Delhi High Court: Income Not Taxable On Services Provided By IMG And utilized By BCCI Outside India
Delhi High Court: Income Not Taxable On Services Provided By IMG And utilized By BCCI Outside India
Cites conditions of Article 13 under the Double Taxation Avoidance Agreement
The Delhi High Court has held that services provided by the International Management Group (IMG) are utilized by the Board of Control for Cricket in India (BCCI) outside India. Therefore, the income treated as Fees for Technical Services (FTS) cannot be accrued and taxed in the country.
The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav stated that the tribunal erred in holding that the advice and consultancy services rendered by the IMG enabled the BCCI “to absorb and apply the information and advice."
It failed to differentiate between the utilization of technical or consulting services for business and their transfer, transmission, and enablement. These are imperative for the twin conditions of Article 13 under the Double Taxation Avoidance Agreement (DTAA).
Article 13 states that Articles 13(1) and 13(2) would be inapplicable if the FTS was received by a beneficiary for carrying the business in another contracting state through a PE situated there. The right, property, or contract for the FTS earned related to the PE.
As per Article 13(6), the FTS would be exempt from the provision of the Convention and was taxable under Article 7 or Article 15.
The issue arose on the Memorandum of Understanding (MoU) between the IMG (appellant-assessee) and the BCCI on 13 September 2007 and a Services Agreement on 24 September 2009.
The agreements related to the advisory and managerial services to be provided by the IMG for the establishment, commercialization, and operation of the Indian Premier League (IPL).
The assessee insisted that the income earned by it in terms of the Services Agreement constituted business income. Therefore, it was taxable under Article 7 of the India-United Kingdom DTAA. It asserted that only the receipts attributable to a permanent establishment in India would be taxable. IMG had a service PE as mandated under Article 5(2)(k) of the DTAA for the relevant Assessment Years (AY).
While agreeing on the ‘make available’ stipulation in Article 13, the Dispute Resolution Panel (DRP) examined the assertion of the IMG under Article 13(6). It noted that if the argument was accepted, it would make the revenue liable to be taxed in terms of Article 7 as opposed to Article 13.
Thus, it was held that the revenue could not be connected to the PE, and, hence, would not escape tax.
The DRP and the tribunal held that apart from the income that was attributable to the Service PE of IMG, the balance receipts would be liable to tax under Article 13 as FTS.
However, the assessee contended that since the services were rendered outside India, the revenue was not liable to be taxed as FTS. It argued that for the revenue to be taxable in India, it was incumbent for the authorities to find out that the service was rendered in India.
The department stated that the authorities noted that the services performed by IMG were FTS as defined under Article 13. The mere fact that Article 13(4) did not mention managerial services would not advance the appellant’s case.
The services rendered would fall within the ambit of technical or consultancy services. The services concerned with the control or administration of the conduct of the commercial enterprise were irrelevant. Once decided, if the services were technical or consulting, it was only required to establish what was made available to the Indian payer.
The judges noted that the respondents-department, while evaluating the attribution of income to the Service PE, were constrained to consider the nature of services rendered by IMG UK as distinguished from those discharged by the Service PE. Even the appellant had not questioned that a part of the advisory work was undertaken by its UK office without the Service PE’s involvement.
Thus, the bench allowed the appeal, while setting aside the order of the tribunal that services do not qualify for taxation under Article 13.
