1. These two appeals have been filed by both the sides against the order of the CIT(A) dated 28-12-1998. Since the issues involved are common in both the appeals, they have been consolidated and a common order is being passed for the sake of convenience.
2. The assessee before us is Pak-Indo-Lanka-Joint Management Committee (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, formed 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 organisation 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 receipts 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. This Committee was to be known as INDCOM. Since the Convenor-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 the ITO (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. B.C Roy Club House, Eden Gardens, Calcutta-700 021 asking it to show-cause why actions under section 201(1)/194E of the Income-tax 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 section 194E. The PILCOM represented before the ITO that the provisions of section 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 of accounts of PILCOM had not been completed by its Pakistani Treasurer, the said books could not be produced before the ITO.The ITO did not agree with the contention of PILCOM. He referred to the provisions of section 115BBA and held that taxes should have been deducted at source from the payments made by PILCOM in accordance with the provisions of section 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 section 201(1)/ 194E dated 6-5-1997, in which he held that the PILCOM was liable to pay under section 201(1) the amount it had failed to deduct from the payments under consideration and furthermore held that the PILCOM was also liable to pay interest on the said amount under section 201(1 A) from the dale of tax was deductible upto the date of actual payment.
The ITO computed the total short deduction under section 194E to be Rs. 2,18,29,300.00.
3. 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 heard to PILCOM.Accordingly, the appeal was re-heard by the CIT(A), in which both the sides were allowed ample 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 the sides.
4. 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 below, on the basis of the purposes for payments as well as the differences between categories of recipients of the payments.
Guarantee money paid to 17 countries which did not participate in the World Cup matches Amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries for matches played there Guarantee money paid to South Africa and United Arab Emirates both of which did not play any match in India Guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya with whom double taxation avoidance agreements exist 5. 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 pounds 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 section 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 section 115BBA would be attracted to all those payments, by arguing that all the different Cricket Control Boards/Associations would come within the purview of section 115BBA read with section 9(1)(i), inasmuch as, income accrued or arose to them by way of guarantee money, etc. through the playing of the matches in India which constituted the source of income in India, in the hands of 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 nonresident 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 17/37th portion i.e., 45.94 percentage of the other six types of payments could be considered to be attracted by the provisions of section 201(1)/194E. He thus directed that so far as other six categories of payments are concerned, 45.94 per cent of the payments covered by those categories should alone be taken into consideration for the purpose of considering PILCOM as defaulter under section 201(1)/ 194E.The Department challenges the order of the CIT(A) by arguing that firstly CIT(A) has been wrong in considering the amount of 1,20,000 as not coming within the purview of section 194E, and secondly that instead of applying the percentage of 45.94 per cent, the CIT(A) should have held that the PILCOM was defaulter in respect of the entire amounts of payments made by it. On the other hand, it is the contention of the assessee that PILCOM was not at all liable to deduct any tax at source under section 194E from the payments made by it from its London Bank accounts and hence, the question of treating it as defaulter under section 201 (1) cannot arise.
6. Before proceeding with the main issues in these appeals, as discussed above, it will be necessary for us to dispose of an additional ground sought to be taken up by the Department in its appeal. The said additional ground is as below :-- "That the order of the ld- CIT(A) in this case is illegal, void ab initio, without jurisdiction in view of section 246(1)(i) and 246(2)(6) and non est, and is neither sustainable in law or facts." 7. The ld. D.R. tried to explain the Departmental stand in this regard by arguing that, inasmuch as, the assessee is not a company, it had no right to file the appeal against the order of the ITO before the CIT(A), and, therefore, the appellate order passed by the CIT(A) should be treated as invalid. The assessee's representatives strongly object to admission of this appellate ground at this stage of the proceeding.
