerged to be the prize-winning tickets. The issue was whether such prize-winning amount is considered as Receipt of income in the Profit and Loss account or as “winnings from lottery” as per Sec. 115BB. The High Court held that assuming the fact that the winning from the lottery is received by him in the course of his business, thus being his business income, but the special provision of treating such income under Sec. 115BB would prevail and a special rate of tax for such income shall be applied. The Supreme court in the instant case held that the above-mentioned case has no application in the present matter, and it cannot be taken into consideration.
ARGUMENTS IN FAVOUR OF RESPONDENT (REVENUE):
The Respondent held that they completely agree with the decision of the Tribunal on treating the payment made in serial no (vi) and (vii) attracted to Sec. 115BBA. The Tribunal was of the view that although the guaranteed money was bound to be payable under the Resolution passed in the meetings, at the same time these associations did some activities in India, and because of this reason alone they could be considered to have earned the guaranteed money. Therefore, it was argued by the Respondents that as per the percentage of the number of matches played in India with the total number of matches to be played by each team (17/37 = 45.94%), should be considered as the income accruing or arising to that cricket association and for such amount the tax shall be deductible.
They contended that for the applicability of Sec. 115BBA in the case, the participation of matches is not relevant, the fact that such payment was made for the matches held in India and such income in the instant case was deemed to accrue or arise in India. The Respondents were of the view that income received by the Cricket Control Board/ Association was for the reason of playing matches in India, therefore for such income the tax should have been deducted and in failure for imposing TDS as per Sec. 194E.
OBSERVATION OF THE SUPREME COURT:
The principal issue regarding this case was whether any income accrued or arose or was deemed to have accrued or arisen in India to the said Non-Resident Sports Association, for this court relied on Sec. 5(2) of the Act, which states that the total income of a non-resident may include income which is received or deemed to be received or accrues or arises or deemed to accrue or arise to such person in India. Moreover, according to Sec. 9(1) of the Act, the income shall be deemed to accrue or arise in India if, such income accrues or arises, whether directly or indirectly through or from a) any business connections in India or, b) any property in India or, c) any asset or source of income in India or, d) the transfer of a capital asset situates in India. Therefore the court was of the view that if any payment is made to the non-resident association, which is accrued or arose in India, then such income falls under the total income of such non-resident person.
The next question which the court dealt with was if such payment amounts to have been accrued or arose in India, what is the consequence of it. On the bare perusal of Sec. 115BBA, it appears that once, income is payable to a foreigner non-resident sportsman or non-resident sports association or institution, the person responsible for making the payment is obliged to deduct Tax at Source or at the time of credit of such income to the account of the payee to deduct income tax at the rate of 10%. From the above, it could be understood that if any income is payable to a non-resident sports association, the tax shall be deducted at the source. The court mentioned Sec 115BBA(1)(b), wherein it is held that if the total income of any non-resident sports association includes any amount of guarantee to be paid or payable to such persons “in relation to” any game or sport played in India. Once, the connection is established that such income is for the Guaranteed money or from the sports played in India, the liability shall arise.
In the instant case, the Non-Resident Sports Association had participated in the event where cricket teams of their association had played various matches in the country. Those associations had an intricate connection with their country’s team who was participating in the event, although their payments were described under the name of guaranteed money. Therefore, those teams who were guaranteed money get attracted to this sub-section and the payer is duty-bound to deduct Tax at Source.
The Supreme Court had rejected the appellant’s argument which was relied upon the case of G.E. India Technology Centre Pvt Ltd since it has no application to the payments made as mentioned in serial (vi) and (vii) are concerned to the extent that the payments represented amounts that could not be the subject matter of charge under the provisions of the act, appropriate benefit already stands extended to the appellant. Moreover, under the same case, the case of CIT v. Eli Lilly and Co (India) Pvt. Ltd was cited, wherein it was held that the deduction of Tax at Source as mentioned in Chapter XVII and the charging provisions of the Income Tax Act form one single integral, inseparable code and therefore, the provisions relating to TDS only applies to those sums which are “chargeable to tax”. For example, under Sec. 192 the payer has the power to deduct Tax at Source when the income he pays is chargeable under salaries, similarly Sec. 195 imposes a statutory obligation on the person making payment to a non-resident to deduct income which is chargeable under the provisions of Chapter XVII. Therefore, with reliance on the above-mentioned cases, it court held deduction of tax at source shall be permissible against the payment to non-residents.
