PILCOM versus WEST BENGAL- on 29 April 2020

1. This appeal by special leave challenges the Judgment and Orderdated 11.11.2010 passed by the High Court[1] dismissing Income TaxAppeal No.196 of 2000 and thereby affirming the view taken by theFTribunal[2] in I.T.A.Nos. 110/Cal/1999 and 402/Cal/1999 on 04.01.2000.

2. The facts leading to the filing of the proceedings before theTribunal were set out in the Order dated 04.01.2000 as under:- “2. The assesse before us is PAK-INDO-LANKA, JOINTMANAGEMENT COMMITTTEE (known in short asGPILCOM) which is actually a Committee formed by theCricket Control Boards/Associations of three countries viz.Pakistan, India and Sri Lanka, for the purpose of conductingthe World Cup Cricket tournament for the year 1996 in these 1 The High Court of Judicature at Calcutta 2 Income Tax Appellate Tribunal, Calcutta H

three countries. Actually, International Cricket Council (ICC)is a non-profit making organization having its Headquarters atLondon, which controls and conducts the game of cricket inthe different countries of the world. ICC has got nine fullmembers and twenty associate members in a special meetingof ICC held on 2.2.1993 at London, India, Pakistan and SriLanka were selected, on the basis of competitive bids, to havethe privilege of jointly hosting the 1996 World Cup CricketTournament. These three host countries were required to payvarying amounts to the Cricket Control Boards/Associationsof different countries as well as to ICC in connection withconducting the preliminary phases of the tournament and alsofor the purpose of promotion of the game in their respectivecountries. For the purpose of conducting the final phase of thetournament in India, Pakistan and Sri Lanka, a Committee wasformed by the three host members under the name PILCOM.Two Bank accounts were opened by PILCOM in London tobe operated jointly by the representatives of Indian andPakistan Cricket Boards, in which the receipt from sponsorship,T.V. rights etc. were deposited and from which the expenseswere met. The surplus amount remaining in the said Bankaccount was decided to be divided equally between the CricketBoards of Pakistan and India after paying a lump-sum amountto Sri Lanka Board as per mutual agreements amongst thethree Boards. For the purpose of hosting the World Cupmatches in India, the Board of Cricket Control of India (BCCI)appointed its own committee for discharge of its responsibilitiesand functions. The Committee was to be known as INDICOM.Since the Convener-Secretary of INDCOM was functioningfrom Calcutta necessary Bank accounts were opened inCalcutta by INDCOM for receipts and expenditure relating tomatches to be held in India. From the said Bank accounts inLondon, certain amounts were transferred to the three co-host countries for disbursement of fees payable to the umpiresand referees and also defraying administrative expenses andprize money. During the course of enquiry, it came to theknowledge of tie I.T.O. (TDS), Ward-21(4), Calcutta thatPILCOM had made payments to ICC as well as to the CricketControl Boards/Associations of the different Member countries AB

C

D

E

F

G

H

A

B

C

D

E

H

of ICC from its two London Bank Accounts. The ITO issueda notice to the Office of PILCOM located at Dr. BC RoyClub 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 todeduct taxes from the payments made by it and as referred toabove in accordance with the provisions of Sec. 194E. ThePILCOM represented before the I.T.O. that the provisions ofSec. 194E would not be attracted to the payments for variousreasons to which we shall advert later on. It was furthermorestated that, inasmuch as, the books accounts of PILCOM hadnot been completed by its Pakistani Treasurer, the said bookscould not be produced before the I.T.O.

The I.T.O. did not agree with the contentions of PILCOM.He referred to the provisions of Sec. 115BBA and held thattaxes should have been deducted at source from the paymentsmade by PILCOM in accordance with the provisions of Sec194E. The details of the payments as made by PILCOM andas had been collected by the ITO were supplied by him to thePILCOM. Finally, the ITO passed an order under Sec. 20(I)/194E dated 6.5.1997, in which he held that the PILCOM wasliable to pay under Sec.201(I) the amount it had failed to deductfrom the payments under consideration arid furthermore heldthat the PILCOM was also liable to pay interest on the saidamount under Sec. 291(1A) from the date of tax was deductibleupto the date of actual payment. The ITO computed the totalshort deduction u/s. 194E to be Rs.2,18,293,00.00

