Formula One World Championship Ltd. v. Commissioner of Income-tax, International Taxation-3, Delhi & Anr
[Citation -2017-LL-0424-6]

Citation 2017-LL-0424-6
Appellant Name Formula One World Championship Ltd.
Respondent Name Commissioner of Income-tax, International Taxation-3, Delhi & Anr.
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 24/04/2017
Judgment View Judgment
Keyword Tags deemed to accrue or arise in india • profits and gains of business • business connection in india • permanent establishment • commercial exploitation • double taxation relief • intellectual property • deduct tax at source • controlling interest • plant and machinery • condition precedent • scientific research • foreign enterprise • license agreement • personal property • commercial right • commission agent • advance ruling • non-resident • racing event • pe in india • know-how
Bot Summary: As far as the question of subjecting the payments to tax at source under Section 195 of the Act is concerned, AAR ruled Page 3 that since the amount received/receivable by FOWC was income in the nature of Royalty and it was liable to pay tax there on to the Income Tax Department in India, it was incumbent upon Jaypee to deduct the tax at source on the payments made to FOWC. FOWC and Jaypee challenged the ruling on the first issue by filing writ petitions in the High Court contending that the payment would not constitute Royalty under Article 13 of the DTAA. Revenue also filed the writ petition challenging the answer of the AAR on the second issue by taking the stand that FOWC had PE in India in terms of Article 5 of the DTAA and tax was payable accordingly. Another agreement known as Artwork License Agreement was entered into between FOWC and Jaypee on the same day whereby FOWC permitted Jaypee to use certain marks and intellectual property belonging to FOWC for a consideration of US 1 million. 12) As pointed out earlier, first question was as to whether considerations received/receivable under the RPC by FOWC from Jaypee Sports was in the nature of business income and Royalty as defined under the Act as well as DTAA. Plea of FOWC and Jaypee was that what was granted to Jaypee by FOWC was a commercial right to use the event, i.e., a hosting right and the consideration received/receivable therefrom by FOWC was not for the use of trademark, copyright, equipment etc. The Promoter shall take whatever action is necessary to ensure that the pit and paddock buildings and surrounding areas within Circuit and the Land are open to receive the competitors, FOWC, Affiliates of FOWC, FOWC s contractors and licensees and their respective personnel and equipment at all times during the period commencing fourteen days before the day of the race and ending seven days after the Race and the security of the paddock and garage area is properly safeguarded at all times during the Access Period. According to him, in contrast, it could be seen from the Agreement dated September 13, 2011 between FOWC and Jaypee that FOWC had simply given permission to host the Event as a round of the Championship, since it is the FOWC, who has the exclusive right to exploit the commercial rights in the Championship, including exclusive right to propose the Championship calendar. 47) On the basis of the aforesaid documents and clauses and terms therein, Mr. Ganesh submitted that the circuit was not under the control or at the disposal of FOWC. As regards 4500 seats in paddock space given to FOWC in that circuit is concerned, explanation of Mr. Ganesh was that it is Allsports Page 65 which was in-charge of paddock and the same was taken from Allsports by FOWC in the year 2006 and it would not make any difference. According to him, the first question which has to be focused upon was as to what is the business of FOWC. His submission was that since in this case business of FOWC was not to organise these races, the question of its PE in India, that too in the form of circuit where the race is to be held, could not be PE of FOWC. He also submitted that even after going through all the clauses of the agreement between FOWC and Jaypee with a toothcomb, it would be found that FOWC had no physical control over the said circuit.


REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 3849 OF 2017 FORMULA ONE WORLD CHAMPIONSHIP LTD. ..APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION 3, DELHI & ANR. ..RESPONDENT(S) W I T H CIVIL APPEAL NO. 3850 OF 2017 N D CIVIL APPEAL NO. 3851 OF 2017 JUDGMENT A.K. SIKRI, J. INTRODUCTION These appeals are filed by Formula One World Championship Limited (hereinafter referred to as Page 1 'FOWC'), Jaypee Sports International Limited (for short, 'Jaypee') and Union of India (hereinafter referred to as 'Revenue'). In all these appeals, challenge is laid to judgment dated November 30, 2016 passed by High Court of Delhi whereby three writ petitions preferred by FOWC, Jaypee and Revenue have been decided. 2) matter originated from filing of applications by FOWC and Jaypee before Authority for Advance Ruling (AAR). FOWC had entered into 'Race Promotion Contract' (RPC) dated September 13, 2011 with Jaypee, granting Jaypee right to host, stage and promote Formula One Grand Prix of India event for consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee, particulars whereby would be mentioned later at appropriate stage. In applications filed by FOWC and Jaypee before AAR, advance ruling of AAR was solicited on two main questions/queries: (i) whether payment of consideration receivable Page 2 by FOWC in terms of said RPC from Jaypee was or was not royalty as defined in Article 13 of 'Double Taxation Avoidance Agreement' (DTAA) entered into between Government of United Kingdom and Republic of India?; and (ii)whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA? Another related question was also raised, viz., (iii)whether any part of consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195 of Indian Income Tax Act, 1961 (hereinafter after referred to as 'Act'). 3) AAR answered first question holding that consideration paid or payable by Jaypee to FOWC amounted to Royalty under DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as question of subjecting payments to tax at source under Section 195 of Act is concerned, AAR ruled Page 3 that since amount received/receivable by FOWC was income in nature of Royalty and it was liable to pay tax there on to Income Tax Department in India, it was incumbent upon Jaypee to deduct tax at source on payments made to FOWC. FOWC and Jaypee challenged ruling on first issue by filing writ petitions in High Court contending that payment would not constitute Royalty under Article 13 of DTAA. Revenue also filed writ petition challenging answer of AAR on second issue by taking stand that FOWC had PE in India in terms of Article 5 of DTAA and, therefore, tax was payable accordingly. 4) As mentioned above, all these three writ petitions have been decided by High Court vide common judgment dated November 30, 2016. Interestingly, High Court has reversed findings of AAR on both issues. Whereas it has held that amount paid/payable under RPC by Jaypee to FOWC would not be treated as Royalty, as per High Court FOWC had PE in India and, therefore, taxable in India. While deciding this question, High Court has not Page 4 accepted plea of Revenue that it was not dependent PE. High Court has also held, as sequitur, that Jaypee is bound to make appropriate deductions from amount payable to FOWC under Section 195 of Act. It is for this reason all three parties are again before us. 5) As per FOWC and Jaypee, no tax is payable in India on consideration paid under RPC as it is neither Royalty nor FOWC has any PE in India. It is pertinent to mention that Revenue has not challenged findings of High Court that amount paid under RPC does not constitute royalty. Therefore, that aspect of matter has attained finality. main question in appeals, therefore, pertains to PE. FACTUAL MATRIX 6) In order to decide this question, following facts, having bearing on matter, need recapitulation: 7) Federation Internationale de I' Automobile (for short, 'FIA'), non-profit association, is Page 5 established as Association Internationale des Automobile Clubs Reconnus to represent interests of motoring organizations and motor car users globally. FIA, as federation of world s leading motoring organizations and governing body for motorsports worldwide, consists of 213 national member organizations in 125 countries internationally. FIA is principal body for establishing rules and regulations for all major international four-wheel motorsport events. FIA is regulatory body; it regulates FIA Formula One World Championship ('Championship') which has been premier form of motor racing since its inception in 1950. This Championship is established and run every year subsequently since. Championship is annual series of motor races, conducted in name and style of Grand Prix over three day duration at purpose-built circuits, and in some cases, across public roads, in different countries around world. Championship is considered most prestigious motor sport series in world. 'Formula One' (F-1) refers to rules and regulations that define characteristics of Page 6 race, as opposed to any other form of motor race. Thus, 'the formula', is with reference to set of rules that all participants cars must conform to. F-1 seasons consist of series of races, known as Grand Prix (from French, meaning grand prizes), held across world on specially designed and built F-1 circuits across 26 different locales. 8) F-1 Grand Prix events are held under aegis of FIA Formula One World Championship s competition in which F-1 racing cars, assembled and manufactured strictly in terms of F-1 technical regulations, compete against each other, under F1 Sporting Regulations and F-1 International Sporting Code framed and made effective by FIA. F-1 drivers across world have ability, competence and skill to drive F-1 car and participate in F-1 racing events. About 12 to 15 teams typically compete in these Championship in any one annual racing season. Some celebrated and well-known participating teams are Ferrari, McLaren, Red Bull etc. teams assemble and construct their vehicles, which comply with defined technical Page 7 specifications, and engage drivers who can successfully manoeuvre F-1 cars in racing events. 