Pilcom vs C.I.T West Bengal-Vii on 29 April, 2020


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Supreme Court of India

Pilcom vs C.I.T West Bengal-Vii on 29 April, 2020

Author: Uday Umesh Lalit

Bench: Uday Umesh Lalit, Dinesh Maheshwari

Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

                                                                            1
                                                              REPORTABLE

                         IN THE SUPREME COURT OF INDIA

                          CIVIL APPELLATE JURISDICTION

                           CIVIL APPEAL NO. 5749 OF 2012

      PILCOM                                                      …Appellant

                                              VERSUS


      C.I.T. WEST BENGAL-VII                                    …Respondent
                                              WITH

                  SPECIAL LEAVE PETITION (CIVIL) No.7315 of 2019


                                               AND

                 SPECIAL LEAVE PETITION(CIVIL)NO.6829 OF 2019


                                         JUDGMENT

Uday Umesh Lalit, J.

Civil Appeal No.5749 OF 2012

1. This appeal by special leave challenges the Judgment and Order

dated 11.11.2010 passed by the High Court1 dismissing Income Tax Appeal

No.196 of 2000 and thereby affirming the view taken by the Tribunal 2 in

I.T.A.Nos. 110/Cal/1999 and 402/Cal/1999 on 04.01.2000.

1 The High Court of Judicature at Calcuttta
2 Income Tax Appellate Tribunal, Calcutta
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

2

2. The facts leading to the filing of the proceedings before the

Tribunal were set out in the Order dated 04.01.2000 as under:-

“2. The assesse before us is PAK-INDO-LANKA,
JOINT MANAGEMENT COMMITTTEE (known in
short as PILCOM) which is actually a Committee
formed by the Cricket Control Boards/Associations of
three countries viz. Pakistan, India and Sri Lanka, for
the purpose of conducting the World Cup Cricket
tournament for the year 1996 in these three countries.

Actually, International Cricket Council (ICC) is a
non-profit making organization having its
Headquarters at London, which controls and conducts
the game of cricket in the different countries of the
world. ICC has got nine full members and twenty
associate members in a special meeting of ICC held
on 2.2.1993 at London, India, Pakistan and Sri Lanka
were selected, on the basis of competitive bids, to
have the privilege of jointly hosting the 1996 World
Cup Cricket Tournament. These three host countries
were required to pay varying amounts to the Cricket
Control Boards/Associations of different countries as
well as to ICC in connection with conducting the
preliminary phases of the tournament and also for the
purpose of promotion of the game in their respective
countries. For the purpose of conducting the final
phase of the tournament in India, Pakistan and Sri
Lanka, a Committee was formed by the three host
members under the name PILCOM. Two Bank
accounts were opened by PILCOM in London to be
operated jointly by the representatives of Indian and
Pakistan Cricket Boards, in which the receipt from
sponsorship, T.V. rights etc. were deposited and from
which the expenses were met. The surplus amount
remaining in the said Bank account was decided to be
divided equally between the Cricket Boards of
Pakistan and India after paying a lump-sum amount to
Sri Lanka Board as per mutual agreements amongst
the three Boards. For the purpose of hosting the
World Cup matches in India, the Board of Cricket
Control of India (BCCI) appointed its own committee
for discharge of its responsibilities and functions. The
Committee was to be known as INDICOM. Since the
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

3
Convener-Secretary of INDCOM
was functioning
from Calcutta necessary Bank accounts were opened
in Calcutta by INDCOM for receipts and expenditure
relating to matches to be held in India. From the said
Bank accounts in London, certain amounts were
transferred to the three co-host countries for
disbursement of fees payable to the umpires and
referees and also defraying administrative expenses
and prize money. During the course of enquiry, it
came to the knowledge of tie I.T.O. (TDS), Ward-
21(4), Calcutta that PILCOM had made payments to
ICC as well as to the Cricket Control
Boards/Associations of the different Member
countries of ICC from its two London Bank Accounts.
The ITO issued a notice to the Office of PILCOM
located at Dr. BC Roy Club House, Eden Gardens,
Calcutta- 700 021 asking it to show-cause why
actions under Section 20(I)/194E of the I.T. Act, 1961
would not be taken against PILCOM for its failure to
deduct taxes from the payments made by it and as
referred to above in accordance with the provisions of
Sec. 194E. The PILCOM represented before the
I.T.O. that the provisions of Sec. 194E would not be
attracted to the payments for various reasons to which
we shall advert later on. It was furthermore stated
that, inasmuch as, the books accounts of PILCOM
had not been completed by its Pakistani Treasurer, the
said books could not be produced before the I.T.O.

