9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (4) TMI 1109 - SC - Income TaxRoyalty receipt - income accrues or arises or is deemed to accrue or arise - business connection - Double Taxation Avoidance Agreement between the Government of United Kingdom and the Republic of India - Permanent Establishment (PE) in India - whether any part of the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195? - Held that - As per Article 5 of the DTAA, the PE has to be a fixed place of business through which business of an enterprise is wholly or partly carried on.Twin conditions which need to be satisfied are (i) existence of a fixed place of business; and (b) through that place business of an enterprise is wholly or partly carried out. We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity. The Buddh International Circuit, is defined in Clause 1(q), as one suitable in every respect for the staging of the event, including permanent buildings, permanent structure, track laid-out, amenities, spectator viewing facilities, paddock building, media centre, car parks, helipads, garages, race control and administration, office administration, fuel and storage, tyre store, utilities, including backup power supplies, concrete-based areas suitable to host competitors and sponsor, vending and exhibition areas, international TV compounds etc. These specifications are more elaborately spelt out in Clause 5(e) which states that a circuit shall be constructed, laid out and prepared in accordance with the agreement, i.e. RPC, in a form and manner approved by the FOWC and the FIA. We are also of the opinion that the High Court 2016 (12) TMI 123 - DELHI HIGH COURT has rightly concluded that having regard to the duration of the event, which was for limited days, and for the entire duration FOWC had full access through its personnel, number of days for which the access was there would not make any difference. It is difficult to accept the arguments of the appellants that it is Jaypee who was responsible for conducting races and had complete control over the Event in question. Mere construction of the track by Jaypee at its expense will be of no consequence. Its ownership or organising other events by Jaypee is also immaterial. Our examination is limited to the conduct of the F-1 Championship and control over the track during that period. Specific arrangement between the parties relating to the aforesaid, which is elaborated above and which FOWC and Jaypee unsuccessfully endeavoured to ignore, has in fact turned the table against them. It is also difficult to accept their submission that FOWC had no role in the conduct of the Championship and its role came to an end with granting permission to host the Event as a round of the championship. We also reject the argument of the appellants that the Buddh International Circuit was not under the control and at the disposal of FOWC. No doubt, FOWC, as CRH of these events, is in the business of exploiting these rights, including intellectual property rights. However, these became possible, in the instant case, only with the actual conduct of these races and active participation of FOWC in the said races, with access and control over the circuit. We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case 1983 (6) TMI 31 - ANDHRA PRADESH High Court fully stands satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-1 (i.e. FOWC) on the soil of this country. It is already noted above that as per Philip Baker (A Manual on the OECD Model Tax Convention on Income and on Capital), a PE must have three characteristics stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal of FOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil. It cannot be disputed that a person who makes the payment to a non-resident is under an obligation to deduct tax under Section 195 of the Act on such payments. Mr. Rohatgi had submitted, and rightly so, that this issue is covered by the judgment in the case of GE India Technology Centre Private Limited (Refer Footnote 23). Precisely this very judgment is taken note of and relied upon by the High Court also in holding that since payments made by Jaypee to FOWC under the RPC were business income of the FOWC through PE at the Buddh International Circuit, and, therefore, chargeable to tax, Jaypee was bound to make appropriate deductions from the amounts paid under Section 195 of the Act. We are, however, inclined to accept the submission of Mr. Datar that only that portion of the income of FOWC, which is attributable to the said PE, would be treated as business income of FOWC and only that part of income deduction was required to be made under Section 195 of the Act. In GE India Technology Centre Private Limited (Refer Footnote 23), this Court has clarified that though there is an obligation to deduct tax, the obligation is limited to the appropriate portion of income which is chargeable to tax in India and in respect of other payments where no tax is payable, recourse is to be made under Section 195(2) of the Act. It would be for the Assessing Officer to adjudicate upon the aforesaid aspects while passing the Assessment Order, namely, how much business income of FOWC is attributable to PE in India, which is chargeable to tax. At that stage, Jaypee can also press its argument that penalty etc. be not charged as the move on the part of Jaypee in not deducting tax at source was bona fide. We make it clear that we have not expressed any opinion either way. Insofar as the argument of Mr. Datar on the powers of the High Court under Article 226 of the Constitution of India is concerned, we are not impressed by the said argument. It is Jaypee itself which had filed the writ petition (and for that matter FOWC as well) and they had challenged the orders of AAR on certain aspects. The High Court has examined legal issues while delivering the impugned judgment, of course having regard to the facts which were culled out from the documents on record. Appeals preferred by the FOWC and Jaypee are dismissed, subject to observations as made above.
Issues Involved:
1. Whether the payment of consideration to FOWC from Jaypee was royalty under Article 13 of the DTAA between the UK and India. 2. Whether FOWC had a Permanent Establishment (PE) in India under Article 5 of the DTAA. 3. Whether any part of the consideration received by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income Tax Act, 1961. Detailed Analysis: 1. Whether the payment of consideration to FOWC from Jaypee was royalty under Article 13 of the DTAA: - The AAR initially ruled that the consideration paid by Jaypee to FOWC amounted to 'Royalty' under the DTAA. - The High Court reversed this finding, holding that the amount paid/payable under the RPC by Jaypee to FOWC would not be treated as Royalty. - The Revenue did not challenge the High Court's ruling on this issue, thus it attained finality. 2. Whether FOWC had a Permanent Establishment (PE) in India under Article 5 of the DTAA: - The High Court concluded that FOWC had a PE in India, reversing the AAR's finding. - The High Court analyzed the agreements between FOWC and Jaypee, including the Race Promotion Contract (RPC), and found that FOWC had control over the Buddh International Circuit during the event. - The High Court noted that FOWC had full access to the circuit through its personnel, the team contracted to it, and could dictate who was authorized to enter the areas reserved for it. - FOWC's presence was considered sufficient for the purposes of Article 5(1) of the DTAA, given the repetitive nature of the access for the period in question. - The High Court found that FOWC carried on business in India through the exploitation of commercial rights, including media rights, hospitality rights, and title sponsorship. - The High Court also noted that the physical control of the circuit was with FOWC and its affiliates from the inception until the conclusion of the event. - The High Court's analysis included various clauses of the RPC, which showed that Jaypee's capacity to act was extremely restricted and FOWC had exclusive access to the circuit and all the places where the teams were located. 3. Whether any part of the consideration received by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income Tax Act, 1961: - The High Court held that since payments made by Jaypee to FOWC under the RPC were business income of FOWC through PE at the Buddh International Circuit, they were chargeable to tax in India. - Jaypee was bound to make appropriate deductions from the amounts paid under Section 195 of the Act. - The Supreme Court acknowledged that only the portion of the income of FOWC attributable to the PE would be treated as business income of FOWC and subject to tax. - The determination of the appropriate portion of income chargeable to tax would be adjudicated by the Assessing Officer during the assessment process. Conclusion: - The appeals by FOWC and Jaypee were dismissed, with the Supreme Court upholding the High Court's findings that FOWC had a PE in India and the payments made were not royalty. - The appeal by the Commissioner of Income Tax was disposed of as the issue of dependent PE had become academic. - The Supreme Court emphasized that the income attributable to the PE in India would be subject to tax, and Jaypee was obligated to deduct tax at source on such payments.
|