9) FOWC is incorporated under laws of United Kingdom, and is tax resident of United Kingdom. It is Commercial Rights Holder (CRH) in respect of Championship with effect from January 01, 2011. FOWC has entered into agreement with FIA and Formula One Asset Management Limited ( FOAM ). Under these agreements, FOAM licensed all commercial rights in FIA Formula One World Championship (hereinafter referred to as F1 Championship ) to FOWC for 100 year term effective from January 01, 2011. As mentioned above, teams which participate in F1 World Championship Competitions have to strictly comply with terms and conditions set out for such competitions as per Sporting Regulations and Sporting Code. For this purpose, all these teams, known as Constructors , enter into contract, known as 'Concorde Agreement', with FOWC and FIA. In these agreements, they undertake to participate to best Page 8 of their ability, in every F-1 event included in official annual F-1 racing calendar. They also bind themselves to unequivocal negative covenant with FOWC that they would not participate in any other similar motor racing event whatsoever nor would they promote in any manner any other rival event. F-1 racing teams exclusively participate in about 19 to 21 listed F-1 annual racing events on official racing calendar, set by FIA. This is, in effect, closed circuit event since no team other than those bound by contract with FOWC are permitted participation. Thus, on one hand, participating teams enter into Concorde Agreement. Likewise, promoters are also chosen for holding these F-1 racing events. Every F-1 racing event is hosted, promoted and staged by promoter with whom FOWC as right holder, enters into contract and whose event is nominated by CRH (i.e. Commercial Right Holder, which is in effect, FOWC) to FIA for inclusion in official F-1 racing calendar. In other words, FOWC is exclusive nominating body at whose instance Page 9 event promoter is permitted participation. points scored by each F-1 racing team in every event is listed in official racing calendar and it counts towards Constructor's Championship and Driver s Championship for racing season as whole. Any team s position in these Championships at end of season determines, together with certain other factors which are elaborately dealt with in Concorde Agreements (which in present instance, was latest in series of Concorde Agreements last being one of 2009 i.e. August 05, 2009), prize money payable to teams for their participation during season. Grant of right to host, stage and promote F-1 racing event, therefore, carries with it covenant or representation that F-1 racing teams with their cars, drivers and other auxiliary and supporting staff will participate in motor racing event hosted at promoter s motor racing circuit displaying highest levels of technical skill achievement etc. in fields of construction of single seat motorcars to attain highest levels of performance in world. These teams and FOWC also represent that Page 10 highest levels of skill in racing management and maintenance of cars would be on display in event. All these are part of relevant contractual provisions, embodied in RPC 2011. In this manner, FOWC has acquired all commercial rights in respect of F-1 Championship wherever such tournaments take place, i.e. with permission of FOWC. 10) Jaypee was interested to acquire this right for hosting, staging and promoting F-1 Grand Prix of India event. In order to do so, it entered into agreement with FOWC dated September 13, 2011 which is known as Race Promotion Contract (RPC). By this agreement, FOWC granted Jaypee right to host, stage and promote F-1 Grand Prix of India event for consideration of US$ 40 millions. Another agreement known as Artwork License Agreement ( ALA ) was entered into between FOWC and Jaypee on same day whereby FOWC permitted Jaypee to use certain marks and intellectual property belonging to FOWC for consideration of US$ 1 million. Prior to this RPC of 2011, another RPC of October 25, 2007 had been Page 11 entered into between FOA and Jaypee which was replaced by agreement dated September 13, 2011 between FOWC and Jaypee. Pursuant thereto, races were held in India in 2011, 2012 and 2013. 11) After entering into aforesaid arrangement for hosting F-1 Grand Prix in India, both FOWC and Jaypee approached AAR seeking its advance ruling on two questions, nature of which, including opinion of AAR thereupon, is already mentioned above. 12) As pointed out earlier, first question was as to whether considerations received/receivable under RPC by FOWC from Jaypee Sports was in nature of business income and Royalty as defined under Act as well as DTAA. Plea of FOWC and Jaypee was that what was granted to Jaypee by FOWC was commercial right to use event, i.e., hosting right and consideration received/receivable therefrom by FOWC was not for use of trademark, copyright, equipment etc. and hence was not in nature of Royalty . It was also stated by them that there was limited permitted use of Formula One ( F-1 ) Mark which was only to enable promoter Page 12 (Jaypee) to advertise Indian Grand Prix and reproduction of names of sports events was routine and customary in business parlance. For this purpose, ALA was executed to enable Jaypee to use F-1 Marks in limited way and to prevent it from using Marks for any commercial exploitation. Revenue had opposed aforesaid plea of FOWC and Jaypee on ground that consideration comprised not only of hosting rights but also permission to use F-1 Marks and, therefore, entire consideration of US$ 40 million was attributable to usage of F-1 Marks in terms of ALA. According to Revenue, RPC and ALA had to be read together for comprehensive view of matter, particularly, whey they were executed on same day. AAR accepted argument of Revenue holding that consideration received by FOWC amounted to royalty and was to be, accordingly, taxed under Indian Income Act. However, this view is reversed by High Court by impugned judgment after detailed discussion on this issue and in Page 13 opinion of High Court consideration received under Agreement cannot be termed as royalty. As mentioned above, Revenue has accepted judgment of High Court on this issue and, therefore, it is not necessary to discuss in detail reasons given by High Court for coming to aforesaid conclusion. This fact is mentioned only for sake of completeness of issues raised and their outcome. 13) bone of contention before this Court pertains to issue of existence of PE of FOWC in India. We may say at outset that arguments advanced by both parties before us were virtually same arguments which were advanced before High Court as well. Therefore, spelling out submissions of parties before High Court may not be necessary as it would be duplicating and repetitive. At this stage, we would, therefore, record arguments which were presented before us and in process mention basis of conclusion arrived at by High Court for purpose of forming opinion as to whether view of High Court is Page 14 correct and justified in law. RELEVANT STATUTORY PROVISIONS & DTAA REGIME 14) Before adverting to question at hand, it would be appropriate to take note of scheme of Act as well as relevant provisions of DTAA on this subject. Act provides two modes of taxation, namely, resident based and source based. Any person who is resident of India is subjected to Act and liable to pay income tax on total income earned by such resident, after getting various deductions therefrom as admissible under different provisions of Act. Charging section is Section 4 which, inter alia, stipulates that income tax shall be charged for any Assessment Year in respect of total income of previous year of every of such person. Section 5 contains scope of total income of resident and includes all income from whatever source derived by person who is resident which is received or deemed to be received in India, accrues or arises or is deemed to accrue or arise to him in India or accrues or arises to him outside India during such year. Thus, Page 15 resident is supposed to pay income tax on all incomes so earned whether in India or outside India. On other hand, those persons who are not ordinarily residents of India (which term is defined under sub-section (6) of Section 6) are not liable to pay income tax on any income which accrues or arises to such non-resident outside India. However, in case of non-resident persons, if income is derived from business controlled in or profession set up in India, these non-residents are subjected to pay tax for such income earned in India. In their case, all such incomes from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arise to them in India during that year, is taxable in India. In this sense, income tax on non-resident is source based, i.e., source of such income is India and, therefore, even non-resident is liable to pay tax on incomes earned in India. Resident in India and Not-ordinarily Resident in India are covered by provisions contained in Section 6. Page 16 15) In present case, we are concerned with consideration received by FOWC as result of Agreement signed with Jaypee Sports. FOWC, being UK Company, is admittedly non-resident in India. Since question is whether aforesaid consideration/income earned by FOWC is subject to tax in India or not, it is to be decided as to whether that income accrued or arose in India. For this purpose, relevant provision is Section 9 of Act. This section contains varied situations where income is deemed to accrue or arise in India and it is not necessary to spell out each of such contingencies. Insofar as income by way of royalty earned by non-resident is concerned, that is mentioned in clause (vi) of Section 9(1) of Act. As consideration of US$ 40 million received by FOWC from Jaypee is held as no income by way of royalty , we may conveniently skip that provision. 16) Clause (i) of sub-section (1) of Section 9 of Act mentions certain kinds of income which are deemed to accrue or arise in India. This clause is reproduced Page 17 below: (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through transfer of capital asset situate in India: 17) It is clear from reading of said clause that it includes all those incomes, whether directly or indirectly, which are accruing or arising through or from any business connection in India. It is, thus, clear that income which is earned directly or indirectly, i.e. even indirectly, is to be deemed to accrue or earned in India. Further, such income should have some business connection in India. Explanation (1) for purpose of this clause provides five explanations from clauses (a) to (e). Clause (a) stipulates that where all business operations are not carried in India and only some such operations of business are carried in India, income of business deemed under this clause to accrue or arise in India shall be only such part of income as is reasonably attributable to Page 18 operations carried in India. We are not concerned with clauses (b) to (e). Explanation (2) provides certain exceptions in respect of business connection and reads as under: Explanation 2. For removal of doubts, it is hereby declared that business connection shall include any business activity carried out through person who, acting on behalf of non-resident, (a) has and habitually exercises in India, authority to conclude contracts on behalf of non-resident, unless his activities are limited to purchase of gods or merchandise for non-resident; or (b) has no such authority, but habitually maintains in India stock of gods or merchandise from which he regularly delivers goods or merchandise on behalf of non-resident; or (c) habitually secures orders in India, mainly or wholly for non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through broker, general commission agent or any other agent having independent status, if such broker, general commission agent or any other agent having independent status is acting in ordinary course of his business: Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of non-resident (hereafter in this proviso Page 19 referred to as principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by principal non-resident or have controlling interest in principal non-resident or are subject to same common control as principal non-resident, he shall not be deemed to be broker, general commission agent or agent of independent status. 18) This exception, thus, clarifies and declares that even when business activity is carried 'through' person who is acting on behalf of non-resident (which means agent of non-resident), it will be treated that non-resident is having business connection in India. meaning of expression through is again clarified in Explanation (4), which reads as under: Explanation 4. For removal of doubts, it is hereby clarified that expression through shall mean and include and shall be deemed to have always meant and included by means of , in consequence of or by reason of . 