2020 (5) TMI 57 - SC - Income Tax

Supreme Court: Tax Deduction on Payments to Non-Resident Sports Associations Upheld

PILCOM Versus C.I.T. WEST BENGAL-VII

PILCOM Versus C.I.T. WEST BENGAL-VII - [2020] 425 ITR 312 (SC) Issues Involved:1. Applicability of Section 194E and Section 115BBA of the Income Tax Act, 1961.2. Determination of the source of income for non-resident sports associations.3. Applicability of Double Taxation Avoidance Agreements (DTAA).4. Obligation to deduct tax at source by the payer.Detailed Analysis:1. Applicability of Section 194E and Section 115BBA of the Income Tax Act, 1961:The core issue was whether PILCOM was required to deduct tax at source under Section 194E for payments made to non-resident sports associations. The tribunal and the High Court concluded that the payments made by PILCOM to various cricket associations were subject to tax deduction at source as per Section 194E, read with Section 115BBA. Section 115BBA mandates tax on income received by non-resident sports associations from games or sports played in India. The Supreme Court upheld this view, emphasizing that the payments were indeed connected to matches played in India, thus falling within the ambit of Section 115BBA.2. Determination of the Source of Income for Non-Resident Sports Associations:The Tribunal and the High Court examined whether the payments to non-resident sports associations constituted income that accrued or arose in India. The payments were classified into seven categories, but the primary focus was on guarantee money paid to associations, some of which did not participate in matches in India. The Tribunal held that for associations that did not play in India, the source of income could not be linked to matches played in India. However, for associations that participated in matches in India, the income was deemed to accrue from such participation. The Supreme Court affirmed this, noting that the source of income was the playing of matches in India, which established the connection required under Section 9(1) of the Act.3. Applicability of Double Taxation Avoidance Agreements (DTAA):The High Court addressed whether the obligation to deduct tax at source under Section 194E was affected by DTAA. It concluded that DTAA provisions do not impact the obligation to deduct tax at source, as such deductions are not final tax payments but are subject to subsequent assessment and potential refund if the income is not taxable. The Supreme Court agreed, stating that the benefit of DTAA could be claimed by the assessee during assessment, but it does not absolve the payer from the obligation to deduct tax at source.4. Obligation to Deduct Tax at Source by the Payer:The Supreme Court reiterated that under Section 194E, the payer is obligated to deduct tax at source on payments to non-resident sports associations if the income is deemed to accrue or arise in India. This obligation exists regardless of where the payment is made or where the agreement was executed. The Court emphasized that the machinery provisions for tax deduction at source are integral to the charging provisions, forming a single, inseparable code under the Income Tax Act.Conclusion:The Supreme Court dismissed the appeal, holding that the payments made by PILCOM to non-resident sports associations were subject to tax deduction at source under Section 194E, as the income accrued or arose in India due to the participation in cricket matches held in India. The Court also dismissed the related Special Leave Petitions, affirming the High Court's judgment and the Tribunal's findings. The obligation to deduct tax at source was upheld, and the applicability of DTAA was clarified as not affecting this obligation.