3. The PILCOM appealed against the said order passed bythe ITO and the CIT(A) disposed of the appeal by his orderdated 17.11.1997. In further appeal preferred by PILCOMbefore the ITAT, the ITAT by its order dated 25.6.1990 in ITANo. 62/Cal/1998, set aside the order passed by the CIT(A)and restored the matter back to his file for redeciding the issueafter affording opportunity of being herd to PILCOM.Accordingly, the appeal was re-heard by the CIT(A), in whichboth the sides were allowed an opportunity to represent theirrespective cases and the CIT(A) finally passed his appellateorder on 28.12.1998, which is being challenged before us byboth sides.

625A

PILCOM v. C.I.T. WEST BENGAL-VII[UDAY UMESH LALIT, J.]

4. After discussing the basic facts of the case, the Ld.CIT(A)detailed out the actual payments made by PILCOM (in sterlingpound) and classified the same into seven distinct categories,as listed before, on the basis of the purposes for payments aswell as the difference between categories of recipients off thepayments.

H

A

B

C

E

G

5. Various arguments were taken up by both the sides beforethe CIT(A), which we shall also be discussing and taking intoconsideration in due course. The CIT (A) held that so far asthe payment of pound 1,20,000 being of the nature of amountstransferred from London to Pakistan and Sri Lanka fordisbursement of prize money in those countries for matchesplayed there is concerned, the prize money is always paid tothe winner and other individual players in a particular matchand, inasmuch as, these prizes were meant for matches outsideIndia, the same could not be brought within the scope ofSec.115BBA. He thus finally decided that this amount doesnot fall within the scope of tax deduction at source and orderedfor deletion of this amount from the total amount consideredby the ITO. As regards the other six payments, the CIT(A)held that the provisions of Sec. 115BBA would be attracted toall those payments. By arguing that all the different CricketControl Boards/Associations would come within the purviewof Sec. 115BBA read with Sec. 9(I)(I), inasmuch as, incomeaccrued or arose to the way of guarantee money, etc. throughthe playing of the matches in India which constituted the sourceof income in India, in the hands those non-resident foreignCricket Boards/Associations. The Ld. CIT(A), however, foundout at the same time that out of 37 matches played in all in theaforesaid World Cup Tournament, only 17 had been played inIndia. He argued that since the payments made by PILCOMrelated to all the matches played in the tournament, only suchproportion of the guarantee money, etc. received by the non-resident parties could be considered to be deemed income inIndia in the hands of those non-resident parties, whichcorresponds to the ratio of the number of matches played inIndia to the total number of matches. Thus, the CIT(A) heldthat only 17/37[th] portion i.e. 45.94 percent of the other six typesof payments could be considered to be attracted by theprovisions of Sec.291(I)/194. He thus directed that so far asother six categories of payments are concerned. 45.94 percentof the payments covered by those categories should alone betaken into consideration for the purpose of consideringPILCOM as defaulter under Sec.201(I)/194B. …”

3. As stated above, out of the payments classified in seven distinctcategories, the payment at serial no.(ii) amounting to £.1,20,000/- wasfound by the CIT(A) to be beyond the scope of Section 115BBA of theAct[3], whereas, the other six payments were found to be governed bysaid provision. However, only 17/37[th] portion or 45.94% of said sixpayments were held to be covered. The Appellant as well as the Revenue,being aggrieved, approached the Tribunal by filing ITA Nos.11/Cal/1999and 402/Cal/1999 respectively.

4. The Tribunal in its Order dated 04.01.2000 approved the viewtaken by the CIT(A) in respect of payment at serial no.(ii) amounting toRs.1,20,000/-. As regards payments at serial nos.(i), (iii), (iv) and (v), itwas observed:-

“17. It is not at all possible to hold that the source of guaranteemoney 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 thegames played in India. … … We, therefore, hold that so far asthe guarantee moneys paid by PILCOM to the 17 countries, whichdid not participate in World Cup matches [(Clause (i) of the detailedchart of payment as shown at page 4 above], or to South Africaand United Arab Emirates, which did not play any match in India[Clause (V) of the chart as above] are concerned, it cannot beheld that the cricket associations of these countries earned theguarantee money through any Source of income in India. …