It is submitted in this connection that the appellate proceedings had already continued for a long period and had been taken up before different authorities like the CIT(A), the appellate Tribunal and thereafter again the CIT(A). The ld. counsel for the assessee argues that at no point of time during any of those earlier proceedings and even during the earlier part of the present appellate proceeding before the Tribunal also, this additional ground was not raised. Although the ld. D.R. has relied on a judgment of the Supreme Court in the case of National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and of the Bombay High Court in the case of Gammon India Ltd. v. CIT [1995] 214 ITR 50. In support of his contention that a legal ground going to the root of the matter can be raised before the appellate authorities at any stage, strong objection is being taken from the side of the assessee, against admission of this fresh ground by arguing that because of latches, the Department has lost its right to raise the ground. In this connection, reliance has been placed by the ld. counsel for the assessee on the judgment of the Supreme Court in the case of State of Punjab v. Gurdev Singh and Asoke Kumar AIR 1992 SC 111, in which case it has been held that a void order has de facto operation unless and until it is declared to be void or nullity by a competent body or Court.
8. With regard to this preliminary objection taken up by the assessee against admission of the additional ground, we are of the opinion that an additional ground on a legal issue can be taken up by either party at any stage of the appellate proceeding provided it does not require production of new materials or evidences. The judgment of the Supreme Court as tried to be relied upon by the assessee's side docs not exactly militate against the power of the Deptt. to raise the additional ground on legal issue, as has been held by the Supreme Court in the case of National Thermal Power Co. Ltd. (supra). Hence, we admit this additional ground and proeeed to decide the same on merits.
9. However, this particular appeal before us is against the order of the CIT(A) which arises, not exactly out of the order passed by the Assessing Officer, but out of the order passed by the ITAT restoring the earlier appeal filed before the CIT(A) back to the tile of the CIT(A) for fresh adjudication. II is worthwhile to note that the Department did not take any objection to admission of the appeal by the CIT(A) during the course of the original appellate proceedings before him, nor before the ITAT at the stage of the appellate proceeding against the original order of the CIT(A). Now that the present appeal before us is directly the result of the earlier order of the ITAT without any challenge being taken at that stage on the issue relating to admissibility of the appeal before the CIT(A), we are unable to accept the departmental contention on the non-admissibility of the appeal, at the present stage. From this stand point, therefore, the additional ground raised by the Department is liable to be dismissed.
10. On merits also, the said ground requires rejection. It has been pointed out by the ld. counsel for the assessee by referring to the provisions of section 246 (as it existed at different points of time) and certain Notifications issued by the Govt. what actually the appeal lay before the CIT(A) against the order passed by the Assessing Officer under section 201(1)/ 194E. The only contention of the Department in this connection seems to be that as PILCOM is not a company, the power to hear the appeal against an order under section 201(1) was with the DC(A) in accordance with the provisions of section 246(1)(l), as it was at the relevant time, and not the CIT(A), inasmuch as, there was no such power of the CIT(A) in accordance with sub-section (2) of section 246. The ld. counsel for the assessee brings our notice to the provisions of Clause (i) of Sec. 246(2) as it existed prior to 31-3-1989 under which, an appeal lay before the CIT( A) against an order made by an Assessing Officer under the provisions of the Income-tax Act, 1961 in the case of such persons or classes of persons as the Board may, having regard to the nature of the cases, the complexities involved and other relevant considerations, direct. Our notice has also been brought to the Notification No. S.O. 2044 dated 4-6-1979 issued by CBDT under its communication No. 2845 (F. No.279/42/78-ITJ) [reported at 118 ITR (statute) page 56], which provided that an appeal would lie before the CIT(A) against an order in respect of an assessee being a person other than a company, where the assessee denies his liability to be assessed or any order of assessment where the assessee objects to the amount of income assessed which again exceeds 1,00,000 rupees. The said Notification also provides power of the CIT(A) to hear an appeal against an order specified in Clauses (d) to (o) (both inclusive) of Sub-Section (1) of Section 246 in the case of persons or classes of persons as referred to in the earlier clause, It is thus contended that, inasmuch as, the total income of the assessee was considered by the Department to be far exceeding Rs. 1,00,000, and clause (1) of Sec. 246(1) fell within the ambit of this Notification, the CIT(A) was perfectly entitled to hear the appeal filed by the assesses against an order under Sec. 201(1), although the assessee was not a company.
