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By CA MAYUR B NAYAK

Tax on non-resident sportsmen or sports associations.

115BBA. (1) Where the total income of an assessee,—

(a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of—

(i) participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport; or

(ii) advertisement; or

(iii) contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or

(b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India [; or]

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By CA MAYUR B NAYAK

Tax on non-resident sportsmen or sports associations.(contd..)

[(c) being an entertainer, who is not a citizen of India and is a non-resident, includes any income received or receivable from his performance in India,]

the income-tax payable by the assessee shall be the aggregate of—(i) the amount of income-tax calculated on income referred to in clause (a) or clause (b) [or clause (c)] at the rate of [twenty] per cent; and

(ii) the amount of income-tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount of income referred to in clause (a) or clause (b) [or clause (c)] :

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By CA MAYUR B NAYAK

Tax on non-resident sportsmen or sports associations.(contd..)

Provided that no deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the income referred to in clause (a) or clause (b) [or clause (c)].

(2) It shall not be necessary for the assessee to furnish under sub-section (1) of section 139 a return of his income if—

(a) his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clause (a) or clause (b) [or clause (c)] of sub-section (1); and

(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.]

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By CA MAYUR B NAYAK

Applicable to sportsmen/sports association/entertainer

Non resident and not a citizen of India

Income of sportsmen taxed u/s 115BBA:

Received or receivable by way of -

- Participation in India in any games or sport or

- advertisement; or

- contribution of articles relating to any game or sport in India in newspapers, magazines or journals

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By CA MAYUR B NAYAK

Income of sports association taxed u/s 115BBA:

- amount guaranteed to be paid or payable in relation any game or sport

Income of entertainers taxed u/s 115BBA:

- Received or receivable from his performance in India

No deduction in respect of any expenditure or allowance

Income will be taxed @ 20%

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No requirement to file the return of income if: Income of sportsmen (or sports association/

institution) comprises only of those mentioned above and

Appropriate taxes are withheld at source

Withholding tax

Section 194E provides for withholding tax on income referred to in section 115BBA

Section 195 applicable in other cases

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By CA MAYUR B NAYAK

As per provisions of section 230 of the Act, every non – resident individual earning income from a source in India is required to obtain a tax clearance certificate from the tax authorities, prior to departure from India.

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The article deals with income of an entertainer & sportsperson, from his personal activities, exercised in the source country.

The article deals with income of the artist’s andsportsperson’s company as well.

(anti avoidance rule)

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By CA MAYUR B NAYAK

UN MODEL

Notwithstanding theprovisions of articles 14 and15, income derived by aresident of a Contracting Stateas an entertainer, such as atheatre, motion picture, radioor television artiste, or amusician, or as asportsperson, from hispersonal activities as suchexercised in the otherContracting State, may betaxed in that other State.

OECD MODEL

Notwithstanding theprovisions of Articles 7 and 15,income derived by a residentof a Contracting State as anentertainer, such as a theatre,motion picture, radio ortelevision artiste, or amusician, or as an sportsman,from his personal activities assuch exercised in the otherContracting State, may betaxed in that other State.

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By CA MAYUR B NAYAK

Article 17(1):

Notwithstanding anything contained inarticles 14 or 15, income derived by a UKresident as an entertainer or a sportspersonfrom personal activities exercised in India,may be taxed in India.

UK can also tax the income.

The article supersedes Independent PersonalServices article [no need of FB in India]; &Dependent Services article [no need ofsatisfying article 15(2).]

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UN MODEL

Where income in respect ofpersonal activities exercisedby an entertainer or asportsperson in his capacity assuch accrues not to theentertainer or sportspersonhimself but to anotherperson, that income may,notwithstanding theprovisions of articles 7, 14 and15, be taxed in theContracting State in which theactivities of the entertainer orsportsperson are exercised.

OECD MODEL

Where income in respect ofpersonal activities exercised byan entertainer or a sportsmanin his capacity as such accruesnot to the entertainer orsportsman himself but toanother person, that incomemay, notwithstanding theprovisions of Article 7 and 15,be taxed in the ContractingState in which the activities ofthe entertainer or sportsmanare exercised.

