Case: PILCOM Vs. C.I.T WEST BENGAL-VII

2. The facts leading to the filing of the proceedings before the Tribunal were set out in the Order dated 04.01.2000 as under:-2. The assesse before us is PAK-INDO-LANKA, JOINT MANAGEMENT COMMITTTEE (known in short as PILCOM) which is actually a Committee formed by the Cricket Control Boards/Associations of three countries viz. Pakistan, India and Sri Lanka, for the purpose of conducting the World Cup Cricket tournament for the year 1996 in these three countries. Actually, International Cricket Council (ICC) is a non-profit making organization having its Headquarters at London, which controls and conducts the game of cricket in the different countries of the world. ICC has got nine full members and twenty associate members in a special meeting of ICC held on 2.2.1993 at London, India, Pakistan and Sri Lanka were selected, on the basis of competitive bids, to have the privilege of jointly hosting the 1996 World Cup Cricket Tournament. These three host countries were required to pay varying amounts to the Cricket Control Boards/Associations of different countries as well as to ICC in connection with conducting the preliminary phases of the tournament and also for the purpose of promotion of the game in their respective countries. For the purpose of conducting the final phase of the tournament in India, Pakistan and Sri Lanka, a Committee was formed by the three host members under the name PILCOM. Two Bank accounts were opened by PILCOM in London to be operated jointly by the representatives of Indian and Pakistan Cricket Boards, in which the receipt from sponsorship, T.V . rights etc. were deposited and from which the expenses were met. The surplus amount remaining in the said Bank account was decided to be divided equally between the Cricket Boards of Pakistan and India after paying a lump-sum amount to Sri Lanka Board as per mutual agreements amongst the three Boards. For the purpose of hosting the World Cup matches in India, the Board of Cricket Control of India (BCCI) appointed its own committee for discharge of its responsibilities and functions. The Committee was to be known as INDICOM. Since theConvener-Secretary of INDCOM was functioning from Calcutta necessary Bank accounts were opened in Calcutta by INDCOM for receipts and expenditure relating to matches to be held in India. From the said Bank accounts in London, certain amounts were transferred to the three co-host countries for disbursement of fees payable to the umpires and referees and also defraying administrative expenses and prize money. During the course of enquiry, it came to the knowledge of tie I.T.O. (TDS), Ward- 21(4), Calcutta that PILCOM had made payments to ICC as well as to the Cricket Control Boards/Associations of the different Member countries of ICC from its two London Bank Accounts. The ITO issued a notice to the Office of PILCOM located at Dr. BC Roy Club House, Eden Gardens, Calcutta- 700 021 asking it to show-cause why actions under Section 20(I)/194E of the I.T. Act, 1961 would not be taken against PILCOM for its failure to deduct taxes from the payments made by it and as referred to above in accordance with the provisions of Sec. 194E. The PILCOM represented before the I.T.O. that the provisions of Sec. 194E would not be attracted to the payments for various reasons to which we shall advert later on. It was furthermore stated that, inasmuch as, the books accounts of PILCOM had not been completed by its Pakistani Treasurer, the said books could not be produced before the I.T.OThe I.T.O. did not agree with the contentions of PILCOM. He referred to the provisions of Sec. 115BBA and held that taxes should have been deducted at source from the payments made by PILCOM in accordance with the provisions of Sec 194E. The details of the payments as made by PILCOM and as had been collected by the ITO were supplied by him to the PILCOM. Finally, the ITO passed an order under Sec. 20(I)/194E dated 6.5.1997, in which he held that the PILCOM was liable to pay under Sec.201(I) the amount it had failed to deduct from the payments under consideration arid furthermore held that the PILCOM was also liable to pay interest on the said amount under Sec. 291(1A) from the date of tax was deductible upto the date of actual payment. The ITO computed the total short deduction u/s. 194E to be Rs.2,18,293,00.003. The PILCOM appealed against the said order passed by the ITO and the CIT(A) disposed of the appeal by his order dated 17.11.1997. In further appeal preferred by PILCOM before the ITAT, the ITAT by its order dated 25.6.1990 in ITA No. 62/Cal/1998, set aside the order passed by the CIT(A) and restored the matter back to his file for redeciding the issue after affording opportunity of being herd to