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 Court

1

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

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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

countries which did not

participate in the World Cup

matches

17,00,000

ii) Amounts transferred from London

to Pakistan and Sri Lanka for

disbursement of prize money in

those countries

1,20,000

iii)Payment to ICC as per Resolution

dated Feb. 2, 1993

3,75,000

iv) Payment for ICC Trophy for

qualifying matches between ICC

Associate members held outside

India

2,00,000

v) Guarantee money paid to South

Africa and United Arab Emirates

both of which did not play any

match in India

3,60,000

vi) Guarantee money paid to

Australia, England, New Zealand,

Sri Lanka and Kenya with whom

8,85,000

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

Pakistan, West India, Zimbabwe

and Holland

7,10,000

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 17/37

th

portion i.e. 45.94 percent of the other

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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

Act

3

, whereas, the other six payments were found to be governed by said

provision. However, only 17/37

th

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

9

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

10

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 Another

5

; 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. CIT

7

; 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

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PILCOM vs. C.I.T. West Bengal-VII

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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

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PILCOM vs. C.I.T. West Bengal-VII

15

(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 percent

9

.”

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

16

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

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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

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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

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PILCOM vs. C.I.T. West Bengal-VII

22

TDS applies only to those sums which are chargeable

to tax under the IT Act.”

16.1The 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”.

16.2This 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

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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.