Sec. 246 was substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. It is contended by the assessee that there was no material change in the amended provisions, in so far as the same are relevant for the purposes of the present appeal. It has also been pointed out that the power of the Board, which was earlier contained in clause (i) of Sub-sec. (2) of Sec. 246 found place in clause (h) of new Sub-Sec. (2) of the same Section.
In this connection, the ld. counsel for the assessee refers to Sec. 24 of the General Clauses Act, 1897, which provides as below :-- "24. Continuation of orders, etc., issued under enactments repealed and re-enacted. - Where any Central Act or Regulation is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided, any appointment, notification, order, scheme, rule, form or bye-law made or issued under the repealed Act or Regulation, shall so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the pro visions sore-enacted, unless and until it is superseded by any appointment, notification, order scheme, rule form or bye-law made or issued under the provisions so re-enacted and when any Central Act or Regulation, which, by a notification under Sec. 5 or 5A of the Scheduled District Act, 1874 (XIV of 1974), or any like law, has been extended to any local area, has, by a subsequent notification, been withdrawn from and re-extended to such area or any part thereof, the provisions of such Act or Regulation shall be deemed to have been repealed and re-enacted in such area or part within the meaning of this Section." It is submitted on behalf of the assessee that in view of the above provisions of Sec. 24 of the General Clauses Act, 1897, the aforesaid Notification dated 4-6-1979 will be considered as having continued to remain in force and should be deemed to have been issued under the substituted Sec. 246, It has also been pointed out that the aforesaid Notification dated 4-6-1979 has not been amended, modified or rescinded in any manner after the amendment with effect from 1-4-1989. It is thus argued that the CIT(A) had the powers to decide the appeal against the order passed by the ITO under Sec. 201(1). In this connection, it is also mentioned that in the Demand Notice issued by the ITO also, the "CIT(A)" was shown as the appellate authority against that order.
11. We find ample force in the contentions of the assessee on merits of the issue also, as discussed in a nutshell, as above. Although, an appellate power should come out of the statute itself, there cannot be any doubt that any order passed by the Assessing Officer which harms the assessee should be capable of being taken up in appeal before a higher appellate authority. This will be especially so when Notifications have been issued by the Government allowing the CIT(A) to hear the appeal. In any case, the CIT(A) himself is a Departmental Authority and if he felt that he did not have the power to deal with the appeal, he should have sent it to the DC(A) at the stage of the original appeal before him itself, for deciding the appeal. At the present moment, the post of DC(A) has been abolished, although the appeal clearly lay at least before the DCIT(A) when it was taken up by the assessee. The Department cannot be allowed to misdirect the assessee to file the appeal before a wrong authority, if that be the case at all, and thereafter to take up a plea that at the present moment, there is no course left open to the assessee for challenging the highly damaging order of the ITO, inasmuch as, the institution of DC(A) itself stands abolished now. Such a stand taken up by the Department would tantamount to inviting travesty of justice and such an approach on the part of the Deptt. is highly condemnable.
Taking into consideration all these aspects, jurisdictional, jurisprudential as well as on the basis of the merits of the case, we have got no hesitation in rejecting the additional ground raised by the Department.
12. It will, therefore, be necessary for us, now, to take into consideration both the orders passed by the CIT(A) on 28-12-1998 as well as the order by the I.T.O. under Sec, 201(i)/194E dated 6-5-1997.