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Article 17(2):

When the income in respect of personal activities ofentertainer or sportsperson in India,

accrues to some other person,

the income may be taxed in India,

notwithstanding Articles 7, 14 & 15.

The Article supersedes Business profits article (noneed of PE); Independent Personal Services article,& Dependent Personal Services article.

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“Artist” is not defined. Examples includetheatre, motion picture, radio or televisionartiste, musician.

It should have entertaining character.

It should be performance in public, or forthe public.

Includes singer, dancer, mimicry artiste,magician, circus artistes, etc.

Includes side artistes, group artistes.

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Meaning of “artist” in the Indian context:

The deduction u/s 80RR is applicable to incomederived by authors, playwright, artists,musicians, actors or sportsman (includingathletes).

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1) The Mumbai Tribunal held that HarshaBhogle, who was presenter, commentator andprogramme compare of sports on television wasnot an ‘artist’ and accordingly is not entitled todeduction u/s 80RR. On the hand, the Hon’ableBombay High Court held that the work of TarunTahiliani , a dress designer, involves high degreeof imagination, creativity and skill and therefore,is an ‘artist’ for the purpose of section 80RR.

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2) The Mumbai Tribunal held that both AmitabhBachchan receiving income for acting as ananchor for a TV programme and Shahrukh Khanreceiving income from endorsement ofperformance where he has to give photographs,attend photo sessions, video shoots, etc areentitled to deduction under section 80RR.

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3) The Mumbai Tribunal in case of SachinTendulkar held that Sachin should be regardedas an artists while appearing in advertisementsand commercials, modeling etc and hence isentitled to deduction under section 80RR.

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By CA MAYUR B NAYAK

“Sportsperson” not defined. It includestraditional athletics, & other field sports likecricket, football, car racing.

Includes games like chess, billiards, bridge.

Some DTAs use the word “athletes” instead of“sportsperson”. [e.g. India - UK, India – USA].However that should not make anydifference.

Purpose is to include “performance” whichhas entertainment character.

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By CA MAYUR B NAYAK

“What is not included? Administrative and& support staff are not

covered by this article. [e.g. technician,cameramen, directors, choreographers, make uppersons, physicians] – where the “performanceelement” is missing.

Conference speakers are not covered.

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Combined Activity:

If a person directs and acts in the programme,the predominant purpose has to be seen. Sometimes income may have to apportioned.

Income earned directly or indirectly – both arecovered.

Government employees are also covered by thisarticle.

Who pays is not relevant.

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Sponsorship fees – if it is directly/indirectlylinked to the performance given, then it iscovered.

Advertising fees – if it is directly/indirectlylinked to the performance given, then it iscovered.

Payment for cancellation of performance – notcovered by this article.

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Business Income

Article 17 Income

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Playing of records, disks, etc. is not connected topublic performance. Article 12 can apply.

Legal entities are also covered. Orchestras,theatres, sports teams are covered by thisarticle.

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Triangular treaty scenarios – applicability ofArticle 17?

How the amounts taxable in source country in asituation where multiple geographies andrevenue streams are involved.

Tax implications on player transfer fee which isnot uncommon in Soccer leagues worldwide.

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India

Sportsman/Entertainer is sent as an employee in India

Overseas Company

What are the implications?

Outside India

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Wizcraft International EntertainmentPrivate Limited Vs ADIT

It was held that (a) agency commission/remuneration; and (b) reimbursement oftravel and other expenditure of artistspaid to a non resident agent are notcovered in provisions of Article 18(2) ofthe India – UK tax treaty.

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By CA MAYUR B NAYAK

INDCOM v. Commissioner of Income-tax (TDS)

Will tax be deductible on amounts paid to foreign teams for participation as prize money or administrative expenses deemed to accrue in India under section 115BBA ?

Will match referees and umpiresconsidered as sportsmen?

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PILCOM v. Commissioner of Income-tax

A Sports association in England is granting permission to Indian sports association to conduct matches in India , will the amount paid by Indian sports association to non-resident sports association will be chargeable to tax? (including guarantee amount)

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1) If an artists performs gratuitously without any consideration will it be taxable in contracting state ?