19) If non-resident has PE in India, then business connection in India stands established. Section 92F of Act contains definitions of certain terms, though those definitions have relevance for purposes of computation of arms length price, etc. Page 20 Clause (3) thereof defines enterprise and such enterprise includes PE of person. PE is defined in clause (iiia) in following manner: (iiia) permanent establishment , referred to in clause (iii), includes fixed place of business through which business of enterprise is wholly or partly carried on; 20) At this juncture, we would also like to point out that Article 5 of DTAA between India and United Kingdom lays down as to what would constitute PE. It reads as under: ARTICLE 5 PERMANENT ESTABLISHMENT 1. For purposes of this Convention, term permanent establishment means fixed place of business through which business of enterprise is wholly or partly carried on. 2. term permanent establishment shall include especially: (a) place of management; (b) branch; (c) office; (d) factory; (e) workshop; (f) premises used as sales outlet or for Page 21 receiving or soliciting orders; (g) warehouse in relation to person providing store facilities for others; (h) mine, oil or gas well, quarry on other place of extraction of natural resources; (i) installation or structure used for exploration or exploitation of natural resources; (j) building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for period of more than six months, or where such project or supervisory activity, being incidental to sale or machinery or equipment, continues for period not exceeding six months and charges payable for project or supervisory activity exceed 10 per cent of sale price of machinery and equipment; (k) furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within Contracting State by enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for period or periods aggregating more than 90 days within any twelve-month period; or (ii) services are performed within that State for enterprise within meaning of paragraph 1 of Article 10 (Associated enterprises) and continue for period or periods aggregating more than 30 days within any twelve-month period; Page 22 Provided that for purposes of this paragraph enterprise shall be deemed to have permanent establishment in Contracting State and to carry on business through that permanent establishment if it provides services or facilities in connection with, or supplies plant and machinery on hire used or to be used in, prospecting for, or extraction or production of mineral oils in that State. 3. term permanent establishment shall not be deemed to include: (a) use of facilities solely for purpose of storage or display of gods or merchandise belonging to enterprise; (b) maintenance of stock of goods or merchandise belonging to enterprise solely for purpose of storage or display; (c) maintenance of stock of goods or merchandise belonging to enterprise solely for purpose of processing by another enterprise; (d) maintenance of fixed place of business solely for purpose of purchasing goods or merchandise, or for collecting information, for enterprise; (e) maintenance of fixed place of business solely for purpose of advertising, for supply of information or for scientific research, being activities solely of preparatory or auxiliary character in trade of business of enterprise. However, this provision shall not be applicable where enterprise maintains any other fixed place of business in other Page 23 Contracting State for any purpose or purposes other than purposes specified in this paragraph; (f) maintenance of fixed place of businesses solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of paragraph, provided that overall activity of fixed place of business resulting from this combination is of preparatory or auxiliary character. 4. person acting in Contracting State for or on behalf of enterprise of other contracting State other than agent of independent status to whom paragraph (5) of this Article applies, shall be deemed to be permanent establishment of that enterprise in first mentioned State if: (a) he has, and habitually exercises in that State, authority to negotiate and enter into contracts for or on behalf of enterprise, unless his activities are limited to purchase of gods or merchandise for enterprise; or (b) he habitually maintains in first-mentioned Contracting State stock of gods or merchandise from which he regularly delivers goods or merchandise for or on behalf of enterprise; or (c) he habitually secures orders in first-mentioned State, wholly or almost wholly for enterprise itself or for enterprise and enterprises controlling, controlled by, or subject to same common control, as that enterprise. 5. enterprise of Contracting State shall not be deemed to have permanent establishment in other Contracting State merely because it carries on business in that other State through broker, general commission agent or any other agent of Page 24 independent status, where such persons are acting in ordinary course of their business. However, if activities of such agent are carried out wholly or almost wholly for enterprise (or for enterprise and other enterprises which are controlled by it or have controlling interest in it or are subject to same common control) he shall not be considered to be agent of independent status for purposes of this paragraph. 6. fact that company which is resident of Contracting State controls or is controlled by company which is resident of other Contracting State, or which carries on business in that other State (whether through permanent establishment or otherwise), shall not of itself constitute either company permanent establishment of other. 7. For purposes of this Article term control , in relation to company, means ability to exercise control over company s affairs by means of direct or indirect holding of greater part of issued share capital or voting power in company. 21) As per sub-clause (1) of Article 5, fixed place of business through which business of enterprise is wholly or partly carried on, is known as permanent establishment . It requires that there has to be fixed place of business. It also requires that from such place business of enterprise (FOWC in instant case) is carried on, whether wholly or partly. Sub-clause (2) gives Page 25 illustrations of certain places which will be treated as PEs. Likewise, sub-clause (3) excludes certain kinds of places from term PE. Sub-clause (4) enumerates circumstances under which person is to be treated as acting on behalf of non-resident enterprise. Likewise, sub-clause (5) excludes certain kinds of agents of enterprise, namely, broker, general commission agent or agent of independent status, by clarifying that if business is carried on through these persons, enterprise shall not be deemed to be PE. However, one exception thereto is carved out, namely, if activities of such agent are carried out wholly or almost wholly for enterprise, or for enterprise and other enterprises which are controlled by it or have controlling interest in it or are subject to same common control, then, such agent will be treated as agent of independent status. It means that if business is carried out with such kind of agent, enterprise will be deemed to have PE in India. LEGAL COMMENTARIES AND CASE LAW Page 26 22) It is undisputed fact that Article 5 of DTAA between India and United Kingdom follows Organisation for Economic Cooperation and Development s (OECD) Model of Double Taxation Convention. There are various commentaries on Double Taxation Conventions. Celebrated among those are: Manual on OECD Model Tax Convention on Income and on Capital by Philip Baker Q.C., and Klaus Vogel on "Double Taxation Conventions". OECD has also given its condensed version on "Model Tax Convention on Income and on Capital". What constitutes PE under various circumstances has also been subject matter of judicial verdicts in India as well as in other countries. For better understanding of what may constitute PE, it would be imperative to refer to these commentaries and judicial decisions. This discussion would disclose principles enunciated to determine existence of PE, application whereof to given facts would facilitate in answering surging debate. 23) Philip Baker explains that concept of PE is Page 27 important for several Articles of Conventions; concept, or its cognate, also appears in domestic law of some countries. According to him, concept marks dividing line for businesses between merely trading with country and trading in that country; if enterprise has PE, its presence in country is sufficiently substantial that it is trading in country. He has quoted following passage from judgment of Andhra Pradesh High Court, authored by Justice (Retd.) Jagannadha Rao (as His Lordship s then was, later Judge of this Court) in Commissioner of Income Tax, A.P.-I v. Visakhapatnam Port Trust1: words permanent establishment postulate existence of substantial element of enduring or permanent nature of foreign enterprise in another country which can be attributed to fixed place of business in that country. It should be of such nature that it would amount to virtual projection of foreign enterprise of one country into soil of another country. 24) Emphasising that as creature of international tax law, concept of PE has particularly strong claim to uniform international meaning, Philip (1983) 144 ITR 146 Page 28 Baker discerns two types of PEs contemplated under Article 5 of OECD Model. First, establishment which is part of same enterprise under common ownership and control office, branch, etc., to which he gives his own description as associated permanent establishment . second type is agent, though legally separate from enterprise, nevertheless who is dependent on enterprise to point of forming PE. Such PE is given nomenclature of unassociated permanent establishment by Baker. He, however, pointed out that there is possibility of third type of PE, i.e. construction or installation site may be regarded as PE under certain circumstances. In first type of PE, i.e. associated permanent establishments, primary requirement is that there must be fixed place of business through which business of enterprise is wholly or partly carried on. It entails two requirements which need to be fulfilled: (a) there must be business of enterprise of Contracting State (FOWC in instant case); and (b) PE must be fixed place of business, i.e. place which is at disposal of Page 29 enterprise. It is universally accepted that for ascertaining whether there is fixed place or not, PE must have three characteristics: stability, productivity and dependence. Further, fixed place of business connotes existence of physical location which is at disposal of enterprise through which business is carried on. 25) Some of examples of fixed place of business given by Baker are following: place of business must be fixed and permanent. Thus, shed which had been rented for thirteen years for storing and preparing hides was held to constitute PE2. Similarly, writer s study has been held to constitute PE3. stand at trade fair, occupied regularly for three weeks year, through which enterprise obtained contracts for significant part of its annual sales, has also been held to constitute PE4. temporary restaurant operated in mirror tent at Dutch flower show for period of seven months was held to constitute PE5. office, Transvaal Associated Hide & Skin Merchants (Pty) Ltd. (1967) 29 S.A.T.C. 97 (Court of Appeal, Botswana). Georges Simenon (1965) 44 T.C. (US) 820 (US Tax Court) Joseph Fowler v. M.N.R. (1990) 90 D.T.C. 1834; (1990) 2 C.T.C. 2351 (Tax Court of Canada) Antwerp Court of Appeal, decision of February 6, 2001, noted in 2001 WTD 106-11 Page 30 workshop and storeroom for maintenance of aircraft, which were leased out by enterprise, has been held to constitute PE6. 26) On other hand, possession of mailing address in state without office, telephone listing or bank account has been held not to constitute PE7. mere supply of skilled labour to work in country did not give rise to PE of company supplying labour8. drilling rig which, although anchored while in operation, was moved to new site every few months, has been held not to constitute PE9. Similarly, remotely operated vessel which was used to inspect and repair submarine pipelines was held not to constitute PE because moving vessel is not fixed place of business10. 27) principal test, in order to ascertain as to whether establishment has fixed place of business or not, is that such physically located premises have to be at disposal of enterprise. For this purpose, it is not necessary that premises are owned or even rented by Page 31 enterprise. It will be sufficient if premises are put at disposal of enterprise. However, merely giving access to such place to enterprise for purposes of project would not suffice. place would be treated as at disposal of enterprise when enterprise has right to use said place and has control thereupon. 