2.2 Analysis of Section 115BBA It applies only to a non-resident and a person who is not a citizen of India
Who is a sportsman (including athlete) and
Earns income from
• Participation in India in any game or sports
• Advertisement
• Contribution of article in newspaper, magazine or journals relating to any game or sport in India
Applies to a non-resident sports association or institution
Who earns income from
• Guarantee money in relation to any game or sport played in India
• Except games referred to in section 115BB
Applies only to a non-resident and a person who is not a citizen of India
• Who is an entertainer and
• Earns income from his performance in India
• Applicable tax rate is 20% on gross income
• Deduction of any expenditure incurred for earning such income is not allowed
• No need to file return if tax deductible at source has been deducted from such income.
3. CBDT Circular No. 787 dated 10-02- 2000 – Income of artists, entertainers, sportsmen etc.
The salient features of the said circular are as under:
Income derived from event or show for entertainment or sports includes:
• Sponsorship money;
• Gate money;
• Advertisement revenue;
• Sale of broadcasting or telecasting rights;
• Rents from hiring out of space, etc.
• Rent from caterers.
Article on “Artistes and Sportsman” will apply to
• Income from personal activities of sportsman or artist in India
• Advertising income and Sponsorship income, if it is related directly or indirectly to performance or appearance in India.
Article on “Royalty” will apply to
• Royalty payment for recorded performance
Article on “Other income” will apply to
• Guarantee money earned by Sports association
• E.g. Tax treaty with U.S, U.K., Japan, Australia, New Zealand, Sri Lanka, France etc.
Illustrations given in the Circular
Income not taxable in India
• Artist performing in India gratuitously without consideration.
• Artist performing in India to promote sale of his records without consideration.
• Consideration paid to acquire the copyrights of performance in India for subsequent sale or broadcast or telecast abroad.
Income taxable in India
• Consideration for the live performance or simultaneous live telecast or broadcast in India.
• Consideration paid to acquire the copyrights of performance in India for subsequent sale or broadcast or telecast in India.
• Endorsement fees (for launch or promotion of products, etc.) which relates to the artist’s performance.
4. Relevant Case Laws – Section 115BBA and 194E
Some of the important case laws are as under:
4.1 International Merchandising Corporation vs ADIT [2015] 57 Taxmann.com 179 (Delhi-Trib)
Issues:
i. Payment made to Association of Tennis Professionals (ATP), whether liable to Tax u/s. 115BBA?
ii. Whether section 194E does not apply as AT P is just a governing body of sport and not a sports association?
Held:
a) 194E read with section 115BBA apply to payments made to a non-resident sports association or an institution.
b)
ATP is undisputedly a governing body of the world wide men’s
professional Tennis Circuit responsible for ranking of its players and
co-ordinating the Tennis tournament in the world.
c) ATP is a
non-resident sports institution and therefore section 194E applies to
the payments made by the assessee to the AT P.
4.2 PILCOM vs. CIT [2011] 198 Taxman 555 (Cal.)
In this case, it was held as follows:
a)
Section 115BBA is completely independent from other sections such as
section 5(2) or section 9 and it has got nothing to do with the accrual
or assessment of income in India as mentioned in section 9.
b) Non-resident individual has to pay the tax, the moment he participates in India in any game or sport.
c)
Once the payment is made to non-resident sports association or
institution or it becomes payable in relation to any game or sports
played in India, there is accrual of income in India.
d) Section 115BBA is to be applied irrespective of place of making payment.
e)
Payment received by any sports association or personalities for the
matches not played in India is not taxable or liable for withholding
tax.
f) Department’s contention that source of payment is from India irrespective of place of game is overruled.
4.3 Indcom vs. CIT (TDS) [2011] 11 taxmann.com 109 (Cal.)
Issues:
Whether
tax will be deductible on amounts paid to foreign teams for
participation as prize money or administrative expenses, is deemed to
accrue in India u/s. 115BBA?
Whether the match referees and umpires will be considered as sportsmen?