The I.T.O. did not agree with the contentions of
PILCOM. He referred to the provisions of Sec.
115BBA and held that taxes should have been
deducted at source from the payments made by
PILCOM in accordance with the provisions of Sec
194E. The details of the payments as made by
PILCOM and as had been collected by the ITO were
supplied by him to the PILCOM. Finally, the ITO
passed an order under Sec. 20(I)/194E dated 6.5.1997,
in which he held that the PILCOM was liable to pay
under Sec.201(I) the amount it had failed to deduct
from the payments under consideration arid
furthermore held that the PILCOM was also liable to
pay interest on the said amount under Sec. 291(1A)
from the date of tax was deductible upto the date of
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

4
actual payment. The ITO computed the total short
deduction u/s. 194E to be Rs.2,18,293,00.00

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 herd to
PILCOM. Accordingly, the appeal was re-heard by
the CIT(A), in which both the sides were allowed an
opportunity to represent their respective cases and the
CIT(A) finally passed his appellate order on
28.12.1998, which is being challenged before us by
both 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 before, on the
basis of the purposes for payments as well as the
difference between categories of recipients off the
payments.


                                                                Amount (£)
                    i)       Guarantee money paid to 17         17,00,000
                             countries     which    did   not
                             participate in the World Cup
                             matches
                    ii)      Amounts transferred from London     1,20,000
                             to Pakistan and Sri Lanka for
                             disbursement of prize money in
                             those countries
                    iii)     Payment to ICC as per Resolution    3,75,000
                             dated Feb. 2, 1993
                    iv)      Payment for ICC Trophy for          2,00,000
                             qualifying matches between ICC
                             Associate members held outside
                             India
                    v)       Guarantee money paid to South       3,60,000
                             Africa and United Arab Emirates
                             both of which did not play any
                             match in India
                    vi)      Guarantee     money paid to         8,85,000
                             Australia, England, New Zealand,
                             Sri Lanka and Kenya with whom
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

                                                                               5
                             double     taxation   avoidance
                             agreements exist
                    vii)     Guarantee    money paid to          7,10,000
                             Pakistan, West India, Zimbabwe
                             and Holland
                                                                43,50,000

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 pound 1,20,000 being of the nature of amounts
transferred from London to Pakistan and Sri Lanka
for disbursement of prize money in those countries for
matches played there is concerned, the prize money is
always paid to the winner and other individual players
in a particular match and, inasmuch as, these prizes
were meant for matches outside India, the same could
not be brought within the scope of Sec.115BBA. He
thus finally decided that this amount does not fall
within the scope of tax deduction at source and
ordered for deletion of this amount from the total
amount considered by the ITO. As regards the other
six payments, the CIT(A) held that the provisions of
Sec. 115BBA would be attracted to all those
payments. By arguing that all the different Cricket
Control Boards/Associations would come within the
purview of Sec. 115BBA read with Sec. 9(I)(I),
inasmuch as, income accrued or arose to the way of
guarantee money, etc. through the playing of the
matches in India which constituted the source of
income in India, in the hands those non-resident
foreign Cricket Boards/Associations. The Ld.
CIT(A), however, found out at the same time that out
of 37 matches played in all in the aforesaid World
Cup Tournament, only 17 had been played in India.
He argued that since the payments made by PILCOM
related to all the matches played in the tournament,
only such proportion of the guarantee money, etc.
received by the non-resident parties could be
considered to be deemed income in India in the hands
of those non-resident parties, which corresponds to
the ratio of the number of matches played in India to
the total number of matches. Thus, the CIT(A) held
that only 17/37th portion i.e. 45.94 percent of the other
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

