High Court explains the law of taxation of agent / representative assessee u/s 163 who is liable to tax on both-income directly or indirectly arising / accruing in India through a business connection
PILCOM treated agent u/s 163 of non-resident Foreign Cricket Boards liable to tax on income arisen or accrued indirectly in India.
ABCAUS Case Law Citation:
ABCAUS 2540 (2018) 09 HC
Important Case Laws Cited/relied upon by the parties:
Jyotendrasinhji Vs. S.I. Tripathi & Ors. 201 ITR 611 (SC)
British Sugar Manufacturers, Ltd. Vs. Harris (Inspector of Taxes) 209 ITR 101.
In 1996, the Cricket World Cup tournament was held in the sub-continent. Sri Lanka won it, for the only time, in history.
The International Cricket Council (ICC) has its head quarters in London. It is the organisation which makes and alters the rules of the game, sets the different levels and minimum standards at which the game is to be played in each country to get its recognition, the different formats of the game, e.g. test cricket, first class cricket, limited overs competition and so on. It has affiliates from similar organisations in countries, all over the world. ICC may first recognise a country’s team to be fit to compete in the limited overs competitions and thereafter declare it fit to play test cricket. It controls, supervises and regulates the game of cricket in every respect. Not only does it recognise countries and teams, it also certifies the fitness of venues, grounds where the game is intended to be played at the international level. It sets a yearly calendar based on which the game above first class level is played.
In a special meeting of the ICC held in London, India, Pakistan and Sri Lanka were chosen to co-host the world cup.
A joint management committee of these three countries, [PAK-INDO-LANKA joint management committee (PILCOM)] was formed to conduct this world cup cricket tournament. Bank accounts were opened by PILCOM in London to be operated jointly by India and Pakistan cricket boards. In this account were deposited moneys from sponsorships, TV rights etc.
The Board of Control for Cricket in India (BCCI) appointed its own committee for discharge of its functions. It was known as INDCOM. It had its bank account at Calcutta. From the bank account of PILCOM at London certain amounts were transferred to the bank accounts of the host countries for the purpose of payment of fees to the Umpires and referees, defraying administrative expenses and payment of prize money.
PILCOM paid £43,50,000 which included £19,55,000 as guarantee money to eleven cricket associations.
Income Tax Officer (TDS) made an order under Section 201(1)/194E against PILCOM demanding Rs. 2,18,29,3007/- as tax which ought to have deducted by it. The matter reached the Tribunal. It held that no income could be deemed to accrue or arise to the cricket associations, in India under Section 9(1) of the Income Tax Act, 1961.
The Tribunal held that only that proportion of the total fund received by any country from PILCOM which was equal to the ratio of the number of matches played by such country to the total number of matches played by that country in the tournament should be considered to be income arising or accruing to the cricket association of that particular country. Tax should be deducted at source in respect of this portion of the payment made by it to a particular association.
Both PILCOM and the revenue preferred appeals against this order of the tribunal before this High Court. Both the appeals were dismissed with the observation that the order of the tribunal did not call for any inference.
Meanwhile, the Assessing Officer issued a notice under Section 142(a) of the Income Tax Act, 1961 to PILCOM. The various cricket associations filed returns showing their income as NIL. The Board filed a revised return. Notice under Section 148 was issued. The AO thereafter made several orders under Section 147 of the Act for all the cricket boards. The assessing officer made an assessment of income of each assessee through PILCOM. Appeals were preferred before the Commissioner of Income Tax (Appeals), who partly allowed them.
The Tribunal held that since the income had accrued in India it could not be said to be deemed to have accrued in India. Therefore, PILCOM could not be liable as agent under Section 163 of the said Act.
The Hon’ble High Court observed the following provisions of the Act
Section 5(1) which states that the total income in any previous year of a person who is a resident of India includes all income which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India or accrues or arises to him outside India.
Section 5(2) provides that the total income of a non-resident includes all income which is so received or deemed to be received in India or has accrued or arises or deemed to accrue or arise in India during the previous year.
Under Section 9(1)(i), the income which is deemed to accrue or arise in India has been defined so as to inter alia include all income accruing or arising whether directly or indirectly through any business connection in India.
Section 163 says that an agent in relation to a non resident includes inter alia any person in India from or through whom a non-resident does any business or is in receipt of any income, directly or indirectly.
Section 160 declares such an agent for the income of a non-resident specified in Section 9(1) to be a representative assessee. Under Section 161 he is treated as the person who is receiving the income or in whose favour the income has accrued beneficially. He shall be liable to assessment in his own name but in a representative capacity.
Therefore the Hon’ble High Court held that in view of the above provisions each of the foreign Cricket Boards could be said to be a non-resident person and PILCOM could be said to have been their agent.
The Hon’ble High Court opined that the Tribunal held that the income had actually arisen in India. On the basis of that order it proceeded to make a completely wrong interpretation of the law.
The Hon’ble High Court clarified that Section 9 merely tries to classify the income which is deemed to accrue or arise in India by saying that it should inter alia arise from business connection of the non-resident with India. Section 160 makes it abundantly plain that a representative assessee would represent the assessee in respect of a non-resident in respect of his income specified in Section 9. This simply means that a representative assessee would represent all income accruing or arising in India and not in a foreign country directly or indirectly from any business connection in India. It goes without saying that the representative assessee not only represents an income which has directly arisen or accrued in India but also that which has indirectly arisen or accrued in this country, through a business connection. Only the short title to the section describes this income as deemed to accrue or arise in India. Use of this title does not absolve the representative assessee of the duty to account for any income which has directly or deemed to have arisen to the non-resident in this country.
The Hon’ble High Court observed that the Tribunal made a complete misunderstanding of the law in entertaining the opinion that since the income made by the nonresident Cricket Boards were held to have directly arisen in India, this income could not be deemed to have arisen or accrued to the non-resident in India and the responsibility of the representative assessee was confined to accounting for income which had directly arisen or accrued in India. Furthermore, if the department chooses to make an assessment of the person resident outside India directly, there is no question of assessment of his agent or a representative assessee.
The Hon’ble High Court stated that Section 166 of the Income Tax Act, 1961 very clearly lays down that nothing in the foregoing sections relating to representative assessee shall prevent either the direct assessment of the person for whom the money is receivable.
The Hon’ble High Court opined that the Tribunal made a clear mistake in believing that since it was held in an earlier proceeding that the income in question arose in India, a representative assessee could not be liable because it was only liable according to it in respect of the income which was deemed to have arisen in India. The effect of the order of the Tribunal was that inspite of a foreign resident having an agent in India and income directly arising in this country to the foreign resident, the agent would escape liability to assessment.
Accordingly, the Hon’ble High Court set aside the order of the Tribunal and the orders of the Assessing Officer and of the Commissioner of Income Tax (Appeals) were affirmed.
