Analysis of SC Judgment- PILCOM Vs. CIT | TDS | Section 194E

Background:

Pak-Indo-Lanka, Joint Management Committee (Hereinafter, ‘PILCOM’) filed a special leave petition (Civil Appeal No. 5749/2012) in Supreme Court challenging the decision of High Court of Calcutta whereby High Court dismissed Income Tax Appeal No. 196 of 2000 and affirmed the view taken by the Income Tax Appellate Tribunal, Calcutta.

Facts:  

I. A Committee PILCOM was 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.

II. 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

III. During the course of enquiry, it came to the knowledge of tie I.T.O. (TDS), Ward21(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 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.

IV. The I.T.O. 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.

V. 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 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

VI. 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.

VII. All transaction entered by PILCOM was categorised by CIT(A) which is as follows;

VIII. Out of all 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, whereas, the other six payments were found to be governed by said provision. However, only 17/37th portion or 45.94% of said six payments were held to be covered because only 17 matches were played in India. The PILCOM appealed the decision in ITAT where transaction 6 and 7 were held that they were subject to tax and opined that PILCOM should have deducted tax at source in respect of this portion of the payment made by it to that particular association.

IX. The same order was challenged before High Court of Calcutta under section 260A of the Income Tax Act, 1961 where the High Court affirmed the view taken by ITAT and held that provision of section 115BBA will be applicable. The obligation under Section 195E has to be discharged once the income accrues under Section 115BBA.

 Contention:

> The assessee was represented by Senior Advocate J.P. Khaitan and his submission before the Hon’ble Court was that the payments were for grant of a privilege and not towards matches; that such payments were made in accordance with the decision of International  Cricket Council in a meeting held in London; that the amounts were made over in England and that the basic question would be whether any income accrued in India.

> The Revenue was represented by Addl. Solicitor General Mr. Banerjee, that for attracting the provisions of Section 115BBA of the Act, participation would not be material and what would be relevant is that the payment was for the matches held in India and that in the present case, the income was deemed to accrue or arise in India.

Supreme Court’s Ruling:

The judgement firstly, talks about whether the income aroused and transferred has source from India u/s 9(1) of the Income Tax Act, where court opined that 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 elsewhere. According to Section 9(1)[1], the income shall be deemed to accrue or arise in India if “the income accrues or arises, whether directly or indirectly” under any of the following postulates: through or from any business connection in India; or through or from any property in India; or through or from any asset or source of income in India; or through the transfer of a capital asset situate in India.

The Court relied on Performing Right Society Ltd.  Vs.  CIT[2], where the operation of ALL INDIA RADIO was in question. The broadcast was outside India and AIR was paid at the rate of £2 per hour of broadcasting were payable to the Society which was non-resident and located in England. The Court came to a conclusion that “the income derived from broadcast of copyright music from the stations of All India Radio arose in India”. Relying on the same judgement Court held that;

“13. 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 India.”

Secondly, the court held that The mandate under Section 115 BBA(1)(b)[3] 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.

Thirdly, relying on the CIT vs.  Eli Lilly and Co. (India) Pvt. Ltd.[4] & G.E. India Technology Centre Pvt. Ltd.[5] Court held TDS or TAS provisions becomes applicable when the income generated by the assessee is chargeable to tax under the Income Tax Act.

“17. Section 195 appears in Chapter XVII which deals with collection and recovery. As held in CIT vs.  Eli Lilly and Co. (India) Pvt. Ltd. [(2009) 15 SCC 1 : (2009) 312 ITR 225] the provisions for deduction of TAS which is in Chapter XVII dealing with collection of taxes and the charging provisions of the IT Act form one single integral, inseparable code and, therefore, the provisions relating to TDS applies only to those sums which are “chargeable to tax” under the IT Act. It is true that the judgment in Eli Lilly[(2009) 15 SCC 1 : (2009) 312 ITR 225] was confined to Section 192 of the IT Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income “chargeable under the head ‘Salaries’”. Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum “chargeable under the provisions of the Act”, which expression, as stated above, does not find place in other sections of Chapter XVII. It is in this sense that we hold that the IT Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the IT Act.”

Conclusion:

The judgement delivered by Hon’ble Court is correct in its entirety. Relying on the provision of Section 115BBA of the Income tax Act and Section 194E of the Act, the decision delivered by the Hon’ble Court is good in law. The Judgement is cogent in its approach as it first determines that Income chargeable to tax is derived from India, covered under section 9(1) of the Act, Secondly the income so generated is taxable under section 115BBA of the Act and at last the machinery provision section 194E become applicable once income under section 115BBA of the Act is chargeable to tax by Indian Revenue department.

[1] Section 9(1) of The Income Tax Act, 1961.

[2] (1977) 106 ITR 11 (SC).

[3] Section 115BBA of The Income Tax Act, 1961.

[4] (2009) 312 ITR 225.

[5] (2010) 327 ITR (SC).