Held:
The
amount paid to the foreign team for participation in the match in India
in any shape, either as prize money or as the administrative expenses,
was the income deemed to have accrued in India and was taxable u/s.
115BBA and, thus, section 194E was attracted.
The payments made
to the umpires or match referees do not come within the purview of
section 115BBA because the umpires and match referee are neither
sportsmen (including an athlete) nor are they non-resident sports
association or institution so as to attract the provisions contained in
section 115BBA. Therefore, although the payments made to them were
‘income’ which had accrued in India, yet, those were not taxable under
the aforesaid provision and thus, the liability to deduct u/s. 194E
never accrued.
The umpires and the match referee can, at the
most, be described as professionals or technical persons who render
their professional or technical services as umpire or match referee. But
there is no scope of deducting any amount u/s. 194E for such payment.
The
reader may also refer to the decision in the case of Board of Control
for Cricket in India vs. DIT (Exemption) [2005] 096 ITD 263 (Mum), on
the subject.
5. Scope of the Article 17 of OECD Model Tax Convention
Salient features of Article 17 are as under:
• Primary taxing rights is with the State of Source / State of performance
• It overrides Article 7, 14 and 15.
• It applies to entertainer, sportsperson or any other person
6. Article 17 (1)
6.1 Model Conventions – A Comparison
6.2 Scope of Article 17(1)
a. A pplies to Individual resident of one of the contracting state.
b. I ndividual is either an entertainer or a sportsperson.
c. He derives income from personal activities.
d. Word “personal activities” suggests “public appearance” is necessary.
e. Personal activities/performance are exercised in the source State i.e. country of performance.
f. Performance should be in public or recorded and later produced for an audience.
g. Performance must be artistic and entertaining.
h. Entertainer or sportsperson must be present in the state of source during the performance.
i. It is not necessary to remain present in the Source State for any minimum period.
j. Person performing even for a single event is covered.
k. Person involved in a political, social, religious or charitable nature is covered, if the entertaining character is present.
l. It covers both professional activities and occasional activities.
m. Source State gets right to tax income earned in that state.
6.3 Meaning of ‘Entertainer’
a. There is no precise definition of the term in Model convention or in treaty.
b. Dictionary meaning of “Entertainer”
i.
“A person whose job is amusing or interesting people, for example, by
singing, telling jokes or dancing” – Oxford Advanced Learner’s
Dictionary
ii. “A person, such as a singer, dancer, or comedian, whose job is to entertain others” – Oxford Dictionary of English
iii. “A person who entertains; a professional provider of amusement or entertainment” – Shorter Oxford Dictionary
c.
Term ‘Entertainer’ includes the stage performer, film actor or actor
(including for instance a former sportsperson) in a television
commercial.
d. Entertainer or sportsperson includes anyone who acts as such even for a single event.
6.4 Meaning of “artiste” and “artist”
a. There is no precise definition in Model convention or in treaty.
b. Dictionary meaning of “Artiste” is:
i. “An artist, especially an actor, singer, dancer, or other public performer” Random House Webster’s Dictionary
ii.
“A public performer who appeals to the aesthetic faculties, as a
professional singer, dancer, etc. also one who makes a ‘fine art’ of his
employment, as an artistic cook, hair dresser, etc. Oxford English
Dictionary
iii. “A professional entertainer such as singer, a dancer or an actor” Oxford Advanced Learner’s Dictionary
c. Difference between the word “artiste” and “artist”:
i. “Artist” has a broader meaning compared to “artiste”
ii. Artist includes those who create work of art, such as painter, sculptors etc.
iii. Artist is a person whose creative work shows sensitivity and imagination
iv. A rtiste is restricted to performing arts.
v. Artiste is a person who is a public performer or skilled performer.
vi. A rtiste is the one who has an entertaining character
vii. The word “entertainer” seems to cover the lighter versions of the performing arts.
6.5 Relevant decisions regarding meaning of ‘Artist’ given in the context of Section 80-RR of the Act
a. Sachin Tendulkar vs. CIT [2011] 11 taxmann. com 121 (Mum).