In accordance with the provisions of Sec. 201(1), "if any such person and in the cases referred to in Sec. 194E, the Principal Officer and the Company of which he is the Principal Officer does not deduct or after deducting fails to pay the tax as required by or under the Income-tax Act, 1961, he or it shall, without prejudice to any other consequences, which he or it may incur, be deemed to be an assessee in default in respect of the tax". In this connection, we may also have a look at Sec. 194E :-- " 194E. Where any income referred to in Section 115BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of ten per cent." Inasmuch as, Section 194E makes a direct reference to Sec. 115BBA, we may re-produce the sub-Section (1) of that Section also as below :-- (a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of- (i) participation in India in any game (other than a game the winnings wherefrom are taxable under Sec. 115BB) or sport; (iii) contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or (b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under Sec. 115BB) or sport played in India, the income-tax payable by the assessee shall be the aggregate of- (i) the amount of income-tax calculated on income referred to in clause (a) or clause (b) at the rate of ten per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income referred to in clause (a) or clause (b): Provided that no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b)," 13. Two essential elements of the abovementioned Section are required to be taken into consideration in this regard. Firstly, the Section starts with the statement "where the total income of an assessee" (meaning presumably thereby the non-resident sports associations, as in the instant case) includes any amount guaranteed to be paid or payable ...... etc. By "total income", we must mean here the "total income", which will ultimately be subjected to tax in India, inasmuch as, the Indian Income Tax Act does not have any jurisdiction over the other income of a non-resident person which can in no way be subjected to tax in this country.
The second important element in this Section is that the amount guaranteed to be paid or payable to the non-resident associations or institutions must be in relation to any game or sports played in India.
We are inclined to agree with the ld. CIT(A) that the expression "in relation to" is having a wide connotation and hence, if the amount guaranteed to be paid or payable bears any relation to any game or sports played in India, the same should come within the purview of Sec.
115BBA. In that way, the CIT(A) may be correct in saying that, inasmuch as, the guarantee money was paid to all the sports associations in relation to the cricket matches played in India, to that extent, the guarantee money should be considered to be covered by this particular Section. At the same time again, we have got to note that as per the first limb of the Section, to which we have already made reference earlier, the said amount of guarantee money is required to be included within the total income (meaning thereby the income taxable in India) of the non-resident sports associations, etc. The crux of the problem would, therefore, be first of all to determine whether the guarantee money itself or any other amount including the guarantee money payable to the non-resident cricket associations was taxable in India at all or not. Unless such guarantee money or other amount including the guarantee money was taxable in India, mere relationship of the payment of the guarantee money with the matches played in India will not bring the payments within the fold of Sec. 115BBA.14. The question of taxability (in India) of income of a non-resident, is principally guided by Sub-Section (2) of Section 5 of the Income Tax Act, 1961. The said Sub-Section (2) reads as below :-- "(2). Subject to the provisions of this Act, the total income of any previous year of a person, who is a non-resident includes all income from whatever source derived which (--) (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year." 15. It is an undisputed fact that the payments were not made by PILCOM to any of the non-resident concerns in India, the payments having all been made from its London Bank accounts at London itself or elsewhere, but certainly outside India. It is, therefore, required of us to examine whether any income can be considered to have accrued or arisen or is deemed to accrue or arise to the non-resident concerns in India.
So far as the deeming provisions relating to accrual or arisal of income in India is concerned, clause (i) of Section 9(1) is relevant, which states that "all income accruing or arising whether directly or indirectly, 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, shall be deemed to accrue or arise in India".
There is no doubt about the fact that none of the non-resident cricket associations of different countries nor even ICC had any business connection in India or any property or asset in India or that there was also no transfer of a capital asset belonging to them, situated in India. The only limb of this particular clause, which may be taken into consideration in this connection is whether any income arose to the non-resident concerns through any source of income in India or not. The CIT(A), in unequivocal terms, has held that the source of income in this case should be considered to be the matches played in India. We are, however, afraid that in coming to a decision in that regard, he has rather been guided by the provisions of Sec. 115BBA, which refers to a much broader perspective of the guarantee money payable to the non-resident concerns, having a direct or indirect relation to matches played in India. We have already discussed above that before applying Sec. 115BBA, it will be first of all required to ascertain that the foreign concerns had a taxable income in India, which actually includes the guarantee money payable to them. In that way, Section 115BBA is merely subservient to Sec. 9(1)(i).
