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SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
Formula One World Championship Ltd. - Appellant
Versus
Commissioner of Income Tax, International Taxation-3, Delhi & Anr. - Respondents
Civil Appeal Nos. 3849, 3850 & 3851 of 2017
Decided On : 24-04-2017
(b) Double Taxation Avoidance Agreement – Article 5 – PE – Test – Physically located premises ‘at the disposal’ of the enterprise – Not necessary to own or even rent by the enterprise – Requires right to use the place and control thereupon. (Para 27, 30, 34, 36)
(1983) 144 ITR 146 – Cited with approval
(1967) 29 S.A.T.C. 97 (Court of Appeal, Botswana); (1965) 44 T.C. (US) 820 (US Tax Court); (1990) 90 D.T.C. 1834: (1990) 2 C.T.C. 2351 (Tax Court of Canada); 2001 WTD 106-11 (Antwerp); (1998) PTD (Trib.) 3749 (Income-tax Appellate Tribunal, Pakistan); (1959) 265 F 2d. 320; (1996) 222 I.T.R. 551; (1991) Tax Notes Intl. 161 (Hague); (1998) 66 I.T.D. 296 (Income Tax Appellate Tribunal, Mumbai), noted in 17 Tax Notes Intl. 1795 – Referred
(c) Legal interpretation – “Include” – Definition clause using includes – Covers all other similar items not specifically mentioned therein – Examples given in definition are not exhaustive. (Para 66)
(d) Double Taxation Avoidance Agreement – Article 5(1), (2) and (3) – Conducting different races, including the Grand Prix – An economic/business activity – Conducted from Buddh International Circuit – Held, a fixed place – Whether at the disposal of FOWC and whether a fixed place of business of FOWC – Entire event taken over and controlled by FOWC and its affiliates – Commercial rights remaining with FOWC – These rights exploited with actual conduct of race in India – Entire income generated in India – Events of three days in a year on the circuit for five years controlled by FOWC – Held, circuit a PE of FOWC, number of days of events notwithstanding. (Para 67, 68, 70)
(1990) 90 D.T.C. 1834; (1990) 2 C.T.C. 2351; 2001 WTD 106-11; Stavanger Court, Case No. 99-00421, dated 19-12-1999 – Relied upon
(2004) 10 SCC 1 : 2003 (262) ITR 706; (1980) Supp SCC 614 : 1981 AIR 148; (2010) 10 SCC 29; (1970) 3 SCC 400; 2003 (3) AllER 304; (2012) 11 SCC 224 – Referred
(e) Double Taxation Avoidance Agreement – Article 5 – Buddh International Circuit a fixed place of commercial/economic activity for conducting F-1 Championship – A virtual projection of the foreign enterprise, Formula-1 (FOWC) in India – Held, taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on such income. (Para 76)
(1983) 144 ITR 146 – Cited with approval
(f) Income Tax Act, 1961 – Section 195 – Deduction of tax at source – Payments made by Jaypee to FOWC under the RPC constituting business income of FOWC through PE at the Buddh International Circuit and, therefore, chargeable to tax – Jaypee, held, bound to make appropriate deductions u/s 195 from the amounts paid to FOWC to the extent attributable to the PE. (Para 77, 78)
(2010) 10 SCC 29; (1990) 90 D.T.C. 1834: (1990) 2 C.T.C. 2351 – Relied upon
(g) Constitution of India – Article 226 – High Court examining legal issues having regard to the facts culled out from documents on record – No infirmity. (Para 79)
Facts of the case:
In all these appeals filed by Formula One World Championship Limited ('FOWC'), Jaypee Sports International Limited ('Jaypee') and Union of India ('Revenue') challenge is laid to the judgment passed by the High Court of Delhi whereby three writ petitions preferred by FOWC, Jaypee and Revenue have been decided.
FOWC had entered into a 'Race Promotion Contract' (RPC) dated September 13, 2011 with Jaypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee.
In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions/queries.