The
Mumbai Tribunal in case of Sachin Tendulkar held that Sachin should be
regarded as an artiste while appearing in advertisements and
commercials, modeling etc. and hence is entitled to deduction u/s. 80RR.
b. Amitabh Bachchan vs. CIT [2007] 12 SOT 95 (Mum)
The
Mumbai Tribunal held that both Amitabh Bach chan receiving income for
acting as an anchor for a TV programme and Shahrukh Khan receiving in
come from endorsement of performance where he has to give photographs,
attend photo sessions, video shoots, etc. are entitled to deduction u/s.
80RR.
The reader may also refer to the following decisions on the subject:
Tarun Tahiliani-[2010] 192 Taxman 231(Bom)
Harsha Ahyut Bhogale vs. ACIT – [2008] 171 Taxman 108 (Mum) (Mag)
David Dhawan vs. DCIT – [2005] 2 SOT 311 (Mum)
Anup Jalota – [2003] 1 SOT 525 (Mum)
6.6 Meaning of ‘Sportsperson’
a. There is no precise definition is given of the term “sportspersons”.
b.
N ot restricted to participants in traditional athletic events (e.g.
runners, jumpers, swimmers). Also covers e.g. golfers, jockeys,
footballers, cricketers and tennis players, as well as racing drivers.
c.
A lso includes activities usually regarded as of an entertainment
character such as billiards, snooker, chess and bridge tournaments
d.
Since sportsperson is grouped with entertainer, Article 17 will apply
only to those who perform in public. Therefore, mountaineers or scuba
divers are not covered.
e. Sportsperson also covers the one whose
activities includes advertising or interviews that are directly or
indirectly related to such an appearance.
f. Sportsperson does not include managers or coaches of the sports team.
g.
Merely reporting or commenting on a sports event in which the reporter
does not participate is not an activity as a sportsperson.
h. Owner
of a horse or a race car is not covered under Article 17 unless the
payment is received on behalf of the jockey or car driver.
6.7 Meaning of “Athlete”
A person who is trained or skilled in exercises, sports, or games requiring physical strength, agility or stamina
Dictionary meaning is one who is engaged in sport more specifically in the field and track events
6.8 Persons covered under Article 17 and regarded as performing entertainers or artistes
6.9 Persons not covered under Article 17 and not regarded as performing entertainers or artistes
6.10 Article 17(1) – Illustrative types of Income covered:
a. Income derived from performance.
b. Income connected with performance such as awards
i. Payment received by a professional golfer for an interview given during a tournament in which he participates.
ii. Payment made to a star tennis player for the use of his picture on posters advertising a tournament in which he will participate.
c. Advertising and sponsorship fee directly or indirectly related to performance in source country
i. Payments made to a tennis player for wearing a sponsor’s logo, trade mark or trade name on his tennis shirt during a match.
d. Income generated from promotional activities of the entertainer during his presence in source country.
e. Payments for the simultaneous broadcasting of a performance by an entertainer or sportsperson made directly to the performer or for his or her benefit (e.g. a payment made to the star-company of the performer).
f. Income from combined activities (for e.g. Steven Spielberg directing and acting in a movie – Predominantly performing nature – Article 17 would apply – Performing element negligible – entire income out of Article 17).
g. Performance based fees/remuneration such as participation fees, share in gate receipts.
h. Income from writing a column in daily newspaper or journals related to performance.
i. Salary income of a member of an orchestra or troupe for his performance.
j. Entertainer earning salary as an employee is liable to pay tax in source country in proportion to his salary which corresponds to his performance.
k. Income of one person company belonging to entertainer if domestic law of Source State permits “look through” approach.
l. Illustration:
• Film actor is performing in India where a film is shot. Article 17 will apply to the income of the film actor.
• If the film is released worldwide except India, Article 17 will apply to the income of Film actor irrespective of where the film is released.
