The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the compensation paid by the Board of Control for Cricket in India (BCCI) to Cricket South Africa is not taxable under termination agreement as per the India-South India Double Taxation Avoidance Agreement (DTAA).
The assessee, Board of Control for Cricket in India is the national body for Cricket in India and was a society registered under the Tamil Nadu Societies Registration Act. With a view to maximise the commercial success of the CLT20 Tournament the assessee arrived at an arrangement, inter-alia, with Cricket South Africa (“CSA”), which was the national body for Cricket in South Africa.
On 25/06/2015, the assessee entered into an agreement with CSA to revoke the arrangement with CSA under which they were obliged to ensure the participation of the teams under its jurisdiction in the CLT20 Tournament. As compensation for the termination of the CLT20 Tournament and in consideration of CSA‟s obligations in the aforesaid agreement, the assessee agreed to pay CSA, net of taxes, an amount.
Although the assessee was of the view that the said payment was not taxable in India, as a measure of abundant caution, the assessee grossed up the payment by 43.26% and remitted the tax to the credit of the Revenue.
P.J. Pardiwala on behalf of the assessee submitted that, neither during the continuation of the arrangement nor upon its termination any services had been rendered by CSA in India. He further submitted that, in the absence of any Permanent Establishment of CSA in India, the payment of compensation for the discontinuance of the CLT20 Tournament could not be taxed in India.
Surabhi Sharma ,on behalf of the revenue submitted that the assessee had constituted DAPE of CSA in India and hence the income was liable to be taxed in India under the provisions of the India South Africa (DTAA) as well. He further submitted that in the alternative, the assessee would be liable to deduct TDS.
The two-member Bench of G.S. Pannu, (President), and Sandeep Singh Karhail, (Judicial Member) set aside the impugned order observing that, holding that, the payment of compensation to CSA under the Termination Agreement was also not taxable under the provisions of the India-South Africa DTAA. Since the payment was not chargeable to tax in India in the hands of CSA, therefore, the Bench held that there was no obligation on the assessee to deduct tax at source.
The payment to CSA was 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 Income Tax Act, the Bench further observed.
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