Compensation for cancelling Champions League T20
tournament - whether taxable in India
Facts:
Assessee
the premier sports body in charge of cricket in India had organized a
tournament called Champions League T20 (CLT20) where in top T20 teams of South
Africa and Australia were to participate in a T20 tournament to be held year on
year which was in concurrence with Cricket South Africa (CSA) and Cricket
Australia (CA). Broadcast rights for the said CLT20 was with Star sports
who had to pay a compensation for the premature cancellation of the broadcast
rights post year 2015. Since the cricket bodies decided to cancel the
existing contract envisaging continuous participation of their teams, the
assessee entered into a cancellation agreement in India which had a non-compete
clause that none of the two cricketing bodies CSA/CA will organize such a
similar tournament even if it was held outside India and if at all it was held
it can only be done by the assessee alone. Compensation was paid to both CSA/CA
due to cancellation of the CLT20 tournament. It was held by the revenue that
the assessee triggered a Dependent Agency Permanent Establishment (DAPE) for
CSA/CA and since the compensation/non-compete agreement was signed in India and
since it arose of an would be Indian tournament it was held to be taxable as
business income under section 28(va) r/w the respective DTAA's. On further
appeal by the assessee -
Held
in favour of the assessee that -
There
was no DAPE for CSA/CA in India. No business income could be attributed
accordingly in India.
The
payment was for non-compete rights but for loss of an income earning apparatus
called CLT20 and thus was not an income that accrued or arose in or out of
India. It was a capital receipt.
The
non-compete clause also meant if at all the CLT20 or similar tournament was
conducted it could be held only by the assessee outside India and not in India
so the compensation paid for the termination was for an income earning
source/apparatus which was not from India but outside India. Signing the
agreement in India is not a deciding factor.
Revenue
had failed to establish how the DAPE was triggered.
Case: The Board of Control for Cricket in India v. Dy. CIT 2023 TaxPub(DT)
2557 (Mum-Trib)