6.11 Article 17(1) – Illustrative types of Income not covered
a. Payments received upon cancellation of a performance are not taxable under Article 17(1).
b. Royalties for intellectual property rights will normally be covered under Article 12 i.e. Income to third party holding IPR for broadcasting rights.
c. Income received by impresarios etc. for arranging the appearance of an entertainer or sportsperson is outside the scope of the Article, but any income they receive on behalf of the entertainer or sportsperson is of course covered by it.
d. Income received by administrative or support staff (e.g. cameramen for a film, producers, film directors, choreographers, technical staff, road crew for a pop group, etc.
e. Income from speaking engagement in conferences.
f. Income as reporter or commentator h. Promoters involved in production of event i. Guest judge in singing competition
j. Income not attributed to performance in source state.
6.12 Items of Income Covered by Other Articles
Taxation of the following types of income is governed by other Articles of a Tax Treaty:
a. Income for Image rights not closely connected with performance
b. Sponsorship and advertising fees not related to performance
c. Merchandising income from sale which is not related to performance
d. Income against the cancellation of performance, since it is compensation for income lost due to cancellation of performance and not associated with performance.
e. Income from restrictive covenants
f. Income earned by a former sportsperson providing commentary during the broadcast of a sport event or reporting on sport event in which he is not participating.
g. Income from repeat telecast
h. Fees for interview with music channel not closely connected with performance.
6.13 Aspects which are not relevant while applying Article 17
a. Location or residence of Payer
b. Number of days stay in the source country
c. Having PE or fixed base of the entertainer in the source country
d. Entertainer or sportsperson performing as an employee or independently on contract
e. Entertainers present directly on the stage or through radio or TV.
f. One time performance or regular performance
g. Indian Treaty examples
i. India-Egypt tax treaty provides time threshold of 15 days during the relevant fiscal year.
ii. India-USA tax treaty – Exception provided where net income derived does not exceed USD 1,500.
6.14 Foreign Judicial Precedents
a) Agassi vs. Robinson – UK Judicial Precedent
• Mr. Andre Agassi, a US-tax resident visited UK for short duration to play in various tournaments and in particular at Wimbledon.
• He controlled a US corporation (Andre Agassi Enterprises Inc) through which he negotiated endorsement contracts with manufacturers of sporting equipment including Nike and Head, neither of which had a tax presence in UK.
• Revenue authorities assessed Andre Agassi for tax in connection with the sponsorship income received by the non-resident corporation.
• UK House of Lords upheld the extra-territorial applicability of the UK domestic tax law provisions and held that endorsement income paid by non-resident UK sponsors to non-resident corporation is liable to tax in UK.
b) Canadian decision in Cheek vs. The Queen (2002 DTC 1283 (Tax Court of Canada))
• Issue: Whether a “radio broadcaster” of baseball games would fall under Article XVI (Artistes and Athletes) of the 1980 Canada–United States Income Tax Convention?
• The radio broadcaster Thomas Cheek, had been the commentator of the Toronto Blue Jays together with a partner-commentator.
• Thomas Cheek was resident in the United States, was not an employee and did not have a fixed base in Canada that would have made him taxable under Article XIV (Independent Personal Services).
• In a baseball game of three hours, only 16-18 minutes are actual “motion”, the rest is “down time”. The challenge facing the broadcaster is to hold the attention of the radio audience, even when there is no activity on the field.
• The court stated that professional sports in itself is entertaining, but doubted whether the broadcaster could be seen as an entertainer, that is, as a “radio artiste”, such as for example the late Bing Crosby. The baseball fan who turns on the radio to hear a particular baseball game wants to know how the players are performing on the field.
• The broadcaster may be able to hold the attention of the fan with his “down time” commentary but he is not the reason why the fan turns on the radio. Therefore the court decided that Thomas Cheek was not a radio artiste, although he was a very skilful and experienced radio journalist.
c) NL: HR, 7 May 2010, 08/02054 (Tax Treaty Case Law IBFD)
• A football player who was resident in Sweden was transferred by a Swedish club to a team resident in the Netherlands.