28) Some of illustrative cases decided by courts of different jurisdictions given by Baker in his commentary are contained in following passages from that book: (i) In Canadian case of William Dudney v. R11, taxpayer was resident of United States who was contracted to supply training to employees of Canadian company. For purposes of training contract, taxpayer was given various offices at premises of Canadian company, which he was only allowed to enter at normal office hours. He was allowed to use client s telephone only on client s business. He spent (1999) 99 DTC 147 Page 32 300 days in one tax year and 40 in subsequent year at premises. Tax Court of Canada and Federal Court of Appeal confirmed that he had no fixed base which was treated as having same meaning as PE at premises since he had no right to use premises as base for operation of his own business. (ii) In case generally referred to as Hotel Manager12, Bundesfinanzhof held that UK hotel management company had PE in Germany when it entered into 20 year contract with limited partnership which owned hotel. agreement required UK company to supply general manager: general manager s office constituted PE (and not entire hotel) since UK company had secured right to use this office for purposes of agreement. (iii) Swiss company was held not to have PE when it contracted with German company to produce salad dressings in name of and in accordance with recipe of Swiss company. No employees of Bundersfinanzhof, February 3, 1993, IR 80-81/91, IStR 1993, p. 226, (1993) BStBl., II, 462. Page 33 Swiss company were present at production facility to supervise production13. Bundestinanzhof has also held that scene painter who was commissioned to carry out work in France for six weeks, and given special rooms for purpose, did not have fixed base at those premises. (iv) Administrative Court of Appeal of Paris has held that German travel agency did not have PE in France14. travel agency in Paris had made office available to German company from time to time, and manager of German company had flat in Paris; Court held that German company had no PE at its disposal in France. (v) Brussels Court of Appeal has held that German resident engaged in transportation of vehicles had PE in Belgium15. taxpayer had office 3m by 6m at his disposal on premises of his principal supplier in Belgium, together with telephone and telex, where taxpayer and four of his staff worked. Page 34 29) According to Philip Baker, aforesaid illustrations confirm that fixed place of business need not be owned or leased by foreign enterprise, provided that is at disposal of enterprise in sense of having some right to use premises for purposes of its business and not solely for purposes of project undertaken on behalf of owner of premises. 30) Interpreting OECD Article 5 pertaining to PE, Klaus Vogel has remarked that insofar as term business is concerned, it is broad, vague and of little relevance for PE definition. According to him, crucial element is term place . Importance of term place is explained by him in following manner: In conjunction with attribute fixed , requirement of place reflects strong link between land and taxing powers of State. This territorial link serves as basis not only for distributive rules which are tied to existence of PE but also for considerable number of other distributive rules and, above all, for assignment of person to either Contracting State on basis of residence (Article 1, read in conjunction with Article 4 OECD and UN MC). Page 35 31) We would also like to extract below definition to expression place by Vogel, which is as under: place is certain amount of space within soil or on soil. This understanding of place as three-dimensional zone rather than single point on earth can be derived from French Version ( installation fixe ) as well as term establishment . As rule, this zone is based on certain area in, on, or above surface of earth. Rooms or technical equipment above soil may quality as PE only if they are fixed on soil. This requirement, however, stems from term fixed rather than term place , given that place (or space) does not necessarily consist of piece of land. On contrary, term establishment makes clear that it is not soil as such which is PE but that PE is constituted by tangible facility as distinct from soil. This is particularly evident from French version of Article 5(1) OECD MC which uses term installation instead of place . term place is used to define term establishment . Therefore, place includes all tangible assets used for carrying on business, but one such tangible asset can be sufficient. characterization of such assets under private law as real property rather than personal property (in common law countries) or immovable rather than movable property (in civil law countries) is not authoritative. It is rather context (including, above all, terms fixed / fixe ), as well as object and purpose of Article 5 OECD and UN MC itself, in light of which term place needs to be interpreted. This approach, which follows from general rules on treaty interpretation, gives certain leeway for including movable property in understanding of place and, therefore, Page 36 assume PE once such property has been fixed to soil. For example, work bench in caravan, restaurants on permanently anchored river boats, steady oil rigs, or transformator or generator on board former railway wagon qualify as places (and may also be fixed ). In contrast, purely intangible property cannot qualify in any case. In particular, rights such participations in corporation, claims, bundles of claims (like bank accounts), any other type of intangible property (patents, software, trademarks etc.) or intangible economic assets (a regular clientele or goodwill of enterprise) do not in themselves constitute PE. They can only form part of PE constituted otherwise. Likewise, internet website (being combination of software and other electronic data) does not constitute tangible property and, therefore, does not constitute PE. Neither does mere incorporation of company in Contracting State in itself constitute PE of company in that State. Where company has its seat, according to its by-laws and/or registration, in State while POEM is situated in State B, this company will usually be liable to tax on basis of its worldwide income in both Contracting States under their respective domestic tax law. Under A-B treaty, however, company will be regarded as resident of State B only (Article 4(3) OECD and UN MC). In absence of both actual facilities and dependent agent in State A, income of this company will be taxable only in State B under 1st sentence of Article 7(1) OECD and UN MC. There is no minimum size of piece of land. Where qualifying business activities consist (in full or in part) of human activities by taxpayer, his employees or representatives, mere space Page 37 needed for physical presence of these individuals is not sufficient (if it were sufficient, Article 5(5) OECD MC and Article 5(5)(a) UN MC and notion of agent PEs were superfluous). This can be illustrated by example of salesman who regularly visits major customer to take orders, and conducts meetings in purchasing director s office. OECD MC Comm. has convincingly denied existence of PE, based on implicit understanding that relevant geographical unit is not just chair where salesman sits, but entire office of customer, and office is not at disposal of enterprise for which salesman is working. 32) Taking cue from word through in Article, Vogel has also emphasised that place of business qualifies only if place is at disposal of enterprise. According to him, enterprise will not be able to use place of business as instrument for carrying on its business unless it controls place of business to considerable extent. He hastens to add that there are no absolute standards for modalities and intensity of control. Rather, standards depend on type of business activity at issue. According to him, disposal is power (or certain fraction thereof) to use place of business directly. Some of instances given by Vogel in this behalf, of Page 38 relative standards of control, are as under: degree of control depends on type of business activity that taxpayer carries on. It is therefore not necessary that taxpayer is able to exclude others from entering or using POB. painter example in OECD MC Comm. (no. 4.5 OECD MC Comm. on Article 5) (however questionable it might be with regard to functional integration test) suggests that type and extent of control need not exceed level of what is required for specific type of activity which is determined by concrete business. By contrast, in case of self-employed engineer who had free access to his customer s premises to perform services required by his contract, Canadian Federal Court of Appeal ruled that engineer had no control because he had access only during customer s regular office hours and was not entitled to carry on businesses of his own on premises. Similarly, Special Bench of Delhi s Income Tax Appellate Tribunal denied existence of PE in case of Ericsson. Tribunal held that it was not sufficient that Ericsson s employees had access to premises of Indian mobile phone providers to deliver hardware, software and know-how required for operating network. By contrast, in case of competing enterprise, Bench did assume Indian PE because employees of that enterprise (unlike Ericsson s) had exercised other businesses of their employer. OECD view can hardly be reconciled with two court cases. All three examples do indeed shed some light onto method how relative standards for control threshold should be designed. While OECD MC Comm. suggests that it is sufficient to Page 39 require not more than type and extent of control necessary for specific business activity which taxpayer wants to exercise in source State, Canadian and Indian decisions advocate for stricter standards for control threshold. OECD MC shows paramount tendency (though no strict rule) that PEs should be treated like subsidiaries (cf. Article 24(3) OECD and UN MC), and that facilities of subsidiary would rarely been unusable outside office hours of one of its customers (i.e. third person), view of two courts is still more convincing. Along these lines, POB will usually exist only where taxpayer is free to use POB: - at any time of his own choice; - for work relating to more than one customer; and - for his internal administrative and bureaucratic work. In all, taxpayer will usually be regarded as controlling POB only where he can employ it at his discretion. This does not imply that standards of control test should not be flexible and adaptive. Generally, less invasive activities are, and more they allow parallel use of same POB by other persons, lower are requirements under control test. There are, however, number of traditional PEs which by their nature require exclusive use of POB by only one taxpayer and/or his personnel. small workshop (cf. Article 5(2)(e) OECD and UN MC) of 10 or 12 square meters can hardly be used by more than one person. same holds true for room where taxpayer runs noisy machine. 33) OECD commentary on Model Tax Convention mentions that general definition of term PE brings out its Page 40 essential characteristics, i.e. distinct situs , fixed place of business . This definition, therefore, contains following conditions: - existence of place of business , i.e. facility such as premises or, in certain instances, machinery or equipment. - this place of business must be fixed , i.e. it must be established at distinct place with certain degree of permanence; - carrying on of business of enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on enterprise (personnel) conduct business of enterprise in State in which fixed place is situated. 