ITAT BCCI Not Liable to Deduct Tax: Payment of Compensation to CSA Under Termination Agreement Is Not Taxable Under India-South Africa DTAA
ITAT BCCI Not Liable to Deduct Tax: Payment of Compensation to CSA Under Termination Agreement Is Not Taxable Under India-South Africa DTAA
The Income Tax Appellate Tribunal (ITAT), Mumbai, by its division member bench of G.S. Pannu (President) and Sandeep Singh Karhail (Judicial Member), ruled that payment of compensation to Cricket South Africa (CSA) under the Termination Agreement is not taxable under the provisions of the India-South Africa Double Taxation Avoidance Agreement (DTAA).
The bench was of the view that since the payment was not chargeable to tax in India in the hands of CSA, there is no obligation on the assessee to deduct tax at source under Section 195, of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The brief background of the case was that the assessee/appellant- The Board of Control for Cricket in India (BCCI), is the national body for cricket in India and is a society registered under the Tamil Nadu Societies Registration Act. The assessee was founded in 1929 with the object of promoting and developing cricket in India and fostering the spirit of sportsmanship. The assessee is also a member of the International Cricket Council (ICC), the international regulatory body for cricket.
The assessee derives substantial income from the conduct of cricket tournaments and matches and is regularly assessed tax in India. In the year 2008, the assessee commenced the conduct of a cricket tournament, namely, the Champions League T20 (CLT20). The participants in the CLT20 Tournament included the winners and/or runners-up of the domestic 20-over leagues in India, Australia, South Africa, etc.
The first issue, in the present appeal, was regarding the taxability of compensation paid to the overseas Cricket Association for the termination of the agreement.
The ITAT noted that in the present case, there was no dispute regarding the fact that CSA is a resident of South Africa in terms of the India South Africa DTAA and is in the possession of a Tax Residency Certificate of South Africa.
The bench perused, Explanation 1(a) to Section 9(1)(i) of the Act, and observed that it is only that portion of the income which is ‘reasonably attributable’ to the operations carried out in India shall be deemed to accrue or arise in India for the purpose of taxation under the Act.
Averting to the present case, the bench noted that it was evident from the record that the arrangement which existed between CSA and the assessee, whereby CSA was under obligation to ensure the participation of two domestic teams from the T20 league, was terminated vide Termination Agreement dated 25 June, 2015, and no Cricket match of the CLT20 Tournament was played anywhere in the world, least in India, in the year consideration.
Thus, in the year under consideration no services, as alleged by the Revenue, by facilitating two domestic teams for participation in the CLT20 Tournament were rendered, stated the ITAT.
As regards the compensation being in the nature of non-compete fees was concerned, the ITAT agreed with the submissions of the assessee that the place where the non-compete clause would apply is outside India because if any tournament takes place in India the same would be organized by the assessee, being the national body for cricket in India, and CSA is not restrained from participating in such tournament, by virtue of clause 5 of the Termination Agreement.
“Therefore, 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,” the bench held.
The ITAT further highlighted that, once the taxability fails in terms of the provisions of the Act, there is no occasion to refer to the provisions of the tax treaty, as in terms of section 90(2) the provisions of the Act or the DTAA, whichever is more beneficial to the assessee shall be applicable.
In this regard, the bench found that the provisions of the India-South Africa DTAA, the payment of compensation under the Termination Agreement is not taxable in India.
The second issue was- whether the CSA had a Dependent Agent Permanent Establishment (DAPE) in India under the provisions of the India-South Africa DTAA.
While noting the provisions of Article 5(5) of the DTAA, the ITAT held that, as per the provisions of Article 5(5) of the DTAA, it is only when a person acting on behalf of an enterprise has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a Permanent Establishment in that State.
It observed, “thus, in order to invoke the provisions of Article 5(5) of the DTAA, both the conditions i.e. (a) the person has the authority to conclude contracts; and, (b) the person habitually exercises the authority to conclude the contract, need to be cumulatively satisfied. However, in the present case, the Revenue apart from alleging that the assessee is the agent of CSA did not bring anything on record to show that the assessee had the authority to conclude contracts in the name of CSA and has habitually exercised the said authority.
Therefore, the ITAT held that the Revenue had failed to discharge the burden cast on it to prove that the twin conditions provided in Article 5(5) of the DTAA were satisfied in the facts of the present case.
Lastly, the ITAT remarked that the payment made 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’.
Accordingly, the ITAT allowed the appeal.
