2022 (6) TMI 180 - AT - Income Tax

Income accrued in India - existence of PE in India under Article 5 of Indo-Switzerland DTAA - racing drivers' stay in India - DTAA between India and Switzerland - whether the racing car driver in the case before us is a driver simplicitor or is he a technical expert ? - HELD THAT - Ld. counsel could not give a cogent reply nor he could rebut the proposition that the racing car driver is not a technically expert person. Moreover the reference by DRP to OECD commentary in the context of model tax treaty that formula one driver is in the nature of athlete is also germane and has to be considered. As our following discussion would show certain other aspect of the present case need some factual examination. In this view of the matter, in our considered opinion, in the present case, the issue cannot be remitted to the AO to follow the said ruling as requested by assessee. Now coming to the order of the AO passed pursuant to the DRP order, we note that there are two limbs thereof. In the first limb, the DRP has accepted that assessee has no PE existence and the DRP has accepted that the racing car driver came and performed for only three days in India. In this connection, a query was raised as to the actual duration of the said drivers' stay in India in connection with the aforesaid race, the time taken for preparation, finalization conclusion and the certificate of the said drivers' arrival in India and departure in relation to the event. Assessee was not in a position to provide any such detail. As submitted that these aspects are factual aspects and are not readily available and the matter can be remitted to the AO for examination in this regard. We find that the aforesaid is a crucial aspect and has not been examined by the Revenue authorities below, hence we deem it proper to remit the file to the AO to examine the issue in terms of our observation as above. As regards the plank on which the DRP had rejected the assessee's objection is by reference to Article 17 of the model tax treaty that the receipts are in the nature of income derived from service of personal activities of racing car drivers in India. We note that the aforesaid reference in the present case is coming under Article 16 of the DTAA between India and Switzerland which deals with the issue of artists and athletes dealt with by the DRP. We note that this aspect of DRP's direction refers that there was no response from the assessee. But the assessee in grounds has disputed the observation that it has not given any response in this regard. We deem it proper to remit this aspect also to the AO and the assessee shall be granted an opportunity to give the submissions in this regard.

Issues Involved:
1. Determination of total income.
2. Issuance of final assessment order under Section 144.
3. Applicability of Article 17 of the India-Switzerland DTAA.
4. Nature of receipts derived from personal activities of athletes.
5. Taxable income based on payments made to Formula FB Business Limited and Felipe Massa.
6. Deductibility of payments made to Formula FB Business Limited and Felipe Massa.
7. Levy of interest under Sections 234A, 234B, and 234C.
8. Levy of interest under Section 234D.
9. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Determination of Total Income:
The Assessing Officer (AO), based on the directions of the Dispute Resolution Panel (DRP), determined the total income of the appellant to be Rs. 3,25,43,000 for AY 2012-13. This was contested by the appellant.

2. Issuance of Final Assessment Order under Section 144:
The appellant argued that the AO erred in not issuing a final assessment order under Section 144 of the Income-tax Act, thereby rendering the assessment order null and void ab initio.

3. Applicability of Article 17 of the India-Switzerland DTAA:
The DRP noted that the appellant did not furnish any relevant reply to show cause why the provisions of Article 17 of the India-Switzerland Tax Treaty (DTAA) are not applicable. The DRP held that the receipts of the appellant are in the nature of income derived from the personal activities of athletes exercised in India and hence taxable under Article 17 of the DTAA.

4. Nature of Receipts Derived from Personal Activities of Athletes:
The AO and DRP held that the receipts from drivers participating in the Formula One Motor Championship are derived from the personal activities of entertainers/athletes exercised in India. The DRP referred to the OECD commentary, which considers a Formula One racing driver as an athlete.

5. Taxable Income Based on Payments Made to Formula FB Business Limited and Felipe Massa:
The AO added the payments made to Formula FB Business Limited and Felipe Massa to the appellant's income, estimating the total addition to be Rs. 3,25,43,000, taxable at 40% plus applicable surcharge and education cess.

6. Deductibility of Payments Made to Formula FB Business Limited and Felipe Massa:
The DRP and AO did not allow the payments made to Formula FB Business Limited and Felipe Massa as deductible expenses, despite the fact that tax was deducted and deposited into the Indian Government treasury.

7. Levy of Interest under Sections 234A, 234B, and 234C:
The AO proposed to levy interest under Sections 234A, 234B, and 234C of the Income-tax Act as per the law.

8. Levy of Interest under Section 234D:
The AO also proposed to levy interest under Section 234D of the Income-tax Act.

9. Initiation of Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings under Section 271(1)(c) of the Income-tax Act, stating that the appellant concealed the true and correct particulars of its taxable income and furnished inaccurate particulars.

Conclusion:
The Tribunal considered the submissions and referred to the decisions of the Authority of Advance Rulings (AAR) in similar cases, which held that such receipts were not taxable in India. However, due to the lack of detailed factual examination, the Tribunal remitted the matter back to the AO for fresh consideration, including the duration of the drivers' stay in India and other relevant details. The Tribunal directed the AO to re-examine the issues in light of the observations and provide the appellant an opportunity to submit relevant information. The appeals for both AY 2012-13 and AY 2013-14 were allowed for statistical purposes.

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