2) If a pop star performs in contracting state to promote the sale of his music album and no consideration is paid.

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Provisions for Tax Deduction at Source:-

As per Section 194J any remuneration received as professional service a tax at source @10% should be deducted by a company resident in India

Any remuneration or fees received as salary attracts provisions of sec 192

Remuneration of Non-resident directors attracts sec 195

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UN MODEL

Directors fees and other similarpayments derived by a residentof Contracting State in hiscapacity as a member of Board ofDirectors of a company which is aresident of the Other ContractingState may be taxed in that OtherState. Salaries, Wages and othersimilar remuneration derived bya resident of a Contracting Statein his capacity as an official in atop-level managerial position of acompany which is a resident ofother Contracting State may betaxed in that other state.

OECD MODEL

Directors’ fees and othersimilar payments derived by aresident of a Contracting Statein his capacity as a member ofthe Board of Directors of acompany which is a resident ofOther Contracting State maybe taxed in that Other State.

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UN MODEL

Directors fees and othersimilar payments derived by aresident of UK in his capacityas a member of Board ofDirectors of a company whichis a resident of India may betaxed in India. Salaries, Wagesand other similarremuneration derived by aresident of UK in his capacityas an official in a top-levelmanagerial position of acompany which is a residentof India may be taxed in India.

OECD MODEL

Directors’ fees and othersimilar payments derived by aresident of UK in his capacityas a member of the Board ofDirectors of a company whichis a resident of India may betaxed in India.

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Applicable to directors /officer responsible for conduct and management of affairs of the company

Income of directors/officers:

Received or receivable by -

- Official members of Board of Directors

- Person working at top level managerial position

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Remuneration Include:-

“Fees or other similar payments” means any remuneration paid in connection with supervision of the company’s management by the member of board of directors

Director sitting fees

Payments made as percentage of profits

Share based incentives

Other benefits like club membership, health life insurance etc.

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Taxation Depends on:-

Nature of Income:-

If there is a contract of employer employee remuneration will be taxable under “Salary”

If remuneration received towards professional, consulting or like services then such income will be taxed under “Business Profession”

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The article deals with director fees and other similar payments in his capacity as a member of Board of Directors of a company which is a resident of a contracting state may be taxed in that other state.

OECD Commentary comments on both payments made during the tenure as well as payments made later .

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Directors’ Remuneration and SimilarPayments are taxed in the State where thecompany paying such fees is resident.

The term “fees and other similar payments”include benefits in kind

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Scope of this article:

- pertains to payments made by a company

- payments made to directors or tops managers insupervisory capacity

Remuneration for other functions is covered in otherarticles.

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1) Remuneration for executive managerialfunctions – covered in other articles

2) Example: remuneration received forexecutive managerial functions – salaryincome.

3) Example: Directors acts as a consultant –article dealing with independent personalservices

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4) what if the director is acting in such dual capacityreceives overall remuneration for all his activities?

If possible to segregate the remuneration received fordifferent responsibilities – can be attributed torespective articles.

If not possible to segregate the remunerationreceived for different responsibilities – overbearingfunction will at best be considered as havingpreponderance over others and remunerationreceived will be accordingly treated under therespective article.

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5) Director has received two types ofpayments -

I) performance of services in professionalcapacity – taxed as per the principles ofArticle 14 (depending on whether his stayexceeds 183 days or he has a fixed base inIndia)

II) Sitting fees – Article 16 – taxable in India (being company's state of residence)

(Deiter Eberhard Gustav Von Der Mark Vs. CIT: 235 ITR 698)

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Section 10(16):-

Section 10(16) of the Income-Tax Act, 1961,exempts scholarships granted to meet the cost ofeducation. Since it is intended only to cover thecost of education, any savings made out of suchgrants may well be taxable (CIT vs. V.K.Balachandaran (1984) 147 ITR 4)

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Receipt of money by a Foreign Student

studying in India towards Education and/or

Maintenance in India - Taxability thereof

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UN MODEL

Payments which a student orbusiness trainee or apprenticewho is or was immediatelybefore visiting a contractingstate a resident of the othercontracting state and who ispresent in the first mentionedstate solely for the purpose ofhis education or trainingreceives for the purpose of hismaintenance , education fortraining shall not be taxed inthat state , provided that suchincome arise from sourcesoutside the state.