• He took up residence in the Netherlands after the transfer.
• Pursuant to the terms of his contract with the Swedish club, he received a share of the transfer price paid by the Dutch club;
• He received this payment when he had already become a resident of the Netherlands.
• The taxpayer claimed that this payment related to his past employment activity with the Swedish club and was covered by Article 15 (Income from employment) of the treaty.
• Conversely, the Dutch tax authorities maintained that the payment was within the scope of Article 17 (allowing Sweden the primary right to tax and double taxation should in that case be relieved in the Netherlands via a credit under Article 24(4).
• Held – The payment was clearly related to the past activities of the taxpayer as football player for the Swedish team and that, therefore, Article 17 doubtlessly applied. As a consequence, the taxpayer had to include this payment in his income for Dutch tax purposes and then ask a credit for the taxes paid to Sweden upon that same income.
7.2 India’s DTAA s – Article 17 (2)
• India’s treaties with Egypt, Libya, Syria and Zambia provide that income accrued to another person is not taxable in source country.
• India’s treaty with Zambia provides for deemed PE if the enterprise carries on business of providing the services of public entertainer
• India’s treaty with USA provides that income accrued to another person is not taxable if entertainer establishes that neither the entertainer or athlete nor persons related thereto participate directly or indirectly in the profits of that other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions, or other distributions.
• Paragraph applies when income from personal activities exercised by an entertainer or a sportsperson accrues to another person and not to an entertainer or sportsperson.
• Another person could be a corporate or non-corporate entity
• Such entity may be owned by the performer himself
• Even if another person and entertainer are tax resident of different countries, paragraph applies
• Source state may tax such income.
• It overrides the provisions of Article 7 (Business profit) and 15 (Income from employment).
7.3 Article 17 (2) – Anti Avoidance Rule
• Another person i.e. entity could be a Management Company, team, troupe, orchestra or “renta- star” company.
• “Rent a star” company is controlled by the performer or artist and performer would be the beneficiary of maximum profit of the company
• Income for the performance of entertainer in the source state is received by such entity and not by the entertainer.
• An entertainer or sportsperson is either hired or employed by such entity for the entertainment program to be held in Source State.
• Such entity may pay nominal amount or modest salary to the performer.
• Such entity, in the absence of Permanent Establishment or business connection, may avoid tax in the Source State.
• Income does not accrue to the performer, hence paragraph 1 of Article 17 will not apply.
• Individual performer/entertainer may avoid tax for non-application of Article 15 or may pay tax on modest salary.
• Paragraph 2 deal with such an arrangement and gives taxing rights to the Source State.
7.4 Article 17(2) – Important Points
a. Para 2 does not apply to Prize money that the owner of a horse or the team to which a race car belongs, derives from the results of the horse or car during a race or during races, taking place during a certain period.
b. Does not cover the income of all enterprises that are involved in the production of entertainment or sports events, e.g.:
i. income derived by the independent promoter of a concert from the sale of tickets; and
ii. allocation of advertising space is not covered by paragraph 2.
c. Computation Mechanism – as per the domestic laws of the Source country.
7.5 Computation and rate of tax
Approach for computing income
• Treaty does not provide for method of computing income
• Income is to be computed as per domestic law of the source state (e.g. section 115 BBA of the Act)
• Domestic law may tax only company or the entertainer or both on their respective income
• Non-resident may choose to be governed by the treaty law or the domestic law.
Rate of tax
• Rates are generally not provided in the treaty
• Domestic law may provide for tax on gross income or give an option to be taxed on net income (@20% u/s. 115 BBA of the Act).
7.6 Taxation of Team Performance
A team performance is defined as the exercise of personal activities by more than one entertainer or sportsperson who come together as a group ? Group entity may or may not be a resident or have a permanent establishment in the state of source ? Each team member is classified as entertainer or sportsperson or support staff based on the nature of services rendered
Entertainer or sportsperson of the team are taxed in the state of performance
Support staff, technical personnel and all employees other than artistes or sportsmen are governed by Article 15.
