Services Provided By IMG Utilized By BCCI Outside India, Income Not Liable To Be Taxed: Delhi High Court

The Delhi High Court has held that services provided by International Management Group (IMG) are utilized by the Board of Control for Cricket in India (BCCI) outside India, so the income determined as Fee for Technical Services (FTS) cannot be deemed to accrue in India and therefore cannot be taxed in India.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed that the Tribunal clearly erred in holding that the advice and consultancy services rendered by IMG enabled BCCI “to absorb and apply the information and advice." It clearly failed to bear in mind the distinction that must be acknowledged to exist between the mere utilization of technical or consulting services in aid of business and the transfer, transmission, and enablement that must occur in order for the twin conditions of Article 13 of the DTAA to be satisfied.

Article 13 of the DTAA provides that Articles 13(1) and 13(2) would be inapplicable if FTS were received by a beneficial owner consequent to carrying on business in the other contracting state through a PE situated therein, and the right, property, or contract in respect of which FTS was earned is effectively connected with such a PE. In that event, FTS, as per Article 13(6), stands exempt from that provision of the Convention and is liable to be taxed in accordance with Article 7 or Article 15 of the DTAA, as the case may be.

The issue itself arises in the backdrop of a Memorandum of Understanding entered into between the appellant/assessee, IMG, and the Board of Control for Cricket in India on September 13, 2007 and a separate Services Agreement dated September 24, 2009. Those agreements pertained to the advisory and managerial services to be provided by IMG for the establishment, commercialization, and operation of the IPL.

The assessee had consistently taken the stand before the authorities below that the income earned by it and in terms of the Services Agreement would constitute business income and thus be taxable to the extent envisaged under Article 7 of the India-United Kingdom Double Taxation Avoidance Agreement. It appears to have been asserted that only such receipts as would be attributable to a permanent establishment in India would be taxable. IMG had a service PE as contemplated under Article 5(2)(k) of the DTAA in all the relevant AYs.

The Dispute Resolution Panel (DRP) held that the “make available” stipulation in Article 13 of the DTAA also stood satisfied. It then proceeded to examine the assertion of IMG based on Article 13(6) and which argument, if accepted, would have made the revenue liable to be taxed in terms of Article 7 as opposed to Article 13 of the DTAA. While dealing with this aspect, it was held that the revenue in question could not be said to be effectively connected to the PE, and consequently, the same would not escape taxability under Article 13.

The Dispute Resolution Panel as well as the Tribunal held that, quite apart from the income that was attributable to the Service PE of IMG, the balance receipts would be liable to tax under Article 13 of the DTAA, which is Fee for Technical Services.

The assessee contended that since the services were rendered outside India, the revenue was not liable to be taxed as FTS. It appears to have urged that for the purposes of revenue being taxable in India, it was incumbent for the authorities to have found in fact that service had been rendered in India.

The department contended that three fact-finding authorities had, on an analysis of the documentary evidence placed before them, come to the conclusion that the services performed by IMG would fall within the scope of FTS as defined under Article 13 of the DTAA. The mere fact that Article 13(4) does not speak of managerial services would clearly not advance the case of the appellant any further since the services rendered would, in any case, fall within the ambit of technical or consultancy services. The fact that those services are not concerned with the control or administration of the conduct of the commercial enterprise would be of little relevance. Once it is found that the services performed would qualify as technical or consulting services, all that needs to be further established are those that have been made available to the Indian payer.

The court noted that the respondents/department, while evaluating the attribution of income to the Service PE question, were necessarily constrained to tread down this path and bear in consideration the nature of services rendered by IMG UK as distinguished from those discharged by the Service PE. In fact, even the appellant does not appear to have seriously questioned the fact that a part of the advisory work was undertaken by its UK office without the involvement of the Service PE.

The court, while allowing the appeal and setting aside the order of the tribunal, held that services do not qualify for taxation under Article 13 since the “make available” test does not stand.

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: Kunal Sharma

Case Title: International Management Group (Uk) Limited Versus Commissioner Of Income Tax-2, International Taxation, New Delhi

Citation: 2024 LiveLaw (Del) 746

Case No.: ITA 218/2017

Click Here To Read The Order