6
six types of payments could be considered to be
attracted by the provisions of Sec.291(I)/194. He thus
directed that so far as other six categories of payments
are concerned. 45.94 percent of the payments
covered by those categories should alone be taken
into consideration for the purpose of considering
PILCOM as defaulter under Sec.201(I)/194B. …”

3. As stated above, out of the payments classified in seven distinct

categories, the payment at serial no. (ii) amounting to £.1,20,000/- was

found by the CIT(A) to be beyond the scope of Section 115BBA of the

Act3, 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. The Appellant as well as the Revenue, being

aggrieved, approached the Tribunal by filing ITA Nos.11/Cal/1999 and

402/Cal/1999 respectively.

4. The Tribunal in its Order dated 04.01.2000 approved the view

taken by the CIT(A) in respect of payment at serial no.(ii) amounting to

Rs.1,20,000/-. As regards payments at serial nos. (i), (iii), (iv) and (v), it

was observed:-

“17. It is not at all possible to hold that the source of
guarantee money in the hands of the cricket
associations of those countries, which either did not
play at all or did not play in India, can be the games
played in India. … … We, therefore, hold that so far
as the guarantee moneys paid by PILCOM to the 17
countries, which did not participate in World Cup

3 The Income Tax Act, 1961
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

7
matches [(Clause (i) of the detailed chart of payment
as shown at page 4 above], or to South Africa and
United Arab Emirates, which did not play any match
in India [Clause (V) of the chart as above] are
concerned, it cannot be held that the cricket
associations of these countries earned the guarantee
money through any Source of income in India. …
… … …

24. Clause (iii) of the above chart refers to a payment
of £3,75,000 to ICC as per Resolution dated 2.2.1993.
According to the said Resolution, the amount was
required to be paid to ICC partly towards expenses
incurred by ICC in connection with the tournament
and partly to be spent by it for development of cricket.

Even if an element of income may, therefore, be
considered out of this payment, it is hardly possible to
conceive any connection of such payment to income
of ICC taxable in India. … …

25. Another amount of £2,00,000/- being payment
for ICC trophy for qualifying matches between ICC
Associate Members held outside India is covered
under Clause (iv) of the abovementioned chart. The
entire payment appears to be of the nature of
reimbursement of expenses in connection with the
tournament. Again, the payment does not have any
connection with any match played in India. … …”

As regards amounts at serial nos. (vi) and (vii) were concerned, it

was stated:-

“… …In the cases of the cricket associations of these
countries, although the guarantee money was payable
by virtue of the Resolution passed in the meeting ICC
as in the cases of the cricket associations of other
countries, at the same time again, these associations
did some activities in India and can be considered to
have earned the guarantee money through such
activity alone. We are, therefore, of the opinion that
so far as these countries (covered by clauses (vi) &

(vii) of the chart as above) are concerned, the
payments received by then from PILCOM have arisen
directly as a result of their taking part in the cricket
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

8
matches. However, the cricket associations of all
these countries played not only in India but in
Pakistan and Sri Lanka also. Hence, only that
proportion of the total receipt made by each such
country from PILCOM, which bears the same ratio as
the number of matches played by each such country in
India to the total number of matches played by each
such country in the tournament, should be considered
to be income arising or accruing to the cricket
association of that particular country. We are,
therefore, of the opinion that PILCOM should have
deducted tax at source in respect of this portion of the
payment made by it to that particular association and
the order under Sec. 201 would be considered to be
valid in respect of the payment to each such country
in the above manner.”