Tax treatment in the state of source is as under:
Payments attributable to entertainer and sportsperson is taxed under Article 17(1)
• Profit earned by the team is apportioned between profit attributable to the performance of entertainer or sportsperson and profits attributable to activities of non-performing members
• Profit attributable to the performance of entertainer or sportsperson is taxed under Article 17(2)
7.7 Relevant Case Law re Article 17(2)
Wizcraft International Entertainment Private Limited vs. ADIT [2014] 45 taxmann.com 24 (Bombay)
• Commission paid to the UK agent was not for services of entertainers/artists.
– The UK agent had not taken any part in the events, nor performed any activities in India. Hence, it was not covered by Article 18 of India- UK DTAA .
• The UK agent did not have any PE in India [Carborandum Co. vs. CIT, (1977) 108 ITR 335 (SC) and CBDT Circular Nos. 17 dated 17.07.1953 and 786 dated 07.02.2000], commission paid to the UK agent was not taxable in India and no obligation on Indian Co to deduct tax at source.
• Reimbursement of expenses – The law is well settled that reimbursement of expense not chargeable to tax and hence, no obligation to deduct tax at source [DIT (IT) vs. Krupp UDHE Gmbh (2010) 38 DTR (Bom) 251 following own decision in CIT vs. Siemens Aktiongesellschaft 220 CTR (Bom) 425].
• Reliance was placed on Circular No. 786 dated 7 February 2000 in respect of non-taxability in India of export commission payable to non-resident agents rendering services abroad.
Note: The aforementioned Circular No. 786 dated 7 February 2000, is withdrawn by Circular No. 7/2009 dated 22nd October, 2009. However, the ITAT and the courts in various cases have held that even after the withdrawal of said circular, export commission payable to non-resident agents rendering services abroad, is not taxable in India.
8. Additional Consideration relating to paragraph 1 & 2 of Article inserted as Article 17(3) in many India’s DTAAs
Article 17 ordinarily applies when the entertainer or sportsperson is employed by a Government and derives income from that Government. However, certain conventions contain provisions excluding entertainers or sportspersons employed in organisations which are subsidised out of public funds from the application of Article 17.
Some countries may consider it appropriate to exclude from the scope of the Article events supported from public funds.
This has been provided as additional consideration in Commentary to Model Convention July 2014 with modifications.
8.1 Such provisions are existing in most of India’s DTAA s and are inserted as paragraph (3) or (4) of Article 17.
8.2 A rticle 17(3) in some of the India’s DTAA s
India – Armenia and India – Japan tax treaty Income taxable only in the resident state, if the event is for approved cultural or sports exchange program.
India – Australia, India – Belgium, India – Indonesia, and India – Mauritius tax treaty Income taxable only in the resident state, if the event is supported by public funds of resident state.
India-Brazil and India – Bangladesh Tax Treaties
Paragraph 1 and 2 will not apply if the activity is wholly or mainly or substantially supported from the public funds of the other contracting state.
9. Conflicts
It is important to note that all the income of the Artistes and Sportsmen may not in all cases be covered by Article 17. It is nature of income which will determine whether the same would fall within the scope of Article 17 or the same would be covered by Article 18 relating to Pensions or Article 19 relating to remuneration in respect of government service.
Conflicts between Article 17 and 18
• Remuneration derived from the entertainment show is governed by Article 17.
• Pension received after termination of performance activity will fall under Article 18.
• Golden handshakes are payment linked to employment and not to the performance, hence does not fall under Article 17.
Conflicts between Article 17 and 19
In case Artists or Sportsperson renders service to Government and receives remuneration then normally Article 17 applies if the activity of the Government is in the nature of business, otherwise Article 19 will apply.
The above article provides just a bird’s eye view of the subject. To gain an in-depth understanding of the subject, the reader would be well advised to study the commentaries on Article 17 of various model conventions and the relevant judicial pronouncements.