The Court went on to reject the appellant’s argument relying upon the case of Metallurgical and Engineering Consultants (India) Ltd, as it was inappropriate for the Tribunal to rely upon the case of Performing Right Society Ltd as the facts of two cases are not similar. In the case, Performing Rights Society Ltd v. CIT, wherein the facts were relating to a society that entered into an agreement in England with the All-India Radio and granted the authority to broadcast all musical works that are included in the repertoire from all its stations and royalty was collected by the society in hourly basis for the same. The Hon’ble Supreme Court held that although the payment made to the appellants was out of the agreements made in England, the income arose from a source in India. Therefore, in the instant case, the court held that the Metallurgical and Engineering Consultant Ltd case’s decision would be applicable in the instant matter since, the Tribunal under that case relied on a case (Performing Rights Society case) that did not similar facts and situation. Furthermore, the court held that there exists an explicit connection for payment made by the PILCOM with the reason for the Cricket Control Board/ Association had played matches in India. Therefore, such a payment was made for the sports association because of their team playing in India. In the case of Manjoo and Co, which was relied upon the appellants, the court in the instant case had held that the above-mentioned case has no application in the present matter, and it cannot be taken into consideration. Therefore, considering all the submissions made by the appellant invalid.
The Supreme court had discussed the applicability of the (Double Taxation Avoidance Agreement) DTAA, although this issue was not argued by the parties and had accepted the view taken by the High Court. It was viewed that the held that the necessity to deduct tax at source as mentioned under Sec. 194E is not affected by DTAA, since the provision is a statutory obligation provided by the legislature and cannot absolve of the liability by an agreement between countries. Thus, if the essential conditions are satisfied and the deductions would be made. The eligibility can only be disputed by the assessee on whose account deductions were made and the benefit of DTAA between such countries can be pleaded as a matter of right. Thus, if any deductions made would be refunded with the interest, if any case is made out.
The Hon’ble Supreme Court rightly noted that the non-resident Cricket Board or Cricket Association had participated in the World Cup Tournament in India. Although the transaction made was labelled as Guarantee money, they had nexus with the playing of matches in India and hence had arisen or deemed to have arisen from a source in India. This decision throws remarkable light on when the income received by the non-residents falls within the ambit of Sec. 5(2) of the Act by interpreting the word “in relation to” which is provided under Sec. 115BBA (1) (b), so as to include the connection between the money received by the non-residents and the game played. The liability under the provision gets attracted when the relationship is established. In consonance with this, the court held that the transaction made by PILCOM to the Cricket association constituted their income that arose or deemed to have arisen or accrued from a source in India and hence is liable to deduction of tax at source under the provisions of Sec. 194E of the IT Act.
DECISION OF THE SUPREME COURT
It was held that the payments or transaction made by PILCOM to the Non- Resident Cricket Associations or Cricket Boards in the instant case corresponds to their income that accrued or arose or was deemed to have accrued or arisen in India. Therefore, the Appellant was liable for deducting Tax at Source under the provisions of Section 194 E of the Income Tax Act. Therefore, the Appeal was dismissed by this Hon’ble Supreme Court.
Prior to this judgment, there existed the vagueness on whether a non-resident sports association or institution that were guaranteed money despite of not playing any sports in India, could be treated as taxable income accrued in India. With the interpretation of Sec. 115BBA along with Sec. 9(1), we can conclude that any income accrued or arose in Indian by a non-resident sportsmen or sports association falls under the scope of the total income of such sportsmen and tax is deductible at source. With the help of this judgment, the implication of Sec. 115BBA had broadened by interpreting the word ‘in relation to’ of Sec. 115BBA (1)b to include both the scenario, i.e., the game or sports played in India and the guaranteed money paid or payable to the non-resident sports association on the other. With an increase in various sporting events in India, the chargeability of tax over the sportsmen and sports association would be a significant question arising, but with this judgment the explanation of Sec 115BBA and Sec. 194E along with Sec. 9(1) and Sec. 5 makes it clear for understanding and applying in the given scenario.
 (2010) 327 ITR (SC)
 (1999) 238 ITR 208 (Pat)
 (2011) 335 ITR 527 (Ker)
 (2009) 15 SCC 1
 (1977) 106 ITR 11 (SC)