34) term place of business is explained as covering any premises, facilities or installations used for carrying on business of enterprise whether or not they are used exclusively for that purpose. It is clarified that place of business may also exist where no premises are available or required for carrying on business of enterprise and it simply has certain amount of space at its disposal. Further, it is immaterial whether premises, facilities or installations are owned or rented by or Page 41 are otherwise at disposal of enterprise. certain amount of space at disposal of enterprise which is used for business activities is sufficient to constitute place of business. No formal legal right to use that place is required. Thus, where enterprise illegally occupies certain location where it carries on its business, that would also constitute PE. Some of examples where premises are treated at disposal of enterprise and, therefore, constitute PE are: place of business may thus be constituted by pitch in market place, or by certain permanently used area in customs depot (e.g. for storage of dutiable goods). Again place of business may be situated in business facilities of another enterprise. This may be case for instance where foreign enterprise has at its constant disposal certain premises or part thereof owned by other enterprise. At same time, it is also clarified that mere presence of enterprise at particular location does not necessarily mean that location is at disposal of that enterprise. Page 42 35) OECD commentary gives as many as four examples where location will not be treated at disposal of enterprise. These are: (a) first example is that of salesman who regularly visits major customer to take orders and meets purchasing director in his office to do so. In that case, customer's premises are not at disposal of enterprise for which salesman is working and therefore do not constitute fixed place of business through which business of that enterprise is carried on (depending on circumstances, however, paragraph 5 could apply to deem permanent establishment to exist). (b) Second example is that of employee of company who, for long period of time, is allowed to use office in headquarters of another company (e.g. newly acquired subsidiary) in order to ensure that latter company complies with its obligations under contracts concluded with former company. In that case, employee is carrying on activities Page 43 related to business of former company and office that is at his disposal at headquarters of other company will constitute permanent establishment of his employer, provided that office is at his disposal for sufficiently long period of time so as to constitute "fixed place of business" (see paragraphs 6 to 6.3) and that activities that are performed there go beyond activities referred to in paragraph 4 of Article. (c) third example is that of road transportation enterprise which would use delivery dock at customer's warehouse every day for number of years for purpose of delivering goods purchased by that customer. In that case, presence of road transportation enterprise at delivery dock would be so limited that that enterprise could not consider that place as being at its disposal so as to constitute permanent establishment of that enterprise. (d) Fourth example is that of painter, who, for two years, spends three days week in large Page 44 office building of its main client. In that case, presence of painter in that office building where he is performing most important functions of his business (i.e. painting) constitute permanent establishment of that painter. 36) It also states that words through which must be given wide meaning so as to apply to any situation where business activities are carried on at particular location which is at disposal of enterprise for that purpose. For this reason, enterprise engaged in paving road will be considered to be carrying on its business through location where this activity takes place. AGREEMENTS 37) Having got fair idea of what would constitute PE, we may advert to discussion in that part of impugned judgment where High Court has given its reasons to conclude that FOWC had PE in India in relevant Assessment Year. However, before that, it would be necessary to refer to salient Page 45 provisions of relevant agreements between parties, not only between FOWC and Jaypee, but some agreements which were entered into by group companies of FOWC with Jaypee. 38) We have already mentioned above that there is Agreement between FIA and FOAM which is dated April 24, 2001 whereby FIA has parted with commercial rights in favour of FOAM making FOAM exclusive CRH. Thereafter, vide aforesaid agreement FOAM transferred commercial rights in favour of FOWC with effect from 2011 for period of 10 years. Insofar as Concorde Agreement which is signed between FIA, FOWC and teams is concerned, that is of year 2009. 39) It is relevant to mention that before RPC dated September 13, 2011 was entered into between FOWC and Jaypee, one Organisation Agreement (OA) dated January 20, 2011 was signed between FIA/FMSCI and Jaypee. As per this agreement, Jaypee was to organise event. Thereafter, another agreement known as Title Sponsorship Agreement dated August 16, 2011 was signed between Beta Prema 2 (an associated company of Page 46 FOWC) and Bharti Airtel, as per which Beta Prema 2 transferred title sponsorship rights to Bharti Airtel for US$ 8 million in respect of race which was conducted on October 29, 2011. It is thereafter that RPC dated September 13, 2011 was signed by FOWC and Jaypee. That was one month before scheduled date of race, which was fixed as October 29, 2011. Under this agreement, right to host, stage and promote event was given to Jaypee by FOWC. As per Revenue, FOWC carried on business in India through fixed place of business, namely, Buddh International Circuit. Salient features of this Agreement, which is most vital document, are as follows: "WHEREAS (A) Federation Internationale de l Automobile (FIA) is governing body of world motor sport. FIA is responsible for sporting organization and regulation of FIA Formula One World Championship (the Championship), and has right to supervise sporting organization of individual rounds of Championship (B) Pursuant to various agreements between FIA, POWC and its Affiliates (as defined in Clause I(p) etc. FOWC has exclusive right to exploit commercial rights in Championship, including exclusive right Page 47 to propose Championship calendar and to award, to promoters right to host, stage and promote Formula One Grand Prix events that count towards Championship, exclusive media rights (including all use of audio-visual material and data in media space). (C) FOWC has exclusive right to enter into contracts solely for hosting, standing and promotion of Formula One Grand Prix events entered on FIA International Sporting Calendar and counting towards Championship, it being understood that such contract will govern exclusively commercial and financial management of Event (as defined in Clause 3.1 (xx not legible)). (D) Promoter is owner of motor racing circuit in National Capital Region of India which is capable of hosting various motor racing events. Promoter wishes to host various motor racing events at such circuit, to include hosting of Formula One Grand Prix events. Promoter had secured privilege to host such events and is no executing this agreement with FOWC to set out terms and conditions on which it will host, stage and promote Formula One Grand Prix events at such circuit. XXXXXX XXXXXX XXXXXX Definitions and Interpretation 1. In this Agreement unless context requires otherwise: XXXXXX XXXXXX XXXXXX (q) Circuit shall mean motor racing circuit suitable in every respect for staging of Event (including permanent buildings, permanent infrastructure, track layout, amenities, spectator viewing facilities, pit/paddock, building, media centre, car parks, helipads, garages, race control and Page 48 administration, office administration, fuel and tyre storage, utilities (including back up power supplies), concrete based areas suitable to host Competitors and sponsors, vending and exhibition areas, international TV compounds, host and broadcast facilities and medical centre); XXXXXX XXXXXX XXXXXX (t) Event shall mean FORMULA 1 GRAND PRIX OF INDIA (including all support events therein and peripheral entertainment), designated and endorsed as round of FIA Formula One World Championship, which shall commence at Circuit at time scheduled by FIA for Scrutinizing and Sporting Checks and including all Practice and Race itself and ending at later of time for lodging of Protest under terms of Sporting Code and time when technical or sporting verification has been carried out under terms of Sporting Code; and XXXXXX XXXXXX XXXXXX Conditions Precedent 2.1 grant of rights by FOWC to Promoter under this Agreement is conditional on Conditions having been fulfilled or waived in accordance with this Agreement and Promoter shall use its best endeavour to satisfy Conditions in accordance with this Clause 2. XXXXXX XXXXXX XXXXXX Term 3.1 This Agreement shall commence and become operative when it is signed by parties and dated. 3.2 Subject to Clause 2 rights granted to Promoter under this Agreement shall be exercisable from Unconditional Date. Page 49 Accordingly, initial term of this Agreement (the Initial Term) shall begin on Unconditional Date and shall expire on 31 December 2015 and shall apply to Championship for calendar years 2011 to 2015 (inclusive). 3.3 On or before 30 June 2015, FOWC shall in its absolute discretion be entitled to give notice to Promoter which, if given, shall be effective to extend Term for further period of up to five calendar years (the Extended Term). terms of this Agreement shall apply to Extended Term save for this Clause 3.3. 3.4 term of this Agreement as prescribed in this Clause 3 shall be referred to as Term and shall include initial Term and (if applicable) Extended Term. 3.5 Subject to performance by FOWC of its obligations contained in Clause 4, Promoter agrees to host, stage and promote Event as FORMULA 1 GRAND PRIX OF INDIA or [Year] GRAND PRIX OF INDIA in accordance with this Agreement once in every calendar year of Term commencing 2011 at Circuit on date approved and announced by FIA on and subject to terms of Regulations and Sporting Code. FOWC s Obligations and Warranties XXXXXX XXXXXX XXXXXX Promoter s Warranties (e) On area of land, outer perimeter of which is edged in red, depicted on document attached to this Agreement as Annex and initialed by Parties for identification, Circuit shall be constructed, laid out and prepared in accordance with this Agreement, in form and manner approved by both FOWC and FIA, meeting all requirements of Regulations Page 50 (including as to timing of inspections) and completed in good time for final inspection by FIA not later than 12 October 2011; XXXXXX XXXXXX XXXXXX Access to Circuit Prior to Event 11. Promoter shall take whatever action is necessary to ensure that pit and paddock buildings and surrounding areas within Circuit and Land are open to receive competitors, FOWC, Affiliates of FOWC, FOWC s contractors and licensees and their respective personnel and equipment (if any) at all times during period commencing fourteen days before day of race and ending seven days after Race (the Access Period) and security of paddock and garage area is properly safeguarded at all times during Access Period. XXXXXX XXXXXX XXXXXX Competitor/Media Facilities 13.1 Promoter will in so far as same is practicable provide entrance for Competitor personnel and for Officials separate from public entrance to Circuit. 13.2 Promoter will provide free of charge zone measuring whichever is greater of that which has last been provided in respect of round of FIA Formula One World Championship at that Circuit and 140 metres by 100 metres or 15,0000 square metres within or adjoining paddock for promotional facilities of Competitors and/or their sponsors. 13.3 Promoter undertakes to set up media compound and telephones and facsimile equipment, Press Room plus installations and premises necessary for national and Page 51 international television commentators and journalists (such premises and installations to meet prestige of World Championship) and to grant professional accredited journalists use of all facilities for exercise of their profession as well as organization of Press Conference with winner of Race immediately after Podium Ceremony. 