… … …

24. Clause (iii) of the above chart refers to a payment of £3,75,000to ICC as per Resolution dated 2.2.1993. According to the saidResolution, the amount was required to be paid to ICC partlytowards expenses incurred by ICC in connection with thetournament and partly to be spent by it for development of cricket.Even if an element of income may, therefore, be considered outof this payment, it is hardly possible to conceive any connectionof such payment to income of ICC taxable in India. … …

25. Another amount of £2,00,000/- being payment for ICC trophyfor qualifying matches between ICC Associate Members heldoutside India is covered under Clause (iv) of the abovementionedchart. The entire payment appears to be of the nature of 3 The Income Tax Act, 1961

AB

C

D

E

F

G

H

Areimbursement of expenses in connection with the tournament.Again, the payment does not have any connection with any matchplayed in India. … …”

As regards amounts at serial nos. (vi) and (vii) were concerned, itwas stated:- B

“… …In the cases of the cricket associations of these countries,although the guarantee money was payable by virtue of theResolution passed in the meeting ICC as in the cases of the cricketassociations of other countries, at the same time again, theseassociations did some activities in India and can be considered toChave 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) areconcerned, the payments received by then from PILCOM havearisen directly as a result of their taking part in the cricket matches.However, the cricket associations of all these countries playedDnot only in India but in Pakistan and Sri Lanka also. Hence, onlythat proportion of the total receipt made by each such countryfrom PILCOM, which bears the same ratio as the number ofmatches played by each such country in India to the total numberof matches played by each such country in the tournament, shouldEbe considered to be income arising or accruing to the cricketassociation of that particular country. We are, therefore, of theopinion that PILCOM should have deducted tax at source inrespect of this portion of the payment made by it to that particularassociation and the order under Sec. 201 would be considered tobe valid in respect of the payment to each such country in theFabove manner.”

5. The Order passed by the Tribunal was challenged by theAppellant as well as by the Revenue by filing I.T.A.Nos.196 of 2000and 200 of 2000 respectively. After considering rival submissions, by itsJudgment and Order under appeal, the High Court affirmed the viewGtaken by the Tribunal and dismissed I.T.A.Nos.196 of 2000 and 200 of2000. In its judgment, the High Court considered the matter as under:- “On perusal of the said section it would appear that once incomereferred to in Section 115BBA is held to be payable to foreignernon-resident sportsman or non-resident sports association or H

PILCOM v. C.I.T. WEST BENGAL-VII[UDAY UMESH LALIT, J.]

institution the person responsible for making payment is obliged atthe time of making payment or at the time of credit of such incometo the account of the payee to deduct income tax thereon at therate of 10%. It is significant that said section nowhere says whetherthe income is chargeable to tax or not. It therefore be concludedthat once the income accrues deduction is a matter of course.Naturally failure to deduct will have a consequence under Section201 of the said Act. … … Once the payment is made and receivedby way of a participation in any matches played in India the saidon resident assesse has to meet deduction of tax under Section115BBA. Similarly, if any amount including the guaranteed amountis paid to any non-resident sports association in relation to anymatch played in India, the said income has to be subjected todeduction of tax at source. … … We are unable to accept thecontention of Mr. Bajoria that the source of income of the foreignCricket Associations was the grant of the privilege for the bidmoney and have no relation to the matches, for grant of privilegefor the bid money is the origin but it is not essential component orpart for accrual of income by reason of the fact hypothetically ifafter bid is accepted, and payment is not made question ofdeduction of tax at source does not and cannot arise, consequentlyacceptance of bid becomes redundant. Relevant factor is thepayment and then matches having taken place in India whereparticipation of the sports personality is in question. … …”

As regards the submission regarding applicability of DTAA[4], theHigh Court observed:- Although it is not argued but we feel that obligation to deductionunder Section 194E is not affected by the DTAA since such adeduction is not the final payment of tax nor can be said to be anassessment of tax. The deduction has to be made and after it isdone the assesse concerned gets the credit of the same and onceit is found later on that income from which the deduction is madeis not eligible to tax then on application being made refund withinterest is always allowed. Fundamental distinction between thededuction at source by the payer is one thing and obligation to paytax is another thing.

