9911796707
TMI Blog2008 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... its registered office in Dubai. The applicant states that it is engaged in the business of promoting Golf nationally as well as internationally by way of organizing Golf tournaments in different countries. The applicant's role is that of an event organizer who earns income by way of organizing such events. The applicant has reportedly got affiliations with the European Professional Golf Association (in short EPGA) by virtue of which many of the tournaments organized by GID are recognized as "European Tour events", being extremely prestigious events with the participation of the top ranking international Golf players. 2. In keeping with the aforesaid objective of promoting Golf tournaments worldwide, the applicant organized two Golf tournaments in India. The first one known as EMAAR-MGF LADIES MASTERS, 2007 was organized in Bangalore at Eagleton, the Golf Resort (in short Eagleton) from 3rd December, 2007 to 8th Dec.,2007. The second tournament, known as EMAAR-MGF INDIAN MASTERS, was organised on the Golf course of the Delhi Golf Club (in short DGC) in February 2008 i.e. from 4th February 2008 to 10th February 2008. 3. For organizing the tournaments at Delhi, the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Avoidance Agreement, entered between the Government of Republic of India and the Government of United Arab Emirates ("India-UAE DTAA")? 2. Whether Eagleton The Golf Resort, Bangalore and/or the Delhi Golf Club could be deemed to be an agency PE of GID in India since the tournaments were held at grounds of each of these clubs and/or for providing ancillary assistance to GID in organizing the Golf tournaments? 3. If the answer to any of the queries above is in affirmative, whether any or all of the following income generated by GID from the Golf tournament held in Delhi and Bangalore would be liable to tax in India in terms of Article 7 of the India-UAE DTAA? (i) sponsorship income and a nominal management fee from Indian as well as foreign sponsors and; (ii) income from sale of merchandise at the venue and over the internet; 4. In the event that GID does not have a PE in India, would any of the income arising to GID under any of the above heads be taxable in India under any other provision of the India-UAE DTAA? Arguments on behalf of the applicant 7. Arguing on behalf of the applicant, Mr. H.P.Ranina, the learned Advocate, emphasized the aspect that the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Publishing In re (239 I.T.R.879) and the second being that of Speciality Magazines P.Ltd., reported in 274 I.T.R. 310 where the concept of Agency PE has been dealt with. 8. Summing up the arguments on the existence of PE, Mr. Ranina concluded that in the absence of a PE, the business receipts cannot be taxed here in India in terms of Article 7 read with Article 5 of the Treaty. It has further been argued that the sponsorship fees and the management fees cannot either be characterized as 'Royalty Income' or Fees for technical services (FTS) in consonance with the provisions of the Treaty. Going by the definition of Royalty as contained in the Article 12(3) of the Treaty, these payments, as per Mr.Ranina, are not received as a consideration for the use of or the right to use any patent secret formula or information concerning any industrial or commercial experience. GID, as stated by the counsel, is, no doubt, possessed of commercial experience, but the same has not been imparted to any third party and so, the payments received by GID do not fall within the four corners of Royalty income as contained in the Article 12(3) of he Treaty. Further, as the Treaty between India and UAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ek to three markets in different towns in Germany, where he (the salesman) erected his sale-stand. The stand was normally put up on the same spot in the markets and the salesman did not use any building or other construction fixed to the soil. The vendor also spent one day a week in Germany for stocking up and preparation for the week. In this given set up of facts, the court held that a P.E., both under German domestic law and the Tax Treaty, presupposed a certain connection to the soil and a spatial delimitation of the place where the business was performed. The market vendor had his sale-stand on the same spot and within the same three markets and in such factual scenario, a P.E. was found to exist. In fact, even movable places of business may constitute a PE if they have a temporary location, contends the Revenue. 11. As contended, the availability of the Golf Courses, to GID, both at DGC and Eagleton, even for 6-7 days only is a sufficient time frame to impart an aura of permanency as envisaged in the phraseology 'fixed place of business'. For this averment, the Revenue has relied on the following extract from Prof. Skaar's aforesaid book: - "6. Since the place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the applicant. Accordingly, there does exist an Agency PE in terms of paragraphs 4 and 5 of Article 5 of the Treaty. Further, taking into account the initial visit of Mr. Mohammed Juma BuAmin, Vice-Chairman of the Company on 27.5.2007, the total stay of the applicant through its employees aggregates to nine months or more and thus gives way to the existence of a Service PE as per the Article 5(2(i) of the Treaty, argues the Revenue. Counter-argument of the applicant 14. Responding on behalf of the applicant, Mr.Ranina argued that the stand of the Revenue relating to the existence of PE is not legally tenable in terms of the Article 5 of the Treaty. According to the learned counsel, paragraph 1 of Article 5 of the Treaty defines the term "'Permanent Establishment' as a fixed place of business, through which the business of an enterprise is wholly or partly carried on". As stated in the OECD Commentary, the definition presupposes - (a) place of business i.e. facility such as premises or in certain instances machinery and equipment (b) the place of business must be fixed i.e. it must be established at a distinct place with a certain degree of permanence (c) the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book. Further, Mr.Ranina also referred to a decision of Andhra Pradesh High Court in the case of Vishakhapatnam Port Trust, reported in 144 ITR 146 wherein also it was held that the words "Permanent Establishment" postulated the existence of a substantial element of 'an enduring or permanent nature'. 