Facts of the case
The appellant in the present case, PILCOM, which is Pak-Indo-Lanka Joint Management Committee. The committee was formed by the cricket boards of three countries i.e. Pakistan, India and Sri Lanka for the purpose of hosting the Cricket World Cup tournament in 1996.
These three host countries were required to pay varying amounts to the Cricket boards of different countries as well as to ICC in connection with conducting the preliminary phases of the tournament and also for the promotion of the game in their respective countries.
Two Bank accounts were opened by PILCOM in London to be operated jointly by the representatives of Indian and Pakistan Cricket Boards, from which the expenses were met. Later, the I.T.O came to know that PILCOM has made payments to ICC as well as other cricket boards of different member countries from its two bank accounts in London.
The I.T.O issued a notice to PILCOM asking to show why taxes were not deducted under section 194E of the Income Tax Act, 1961. On failure of which, I.T.O passed an order asking PILCOM to pay that sum under section 201 (I) that they failed to deduct while making the payments to cricket boards. The amount that was not deducted along with the interest charged under section 291 (1A) was calculated to be Rs. 2,18,293,00.
PILCOM appealed against this order by the ITO and CIT (A) disposed of the appeal to which the appellants further appealed to ITAT. Here, ITAT ordered CIT (A) to hear both the sides and pass appropriate order.
The appellate body categorised the payments by PILCOM into 7 heads:
|(i)||Guarantee money paid to 17 countries which did not participate in the world cup matches||17,00,000|
|(ii)||Amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries||1,20,000|
|(iii)||Payment to ICC as per Resolution dated Feb. 2, 1993||3,75,000|
|(iv)||Payment to ICC trophy for qualifying matches between ICC associate members held outside India||2,00,000|
|(v)||Guarantee money paid to South Africa and UAE both of which did not play any match in India||3,60,000|
|(vi)||Guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya with whom double taxation avoidance agreements exist||8,85,000|
|(vii)||Guarantee money paid to Pakistan, West India, Zimbabwe and Holland||7,10,000|
Observation of the court
The Supreme Court while discussing the order of the tribunal which was affirmed by the high court, noted the following reasoning given by the tribunal for the respective payments of PILCOM:
- Payment made under (i) and (v)
It is not at all possible to hold that the source of guarantee money to cricket boards of those countries, which either did not play at all or did not play in India. Hence, it was held that so far as the guaranteed money paid by PILCOM to the 17 countries, which did not participate in World Cup matches [Head (i)], or to South Africa and the United Arab Emirates, which did not play any match in India [Head (v)] are concerned, under section 115BBA it cannot be held that the cricket associations of these countries earned the guaranteed money through any source of income in India.
- Payment made under (ii)
The CIT (A) determined that so far as the payment made under this head was meant for matches outside India, the same could not be brought within the scope of section 115BBA. Thus finally decided that this amount does not fall within the scope of tax deduction at source.
- Payment made under (iii)
The following payment was made to ICC as per Resolution dated 2.2.1993. According to the resolution, the amount was required to be paid to ICC partly towards expenses incurred by ICC for the tournament and partly for the development of cricket. The court stated it was hardly possible to conceive any connection of such payment to the income of ICC taxable in India.
- Payment made under (iv)
Payment here was for the ICC trophy for qualifying matches between ICC Associate Members which was also held outside India. The tribunal reiterated that the payment does not have any connection with any match played in India.
- Payment made under (vi) & (vii)
Under these heads, although the guaranteed money was payable by the Resolution passed in the meeting. The principal issue to be considered is whether any income accrued or arose or was deemed to have accrued to the said non-resident sports association in India. These associations did some activities in India and can be considered to have earned the guaranteed money through such activity alone. Therefore, as far as these countries 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 boards of all these countries played not only in India but in Pakistan and Sri Lanka also. The tribunal found out that out of 37 matches played in all in the aforesaid World Cup Tournament, only 17 had been played in India. Hence, only such proportion of the guaranteed money received by the non-resident parties could be considered to be deemed income in India. Thus, the CIT (A) passed an order that only 17/37th portion i.e. 45.94 % of the payments could be considered to be attracted by the provisions of Section 291 (I)/194.
Concerning the Double Tax Avoidance Agreements (DTAA) under Head (vi), the tribunal said that the deduction has to be made and after it is done the assessee 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 an application being made refund with interest is always allowed. A fundamental distinction between the deductions at source by the payer is one thing and obligation to pay tax is another thing. The court iterated that irrespective of the existence of DTAA the obligation under Section 195E has to be discharged once the income accrues under Section 115BBA.
The decision of the court
This order passed by the tribunal was challenged by the Appellant as well as by the Revenue to the High Court. The High court agreed by the order and dismissed the appeals. The Appellant i.e. PILCOM further filed a special appeal against this order. After considering both submissions, the Supreme Court also affirmed the order passed by the tribunal and dismissed the special leave petition.
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