4 Double Taxation Avoidance Agreements

AB

C

DE

F

G

H

[2020] 6 S.C.R.

AAdvantage of the DTAA can be pleaded and taken by the realassessee on whose account the deduction is made not by thepayer.

We are of the view irrespective of the existence of DTAA theobligation under Section 195E has to be discharged once the incomeBaccrues under Section 115BBA.”

6. The Appellant is in appeal against the dismissal of ITA No.196of 2000. The Revenue has not appealed against the dismissal ofITANo.200 of 2000 and as such the deletion as regards amounts atserial nos. (i) to (v) has attained finality and even as regards amounts atCserial nos. (vi) and (vii) the liability could at best be in the proportion asobserved by the Tribunal. As per the statement of case filed by theRespondent, the demand in terms of the Order of the Tribunal would bein the sum of Rs.38,88,731/-.

7. We heard Mr. J.P. Khaitan, learned Senior Advocate for theDAppellant and Mr.Vikramjit Banerjee, learned Additional Solicitor Generalfor the Respondent.

Mr. Khaitan, learned Senior Advocate submitted that the paymentswere for grant of a privilege and not towards matches; that such paymentswere made in accordance with the decision of International CricketECouncil in a meeting held in London; that the amounts were made overin England and that the basic question would be whether any incomeaccrued in India. He invited our attention to Sections 115BBA and 194Eand other provisions of the Act and relied upon the decision of this Courtin G.E. India Technology Centre Pvt. Ltd. Vs. Commissioner ofIncome Tax and Another[5]; the decision of the Patna High Court inFMetallurgical and Engineering Consultant (India) Ltd. Vs.Commissioner of Income Tax[6], which, in turn, had referred to thedecision of this Court in Performing Right Society Ltd. Vs. CIT[7]; andthe decision of the Kerala High Court in Commissioner of Income TaxVs. Manjoo and Co.[8]

GMr. Banerjee, learned Additional Solicitor General pressed foracceptance of the Judgment under appeal and submitted that for attractingthe provisions of Section 115BBA of the Act, participation would not be 5 (2010) 327 ITR (SC) = (2010) 10 SCC 29

6 (1999) 238 ITR 208 (Pat)

7 (1977) 106 ITR 11 (SC) = (1976) 4 SCC 37 : 1976 SCC (Tax) 426H8 (2011) 335 ITR 527 (Ker)

material and what would be relevant is that the payment was for thematches held in India and that in the present case, the income wasdeemed to accrue or arise in India.

8. The relevant provisions of the Act namely Sections 2(24)(ix), 5(2), 9(1), 115BBA and 194E are to the following effect:- “2(24)(ix)”income” includes –

... … …

(ix) any winnings from lotteries, crossword puzzles, races includinghorse races, card games and other games of any sort or fromgambling or betting of any form or nature whatsoever; … … …

5. Scope of total income. –

… … …

(2) subject to the provisions of this Act, the total income of anyprevious year of a person who is a non-resident includes all incomefrom whatever source derived which- (a) is received or is deemed to be received in India in suchyear by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him inIndia during such year.

Explanation 1.- Income accruing or arising outside India shallnot be deemed to be received in India within the meaning of thisSection by reason only of the fact that it is taken into account in abalance-sheet prepared in India.

Explanation 2.- For the removal of doubts, it is hereby declaredthat income which has been included in the total income of aperson on the basis that it has accrued or arisen or is deemed tohave accrued or arisen to him shall not again be so included onthe basis that it is received or deemed to be received by him inIndia.

… … …

9. Income Deemed to accrue or arise in India. – (1) Thefollowing incomes shall be deemed to accrue or arise in India –

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

A

(i) all income accruing or arising, whether directly or indirectly,through or from any business connection in India, or through orfrom any property in India, or through or from any asset or sourceof income in India, or through the transfer of a capital asset situatein India BExplanation.- For the purposes of this clause- (a) in the case of a business of which all the operations are notcarried out in India, the income of the business deemed under thisclause to accrue or arise in India shall be only such part of theincome as is reasonably attributable to the operations carried outin India; C

(b) in the case of a non-resident, no income shall be deemed toaccrue or arise in India to him through or from operations whichare confined to the purchase of goods in India for the purpose ofexport; D

