2023 (5) TMI 700 - AT - Income Tax

Cricket Payments to CSA and CA Deemed Non-Taxable in India as Capital Receipts, Tribunal Rules.

The Board of Control for Cricket in India Versus Dy. Commissioner of Income Tax Central Circle–6 (2), Mumbai

The Tribunal ruled in favor of the assessee, determining that the compensation payments made to Cricket South Africa (CSA) and Cricket Australia (CA) were ... Income taxable In India - Taxability of compensation paid to the overseas Cricket Association for the termination of the agreement - Dependent Agent Permanent Establishment (DAPE) - assessee conducted an annual Cricket tournament called CLT20 during the months of September/October every year, till the year 2014 and entered into an arrangement with CSA and CA to ensure the participation of their winners and/or runner-up teams of the domestic Twenty20 Cricket competition in the CLT20 Tournament apart from other ICC member countries - main income from the CLT20 Tournament arose from the sale of media rights - whether the CSA had a DAPE in India under the provisions of the India-South Africa DTAA? HELD THAT:- We find that the payment made to CSA by the assessee under the Termination Agreement dated 25/06/2015 was not only for the premature termination of the arrangement amongst them, whereby CSA was required to ensure the participation of teams from South Africa in the CLT20 Tournament each year, but the compensation was also for the non-compete clause as provided in clause 6 of the agreement. However, there is no clause in the agreement that supports the submission of the assessee that the compensation was for the purpose of avoiding any litigation and settling the disputes, therefore we find no merits in the said submission. In the present case, we are of the considered view that the payment to CSA is not arising from any operations carried out in India in the year under consideration and thus the same is not taxable under section 9(1) of the Act. Further, the fact that the agreements were executed in India is of some relevance, but only for the purpose of determining the jurisdiction of the courts and the same will not determine the taxability of receipt in India, unless there are some operations carried out in India and the payment is 'reasonably attributable' to same, which condition, as noted above, is absent in the present case. In any case, the payment of compensation to CSA is for the termination of the arrangement, which was a profit-making apparatus, and thus is in the nature of capital receipt and hence not taxable. It is pertinent to note that the entire CLT20 Tournament was conducted by the assessee, and all the agreements, including the media/broadcasting Rights Agreement, in this regard were entered into by the assessee. As noted in the Termination Agreement, in order to maximise the commercial success of the CLT20 Tournament and to ensure the participation of teams from South Africa and Australia in addition to the other teams of ICC member countries, the assessee, inter-alia, entered into an arrangement with CSA to ensure that its winning/runner-up teams involved in domestic Twenty20 Cricket competition administered by CSA participate in the CLT20 Tournament organised by the assessee each year As the assessee cannot be said to be DAPE of CSA in India under Article 5(5) of the India-South Africa DTAA. Thus, the payment of compensation to CSA under the Termination Agreement is also not taxable under the provisions of the India-South Africa DTAA. Since the payment is not chargeable to tax in India in the hands of CSA, therefore, there is no obligation on the assessee to deduct tax at source under section 195 of the Act. Accordingly, the impugned order passed by the learned CIT(A), on both counts, is set aside. Section 115BBA(1)(b) of the Act has no application to the year under consideration, as the same only covers amount guaranteed to be paid or payable to a non-resident sports association or institution in relation to any game or sport played in India. However, in the present case, it is undisputed that CLT20 Tournament was discontinued from the year 2015, therefore, no game or sport was played in India in the year under consideration. Further, the payment to CSA is compensation for the termination of the CLT20 Tournament, which cannot by any interpretation be said to be 'in relation to any game or sport played in India'. As a result, the grounds raised by the assessee are allowed. Issues Involved:1. Taxability of compensation paid to Cricket South Africa (CSA).2. Determination of Permanent Establishment (PE) status of CSA in India.3. Applicability of Section 195 of the Income Tax Act, 1961.4. Taxability of compensation paid to Cricket Australia (CA).Summary of Judgment:Issue 1: Taxability of Compensation Paid to Cricket South Africa (CSA)The assessee, a national body for Cricket in India, paid compensation to CSA for terminating an agreement under which CSA was to ensure the participation of its teams in the Champions League T20 (CLT20) Tournament. The CIT(A) held that this compensation was taxable in India under Section 9(1) of the Income Tax Act, 1961, as it was deemed to accrue or arise in India. The Tribunal, however, found that no services were rendered by CSA in India during the year in question, and the non-compete clause applied outside India. Consequently, the payment was not attributable to any operations carried out in India and was deemed a capital receipt, not taxable in India.Issue 2: Determination of Permanent Establishment (PE) Status of CSA in IndiaThe CIT(A) concluded that the assessee constituted a Dependent Agent Permanent Establishment (DAPE) of CSA in India. The Tribunal disagreed, stating that the Revenue failed to prove that the assessee had the authority to conclude contracts on behalf of CSA and habitually exercised such authority. Therefore, CSA did not have a PE in India under Article 5(5) of the India-South Africa Double Taxation Avoidance Agreement (DTAA).Issue 3: Applicability of Section 195 of the Income Tax Act, 1961Given that the compensation paid to CSA was not taxable in India, the Tribunal held that there was no obligation on the assessee to deduct tax at source under Section 195 of the Act. The Tribunal also rejected the Revenue's new contention regarding the applicability of Section 115BBA r/w Section 194E, as it was not part of the original order by the CIT(A).Issue 4: Taxability of Compensation Paid to Cricket Australia (CA)The facts and terms of the agreements related to the compensation paid to CA were similar to those concerning CSA. Therefore, the Tribunal applied the same findings and conclusions. The compensation paid to CA was also deemed not taxable in India, and there was no obligation on the assessee to deduct tax at source under Section 195 of the Act.Conclusion:Both appeals by the assessee were allowed, with the Tribunal setting aside the orders of the CIT(A) and holding that the compensation payments to CSA and CA were not taxable in India.