LexFORMULA ONE WORLD CHAMPIONSHIP LTD. versus COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION - 3, DELHI & ANR.
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A B c D E F G H [2017] 2 S.C.R. 152 FORMULA ONE WORLD CHAMPIONSHIP LTD. v. COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION - 3, DELHI & ANR. (Civil Appeal No. 3849 of2017) APRIL 24, 2017 [A. K. SIKRI AND ASHOK BHUSHAN, JJ.) Income Tax Act, 1961: s. 1-95 - TDS on non-residents - Appellants-FOWC, UK Company (NRI), entered into Race Promotion Contract (RPC) with Jaypee Sports, Indian entity -: Grant of rights to Jaypee to host, stage and promote Formula One Grand Prix of India event at the Buddh International Circuit in India for a consideration of US$ 40 million - FOWC, if having any Permanent Establishment in India in terms of Art. 5 - Consideration received or receivable by FOWC from Jaypee, if subject to tax at source u!s. 195 - Held: FOWC is the Commercial Right Holder (CRH) - Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, and it was a virtual projection of foreign enterprise-FOWC in India - Fixed place of business in the form of physical location-Buddh International Circuit, was at the disposal of FOWC through which it conducted business, though for a short duration - Thus, FOWC had a Permanent Establishment in India - Taxable event took place in India and non-resident FOWC is liable to pay tax in India on the income it has earned in India - Since payments made by Jaypee to FOWC under RPC were business income of the FOWC through PE at Buddh International Circuit, and, thus, chargeable to tax, Jaypee bound to make appropriate deductions from the amounts paid u/s. 195 - Double Taxation Avoidance Agreement (between India and United Kingdom) - Art. 5 Double Taxation Avoidance Agreement (between India and United Kingdom): Art. 5 - Permanent Establishment - What constitutes Permanent Establishment - Explained. 152 FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 153 COMMISSIONER OF INCOME TAX Art. 5 - Permanent Establishment - Conditions to be A ··satisfied - Held: Twin conditions to be satisfied are existence of a fixed place of business; and through that place business of an enterprise is wholly or partly carried out. Dismissing the appeals by FOWC and Jaypee and disposing of the appeal by the Revenue, the Court B HELD: 1.1 As per Article 5 of the Double Taxation Avoidance Agreement, the Permanent Establishment has to be a fixed place of business 'tftrougft' which business of an enterprise is wholly or partly carried on. A combined reading of sub-articles (1 ), (2) and (3) of Article 5 would clearly show that only certain . c forms of establishment are excluded as mentioned in Article 5(3), which would not be PEs. Otherwise; sub-article (2) uses the word 'include' which means that not only the places specified therein are to be treated as PEs, the list of such PEs is not exhaustive. In order to bring any other establishment which is not specifically mentioned, the requirements laid down in sub-article (1) are to be satisfied. 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. [Para 66] (207-C~F] D 1.2 The Buddh International Circuit is a fixed place. From E this circ.uit different races, including the Grand Prix is conducted, which is undoubtedly an economic/business activity. The manner in which commercial rights, which are held by FOWC and its affiliates, have been exploited, the entire arrangement between FOWC and its associates on the one hand and Jaypee on the F other hand, is to be kept in mind. Various agreements cannot be looked into by isolating them from each other. Their wholesome reading would bring out the real transaction between the parties. Such an approach is essentially required to find out as to who is having real and dominant control over the Event, thereby providing an answer to the question as to whether Buddh G International Circuit was at the disposal of FOWC and whether it carried out any business therefrom or not. There is an inalienable relevance of witnessing the wholesome arrangement in order to have complete picture of the relationship between FOWC and H 154 A B c I) E F G H SUPREME COURT REPORTS [2017] 2 S.C.R. Jaypee, to capture the real essence of FOWC's role. [Para 67) [207-F-H; 208-A-B) 1.3 The agreement was analysed by the High Court in a flawless manner. The High Court right
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