OECD MODEL

Payments which a student orbusiness apprentice who is orwas immediately beforevisiting a contracting state whois present and in the firstmentioned state solely for thepurpose of his education ortraining receives for thepurpose of his maintenance ,education for training shall notbe taxed in that state ,provided that such incomearise from sources outside thestate.

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UN MODEL

Payments which a student orbusiness trainee or apprenticewho is or was immediatelybefore visiting UK was aresident of India and who ispresent in UK solely for thepurpose of his education ortraining receives for thepurpose of his maintenance ,education for training shallnot be taxed in UK , providedthat such income arise fromIndia.

OECD MODEL

Payments which a student orbusiness apprentice who is orwas immediately beforevisiting UK was a resident OfIndia who is present and in UKsolely for the purpose of hiseducation or training receivesfor the purpose of hismaintenance , education fortraining shall not be taxed inUK , provided that suchincome arise from India.

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The exemption under Article 20 is intended for foreign students who are temporarily present in the host state and not for those students who intend to remain permanently in the host state (Qing Geng K Li Vs The Queen (1994) IBFD Case No. A-162-93)

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UN MODEL

The article gives correlativeright to State of source to taxother income arising in thesource state. In such a casetaxation in State of Residencewould be governed by Article23(‘Methods of elimination ofDouble Taxation’). In otherwords the income would betaxable in State of residenceand in State of source. State ofresidence will either grantcredit for the taxes paid orexempt such income as perArticle 23 of tax treaty.

OECD MODEL

Exclusive right is given to Stateof Residence to tax otherincome earned by a person inState of Source. It preventsstate source from taxing suchincome.

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UN MODEL

The article gives correlativeright to UK to tax otherincome arising to a resident ofIndia in UK. In such a casetaxation in India would begoverned by Article23(‘Methods of elimination ofDouble Taxation’). In otherwords the income would betaxable in UK and in India.India will either grant creditfor the taxes paid or exemptsuch income as per Article 23of tax treaty.

OECD MODEL

Exclusive right is given to Indiato tax other income earned bya person in UK. It prevents UKfrom taxing such income.

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Article 21 deals with ‘income not dealt with’ in any other article of the tax treaty

‘Other Income’ according article 21 is not the same as income from other sources according to the domestic law of the respective country.

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Lottery/ Gambling Income (Essar Oil Ltd v DCIT (2006) 102 TT) 614(MUM)

Alimony (DCIT v Andaman Sea Food Pvt Ltd (2012) 148 TTJ 382 (Kol.)

Prize Money

Punitive damages (DCIT v Andaman Sea Food Pvt Ltd (2012) 148 TTJ 382 (Kol.)

Non- complete payments

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Guarantee fees by a group company-if giving guarantees is not its regular business

Income from non-traditional financial instruments

Scholarships- if they do not pertain to employment

Social security payments

Interest rate swaps

Accident benefit payments (Essar Oil Ltd v DCIT (2006) 102 TTJ 614 (Mum)

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Items of income which arespecifically covered/ dealt withunder any of the preceding Articleswill not be covered under article 21.For example, distribution of dividendor payment of interest would becovered by their respective articles.

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Business Profits (Art 7)

Income from Independent Personal Services (Art 14)

Profits from Operations of Ships or Aircraft in International traffic (Art 8)

Income of Shipping Cos. (Other than those covered under Art 8)

Royalty Income arising in SOS

Dividend and Interest in SOS

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The state of residence has been given the exclusiveright of taxation according to the Paragraph 1 of theUN Model (2011).

However, it gives a parallel right to the state ofsource to tax other income arising in source state inParagraph of the Model Convention.

This leads to income being taxed at state ofresidence as well as state of source, state ofresidence will either grant credit for taxes paid orexempt such income in accordance with article 23

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