16. So far as the countries are concerned which either did not take part in the World Cup tournament at all or which did not play in India, it will be difficult to say that the guarantee amount was earned by them through the source of income in India. The source of income in respect of the guarantee money receivable by them was certainly not the matches whether played in India or otherwise, but the holding of the World Cup tournament by ICC and the allotment of the bid to conduct the tournament in the Indian Sub-Continent (alongwith Sri Lanka) in favour of India, Pakistan and Sri Lanka. In the meeting of the ICC held at London much earlier than playing of the matches in the Indian Sub-Continent, it was decided that the various members of ICC would be entitled to receive guarantee monies according to certain scales.
Although the I.T.C. Limited, an Indian Company was the sponsor of the games, yet major amount of the monies was placed by that company in the London Bank account of PILCOM from where the various payments were met to the different countries. The other funds came to PILCOM by way of T.V. Sponsorship and also amounts paid by Coca-Cola & Company. The playing of the matches in India, although may be a most important component of the World Cup tournament, at the same time, cannot be considered to be the source of money received by the different foreign cricket associations and ICC. Furthermore we find ample merit in the arguments on behalf of the assessee that even though the source of money in the hands of PILCOM may be considered to be the money received by it from ITC Ltd., T.V. sponsorship and also Coca-Cola & Company, the same would not hold good in respect of receipts of money at the end of the payees viz. ICC, and non-resident cricket associations of different countries. The ld. counsel for the assessee has placed reliance, in support of the proposition, that the nature of income may be completely different in the hands of the payee from that in the hands of the payer, on the following two judgments :-- 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. The playing of matches in India and elsewhere might have been a necessary condition for receipt of guarantee amounts by those associations, but certainly the same cannot be considered to be the source of the guarantee money in their hands. On the other hand, the source of money should be traced back to the Resolution passed in the meeting of the ICC, in which the responsibility towards conducting the tournament was allotted in favour of the three countries, which later on constituted PILCOM and also the contractual obligations entered into by all the parties under the said Resolution. It may be noted in this connection that once PILCOM took the burden of conducting the tournament in the three countries, it was obliged to make payment of the guarantee amounts to be different country associations irrespective of whether any match would ultimately at all be played in India or elsewhere. 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 association of these countries earned the guarantee money through any source of income in India. Hence, we direct that the two amounts of 17,00,000 and 3,60,000 involved in these two items, do not come under the purview of Section 201(1) and hence, the two amounts are required to be deleted fully from the amount considered by the I.T.O. in respect of which PILCOM has been treated as an assessee in default.
18. The same should also be the case with regard to guarantee money paid to the countries, which actually did play in India, so far as the question of applicability of Section 9(1)(i) is concerned. In other words, no income can be considered to be deemed to have arisen or accrued to the cricket associations of these countries, merely by their taking part in the tournament. However, the cricket associations of these countries did actually play matches in India and in that way income actually accrued or arose to them, even irrespective of the deeming clause. 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 of 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 them 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 Section 201 would be considered to be valid in respect of the payment to each such country in the above manner.
19. Objections are being raised to the order passed by the ITO treating PILCOM to be an assessee in default, from three different angles.
Firstly, the assessee refers to letter F. No. 484/1/96-FTD dated 17-5-1996 addressed by the CBDT to the Chief Commissioner of Income Tax, Calcutta on the matter of taxability of BCCI and PILCOM and other tax related matters with regard to World Cup, 1996. The Department contends that the said letter was later on withdrawn by a subsequent letter of CBDT dated 8-11-1996 in F. No. 484/1/96-FTD. It is the assessee's contention that on the same date i.e. 17-5-1996, CBDT also addressed a letter to the Director of Income Tax (Exemption), Mumbai, in which a different version was taken by the CBDT. In this connection, we have got to state that firstly the abovementioned letter is not of the nature of a Circular issued by the CBDT in a general manner and hence, this letter docs not have any sanctity, secondly that the said letter was actually withdrawn by the CBDT later on and lastly that even the letter under consideration does not at all say that there would be no need to deduct tax at source from the payments made by PILCOM. On the other hand, it was stated in the said letter that PILCOM would be subjected to the provisions of Section 194C relating to payments of money to contractors, etc. hence, any reliance placed by the assessee on this particular letter is mis-conceived and does not help the case of the assessee in any manner.
