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TMI Blog2017 (9) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court had come on December 21, 2016 fastening liability of income tax on the income generated by FOWC, FOWC tried to play smart by invoking the LCs. This was done by FOWC even after it was made aware of the attachment orders dated December 1, 2016 passed under Section 281B of the Act. No doubt, FOWC had challenged the orders of the High Court by filing special leave petition in this Court. Such a challenge was laid by Jaypee as well. Least that was expected of FOWC was to await the decision of this Court and act thereafter, depending upon the outcome of those proceedings. Fact remains that this Court has upheld the judgment of the Delhi High Court dated December 21, 2016 thereby sustaining the liability of FOWC. The attempt of the FOWC was nothing less than trying to over reach the judicial orders. We, therefore, affirm the order of the High Court which has upheld the attachment order made by the Income Tax Department. Having upheld the attachment order, the important moot question that arises is as to how to secure the amount? Whether Axis Bank be restrained from transmitting the amount to the Confirming Banks? Here, we find that insofar as Confirming Banks are conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est of FOWC) in respect of income earned by FOWC in India for conducting Formula One races in India, as a result of contractual arrangement between FOWC and Jaypee. Though, it was disputed by FOWC as well as Jaypee that the income generated for conducting such races is not exigible to tax in India because of the provisions contained in Double Taxation Avoidance Agreement (DTAA) between India and U.K., the said controversy has been put to rest by this Court in Civil Appeal Nos. 3849 of 2017, 3850 of 2017 and 3851 of 2017 decided by this Court vide common judgment dated April 24, 2017. Before we advert to the disputes involved in these appeals, a brief background of the dispute which led to the aforesaid judgment would be necessary. 4) FOWC and Jaypee entered into a Race Promotion Contract (RPC) and Artwork License Agreement (ALA), as amended from time to time, under which Jaypee was granted rights to host and promote the Formula One Grand Prix of India to be held at the Buddha International Circuit, Noida and was also given rights to use certain intellectual property for facilitating the organisation of Formula One Grand Prix in India for the consideration and upon the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, and further requested RBI to permit the Bank to make the payment under the LCs. RBI, however, did not issue any communication permitting the Bank to do so. 9) By a letter dated May 6, 2014, the U.K. Solicitors for Lloyds Bank replied to the Axis Bank s letter dated April 5, 2014, and contended that the order dated March 10, 2014 did not apply to the Axis Bank s obligation to make payment under the LCs. By another letter dated May 7, 2014, the U.K. Solicitors for RBS took the same stand and asked the Axis Bank to make payment under the LCs for USD 15,450,000 and also threatened legal action against the Axis Bank in the event of non-payment under the LCs. 10) At that stage, Axis Bank filed the Writ Petition No. 2129 of 2014 in the High Court of Bombay seeking various protective reliefs. FOWC also filed Writ Petition (L) No. 3245 of 2015. In this writ petition, orders were passed from time to time. Even one Review Petition (L) No. 54 of 2015 was filed. Ultimately, with the consent of FOWC and Jaypee, the following arrangements were arrived at disposing of the said review petition: (i) the LCs invoked by FOWC was reversed and not given effect to; (ii) the four LCs refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court had concluded that FOWC is liable to pay tax on the payments which it had received from the Jaypee under the RPC and, therefore, amount to the extent of said liability had to be secured inasmuch as while making the payments, Jaypee had not deducted the tax at source which was, otherwise, its obligation under the Act. 14) Fearing that FOWC may not get at least part of the amount under the LCs in view of tax liability, FOWC acted hastily by triggering the LCs on November 30, 2016 itself (the date on which judgment was pronounced by the Delhi High Court) and called upon the Confirming Banks i.e. RBS and Lloyds Bank to make payments to it. The Confirming Banks also obliged instantly by releasing the payment under the LCs to FOWC. 15) Insofar as Income Tax Department is concerned, it issued fresh Attachment Orders dated December 1, 2016 under Section 281B of the Act by which LCs were attached and Axis Bank was informed accordingly. Copy of this Attachment Order was marked to Jaypee, RBI, RBS, Lloyds Bank as well. Axis Bank informed about the said attachment also to RBS and Lloyds Bank by e-mail dated December 1, 2016. 16) On the one hand, Axis Bank was restrai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LCs by the said Banks to FOWC was wrongful or illegal etc. Some other prayers of similar nature were also made. This suit was filed on December 13, 2016 and along with that Notice of Motion was taken for emergent interim prayers. In the said Notice of Motion (L) No. 233 of 2016 (re-numbered as 10 of 2016), the order dated December 14, 2016 was passed by Bombay High Court inter alia restraining the Confirming Banks from taking any coercive steps or measures against Axis Bank from enforcing the LCs. Further, orders dated December 21, 2016 were passed by the Bombay High Court directing the Axis Bank to deposit US$ 15.45 million in the High Court, being the money payable to RBS. Pursuant to these orders, Axis Bank has deposited the said amount with the prothonotary and Senior Master, High Court of Bombay. Challenging these orders, RBS and Lloyds Bank have filed SLP (C) Nos. 3073-3074 of 2017 and 5317-5318 of 2017. 19) From the aforesaid, it is clear that SLP (C) No. 5383 of 2017 filed by the Axis Bank challenges the order of the High Court of Delhi whereby the attachment made by the Income Tax Department under Section 281B of the Act is held to be valid. Other two appeals are by RBS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the income generated by FOWC, FOWC tried to play smart by invoking the LCs. This was done by FOWC even after it was made aware of the attachment orders dated December 1, 2016 passed under Section 281B of the Act. No doubt, FOWC had challenged the orders of the High Court by filing special leave petition in this Court. Such a challenge was laid by Jaypee as well. Least that was expected of FOWC was to await the decision of this Court and act thereafter, depending upon the outcome of those proceedings. Fact remains that this Court has upheld the judgment of the Delhi High Court dated December 21, 2016 thereby sustaining the liability of FOWC. The attempt of the FOWC was nothing less than trying to over reach the judicial orders. 25) In the aforesaid scenario, first thing that needs to be determined is as to whether provisional attachment order passed by the Assessing Officer under Section 281B of the Act is valid or not. This attachment order has to be seen in the light of the fact that there is a conclusive finding, upheld by this Court, that FOWC has PE in India and that taxable event has taken place in India because of which non-resident FOWC is liable to pay tax in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of objections filed by the assessee (FOWC) in DRP 27.02.2017 27) If the income proposed to be assessed in the draft assessment orders are accepted by the assessee or the Draft Resolution Panel, the income of the assessee and the tax thereon would be as under: S. No. Assessment Year Proposed Income Proposed Tax + surcharge + Interest (in Rs.) Proposed Tax + surcharge + Interest (In USD) 1 2012-13 123,13,60,140/- 90,40,44,912/- 13,285,595/- 2 2013-14 88,37,92,350/- 60,08,02,039/- 8,829,221/- 3 2014-15 104,19,03,410/- 65,16,23,065/- 9,576,073/- Total 315,70,55,900/- 215,64,70,016/- 31,690,890/- 28) It is also pointed o ..... 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