PILCOM. Accordingly, the appeal was re-heard by the CIT(A), in which both the sides were allowed an opportunity to represent their respective cases and the CIT(A) finally passed his appellate order on 28.12.1998, which is being challenged before us by both sides4. After discussing the basic facts of the case, the Ld.CIT(A) detailed out the actual payments made by PILCOM (in sterling pound) and classified the same into seven distinct categories, as listed before, on the basis of the purposes for payments as well as the difference between categories of recipients off the payments. Amount (£)i) Guarantee money paid to 17 countries which did not participate in the World Cup matches 17,00,000ii) Amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries 1,20,000iii) Payment to ICC as per Resolution dated Feb. 2, 1993 3,75,000iv) Payment for ICC Trophy for qualifying matches between ICC Associate members held outside India 2,00,000v) Guarantee money paid to South Africa and United Arab Emirates both of which did not play any match in India 3,60,000vi) Guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya with whom 8,85,000 double taxation avoidance agreements exist5. Various arguments were taken up by both the sides before the CIT(A), which we shall also be discussing and taking into consideration in due course. The CIT (A) held that so far as the payment of pound 1,20,000 being of the nature of amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries for matches played there is concerned, the prize money is always paid to the winner and other individual players in a particular match and, inasmuch as, these prizes were meant for matches outside India, the same could not be brought within the scope of Sec.115BBA. He thus finally decided that this amount does not fall within the scope of tax deduction at source and ordered for deletion of this amount from the total amount considered by the ITO. As regards the other six payments, the CIT(A) held that the provisions of Sec. 115BBA would be attracted to all those payments. By arguing that all the different Cricket Control Boards/Associations would come within the purview of Sec. 115BBA read with Sec. 9(I)(I), inasmuch as, income accrued or arose to the way of guarantee money, etc. through the playing of the matches in India which constituted the source of income in India, in the hands those non-resident foreign Cricket Boards/Associations. The Ld. CIT(A), however, found out at the same time that out of 37 matches played in all in the aforesaid World Cup Tournament, only 17 had been played in India. He argued that since the payments made by PILCOM related to all the matches played in the tournament, only such proportion of the guarantee money, etc. received by the non-resident parties could be considered to be deemed income in India in the hands of those non-resident parties, which corresponds to the ratio of the number of matches played in India to the total number of matches. Thus, the CIT(A) held that only 17/37 th portion i.e. 45.94 percent of the othersix types of payments could be considered to be attracted by the provisions of Sec.291(I)/194. He thus directed that so far as other six categories of payments are concerned. 45.94 percent of the payments covered by those categories should alone be taken into consideration for the purpose of considering PILCOM as defaulter under Sec.201(I)/194B. …3. As stated above, out of the payments classified in seven distinct categories, the payment at serial no. (ii) amounting to £.1,20,000/- was found by the CIT(A) to be beyond the scope of Section 115BBA of the Act (The Income Tax Act, 1961) , whereas, the other six payments were found to be governed by said provision. However, only 17/37 th portion or 45.94% of said six payments were held to be covered. The Appellant as well as the Revenue, being aggrieved, approached the Tribunal by filing ITA Nos.11/Cal/1999 and 402/Cal/1999 respectively4. The Tribunal in its Order dated 04.01.2000 approved the view taken by the CIT(A) in respect of payment at serial no.(ii) amounting to Rs.1,20,000/-. As regards payments at serial nos. (i), (iii), (iv) and (v), it was observed:-17. It is not at all possible to hold that the source of guarantee money in the hands of the cricket associations of those countries, which either did not play at all or did not play in India, can be the games played in India. … … We, therefore, hold that so far as the guarantee moneys paid by PILCOM to the 17 countries, which did not participate in World Cup matches [(Clause (i) of the detailed chart of payment as shown at page 4 above], or to South Africa and United Arab Emirates, which did not play any match in India [Clause (V) of the chart as above] are concerned, it cannot be held that the cricket