20. The second objection raised by the assessee is of more importance and certainly deserves careful attention. It is contended that, inasmuch as, all the payments were made by PILCOM at London i.e.
outside India, the provisions of the Income-tax Act, 1961 relating to deduction of tax at source will not apply to such payments, inasmuch as, the said provisions do not have any extra-territorial jurisdiction.
In other words, the assessee tries to argue that whenever any payment is made by a resident person to somebody outside India, there would be no requirement to deduct tax at source from such payments, even though such payments might ordinarily come within the ambit of different provisions of Act relating to deduction of tax at source. We are unable to find justification in this type of generalized argument. Payments made by resident parties outside India may be of two different types.
In the first category would come those cases, where an assessee being resident in India, makes certain payments (falling within the ambit of provisions relating to deduction of tax at source) to non-resident persons outside India in respect of which no income can at all be considered to arise to the non-resident party in India. Example of this type of payment would be where a resident assessee takes on hire a building outside India and makes payment of rent in respect of that building out of its funds generated outside India. In such a case, there cannot beany doubt that the provisions of Sec. 194-I would certainly not be attracted, even though the total payment made during a year, in terms of Indian currency exceeds Rs. 1,20,000. The legal principle involved herein is so simple that nobody would argue that even in these types of cases also, it would be required for the resident-assessee to deduct tax at source in respect of payments made in foreign countries.
However, there may be a second category of cases where, the payment made by the resident-assessee generates income taxable in India in the hands of the non-resident person. In such cases, although the payment may be made actually in a foreign country, but if the same is made out of remittances from India or even out of the funds available with the resident-assessee in the foreign country, there would be a strong case for deduction of tax at source from the payment, inasmuch as, Indian Tax Laws would be attracted to such payments. We, therefore, feel that the crux of the issue as to whether payments made outside India would attract the provisions of deduction of tax at source or not, depends solely on the factor as to whether the payment generates taxable income in India in the hands of the non-resident person. In our considered opinion if by virtue of the receipt of the amount from the resident-assessee, income accrues or arises to the non-resident person or is even deemed to accrue or arise to the non-resident person, in India, then the provisions of deduction of tax at source would certainly be applicable. So far as the instant case is concerned, we have already held that in case of nonresident cricket associations participating in cricket matches in India, some income accrued or arose to them. We are of the opinion that tax should have been deducted at source from the payments made by PILCOM to such non-resident cricket associations of foreign countries.
21. The third objection is being raised by the assessee in a limited manner. It is contended that, inasmuch as, the Double Taxation Avoidance Agreements (DTAA) exist between India on the one hand and Australia, England, New Zealand, Sri Lanka and Kenya on the other, no income would generate in the hands of cricket associations of these countries on account of the payments made by PILCOM to them. There is no doubt about the fact that where there is a conflict between the provisions of DTAA and those of the Indian Income Tax Act with regard to some particular issues, the provisions of DTAA would prevail over those of the Indian Income Tax Act. However, where there is no such conflict and in respect of matters where the DTAA is totally silent, the provisions of Indian Income Tax Act would certainly be applicable.
As a test-case, the ld. counsel for the assessee has filed on our record, a copy of the DTAA between India and Australia dated 25-7-1991.