5. The Order passed by the Tribunal was challenged by the Appellant

as well as by the Revenue by filing I.T.A. Nos.196 of 2000 and 200 of

2000 respectively. After considering rival submissions, by its Judgment

and Order under appeal, the High Court affirmed the view taken by the

Tribunal and dismissed I.T.A. Nos.196 of 2000 and 200 of 2000. In its

judgment, the High Court considered the matter as under:-

“On perusal of the said section it would appear that
once income referred to in Section 115BBA is held to
be payable to foreigner non-resident sportsman or
non-resident sports association or institution the
person responsible for making payment is obliged at
the time of making payment or at the time of credit of
such income to the account of the payee to deduct
income tax thereon at the rate of 10%. It is significant
that said section nowhere says whether the income is
chargeable to tax or not. It therefore be concluded
that once the income accrues deduction is a matter of
course. Naturally failure to deduct will have a
consequence under Section 201 of the said Act. … …
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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Once
the payment is made and received by way of a
participation in any matches played in India the said
on resident assesse has to meet deduction of tax under
Section 115BBA. Similarly, if any amount including
the guaranteed amount is paid to any non-resident
sports association in relation to any match played in
India, the said income has to be subjected to
deduction of tax at source. … … We are unable to
accept the contention of Mr. Bajoria that the source of
income of the foreign Cricket Associations was the
grant of the privilege for the bid money and have no
relation to the matches, for grant of privilege for the
bid money is the origin but it is not essential
component or part for accrual of income by reason of
the fact hypothetically if after bid is accepted, and
payment is not made question of deduction of tax at
source does not and cannot arise, consequently
acceptance of bid becomes redundant. Relevant
factor is the payment and then matches having taken
place in India where participation of the sports
personality is in question. … …”

As regards the submission regarding applicability of DTAA 4, the

High Court observed:-

Although it is not argued but we feel that obligation to
deduction under Section 194E is not affected by the
DTAA since such a deduction is not the final payment
of tax nor can be said to be an assessment of tax. The
deduction has to be made and after it is done the
assesse concerned gets the credit of the same and once
it is found later on that income from which the
deduction is made is not eligible to tax then on
application being made refund with interest is always
allowed. Fundamental distinction between the
deduction at source by the payer is one thing and
obligation to pay tax is another thing.

Advantage of the DTAA can be pleaded and taken by
the real assessee on whose account the deduction is
made not by the payer.

4 Double Taxation Avoidance Agreements
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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

6. The Appellant is in appeal against the dismissal of ITA No.196 of

2000. The Revenue has not appealed against the dismissal of ITA No.200

of 2000 and as such the deletion as regards amounts at serial nos. (i) to (v)

has attained finality and even as regards amounts at serial nos. (vi) and

(vii) the liability could at best be in the proportion as observed by the

Tribunal. As per the statement of case filed by the Respondent, the

demand in terms of the Order of the Tribunal would be in the sum of

Rs.38,88,731/-.

7. We heard Mr. J.P. Khaitan, learned Senior Advocate for the

Appellant and Mr. Vikramjit Banerjee, learned Additional Solicitor General

for the Respondent.

Mr. Khaitan, learned Senior Advocate submitted 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
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

11
in India. He invited our attention to Sections 115BBA and 194E and other

provisions of the Act and relied upon the decision of this Court in G.E.

India Technology Centre Pvt. Ltd. Vs. Commissioner of Income Tax

and Another5; the decision of the Patna High Court in Metallurgical and

Engineering Consultant (India) Ltd. Vs. Commissioner of Income Tax 6,

which, in turn, had referred to the decision of this Court in Performing

Right Society Ltd. Vs. CIT7; and the decision of the Kerala High Court in

Commissioner of Income Tax Vs. Manjoo and Co.8

Mr. Banerjee, learned Additional Solicitor General pressed for

acceptance of the Judgment under appeal and submitted 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.

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 including horse races, card games and other
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) 426
8 (2011) 335 ITR 527 (Ker)
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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games of any sort or from gambling 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 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.

Explanation 1.- Income accruing or arising outside
India shall not be deemed to be received in India
within the meaning of this Section by reason only of
the fact that it is taken into account in a balance-sheet
prepared in India.

Explanation 2.- For the removal of doubts, it is hereby
declared that income which has been included in the
total income of a person on the basis that it has
accrued or arisen or is deemed to have accrued or
arisen to him shall not again be so included on the
basis that it is received or deemed to be received by
him in India.