13.4 Upon arrival of Formula One cars and their spares and ancillary equipment at nearest suitable International airport (as such is determined by FOWC) (the Landing) Promoter will transport them free of charge from Landing to Circuit and from Circuit back to Landing. Promoter shall procure that transportation from Circuit to Landing shall take place on day following Race. All ancillary costs including airport taxes customs clearance handling, loading and unloading both at Landing and at Circuit shall be paid by Promoter. Parties agree to liaise with each other throughout Term with view to discussing and implementing all reasonable measures which may reduce such ancillary cots. 13.5 Promoter undertakes to provide all such other facilities as specified in Circuit General Specifications Manual. Access to Restricted Areas 14. Promoter undertakes to ensure that: (a) only Passes and tabards issued by FOWC under authorization of FIA will authorize access to parts of Circuit not open to paying public; (b) notwithstanding Clause 14(a) above, public do not have access to cars in any of places where any Competitor s mechanics may be called upon to work on them and without prejudice to generality of foregoing there is at no time any Page 52 obstruction to free passage of cars and Competitor personnel in paddock or pit area; (c) validity of any Passes and tabards issued by FOWC under authorization of FIA is upheld; and (d) necessary steps are taken to ensure that all police and Circuit officials are familiar with Passes and tabards and uphold their validity. Insurance 15.1 Promoter shall provide at its expense third party liability insurance (in form approved by FOWC and FIA insuring FOWC and all its Affiliates, Beta Prema 2 Limited and all its Affiliates, Competitors, Drivers and guests of any of above mentioned parties (such parties to include where relevant all directors, officers, employees, agents and contractors) and such other persons involved in organization of Event (including officials, marshals, rescue and medical staff) as FIA or FOWC may from time to time advise Promoter (the Insured Parties) against all risks (including death of or bodily or mental injury to any person) relating to (i) event (ii) support races and (iii) peripheral entertainment organized as part of Event, for Access Period. If such insurance is not permitted under law of country in which Event takes place or FIA is satisfied that such insurance is not commercially viable then insurance shall be maximum permitted by that law or market conditions. insurers must be company recognized by Standard and Poor s and/or AM. Best and must be of first class international standing with sufficient resources to honour and discharge in full insurance requirements prescribed in this agreement. copy of relevant policy will be given to FOWC by Promoter at least 60 days before start of Page 53 first practice session (with exception of year 2011, when such copy will be given to FOWC at least 30 days before start of first Practice session of Event in 2011). If language of relevant policy is in language other than English, FOWC shall obtain translation of policy at expense of Promoter. XXXXXX XXXXXX XXXXXX Filming/Recording at Event 18.1 Save with prior written consent of FOWC and save for Promoter s obligation in Clause 18.3, throughout Term during Access Period (and any test session held at Circuit in which more than one Competitor is participating (Non-Private F1 Test Series) Promoter shall not (nor shall Promoter permit, enable, assist, procure or encourage others to) make, create, store, record or transmit kind of sound recording or visual or audio-visual footage (Recording) whatsoever, whether for broadcast or any other purpose. (a) of at or pertaining to Event (including cars, Drivers, Competitors), any Non-Private F1 Test Session or any aspect of them; or (b) within confines of Circuit or Land (or any other part of its surroundings over which Promoter has control). 18.2 Without prejudice to generality of Clause 18.1, Promoter shall ensure that terms of sale of tickets giving admittance to Event include acceptance by ticket holder: (a) that he shall not make, create, store, record or transmit any Recording of Event (including cars, Drivers, Competitors) or any aspect of it, and shall not take into Circuit any equipment that may enable him to Page 54 do aforementioned acts (other than mobile telephones use of which is subject to this Clause 18 and Clause 19.1 below); (b) that as spectator he may be filmed and sound made by him may be recorded for broadcast (or similar transmission); and (c) of such other terms and conditions as FOWC(acting reasonably) may request Promoter to include from time to time provided that Promoter is notified in due time and that such terms and conditions are compatible with applicable local laws. 18.3 Promoter shall engage third party (the Identity of which shall be approved by FOWC in its sole discretion) to carry out and perform on behalf of Promoter all services relating to origination of international television feed and host broadcasting for each Event during Term as are specified in guidelines published annually by FOWC and provided to Promoter from time to time. Intellectual Property XXXXXX XXXXXX XXXXXX 19.2 Promoter hereby irrevocably and unconditionally:- (a) assigns to FOWC with full title guarantee all copyright and other intellectual property rights and all other rights, titles and interests (if any) which it may now or in future have in any Image or Recording or any other representation or recording in any media whether now known or hereafter invented or developed in, of or pertaining to Event, any NonPrivate F1 Test Session or any aspect of them (irrespective of who originated same)for duration of those rights (including all renewals, extensions, reversions and revivals thereof); and (b) gives its consent (if such consent should Page 55 be required) for FOWC to deal in such rights in any way it may see fit. Accreditation for Filming/recording 20.1 Promoter shall ensure that persons accredited and authorized by FOWC are permitted to enter upon Circuit to make sound, television or other recordings or transmissions or to make films or other moving picture and use facilities throughout Access Period and Promoter shall accord all such persons help and facilities that they or FOWC may reasonably require for such purposes, including assistance with obtaining any necessary consents, permissions or authorizations with any local authority. 20.2 Promoter undertakes to Notify FOWC of dates of any test sessions which are proposed to be held at Circuit. Circuit Advertising 21. Promoter shall not cause, permit, enable, assist, procure or encourage display of any advertising (other than advertising normally displayed on any Competitor s cars, Drivers or personnel) or other displays on, near or which can be seen from Circuit and/or Land which might (in opinion of FOWC which shall be final and binding upon Parties) Prevent lawful transmission of Images or Recordings of Events or any part of it in any country." JUDGMENT OF HIGH COURT 40) Taking note of this agreement, High Court went ahead to decide following aspects, which revolved around question of PE: Page 56 (a) Whether FOWC had control over Buddh International Circuit and that circuit could be constituted as fixed place of business? (b) Whether FOWC carried on business? IF so, they did carry on business and commercial activity in India. (c) Whether FOWC carried on business through its agents under Article 5(4) or Article 5(5) of DTAA? 41) Answering first question, High Court discerned that for duration of event as well as two weeks prior to it and week succeeding it, FOWC had full access through its personnel, team contracted to it, both racing as well as spectator teams to said Buddh International Circuit. It could also dictate who was authorised to enter areas reserved for it. As per High Court, though Jaypee was designated as promoter or host of event in terms of RPC, when matter was to be examined in correct perspective by seeking through other terms contained in agreement as well as terms of agreements between JP and Allsports, Beta Page 57 Prema 2 as well as FOA, it was clear that Jaypee s capacity to act was extremely restricted. At all material times, FOWC had exclusive access to circuit and all places where teams were located. High Court was also conscious of fact that such access or right to access was not permanent in sense of its being everlasting. However, having regard to model of commercial transactions, such access for period up to six weeks at time during F-1 Championship season was sufficient for purposes of Article 5(1) of DTAA. Further, as tenure of RPC was five years, it meant that such access for period in question was of repetitive nature. Moreover, FOWC was entitled to two years payment of assured consideration of US$ 40 million in event of termination of RPC. 42) While discussing second question, High Court took note of agreement between FIA and FOWC under which FOWC became CRH. It also pointed out that Concorde Agreement assured participating teams that FIA had exclusive rights in F-1 Page 58 Championship and was entitled to grant of CRH, exclusive right to exploit commercial rights in F-1 Championship. Subject to these conditions, each team undertook to participate in FIA F-1 Championship each year for several events and make cars available. In fact, every team undertook to participate in each event with two cars. Taking note of aforesaid arrangement and other clauses of these agreements, High Court concluded that FOWC carried on business in India within meaning of expression under Article 5(1) of DTAA. 43) High Court was conscious of fact that after its finding to effect that FOWC had PE in India, issue as to whether FOWC carried on business through its agents or not, became academic. Notwithstanding same, it chose to discuss that issue as well so that judgment had coverage of all questions that had arisen before it. This aspect has been discussed in light of sub-articles (4) and (5) of Article 5 of DTAA. It is pertinent to mention that argument of Revenue was that since FOWC had to exploit commercial rights Page 59 arising from races and this business is carried on through exploitation of these commercial rights either by itself or through anyone or more members of CRH group, as mentioned in Conorde Agreement, FOWC is obliged to propose consolidated accounts incorporating profits of all entities forming part of CRH group. Revenue had relied on Events right from time when commercial rights were originally owned by FIA and thereafter transferred to SLEC Holding Company (parent company of FOWC) for consideration, then given to FOAM and with effect from January 01, 2011 transferred to FOWC. It was also pointed out that FOWC s three affiliates, i.e. Formula One Management Ltd. ( FOM ), Allsports Management SA and Beta Prema 2 Ltd. were its agents who carried on its business and on its behalf, through fixed place. AAR had rejected this submission of Revenue holding that theory of Revenue that all three entities were acting on behalf of FOWC was unfounded as there was no evidence to this effect and all arrangements and agreements in relation to activities performed by three entities were sham. High Page 60 Court approved aforesaid approach of AAR in following manner: 64. Article 5(5) has certain preconditions if entity has to be treated as dependent agent. agent must have authority to conclude contracts, which bind represented enterprise, and it must habitually exercise such authority. If these positive preconditions are met, then only enterprise shall be deemed to have PE in that state in respect of any activities, which that person undertakes for enterprise. contention that because three entities were subsidiaries of FOWC, they acted on its behalf and thus become dependent agents is insubstantial. mere circumstance that three subsidiaries had connection with FOWC was not enough; what is to be shown is that contracts they entered into and businesses they were engaged in, was for and on behalf of FOWC. Each of three agreements independently entered into by them with Jaypee contains no pointers to this fact. ARGUMENTS 44) Mr. Ganesh, opened case of FOWC, whereafter M/s. Arvind P. Datar and Dushant Dave, learned senior advocates, made their submissions on behalf of Jaypee. Mr. Mukul Rohatgi, learned Attorney General for India, argued on behalf of Revenue and countered those submissions. He also argued appeal of Union of India insofar as it challenges findings of High Court interpreting Article 5(4) and (5) and holding that other companies of FOWC Page 61 group did not act as agents of FOWC in India. M/s. S. Ganesh and Arvind P. Datar made their submissions in rejoinder and also refuted arguments of Mr. Mukul Rohatgi advanced in appeal of Union of India, to which Mr. Rohatgi made his submissions in rejoinder. 