(c) in the case of a non-resident, being a person engaged in thebusiness of running a news agency or of publishing newspapers,magazines or journals, no income shall be deemed to accrue orarise in India to him through or from activities which are confinedto the collection of news and views in India for transmission outEof India; (d) in the case of a non-resident, being-

(1) an individual who is not a citizen of India; or

(2) a firm which does not have any partner who is a citizen ofIndia or who is resident in India; or F

(3) a company which does not have any shareholder who is acitizen of India or who is resident in India, no income shallbe deemed to accrue or arise in India to such individual,firm or company through or from operations which areconfined to the shooting of any cinematograph film in India; G

… … …

115BBA. Tax on non-resident sportsmen or sportsassociations. (1) Where the total income of an assessee,—

(a) being a sportsman (including an athlete), who is not a citizenof India and is a non-resident, includes any income received orreceivable by way of—

(i) participation in India in any game (other than a game thewinnings wherefrom are taxable under section 115BB) orsport; or

(ii) advertisement; or

(iii) contribution of articles relating to any game or sport in Indiain newspapers, magazines or journals; or (b) being a non-resident sports association or institution, includesany amount guaranteed to be paid or payable to such associationor institution in relation to any game (other than a game thewinnings wherefrom are taxable under section 115BB) or sportplayed in India,

(c) being an entertainer, who is not a citizen of India and is a non-resident, includes any income received or receivable from hisperformance in India, the income-tax payable by the assesseeshall be the aggregate of—

(i) the amount of income-tax calculated on income referred toin clause (a) or clause (b) or clause (c) at the rate of ten percent; and

(ii) the amount of income-tax with which the assessee wouldhave been chargeable had the total income of the assesseebeen reduced by the amount of income referred to in clause(a) or clause (b):

Provided that no deduction in respect of any expenditure orallowance shall be allowed under any provision of this Act incomputing the income referred to in clause (a) or clause (b).

(2) It shall not be necessary for the assessee to furnish undersub-section (1) of section 139 a return of his income if—

(a) his total income in respect of which he is assessable underthis Act during the previous year consisted only of income referredto in clause (a) or clause (b) of sub-section (1); and A

B

C

D

E

F

G

H

A(b) the tax deductible at source under the provisions of ChapterXVII-B has been deducted from such income.

… … …

194-E. Payments to non-resident sportsmen or sportsassociations. – Where any income referred to in Section 115-BBBA is payable to a non-resident sportsman (including an athlete)who is not a citizen of India or a non-resident sports associationor institution, the person responsible for making the payment shall,at the time of credit of such income to the account of the payee orat the time of payment thereof in cash or by issue of a cheque orCdraft or by any other mode, whichever is earlier, deduct incometax thereon at the rate of ten percent[9].”

9. Amounts at serial numbers (vi) and (vii) are in the nature ofGuarantee Money paid to Non-resident Sports Associations. Thepayments were not made by the Appellant in India but were made byDthe Appellant through its Bank accounts at London or elsewhere. Theprincipal issue to be considered is whether any income accrued or aroseor was deemed to have accrued or arisen to said Non-resident SportsAssociation in India. If the answer is in the affirmative, the next questionwould be about the liability on part of the Appellant to deduct Tax atSource and make appropriate deposit in accordance with Section 194EEof the Act.

10. In terms of Sub-Section (2) of Section 5 of the Act, the totalincome of a non-resident may include income from whatever sourcewhich is received or deemed to be received in India or accrues or arisesor is deemed to accrue or arise to such non-resident in India. AccordingFto Section 9(1), the income shall be deemed to accrue or arise in India if“the income accrues or arises, whether directly or indirectly” underany of the following postulates:-

• through or from any business connection in India; or

• through or from any property in India; orG

• through or from any asset or source of income in India; or

• through the transfer of a capital asset situate in India 9 By Finance Act, 2012; for “ten per cent”, the expression “twenty per cent” standsHsubstituted.

11. According to the Respondent, the income in question had arisenfrom a source of income in India, which was playing of cricket matchesin India and as such the requirement of law was fully satisfied. On theother hand, according to the Appellant, the payment was towards grantof privilege and had nothing to do with matches that were played inIndia.