… … …

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

(i) 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
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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Explanation.- For the purposes of this clause-

(a) in the case of a business of which all the
operations are not carried out in India, the
income of the business deemed under this
clause to accrue or arise in India shall be only
such part of the income as is reasonably
attributable to the operations carried out in
India;

(b) in the case of a non-resident, no income shall
be deemed to accrue or arise in India to him
through or from operations which are
confined to the purchase of goods in India for
the purpose of export;

(c) in the case of a non-resident, being a person
engaged in the business of running a news
agency or of publishing newspapers,
magazines or journals, no income shall be
deemed to accrue or arise in India to him
through or from activities which are confined
to the collection of news and views in India
for transmission out of 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 of India or who is
resident in India; or

(3) a company which does not have any
shareholder who is a citizen of India or
who is resident in India, no income
shall be deemed to accrue or arise in
India to such individual, firm or
company through or from operations
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

14
which are confined to the shooting of
any cinematograph film in India;

… … …

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

(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 section 115BB) or sport; or

(ii) advertisement; or

(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 section 115BB) or sport
played 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 his performance 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) or
clause (c) at the rate of ten per cent; and
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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(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).

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

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

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

… … …

194-E. Payments to non-resident sportsmen or
sports associations. – Where any income referred to
in Section 115-BBA 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 percent9.”

9 By Finance Act, 2012; for “ten per cent”, the expression “twenty per cent” stands
substituted.

Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

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9. Amounts at serial numbers (vi) and (vii) are in the nature of

Guarantee Money paid to Non-resident Sports Associations. The payments

were not made by the Appellant in India but were made by the Appellant

through its Bank accounts at London or elsewhere. The principal issue to

be considered is whether any income accrued or arose or was deemed to

have accrued or arisen to said Non-resident Sports Association in India. If

the answer is in the affirmative, the next question would be about the

liability on part of the Appellant to deduct Tax at Source and make

appropriate deposit in accordance with Section 194E of the Act.

10. In terms of Sub-Section (2) of Section 5 of the Act, the total

income of a non-resident may include income from whatever source which

is received or deemed to be received in India or accrues or arises or is

deemed to accrue or arise to such non-resident in India. According to

Section 9(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
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

17

11. According to the Respondent, the income in question had arisen

from a source of income in India, which was playing of cricket matches in

India and as such the requirement of law was fully satisfied. On the other

hand, according to the Appellant, the payment was towards grant of

privilege and had nothing to do with matches that were played in India.

12. In Performing Right Society Ltd.7, under an agreement, the

appellant Society had granted to All India Radio, the authority to broadcast

from all its stations, the musical works included in the repertoire of the

Society, in respect of which payments at the rate of £2 per hour of

broadcasting were payable to the Society. The Society, a non-resident

company, contended that the agreement was executed in England,

payments were made in England and the “source of income” was the

agreement that was entered into in England. The contention was rejected

by the High Court. The conclusion that “the income derived from

broadcast of 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 had

participated in the event, where cricket teams of these Associations had

played various matches in the country. Though the payments were
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

18
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.

14. The mandate under Section 115 BBA (1)(b) is also clear in that if

the total income of a Non-resident Sports Association includes the amount

guaranteed to be paid or payable to it in relation to any game or sports

played in India, the amount of income tax calculated in terms of said

Section shall become payable. The expression ‘in relation to’ emphasises

the connection between the game or sport played in India on one hand and

the Guarantee Money paid or payable to the Non-resident Sports

Association on the other. Once the connection is established, the liability

under the provision must arise.

15. In CIT vs. Eli Lilly and Co. (India) Pvt. Ltd. 10, this Court was

called upon to consider the following issue:-

“56. Whether TDS provisions which are in the nature
of machinery provisions enabling collection and
recovery of tax are independent of the charging
provision which determines the assessability in the
hands of the assessee employee (recipient)? In other
words, whether TDS provisions under the Income Tax
Act
, 1961 are applicable to payments made abroad by

10 (2009) 15 SCC 1
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

19
the foreign company, which payments are for income
chargeable under the head “salaries” and which are
made to expatriates who had rendered services in
India?”