45) After referring to important dates and events, Article 5 of DTAA and commentaries of OECD, Philip Baker and Klaus Vogel thereon, salient features whereof have already been reproduced by us, emphasis in submission of Mr. Ganesh was that in order to constitute PE, condition which was necessary to satisfy was that particular fixed place is at disposal of FOWC and further that from said fixed place FOWC was doing its business activity. Submission of Mr. Ganesh was that both ingredients were missing in instant case. For this purpose, he referred to agreement of 2009 which was entered into between FIA and Jaypee and pointed out that FOWC was not party to said agreement and contended that this agreement clearly evinced that it is FIA which had control over Page 62 manner in which Championship was to be conducted. This agreement further reflected that it is Jaypee who was responsible for conducting races and had complete control of Event in question. All obligations for conduct of Championship were to be discharged by Jaypee as organisers. For this purpose, he referred to counter affidavit filed by Jaypee in SLP(Civil) No. 3112 of 2017 wherein role of Jaypee in organising these Events is stated. From there, it was pointed out that track was constructed by Jaypee; for this purpose they had their own engineers, architects etc.; entire expenditure for this purpose was borne by Jaypee. It was also stated that this circuit was owned by Jaypee and control thereon was that of Jaypee on which not only Championship in question was organised, but Jaypee was utilising this track for many other events which are organised on regular basis, all year round. 46) Mr. Ganesh also drew attention of this Court to Organisation Agreement dated January 20, 2011 signed between FIA, Jaypee and Federation of Motors Sports Clubs of India wherein Jaypee is described as Page 63 Organiser and given responsibility to organise Event. It specifically delineates various responsibilities of Jaypee as organisers which have already been taken note of above. In nutshell, he submitted that right from construction/laying down contract for motor races people till conclusion of Events/Championship, all acts and obligations were to be performed by Jaypee, with no role of FOWC therein. According to him, in contrast, it could be seen from Agreement dated September 13, 2011 between FOWC and Jaypee that FOWC had simply given permission to host Event as round of Championship, since it is FOWC, who has exclusive right to exploit commercial rights in Championship, including exclusive right to propose Championship calendar. Condition precedent from entering into this Agreement, as mentioned in Agreement itself, was that Jaypee (as promoter) had entered into valid and binding agreement with such third party in accordance with Clause 18.3 (Service Agreement). Referring to clause pertaining to obligations and warranties of FOWC, Mr. Ganesh submitted that role of FOWC was Page 64 primarily that of advising, assisting and consulting with promoter in relation to Event in such manner as FOWC shall consider necessary and/or appropriate for staging and promotion of Event to mutual benefit of parties. On other hand, Jaypee was given exclusive right to act as promoter of Event, to construct circuit which was to be laid out and prepared in accordance with that agreement in form and manner approved both by FOWC and FIA. Thus, construction was to be carried out by Jaypee; albeit, in form and manner approved by FOWC and FIA to ensure that track meets all requirements of Regulations. Otherwise, all those rights which were necessary for purposes of hosting and staging Event at circuit were that of Jaypee exclusively. 47) On basis of aforesaid documents and clauses and terms therein, Mr. Ganesh submitted that circuit was not under control or at disposal of FOWC. As regards 4500 seats in paddock space given to FOWC in that circuit is concerned, explanation of Mr. Ganesh was that it is Allsports Page 65 which was in-charge of paddock and same was taken from Allsports by FOWC in year 2006 and, therefore, it would not make any difference. 48) His further submission was that no business was conducted by FOWC from said site as well. According to him, since FOWC was commercial rights holder of these events, main business of FOWC was to exploit these rights. including intellectual property rights. According to him, exploitation of these commercial rights yields two revenue streams first, consideration received from Promoter/Organizer of Event, to whom FOWC has granted necessary right to host, stage and promote Event; secondly, FOWC exploits TV feed in respect of Event, which is made available to it by Promoter/Organiser, at his cost. FOWC grants screening, exhibition, telecasting and media rights arising out of and relating to this TV feed to number of parties around world, by entering into contracts with them at London. It is for this reason that insofar as holding of Event is concerned, FOWC was not responsible therefor and for Page 66 this reason it was necessary for Jaypee as promoter to enter into valid and binding agreement with third party (FIA in present case). He also pointed out that insofar as sale of advertisement rights during Event is concerned that was also to be given to Beta Prema 2 Ltd. which was again independent company and taken over by FOWC in year 2006. 49) Mr. Ganesh, extensively referred to findings of AAR on this issue wherein case of FOWC and Jaypee on this aspect was accepted by AAR and pleaded that aforesaid findings be accepted and restored by this Court. Referring to judgment of High Court, his submission was that Organisation Agreement entered into between FIA and Jaypee was not even discussed and conclusions given in paragraphs 52 and 53 of said judgment were erroneous. He also relied upon certain observations of this Court in Union of India & Anr. Vs. Azadi Bachao Andolan & Anr.16 in respect of his submission that transactions could not be treated as sham. 2004 (10) SCC 1 = 2003 (262) ITR 706 Page 67 50) Mr. Datar, learned senior counsel appearing for Jaypee, supplemented aforesaid submissions of Mr. Ganesh on issue of PE. He argued that judgment of High Court was flawed in its approach as it had gone by inductive logic instead of deductive logic. According to him, first question which has to be focused upon was as to what is business of FOWC. His submission was that since in this case business of FOWC was not to organise these races, question of its PE in India, that too in form of circuit where race is to be held, could not be PE of FOWC. He also submitted that even after going through all clauses of agreement between FOWC and Jaypee with toothcomb, it would be found that FOWC had no physical control over said circuit. In this behalf, he emphasised test laid down by Andhra Pradesh High Court in Visakhapatnam Port Trust, which is recognised by Philip Baker in his commentary. He also argued that entire Formula One Event was temporary model for three days in year only and even if it is accepted that FOWC had control over this place for those three days, possession of Page 68 site for three days in year cannot be termed as PE. He also emphasised fact that since FOWC was UK resident company, it had been paying taxes in its own country. For non-resident to pay taxes in other country, as in India in instant case, threshold has to be very high and issue of PE had to be examined with this focus in mind. He submitted that this was precisely reason that such sports events held in other countries are never taxed in those countries. 51) His alternate submission was that agreement in question was signed in UK under which consideration of US$ 40 million was paid and, therefore, this income accrued in UK. Thus, such income was taxable in UK. He argued that insofar as rights to hold events are concerned they were granted in UK and it is grant of rights which was determinative test and implementation of those rights took place in India. In support of this proposition, he relied on judgment of this Court in case of Commissioner of Income Tax, Andhra Pradesh v. M/s. Toshoku Ltd., Guntur & Ors.17 where law is (1980) Supp SCC 614 = 1981 AIR 148 Page 69 discussed in following manner: 12. second aspect of same question is whether commission amounts credited in books of statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to non-resident assessees during relevant year. This takes us to Section 9 of Act. It is urged that commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to Department, had either accrued or arisen through and from business connection in India that existed between non-resident assessees and statutory agent. This contention overlooks effect of clause (a) of Explanation to clause (i) of sub-section (1) of Section 9 of Act which provides that in case of business of which all operations are not carried out in India, income of business deemed under that clause to accrue or arise in India shall be only such part of income as is reasonably attributable to operations carried out in India. If all such operations are carried out in India, entire income accruing therefrom shall be deemed to have accrued in India. If, however, all operations are not carried out in taxable territories, profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of operations carried out in taxable territories. If no operations of business are carried out in taxable territories, it follows that income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. [See CIT v. R.D. Aggarwal & Co. [AIR 1965 SC 1526 : (1964) 1 SCR 234, 247 : 56 ITR 20] and Carborandum Co. v. CIT[(1977) 2 SCC 862 : 1977 SCC (Tax) 391 : (1977) 3 SCR 475 : (1977) 108 ITR 335] which are decided on basis of Section 42 of Indian Income Tax Act, 1922, which Page 70 corresponds to Section 9(1)(i) of Act.] 52) Another submission of Mr. Ganesh was that High Court did not have jurisdiction, in exercise of its powers under Article 226 of Constitution, to go into 'findings' of AAR on issue of fixed place . He argued that under Article 226 of Constitution, High Court exercised Certiorari jurisdiction and in exercise of such jurisdiction, findings of facts recorded by Tribunal, which are subject matter of judicial review, cannot be gone into. 53) Without prejudice to aforesaid submissions, next argument of Mr. Datar was that having regard to facts of this case, no interest should be held payable under Section 201 of Act. Referring to scheme of Chapter XXIX-B which pertains to advance rulings, he submitted that parties had shown their bona fides in having question raised before AAR, and it was specifically agreed to between FOWC and Jaypee in Clause 24.6 of Agreement that parties should approach AAR for determination of questions which were referred. Page 71 He pointed out that once application was made before AAR, procedure that is contained in Section 245R, on receipt of such applications, had to be followed by AAR and in that event Section 245 RR mandates that no income tax authority or appellate tribunal shall proceed to decide any issue in respect of which application has been made by applicant, being resident, under Section 245QQ for advance ruling. Once advance ruling is pronounced by AAR, it was binding on applicant who had sought same in respect of particular transaction as well as on Principal Commissioner and Commissioner of Income Tax Authorities subordinate to him. According to him, in such scenario, it should not be considered that Jaypee had failed to deduct tax at source from amounts paid to FOWC and as consequence of failure to deduct, it should be fastened with liability to pay interest under Section 201. In support, paragraph 12 of GE India Technology Centre Private Limited v. Commissioner of Income Tax & Anr.18 was pressed into service which reads as follows: (2010) 10 SCC 29 Page 72 12. Reference to ITO(TDS) under Section 195(2) or Section 195(3) either by non-resident or by resident payer is to avoid any future hassles for both resident as well as non-resident. In our view, Sections 195(2) and 195(3) are safeguards. said provisions are of practical importance. This reasoning of ours is based on decision of this Court in Transmission Corpn. [(1999) 7 SCC 266 : (1999) 239 ITR 587] in which this Court has observed that provision of Section 195(2) is safeguard. From this it follows that where person responsible for deduction is fairly certain then he can make his own determination as to whether tax was deductible at source and, if so, what should be amount thereof. 