associations of these countries earned the guarantee money through any Source of income in India. … … … …24. Clause (iii) of the above chart refers to a payment of £3,75,000 to ICC as per Resolution dated 2.2.1993. According to the said Resolution, the amount was required to be paid to ICC partly towards expenses incurred by ICC in connection with the tournament and partly to be spent by it for development of cricket. Even if an element of income may, therefore, be considered out of this payment, it is hardly possible to conceive any connection of such payment to income of ICC taxable in India. … …25. Another amount of £2,00,000/- being payment for ICC trophy for qualifying matches between ICC Associate Members held outside India is covered under Clause (iv) of the abovementioned chart. The entire payment appears to be of the nature of reimbursement of expenses in connection with the tournament. Again, the payment does not have any connection with any match played in India. … …As regards amounts at serial nos. (vi) and (vii) were concerned, it was stated:-… …In the cases of the cricket associations of these countries, although the guarantee money was payable by virtue of the Resolution passed in the meeting ICC as in the cases of the cricket associations of other countries, at the same time again, these associations did some activities in India and can be considered to have earned the guarantee money through such activity alone. We are, therefore, of the opinion that so far as these countries (covered by clauses (vi) & (vii) of the chart as above) are concerned, the payments received by then from PILCOM have arisen directly as a result of their taking part in the cricket matches. However, the cricket associations of all these countries played not only in India but in Pakistan and Sri Lanka also. Hence, only that proportion of the total receipt made by each such country from PILCOM, which bears the same ratio as the number of matches played by each such country in India to the total number of matches played by each such country in the tournament, should be considered to be income arising or accruing to the cricket association of that particular country. We are, therefore, of the opinion that PILCOM should have deducted tax at source in respect of this portion of the payment made by it to that particular association and the order under Sec. 201 would be considered to be valid in respect of the payment to each such country in the above manner5. The Order passed by the Tribunal was challenged by the Appellant as well as by the Revenue by filing I.T.A. Nos.196 of 2000 and 200 of 2000 respectively. After considering rival submissions, by its Judgment and Order under appeal, the High Court affirmed the view taken by the Tribunal and dismissed I.T.A. Nos.196 of 2000 and 200 of 2000. In its judgment, the High Court considered the matter as under:-On perusal of the said section it would appear that once income referred to in Section 115BBA is held to be payable to foreigner non-resident sportsman or non-resident sports association or institution the person responsible for making payment is obliged at the time of making payment or at the time of credit of such income to the account of the payee to deduct income tax thereon at the rate of 10%. It is significant that said section nowhere says whether the income is chargeable to tax or not. It therefore be concluded that once the income accrues deduction is a matter of course. Naturally failure to deduct will have a consequence under Section 201 of the said Act. … … Once the payment is made and received by way of a participation in any matches played in India the said on resident assesse has to meet deduction of tax under Section 115BBA. Similarly, if any amount including the guaranteed amount is paid to any non-resident sports association in relation to any match played in India, the said income has to be subjected to deduction of tax at source. … … We are unable to accept the contention of Mr. Bajoria that the source of income of the foreign Cricket Associations was the grant of the privilege for the bid money and have no relation to the matches, for grant of privilege for the bid money is the origin but it is not essential component or part for accrual of income by reason of the fact hypothetically if after bid is accepted, and payment is not made question of deduction of tax at source does not and cannot arise, consequently acceptance of bid becomes redundant. Relevant factor is the payment and then matches having taken place in India where participation of the sports personality is in question. … …As regards the submission regarding applicability of DTAA ( Double Taxation Avoidance Agreements) , the High Court observed:-Although it is not argued but we feel that obligation