12. In Performing Right Society Ltd.[7], under an agreement, theappellant Society had granted to All India Radio, the authority to broadcastfrom all its stations, the musical works included in the repertoire of theSociety, in respect of which payments at the rate of £2 per hour ofbroadcasting were payable to the Society. The Society, a non-residentcompany, contended that the agreement was executed in England,payments were made in England and the “source of income” was theagreement that was entered into in England. The contention was rejectedby the High Court. The conclusion that “the income derived from broadcastof copyright music from the stations of All India Radio arose in India”was affirmed by this Court.

13. In the present case, the Non-resident Sports Associations hadparticipated in the event, where cricket teams of these Associations hadplayed various matches in the country. Though the payments weredescribed as Guarantee Money, they were intricately connected withthe event where various cricket teams were scheduled to play and didparticipate in the event. The source of income, as rightly contended bythe Revenue, was in the playing of the matches in India.

14. The mandate under Section 115 BBA (1)(b) is also clear inthat if the total income of a Non-resident Sports Association includes theamount guaranteed to be paid or payable to it in relation to any game orsports played in India, the amount of income tax calculated in terms ofsaid Section shall become payable. The expression ‘in relationto’emphasises the connection between the game or sport played in Indiaon one hand and the Guarantee Money paid or payable to the Non-resident Sports Association on the other. Once the connection isestablished, the liability under the provision must arise.

15. In CIT vs. Eli Lilly and Co. (India) Pvt. Ltd.[10], this Courtwas called upon to consider the following issue:- 10 (2009) 15 SCC 1

A

B

C

D

E

F

G

H

A

A“56. Whether TDS provisions which are in the nature of machineryprovisions enabling collection and recovery of tax are independentof the charging provision which determines the assessability inthe hands of the assessee employee (recipient)? In other words,whether TDS provisions under the Income Tax Act, 1961 areapplicable to payments made abroad by the foreign company,Bwhich payments are for income chargeable under the head“salaries” and which are made to expatriates who had renderedservices in India?”

After considering the entirety of the matter and rival submissions,the issue was answered as under:-C

“97. For the reasons stated hereinabove, we hold that the TDSprovisions in Chapter XVII-B relating to payment of incomechargeable under the head “Salaries”, which are in the nature ofmachinery provisions to enable collection and recovery of tax forman integrated code with the charging and computation provisionsDunder the 1961 Act, which determine the assessability/taxabilityof “salaries” in the hands of the assesse employee. Consequently,Section 192(1) has to be read with Section 9(1)(ii) read with theExplanation thereto. Therefore, if any payment of incomechargeable under the head “salaries” falls within Section 9(1)(ii)Ethen TDS provisions would stand attracted.”

16. In G.E. India Technology Centre Pvt. Ltd.[5], the questionthat arose was whether the appellant was liable to deduct Tax at Sourcein respect of payments made to certain foreign software suppliers.According to the appellant, the payments were for purchase of softwareFwhereas according to the Revenue, the payments also included paymentstowards royalty. The Tribunal, while accepting the case of the appellanthad held that the amount paid by the appellant to foreign software supplierswas not royalty and the same did not give rise to any income taxable inIndia. The High Court had reversed the decision of the Tribunal and heldthat unless the payer had obtained appropriate permission under SectionG195(2) of the Act, the payer was obliged to deduct Tax at Source. In thiscontext the matter was considered by this Court. While dealing withscope of Section 195(1) of the Act, it was stated:- “8. The most important expression in Section 195(1) consists ofthe words chargeable under the provisions of the Act. A person H

paying interest or any other sum to a non-resident is not liable todeduct tax if such sum is not chargeable to tax under the IT Act.For instance, where there is no obligation on the part of the payerand no right to receive the sum by the recipient and that thepayment does not arise out of any contract or obligation betweenthe payer and the recipient but is made voluntarily, such paymentscannot be regarded as income under the IT Act.