After considering the entirety of the matter and rival submissions,

the issue was answered as under:-

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

16. In G.E. India Technology Centre Pvt. Ltd.5, the question that arose

was whether the appellant was liable to deduct Tax at Source in respect of

payments made to certain foreign software suppliers. According to the

appellant, the payments were for purchase of software whereas according

to the Revenue, the payments also included payments towards royalty. The

Tribunal, while accepting the case of the appellant had held that the

amount paid by the appellant to foreign software suppliers was not royalty

and the same did not give rise to any income taxable in India. The High

Court had reversed the decision of the Tribunal and held that unless the
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

20
payer had obtained appropriate permission under Section 195(2) of the Act,

the payer was obliged to deduct Tax at Source. In this context the matter

was considered by this Court. While dealing with scope of Section 195(1)

of the Act, it was stated:-

“8. The most important expression in Section 195(1)
consists of the words chargeable under the provisions
of the Act. A person paying interest or any other sum
to a non-resident is not liable to deduct 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 payer and no right to receive the sum by the
recipient and that the payment does not arise out of
any contract or obligation between the payer and the
recipient but is made voluntarily, such payments
cannot be regarded as income under the IT Act.

9. It may be noted that Section 195 contemplates not
merely amounts, the whole of which are pure income
payments, it also covers composite payments which
have an element of income embedded or incorporated
in them. Thus, where an amount is payable to a non-
resident, the payer is under an obligation to deduct
TAS in respect of such composite payments. The
obligation to deduct TAS is, however, limited to the
appropriate proportion of income chargeable under
the Act forming part of the gross sum of money
payable to the non-resident. This obligation being
limited to the appropriate proportion of income flows
from the words used in Section 195(1), namely,
“chargeable under the provisions of the Act”. It is for
this reason that vide Circular No. 728 dated 30-10-
1995 CBDT has clarified that the tax deductor can
take into consideration the effect of DTAA in respect
of payment of royalties and technical fees while
deducting TAS. It may also be noted that Section
195(1)
is in identical terms with Section 18(3-B) of
the 1922 Act.

… … …
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

21

16. The fact that the Revenue has not obtained any
information per se cannot be a ground to construe
Section 195 widely so as to require deduction of TAS
even in a case where an amount paid is not chargeable
to tax in India at all. We cannot read Section 195, as
suggested by the Department, namely, that the
moment there is remittance the obligation to deduct
TAS arises. If we were to accept such a contention it
would mean that on mere payment income would be
said to arise or accrue in India. Therefore, as stated
earlier, if the contention of the Department was
accepted it would mean obliteration of the expression
“sum chargeable under the provisions of the Act”
from Section 195(1). While interpreting a section one
has to give weightage to every word used in that
section. While interpreting the provisions of the
Income Tax Act one cannot read the charging sections
of that Act dehors the machinery sections. The Act is
to be read as an integrated code.

17. Section 195 appears in Chapter XVII which deals
with collection and recovery. As held in CIT v. Eli
Lilly & Co. (India) (P) 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
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

22
TDS
applies only to those sums which are chargeable
to tax under the IT Act.”

16.1 The submission that unless permission was obtained under Section

195(2) of the Act, the liability to deduct Tax at Source must be with respect

to the entire payment, was not accepted. Relying on the expression

“chargeable under the provisions of the Act” occurring in Section 195(1) of

the Act, it was held “the obligation to deduct TAS, is however, limited to

the appropriate proportion of the income chargeable under the Act forming

part of the gross sum of money payable to the non-resident”.

16.2 This decision, in our view, has no application insofar as payments

at serial nos. (vi) and (vii) are concerned. To the extent the payments

represented amounts which could not be subject matter of charge under the

provisions of the Act, appropriate benefit already stands extended to the

Appellant.

17. We now deal with two other decisions relied upon by the

Appellant:-

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 personnel of the appellant
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