to deduction under Section 194E is not affected by the DTAA since such a deduction is not the final payment of tax nor can be said to be an assessment of tax. The deduction has to be made and after it is done the assesse concerned gets the credit of the same and once it is found later on that income from which the deduction is made is not eligible to tax then on application being made refund with interest is always allowed. Fundamental distinction between the deduction at source by the payer is one thing and obligation to pay tax is another thingAdvantage of the DTAA can be pleaded and taken by the real assessee on whose account the deduction is made not by the payer. We are of the view irrespective of the existence of DTAA the obligation under Section 195E has to be discharged once the income accrues under Section 115BBA6. The Appellant is in appeal against the dismissal of ITA No.196 of 2000. The Revenue has not appealed against the dismissal of ITA No.200 of 2000 and as such the deletion as regards amounts at serial nos. (i) to (v) has attained finality and even as regards amounts at serial nos. (vi) and (vii) the liability could at best be in the proportion as observed by the Tribunal. As per the statement of case filed by the Respondent, the demand in terms of the Order of the Tribunal would be in the sum of Rs.38,88,731/-.

Court's reasoning:
9. Amounts at serial numbers (vi) and (vii) are in the nature of Guarantee Money paid to Non-resident Sports Associations. The payments were not made by the Appellant in India but were made by the Appellant through its Bank accounts at London or elsewhere13. In the present case, the Non-resident Sports Associations had participated in the event, where cricket teams of these Associations had played various matches in the country. Though the payments were described as Guarantee Money, they were intricately connected with the event where various cricket teams were scheduled to play and did participate in the event. The source of income, as rightly contended by the Revenue, was in the playing of the matches in India14. The mandate under Section 115 BBA (1)(b) is also clear in that if the total income of a Non-resident Sports Association includes the amount guaranteed to be paid or payable to it in relation to any game or sports played in India, the amount of income tax calculated in terms of said Section shall become payable. The expression in relation to emphasises the connection between the game or sport played in India on one hand and the Guarantee Money paid or payable to the Non-resident Sports Association on the other. Once the connection is established, the liability under the provision must arise16.2 This decision, in our view, has no application insofar as payments at serial nos. (vi) and (vii) are concerned. To the extent the payments represented amounts which could not be subject matter of charge under the provisions of the Act, appropriate benefit already stands extended to the AppellantNo connection was found as regards the payment for on the job placement in a foreign country to acquire necessary skills, whereas in the instant case the connection is very much evident. This case, thus, has no applicationThis decision has no application insofar as the present controversy is concernedAs observed by the High Court, the matter was not argued before it in that behalf, yet the issue was dealt with by the High Court. In our view, the reasoning that weighed with the High Court is quite correct. The obligation to deduct Tax at Source under Section 194E of the Act is not affected by the DTAA and in case the exigibility to tax is disputed by the assesse on whose account the deduction is made, the benefit of DTAA can be pleaded and if the case is made out, the amount in question will always be refunded with interest. But, that by itself, cannot absolve the liability under Section 194E of the Act.19. In the premises, it must be held that the payments made to the Non- Resident Sports Associations in the present case represented their income which accrued or arose or was deemed to have accrued or arisen in India. Consequently, the Appellant was liable to deduct Tax at Source in terms of Section 194E of the ActSpecial Leave Petition(Civil)Nos.6829 of 2019 and 7315 of 201922. Both these petitions are filed by Board of Control for Cricket in Sri Lanka through PILCOM (the Appellant in the lead matter) challenging the common Judgment and Order dated 25.09.2018 passed by the High Court allowing I.T.A. Nos. 242 of 2008 and 279 of 2008. These matters arise from the consequential assessment orders passed by the Department pursuant to the Judgment and Order under appeal in the lead matter23. Notice was issued in these petitions because of the pendency of the lead matter.