AAR answered the first question holding that the consideration paid or payable by Jaypee to FOWC amounted to ‘Royalty’ under the DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as the question of subjecting the payments to tax at source under Section 195 of the Act is concerned, AAR ruled that since the amount received/receivable by FOWC was income in the nature of Royalty and it was liable to pay tax there on to the Income Tax Department in India, it was incumbent upon Jaypee to deduct the tax at source on the payments made to FOWC u/s 195 of Income Tax act, 1961.
FOWC and Jaypee challenged the ruling on the first issue by filing writ petitions in the High Court contending that the payment would not constitute Royalty under Article 13 of the DTAA. Revenue also filed the writ petition challenging the answer of the AAR on the second issue by taking the stand that FOWC had PE in India in terms of Article 5 of the DTAA and, therefore, tax was payable accordingly.
The High Court has reversed the findings of the AAR on both the issues. The High Court has also held, as the sequitur, that Jaypee is bound to make appropriate deductions from the amount payable to FOWC under Section 195 of the Act.
Finding of the Court:
There is no infirmity in the impugned judgment.
Result: Appeals dismissed.
JUDGMENT :
A.K. Sikri, J.
INTRODUCTION
These appeals are filed by Formula One World Championship Limited (hereinafter referred to as 'FOWC'), Jaypee Sports International Limited (for short, 'Jaypee') and Union of India (hereinafter referred to as the 'Revenue'). In all these appeals, challenge is laid to the judgment dated November 30, 2016 passed by the High Court of Delhi whereby three writ petitions preferred by FOWC, Jaypee and Revenue have been decided.
2. The matter originated from filing of applications by FOWC and Jaypee before the Authority for Advance Ruling (AAR). FOWC had entered into a 'Race Promotion Contract' (RPC) dated September 13, 2011 with Jaypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee, particulars whereby would be mentioned later at an appropriate stage. In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions/queries:-
(i) whether the payment of consideration receivable by FOWC in terms of the said RPC from Jaypee was or was not royalty as defined in Article 13 of the 'Double Taxation Avoidance Agreement' (DTAA) entered into between the Government of United Kingdom and the Republic of India?; and
(ii) whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA?
Another related question was also raised, viz.,
(iii) whether any part of the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income Tax Act, 1961 (hereinafter after referred to as the 'Act').
3. AAR answered the first question holding that the consideration paid or payable by Jaypee to FOWC amounted to ‘Royalty’ under the DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as the question of subjecting the payments to tax at source under Section 195 of the Act is concerned, AAR ruled that since the amount received/receivable by FOWC was income in the nature of Royalty and it was liable to pay tax there on to the Income Tax Department in India, it was incumbent upon Jaypee to deduct the tax at source on the payments made to FOWC. FOWC and Jaypee challenged the ruling on the first issue by filing writ petitions in the High Court contending that the payment would not constitute Royalty under Article 13 of the DTAA. Revenue also filed the writ petition challenging the answer of the AAR on the second issue by taking the stand that FOWC had PE in India in terms of Article 5 of the DTAA and, therefore, tax was payable accordingly.
4. As mentioned above, all these three writ petitions have been decided by the High Court vide common judgment dated November 30, 2016. Interestingly, the High Court has reversed the findings of the AAR on both the issues. Whereas it has held that the amount paid/payable under RPC by Jaypee to FOWC would not be treated as Royalty, as per the High Court FOWC had the PE in India and, therefore, taxable in India. While deciding this question, the High Court has not accepted the plea of the Revenue that it was not a dependent PE. The High Court has also held, as the sequitur, that Jaypee is bound to make appropriate deductions from the amount payable to FOWC under Section 195 of the Act. It is for this reason all the three parties are again before us.
5. As per FOWC and Jaypee, no tax is payable in India on the consideration paid under RPC as it is neither Royalty nor FOWC has any PE in India. It is pertinent to mention that the Revenue has not challenged the findings of the High Court that the amount paid under RPC does not constitute royalty. Therefore, that aspect of the matter has attained finality. The main question in the appeals, therefore, pertains to PE.
FACTUAL MATRIX
6. In order to decide this
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