23
were to acquire “know-how” and necessary skills by on the job placement

at the place of the foreign company, in respect of which, certain amounts

were paid to the foreign company. Said payment was not found by the

High Court to have accrued or arisen in India and the 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 or arising in India? In this
connection, the Tribunal has solely relied upon a
Supreme Court decision in the case of Performing
Right Society Ltd. [1977] 106 ITR 11. The facts of
that case were that the society was an association of
composers, authors and publishers of copyright
musical works established to grant permission for the
performing right in such works. The society collected
royalties for the issue of licences granting such
permission and distributed the royalties to the
members of the society who were composers, authors,
music publishers and other persons having an interest
in the copyright, in proportion to the extent to which a
member’s work was publicly performed or broadcast
after a pro-rata deduction of the expenses. The society
entered into an agreement with the resident of India
granting licence to broadcast from the licensee’s
sound broadcasting stations in India all musical works
included in the repertoire of the society. Under the
agreement, for the rights granted to it, the licensee
was to pay to the society annually a sum calculated at
two pounds per hour of broadcasting western music
from each of the licensee’s broadcasting stations and
the annual payment was to be made to the society in
London. On those facts, the Supreme Court held that
though it received the income out of the agreement
executed not in India but in England, the income
undoubtedly accrued or arose in India.

I am unable to see how the decision in Performing
Right Society Ltd.’s case [1977] 106 ITR 11 (SC), can
be of any help to the Revenue in this case. To my
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

24
mind the facts of the two cases are not quite similar;
the acquisition of technical know-how and the use of
the acquired know-how in the design of machines and
accessories and their manufacture in India does not
seem to me to be comparable to the playing and
broadcasting of copyright musical compositions in
India on the basis of the licence granted under an
agreement. To my mind the facts of the case in hand
would be comparable to a situation where some
people went to England to learn western music from
the members of the society, on payment of some
specified fee and on coming back used the acquired
skill to write musical compositions that were played
and broadcast in this country. The decision in
Performing Right Society Ltd.’s case [1977] 106 ITR
11 (SC), would surely not apply to such a case.”

It was thus held that the income mentioned in article III (a) of the

agreement did not accrue or arise in India. No connection was found as

regards the payment for on the job placement in a foreign country to

acquire necessary skills, whereas in the instant case the connection is very

much evident. This case, thus, has no application.

B) In Manjoo and Co.8, a wholesale distributor of lotteries organised

by the State was obliged under the distribution agreement to bear the loss

in case lottery tickets were not sold before the “draw date”. Some of the

unsold tickets emerged as prize winning tickets. The submission that prize

won from lottery in such case be treated as receipt of income in the profit

and loss account and not as “winnings from lottery” resulting in
Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

25
assessment at the special rate provided under Section 115BB of the Act,

was not accepted by the High Court. It was observed:-

“… …Therefore, assuming for argument’s sake the
contention of the respondent that winnings from
lotteries are received by him in the course of his
business and are incidental to the business and as such
they are his business income is right, still, we feel in
view of the specific provision contained in Section
115BB
, the special rate of tax is applicable for all
winnings from lottery. … …”

This decision has no application insofar as the present controversy

is concerned.

18. We now come to the issue of applicability of DTAA. As observed

by the High Court, the matter was not argued before it in that behalf, yet

the issue was dealt with by the High Court. In our view, the reasoning that

weighed with the High Court is quite correct. The obligation to deduct Tax

at Source under Section 194E of the Act is not affected by the DTAA and

in case the exigibility to tax is disputed by the assesse on whose account

the deduction is made, the benefit of DTAA can be pleaded and if the case

is made out, the amount in question will always be refunded with interest.

But, that by itself, cannot absolve the liability under Section 194E of the

Act.

Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

26

19. In the premises, it must be held that the payments made to the Non-

Resident Sports Associations in the present case represented their income

which accrued or arose or was deemed to have accrued or arisen in India.

Consequently, the Appellant was liable to deduct Tax at Source in terms of

Section 194E of the 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 Cricket in Sri

Lanka through PILCOM (the Appellant in the lead matter) challenging the

common Judgment and Order dated 25.09.2018 passed by the High Court

allowing I.T.A. Nos. 242 of 2008 and 279 of 2008. These matters arise

from the consequential assessment orders passed by the Department

pursuant to the Judgment and Order under appeal in the lead matter.

23. Notice was issued in these petitions because of the pendency of the

lead matter.

24. Since the lead matter is dismissed, we dismiss these Special Leave

Petitions as well.

Civil Appeal No. 5749 of 2012 etc.
PILCOM vs. C.I.T. West Bengal-VII

27

……………………….J.

[Uday Umesh Lalit]

……………………….J.

[Vineet Saran]
New Delhi;

April 29, 2020.



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