2000 (1) TMI 139 - AT - Income Tax

Tribunal Rules on Tax Deductions for Foreign Payments under Income-tax Act

The Tribunal held that only a proportionate amount of payments made by PILCOM should be considered for tax deduction under Section 194E and 201(1) of the ... Appeal, Commissioner, Words And Phrases Issues Involved:1. Applicability of Section 194E and 201(1) of the Income-tax Act, 1961.2. Jurisdiction and validity of the CIT(A)'s order.3. Taxability under Section 115BBA and Section 9(1)(i) of the Income-tax Act.4. Impact of Double Taxation Avoidance Agreements (DTAA).5. Extraterritorial jurisdiction of Indian tax laws.Summary:1. Applicability of Section 194E and 201(1):The ITO issued a notice to PILCOM for failing to deduct taxes u/s 194E from payments made to ICC and various Cricket Control Boards. The CIT(A) held that the provisions of Section 115BBA would be attracted to all payments except for prize money transferred to Pakistan and Sri Lanka, which was outside the scope of Section 115BBA. The CIT(A) directed that only 45.94% of the payments should be considered for tax deduction as only 17 out of 37 matches were played in India.2. Jurisdiction and Validity of the CIT(A)'s Order:The Department argued that the CIT(A) had no jurisdiction to hear the appeal as PILCOM is not a company. The Tribunal rejected this argument, stating that the CIT(A) had the power to hear the appeal based on Section 246 and relevant notifications. The Tribunal emphasized that the CIT(A) should have transferred the appeal to the appropriate authority if he lacked jurisdiction.3. Taxability under Section 115BBA and Section 9(1)(i):The Tribunal agreed with the CIT(A) that the guarantee money paid to countries that did not participate or play in India could not be considered as income accrued in India. However, for countries that played in India, a proportionate amount of the guarantee money corresponding to the ratio of matches played in India to the total matches should be considered for tax deduction.4. Impact of Double Taxation Avoidance Agreements (DTAA):The assessee contended that payments to countries with which India has DTAA should not be taxed. The Tribunal held that Article 17 of the DTAA, which covers income derived by entertainers from activities in India, would apply, and therefore, the payments to these countries should be taxed proportionately.5. Extraterritorial Jurisdiction of Indian Tax Laws:The Tribunal rejected the argument that payments made outside India do not attract Indian tax laws. It held that if the payments generate taxable income in India, the provisions of tax deduction at source would apply, regardless of where the payment is made.Conclusion:The Tribunal directed that payments to countries that did not participate or play in India should be deleted from the order u/s 201(1). For other payments, only a proportionate amount should be considered for tax deduction. The appeals by both sides were disposed of accordingly.