Reliance has been tried to be placed on Article-22 of the said Agreement, which reads as below :-- "Article-22 :-- Income not expressly mentioned items of income of a resident of one of the Contracting States, which are not expressly mentioned in the foregoing Articles of this Agreement shall be taxable only in that State........" 22. It is tried to be argued on behalf of the assessee that by virtue of this particular Article, even any income accruing or arising to the other Contracting States like Australia, England, New Zealand, Sri Lanka and Kenya, would not be taxable in India, inasmuch as, this type of income as considered herein, is not specifically dealt with in any of the other Articles of the DTAA and furthermore that the DTAA's with countries other than Australia also are exactly in the same line.
In this connection, we have to state that although the income considered herein is not specifically mentioned in any of the other Articles, yet the same may be considered to be covered by Article 17, the first sub-Article of which is being reproduced as below :-- "Article 17 :-Entertainers (1) notwithstanding the provisions of Articles 14 & 15, income derived by residents of one of the Contracting States as entertainers, such as theatre, motion picture, radio, or television, artistes, musicians and athletes from their personal activities as such exercise in the other Contracting States, may be taxed in the other State." We have discussed above that in respect of cricket associations of different countries participating in matches in India, the income in India has got to be considered as accruing or arising solely from such participation in the matches in India. As such, the provisions of Article 17, as mentioned above, can be considered to cover this type of income. Sub-Article (1)of this Article clearly states that the income derived by residents of foreign countries as entertainers from their personal activities as such exercised in India, may be taxed in India.
In the instant case, the players of the cricket associations of the participating countries took part in games played in India and hence, they should be considered as entertainers and the income also arises from the personal activities of such players (as representatives of the respective cricket associations) exercised in India. Therefore, we feel that the issue under consideration should be guided by Article 17 of the DTAA and not by Article 22 as tried to be relied upon by the assessee. Therefore, the objection raised by the assessee with regard to the existence of DTAA with some of the countries will not hold good.
23. So far as Clause (ii) of the chart detailing out the payments made by P1LCOM amounting to 1,20,000 is concerned in respect of which the CIT(A) has held in favour of the assessee, we fully agree with the ld.CIT(A) that since the amount under consideration represents transfer from London to Pakistan and Sri Lanka for disbursement of prize money in those countries for matches played therein, the same would not attract the provisions of Indian Income Tax Act. Firstly, the payment under this particular clause seems to be of the nature of defraying genuine expenses incurred by the Cricket Boards of Pakistan and Sri Lanka in connection with the tournament and hence, no amount of profit/income can be considered to arise out of this type of payment.
Secondly, even if some profit elements be embedded in this payment, by no means, such profits accruing to the Pakistan and/or Sri Lanka Cricket Board can be considered to arise or accrue or deem to arise or accrue in India. Therefore, we agree with the finding of the CIT(A) that this amount should be deleted from the consideration of the Assessing Officer.
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. For the generalised discussion made by us in the earlier paragraphs, we are of the opinion that the question of deducting tax at source from this payment would not arise, inasmuch as, the payment does not relate to any income arising or accruing to ICC in India. Hence, we reverse the direction of the CIT(A) and hold that the entire amount of 3,75,000 should be deleted from the purview of Section 201(1) as considered by the ITO.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 re-imbursement of expenses in connection with the tournament. Again, the payment does not have any connection with any match played in India. Hence, in view of these considerations and also the generalised discussions made by us above, we delete this amount also from the order of the ITO considered under Section 201(1).
26. Lastly, our findings with regard to the seven items of payments as enumerated by us at page 4 of our order, are being summarised as below :-- Payment for ICC Trophy for qualifying matches between ICC Associate Members held outside India.
Payment to the Cricket Association of eachconsidered separately.Only a portion of such payment correspondingmatches played by that country in India to the totalnumber of matches playedtaken into consideration for the purpose of section 201(1).
Payment to the Cricket Association of each country is to be considered separately. Only a portionponding to the ratio of number of matchcs played by that country in India tointo consideration for thepurpose of sect ion 201(1).
27. In the result, the appeals filed by both the sides are disposed of in the above manner.