Where Assessee had made payment to Foreign Celebrity, for an appearance made by him in Dubai at a product launch event for promoting business of Assessee in India, Assessee would be liable to withhold taxes from payment so made.

Assessee was carrying a business in India, being part of International brand Audi in the name of Audi India.
Assessee had made payment of US $ 4,40,000 from India to an award-winning celebrity Nicolas Cage, for an appearance made by him in Dubai (UAE) at a product launch event for promoting business of assessee in India.
The purpose of this event was launch of a new model of Audi car, i.e. Audi A-8L, for the Indian market, but the launch event took place, on 3rd May 2014, in Dubai.

In case of payment to Non-Resident, Section – 5(2)(b) attracts, in which the income can be taxed in India only:
- When an income is received or is deemed to be received in India in such year by or on behalf of such person;
- When an income accrues or arises or is deemed to accrue or arise to him in India during such year.
Further, Section – 5(2)(b) read with Section 9(1)(i) extends the scope of income accruing or arising in India by adding, “all income accruing or arising, whether directly or indirectly, through or from any business connection in India, any property in India, any asset or source of income in India, transfer of a capital asset situate in India”.
The Assessing Officer was confined to taxability as royalties under section 9(1)(vi).
It was presumed that the event was held by the appellant outside India only to take position of not applying withholding of taxes on payment of appearance fees to the celebrity on the premises that the appearance of the celebrity was outside India.

Assessee claims that the sum paid to Foreign Celebrity as appearance fees is not chargeable to Tax under Income Tax Act, 1961 so far as event and the celebrity appearance was concerned.
Further, Assessee claims that no tax was deductible from this payment as the celebrity or his agent were not carrying out any activities in India, in relation to the appearance fees received from the assessee, and as such the appearance fee could not be treated as accruing or arising in India, or deemed to be accruing or arising in India.

The income embedded in payment to the international celebrity (recipient), for participation in Dubai A8L launch event, was taxable in India because of relationship between event in Dubai and business of assessee in India. As a corollary to these findings, the assessee had the liability to withhold taxes from payment made for appearance made by the recipient at launch event, and the CIT(A) was justified in upholding impugned demands raised under section 201 r.w.s 195 of the Income-tax Act,1961.Thus, the appeal was dismissed.

The Assessee made all this arrangement with the objective to evade tax. If the Assessee is having business connection with India and doing any transaction or event related to this business, the same is taxable in India.
As the taxability was confirmed, TDS has to be deducted before making the payment to the celebrity or booking the expense, whichever is earlier.
Although it was observed that the appearance fees paid to the celebrity by the appellant was in the nature of business income of the celebrity not liable to tax in India, due to the absence of celebrity’s connections/operations in India.

Source: [2020] 115 taxmann.com 386 (Mumbai – Trib.)

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