9. It may be noted that Section 195 contemplates not merelyamounts, the whole of which are pure income payments, it alsocovers composite payments which have an element of incomeembedded or incorporated in them. Thus, where an amount ispayable to a non-resident, the payer is under an obligation to deductTAS in respect of such composite payments. The obligation todeduct TAS is, however, limited to the appropriate proportion ofincome chargeable under the Act forming part of the gross sumof money payable to the non-resident. This obligation being limitedto the appropriate proportion of income flows from the wordsused in Section 195(1), namely, “chargeable under the provisionsof the Act”. It is for this reason that vide Circular No. 728 dated30-10-1995 CBDT has clarified that the tax deductor can takeinto consideration the effect of DTAA in respect of payment ofroyalties and technical fees while deducting TAS. It may also benoted that Section 195(1) is in identical terms with Section 18(3-B) of the 1922 Act.

… … …

… … …

16. The fact that the Revenue has not obtained any informationper se cannot be a ground to construe Section 195 widely so as torequire deduction of TAS even in a case where an amount paid isnot chargeable to tax in India at all. We cannot read Section 195,as suggested by the Department, namely, that the moment thereis remittance the obligation to deduct TAS arises. If we were toaccept such a contention it would mean that on mere paymentincome would be said to arise or accrue in India. Therefore, asstated earlier, if the contention of the Department was accepted itwould mean obliteration of the expression “sum chargeable underthe provisions of the Act” from Section 195(1). While interpretinga section one has to give weightage to every word used in thatsection. While interpreting the provisions of the Income Tax Act AB

C

D

E

F

G

H

Aone cannot read the charging sections of that Act dehors themachinery sections. The Act is to be read as an integrated code.

17. Section 195 appears in Chapter XVII which deals withcollection and recovery. As held in CIT v. Eli Lilly & Co. (India)(P) Ltd. [(2009) 15 SCC 1 : (2009) 312 ITR 225] the provisionsBfor deduction of TAS which is in Chapter XVII dealing withcollection of taxes and the charging provisions of the IT Act formone single integral, inseparable code and, therefore, the provisionsrelating to TDS applies only to those sums which are “chargeableto tax” under the IT Act. It is true that the judgment in EliLilly[(2009) 15 SCC 1 : (2009) 312 ITR 225] was confined toCSection 192 of the IT Act. However, there is some similaritybetween the two. If one looks at Section 192 one finds that itimposes statutory obligation on the payer to deduct TAS when hepays any income “chargeable under the head ‘Salaries’”. Similarly,Section 195 imposes a statutory obligation on any personDresponsible for paying to a non-resident any sum “chargeable underthe provisions of the Act”, which expression, as stated above,does not find place in other sections of Chapter XVII. It is in thissense that we hold that the IT Act constitutes one single integralinseparable code. Hence, the provisions relating to TDS appliesonly to those sums which are chargeable to tax under the IT Act.”E

16.1 The submission that unless permission was obtained underSection 195(2) of the Act, the liability to deduct Tax at Source must bewith respect to the entire payment, was not accepted. Relying on theexpression “chargeable under the provisions of the Act” occurring inSection 195(1) of the Act, it was held “the obligation to deduct TAS, isFhowever, limited to the appropriate proportion of the income chargeableunder the Act forming part of the gross sum of money payable to thenon-resident”.

16.2 This decision, in our view, has no application insofar aspayments at serial nos.(vi) and (vii) are concerned. To the extent theGpayments represented amounts which could not be subject matter ofcharge under the provisions of the Act, appropriate benefit already standsextended to the Appellant.

17. We now deal with two other decisions relied upon by theAppellant:-H

A) In Metallurgical and Engineering Consultant (India) Ltd.[6],under an agreement the appellant was to acquire technical “know-how”and then use the acquired “know-how” in the design of contract articles.In terms of paragraph (a) of article-II of the agreement, the personnelof the appellant were to acquire “know-how” and necessary skills by onthe job placement at the place of the foreign company, in respect ofwhich, certain amounts were paid to the foreign company. Said paymentwas not found by the High Court to have accrued or arisen in India andthe matter was dealt with as under:-

