A two-judge bench of the Calcutta High Court has held that the PAK-INDO-LANKA joint management committee (PILCOM) can be treated as an agent of Non-Resident Boards and players for imposing the Income Tax on the Cricket boards of Sri Lanka and Pakistan on conducting the World Cup Tournament in 1996.
A division bench comprising Justice Amrita Sinha and Justice I. P. Mukerji was hearing an appeal filed by the revenue against the order of the Income Tax Appellate Tribunal (ITAT).
For conducting the tournament, a joint management committee of these three countries, [PAK-INDO-LANKA joint management committee (PILCOM) was formed. Bank accounts were opened by PILCOM in London to be operated jointly by India and Pakistan cricket boards. Amounts received from sponsorships, TV rights etc., were deposited in this account.
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. The income tax department initiated re-assessment proceedings against the cricket boards.
On appeal, the Tribunal held that since the income had accrued in India it could not be said to be deemed to have accrued in India and therefore, PILCOM could not be liable as agent under Section 163 of the said Act.
After hearing both the sides, the bench held that under Section 9 of the Income Tax Act, 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 bench said.
Justice I. P. Mukerji, who penned the judgment, pointed out that “In my opinion the Tribunal has made a complete misunderstanding of the law in entertaining the opinion that since the income made by the non-resident 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.”
Deleting the order, the bench held that “The Tribunal, in our opinion, 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 is that in spite 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.”
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