17. In the backdrop of the above examples and commentaries, the learned counsel argued that even in the case of the applicant there is no degree of permanence in respect of any of venues for the Golf tournaments because in terms of the contractual agreements there is no binding obligation for organizing these events in 2009 and 2010 at these very places. As such, the element of enduring permanence is missing in the instant case. Besides, the Golf Courses are also not at the exclusive disposal of G.I.D. According to the learned counsel, the non-exclusive and limited access to the space does not constitute a P.E. 18. Stoutly denying the existence of a service PE, the learned counsel referred to the Article 5(2)(i) of the Treaty which specifically lays down that a service PE includes the "furnishing of services through employees or other personnel in the contracting state (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) a farm or plantation; (h) a building site or construction or assembly project or supervisory activities in connection therewith, but only where such site, project or activity continues for a period of more than 9 months; (i) the furnishing of services including consultancy services by an enterprise of a Contracting State through employees or other personnel in the other Contracting State, provided that such activities continue for the same project or connected project for a period or periods aggregating more than 9 months within any twelve-month period. 3. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include: (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y clause and states that an enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in the other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in ordinary course of their business. Unless the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he shall not be considered as an agent of independent status within the meaning of this paragraph. In other words, to apply second part of para 5, it has to be shown that (i) the applicant is claiming to carry on business through an agent of an independent status; (ii) the activities of such agents are carried out wholly or almost wholly on behalf of the applicant. 22. Taking up, first, the arguments put forward by both the parties in respect of existence of a Service PE, we are of the view that Article 5(2)(i) of the Treaty is not at all applicable in the present case. In fact, clause (i) of Article 5(2), as reproduced above in para 20, states that PE includes 'furnishing of services' by a foreign enterprise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1) of the Treaty, presupposes the following essential ingredients:- (i) existence of an enterprise (foreign entity) (ii) its carrying on a business (iii) existence of a place of business (iv) that which is fixed (v) through which the business is carried on. To appreciate the concept of PE on this score objectively, it will be appropriate to elaborate some of the essential ingredients as enumerated above. Place of business/carrying on a business The phraseology 'place of business' is indicative of geographical situs where the non-resident performs important functions of its business. On the basis of various examples given in the commentaries, the term 'place of business' primarily indicates the following:- * It covers any premises, facilities or installations used for carrying on the business of the non-resident, whether or not they are used exclusively for that purpose. * A place of business may exist where there is a certain amount of space which is used by the non-resident for business activities. * A place of business may be situated in the business facilities of another enterprise. * No formal legal right to use a particular place is required. * ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and therefore do not constitute a fixed place of business through which the business of that enterprise is carried on." Meaning of Fixed place: In its ordinary and plain meaning, the word 'fixed', as per the 'New Oxford Short Dictionary, means - (a) definitely and permanently placed or assigned (b) stationary or unchanging in relative position and (c) definite, permanent lasting. Even according to the OECD commentary, the term 'fixed' means established at a distinct place with certain degree of permanence. As to what constitutes a reasonable period of time to give necessary degree of permanence depends upon the nature of business of the enterprise in the backdrop of facts of each case. Obviously, 'permanent' in the context of 'fixed place of business' does not mean for ever nor can it be merely transient. The observation of Sheppard J in Applegate vs. FCT. 78 ATC 4054 at 4060 (1978) 8 ATR 372, 378 may usefully be quoted here:- "Permanent is used in the sense of something which is to be contrasted with that which is temporary or transitory. It does not mean ever lasting. The question is thus one of fact and degree". In addition, it may quite befitting to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignifies a course of conduct involving the performance of a succession of acts, and not the effecting of one solitary event. The phrase means more or less continuous venture which, if not taking place incessantly, should, at least, be regular in its occurrence. As such, ventures like travel circuses, musical troupe, stalls in exhibition and game shows etc. will have a fixed place PE in a State only if they carry on their activities on a regular basis. 25. In the backdrop of the above discussion, we have to consider the crucial question whether the opening part of the definition of PE is attracted. There are certain factors which have bearing on the first ingredient. During the days when the golf tournament is conducted, the Golf Course can be regarded as a place of business like a pitch in the market place because the center of income earning activities was at that particular place which the applicant was authorized to use. During that period, Golf Course was at the disposal of the applicant for the stipulated time frame, though the owner can exercise some limited rights. In the context, the examples cited by Mr.Ranina of concert tours and ice-shows where the existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the applicant is being 'carried on' in India, as elucidated above; the answer relating to the existence of a PE is in the negative. It may not be out of place to observe that the course of events in future will determine whether a different view needs to be taken as regards the existence of PE within the meaning of Article 5(1) of the Treaty. We have reached the above conclusion in the context of factual position obtaining as on today and on the basis of the existing agreement with the DGC. 27. Accordingly, in the absence of a Permanent Establishment, as discussed in the preceding paras, the applicant's business income, as stated in para 5 above, cannot be taxed in India. 28. Further, at best, these receipts i.e. management fees could have been brought to tax within the purview of Fees for Technical Services. However, in the absence of any provision in the Treaty with regard to FTS, the same cannot be taxed as FTS. Article 22 of the Treaty also does not come to the aid of the Revenue, as it is in respect of 'other income'. In the initial arguments, the Revenue had also contended that the receipts can be characterized as Royalty income. However, as per letter dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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