“The main question is whether the payment under article III(a)was in the nature of income to the U.S. company accruing orarising in India? In this connection, the Tribunal has solely reliedupon a Supreme Court decision in the case of Performing RightSociety Ltd. [1977] 106 ITR 11. The facts of that case were thatthe society was an association of composers, authors and publishersof copyright musical works established to grant permission forthe performing right in such works. The society collected royaltiesfor the issue of licences granting such permission and distributedthe royalties to the members of the society who were composers,authors, music publishers and other persons having an interest inthe copyright, in proportion to the extent to which a member’swork was publicly performed or broadcast after a pro-ratadeduction of the expenses. The society entered into an agreementwith the resident of India granting licence to broadcast from thelicensee’s sound broadcasting stations in India all musical worksincluded in the repertoire of the society. Under the agreement, forthe rights granted to it, the licensee was to pay to the societyannually a sum calculated at two pounds per hour of broadcastingwestern music from each of the licensee’s broadcasting stationsand the annual payment was to be made to the society in London.On those facts, the Supreme Court held that though it receivedthe income out of the agreement executed not in India but inEngland, the income undoubtedly accrued or arose in India.

I am unable to see how the decision in Performing Right SocietyLtd.’s case [1977] 106 ITR 11 (SC), can be of any help to theRevenue in this case. To my mind the facts of the two cases arenot quite similar; the acquisition of technical know-how and theuse of the acquired know-how in the design of machines and A

B

C

D

E

F

G

H

Aaccessories and their manufacture in India does not seem to meto be comparable to the playing and broadcasting of copyrightmusical compositions in India on the basis of the licence grantedunder an agreement. To my mind the facts of the case in handwould be comparable to a situation where some people went toEngland to learn western music from the members of the society,Bon payment of some specified fee and on coming back used theacquired skill to write musical compositions that were played andbroadcast in this country. The decision in Performing RightSociety Ltd.’s case [1977] 106 ITR 11 (SC), would surely notapply to such a case.”C

It was thus held that the income mentioned in article III (a) of theagreement did not accrue or arise in India. No connection was found asregards the payment for on the job placement in a foreign country toacquire necessary skills, whereas in the instant case the connection isvery much evident. This case, thus, has no application.DB) In Manjoo and Co.[8], a wholesale distributor of lotteriesorganised by the State was obliged under the distribution agreement tobear the loss in case lottery tickets were not sold before the “drawdate”. Some of the unsold tickets emerged as prize winning tickets. Thesubmission that prize won from lottery in such case be treated as receiptEof income in the profit and loss account and not as “winnings from lottery”resulting in assessment at the special rate provided under Section 115BBof the Act, was not accepted by the High Court. It was observed:- “… …Therefore, assuming for argument’s sake the contentionof the respondent that winnings from lotteries are received byhim in the course of his business and are incidental to the businessFand as such they are his business income is right, still, we feel inview of the specific provision contained in Section 115BB, thespecial rate of tax is applicable for all winnings from lottery. ……”

GThis decision has no application insofar as the present controversyis concerned.

18. We now come to the issue of applicability of DTAA. Asobserved by the High Court, the matter was not argued before it in thatbehalf, yet the issue was dealt with by the High Court. In our view, thereasoning that weighed with the High Court is quite correct. TheH

obligation to deduct Tax at Source under Section 194E of the Act is notaffected by the DTAA and in case the exigibility to tax is disputed by theassesse on whose account the deduction is made, the benefit of DTAAcan be pleaded and if the case is made out, the amount in question willalways be refunded with interest. But, that by itself, cannot absolve theliability under Section 194E of the Act.

19. In the premises, it must be held that the payments made to theNon-Resident Sports Associations in the present case represented theirincome which accrued or arose or was deemed to have accrued orarisen in India. Consequently, the Appellant was liable to deduct Tax atSource in terms of Section 194E of the Act.

20. This appeal, therefore, must be dismissed.

21. Ordered accordingly. No costs.

Special Leave Petition(Civil)Nos.6829 of 2019 and 7315 of 2019

22. Both these petitions are filed by Board of Control for Cricketin Sri Lanka through PILCOM (the Appellant in the lead matter)challenging the common Judgment and Order dated 25.09.2018 passedby the High Court allowing I.T.A.Nos. 242 of 2008 and 279 of 2008.These matters arise from the consequential assessment orders passedby the Department pursuant to the Judgment and Order under appeal inthe lead matter.

23. Notice was issued in these petitions because of the pendencyof the lead matter.

24. Since the lead matter is dismissed, we dismiss these SpecialLeave Petitions as well.

Ankit Gyan

Appeal and SLPs dismissed.

A

B

C

D

E

F

G

H