54) Last submission of Mr. Datar was that in any case it was yet to be determined as to how much of US$ 40 million fee paid by Jaypee to FOWC could be attributed to PE, inasmuch as it is only that portion of income that is relatable to PE which is liable for tax in India. This has not happened so far. 55) Mr. Dushant Dave, learned senior counsel, again appearing for Jaypee, made additional submission to effect that international treaties which are signed between two sovereign countries have to be given adequate and due respect which they command. He exhorted Court to keep this fundamental principle in mind while interpreting clause 5 of DTAA Page 73 and submitted that such approach has been commanded by this Court time and again. By way of example, he cited judgements in cases of Azadi Bachao Andolan and Maganbhai Ishwarbhai Patel Etc. v. Union of India and Another19. He also referred to paragraph 6 of UK judgment in case of Sepet v. Secretary of State for Home Department20 wherein it was pressed that single autonomous meaning was required to be given to treaties which are living instruments whose meaning does not change over time but application will. 56) From Azadi Bachao Andolan following passages were relied upon: 17. Every country seeks to tax income generated within its territory on basis of one or more connecting factors such as location of source, residence of taxable entity, maintenance of permanent establishment, and so on. country might choose to emphasise one or other of aforesaid factors for exercising fiscal jurisdiction to tax entity. Depending on which of factors is considered to be connecting factor in different countries, same income of same entity might become liable to taxation in different countries. This would give rise to harsh consequences and impair economic development. In order to avoid such anomalous and incongruous situation, Governments of different 1970 (3) SCC 400 2003 (3) AllER 304 Page 74 countries enter into bilateral treaties, conventions or agreements for granting relief against double taxation. Such treaties, conventions or agreements are called Double Taxation Avoidance Treaties, Conventions or Agreements. xx xx xx 130. principles adopted in interpretation of treaties are not same as those in interpretation of statutory legislation. While commenting on interpretation of treaty imported into municipal law, Francis Bennion observes: With indirect enactment, instead of substantive legislation taking well-known form of Act of Parliament, it has form of treaty. In other words, form and language found suitable for embodying international agreement become, at stroke of pen, also form and language of municipal legislative instrument. It is rather like saying that, by Act of Parliament, woman shall be man. Inconveniences may ensue. One inconvenience is that interpreter is likely to be required to cope with disorganised composition instead of precision drafting. drafting of treaties is notoriously sloppy usually for very good reason. To get agreement, politic uncertainty is called for. interpretation of treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being unconstrained by technical rules of English law, or by English legal precedent, but conducted on broad principles of general acceptation. This echoes optimistic dictum of Lord Widgery, C.J. that words are to be given their general meaning, Page 75 general to lawyer and layman alike meaning of diplomat rather than lawyer . [Francis Bennion: Statutory Interpretation, p. 461 [Butterworths, 1992 (2nd Edn.)].] xx xx xx 131. important principle which needs to be kept in mind in interpretation of provisions of international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at political level and have several considerations as their bases. Commenting on this aspect of matter, David R. Davis in Principles of International Double Taxation Relief [David R. Davis: Principles of International Double Taxation Relief, p. 4 (London, Sweet & Maxwell, 1985)], points out that main function of Double Taxation Avoidance Treaty should be seen in context of aiding commercial relations between treaty partners and as being essentially bargain between two treaty countries as to division of tax revenues between them in respect of income falling to be taxed in both jurisdictions. It is observed (vide paragraph 1.06): benefits and detriments of double tax treaty will probably only be truly reciprocal where flow of trade and investment between treaty partners is generally in balance. Where this is not case, benefits of treaty may be weighed more in favour of one treaty partner than other, even though provisions of treaty are expressed in reciprocal terms. This has been identified as occurring in relation to tax treaties between developed and developing countries, where flow of trade and investment is largely one-way. Because treaty negotiations are Page 76 largely bargaining process with each side seeking concessions from other, final agreement will often represent number of compromises, and it may be uncertain as to whether full and sufficient quid pro quo is obtained by both sides. And, finally, in paragraph 1.08: Apart from allocation of tax between treaty partners, tax treaties can also help to resolve problems and can obtain benefits which cannot be achieved unilaterally. xx xx xx 134. Developing countries need foreign investments, and treaty-shopping opportunities can be additional factor to attract them. use of Cyprus as treaty haven has helped capital inflows into eastern Europe. Madeira (Portugal) is attractive for investments into European Union. Singapore is developing itself as base for investments in South-East Asia and China. Mauritius today provides suitable treaty conduit for South Asia and South Africa. In recent years, India has been beneficiary of significant foreign funds through Mauritius conduit . Although Indian economic reforms since 1991 permitted such capital transfers, amount would have been much lower without India-Mauritius Tax Treaty 135. Overall, countries need to take, and do take, holistic view. Developing countries allow treaty shopping to encourage capital and technology inflows, which developed countries are keen to provide to them. loss of tax revenues could be insignificant compared to other non-tax benefits to their economy. Many of them do not appear to be too concerned unless revenue losses are significant compared to other tax and non-tax benefits from treaty, or treaty shopping leads to other tax abuses. Page 77 57) Mr. Mukul Rohtagi, learned Attorney General, came out with strong refutation to aforesaid submissions. Responding in equally salubrious style, he demonstrated 'flow of commercial rights' in relation to these events, under various agreements executed between different stakeholders from time to time and manner in which such rights are ultimately exploited by FOWC and its other group companies in respect of F-1 race organized in India. For this purpose, he referred to eleven agreements between different parties highlighting certain features and aspects in following manner: Agreement between FIA and FOAM dated April 24, 2001 FIA parts with commercial rights in favour of FOAM. FOAM becomes exclusive Commercial Rights Holder (CRH). Agreement between FOAM and FOWC dated April 24, 2001 FOAM transfers commercial rights in favour of FOWC with effect from 2011 for period of 100 years. RPC dated October 25, 2007 between FOWC and Jaypee: (1) Building of circuit was started in terms of this RPC. (2) FOWC was granted only right to promote event (clause 4(1). (3) FOM was declared business manager and agent of FOWC (Recital D). (4) This agreement was signed by FOM on behalf of FOWC. Page 78 (5) No condition precedent clause obligating Jaypee to enter into any agreements with FOWC group entities. (6) No clause obligating Jaypee to enter into agreement with FOM for generation of television feed. (7) Agreement in same template as Schedule IV to Concorde Agreement. Concorde Agreement (2009) between FIA, FOWC and teams: (1) FOWC becomes exclusive CRH. (2) FOWC could exploit commercial rights directly or through its affiliates only. (3) F1 business defined to mean exploitation of various rights, including media rights, hospitality rights, title sponsorship, etc. (4) Revenue of FOWC and its affiliates to be taken for distributing prize money to teams under Schedule X Organisation Agreement dated January 20, 2011 between FIA/FMSCI and Jaypee: (1) Jaypee to organise event. (2) As of this date, Jaypee has entered into agreement with CRH (Recital B). (3) Template of agreement contained in Schedule VI of Concorde Agreement. Title Sponsorship Agreement dated August 16, 2011 between Beta Prema 2 and Bharti Airtel: (1) Transfer of title sponsorship rights by Beta to Bharti Airtel for US$ 8 million. (2) This agreement is one month before agreement between Beta Prema 2 and Jaypee through which Beta Prema 2 allegedly acquired this right. RPC dated September 13, 2011 between FOWC and Jaypee: (1) Agreement entered one month before race. (2) Fresh RPC entered without rescinding RPC of 2007. (3) Right to host, stage and promote event allegedly given to Jaypee by FOWC, unlike previous RPC which only gave right to promote. Page 79 (4) Conditions precedent binding Jaypee to transfer rights back to affiliates of FOWC. (5) Clause 18.3 binding Jaypee to engage FOM for generating television feed introduced in this RPC. (6) Recital D of previous RPC which declared FOM business manager and agent removed. Agreements between JP and three affiliates (September 13, 2011) (1) Agreements entered on same day as RPC, i.e. September 13, 2011. (2) Rights allegedly given to Jaypee are transferred back to FOWC affiliates. Beta Prema 2 acquires circuit rights (mainly media and title sponsorship) and Allsports gets paddock rights. (3) FOM engaged to generation television feed. (4) Agreement provides that all revenues from rights would flow to affiliates and not Jaypee (clause 11). (5) Agreement provides that there does not exist agency relationship between affiliates and Jaypee (clause 26). Service Agreement dated October 28, 2011 between FOWC and FOM: (1) Agreement entered into on October 28, 2011, on day of race. (2) FOM engaged by FOWC to provide various services liaison and supervision of other parties at event, travel, transport and data support services. Director s report of financial statements of FOWC for year 2011: Defines business of FOWC as company s principal activity during year was organisation, management and administration of motorsport conducted principally through exploitation of commercial rights to FIA Formula One World Championship . 58) From features described above, it was submitted by learned Attorney General that clear Page 80 manifestation of aforesaid agreements was that FOWC and its subsidiaries had taken total control over event that took place in India which, according to him, was to be kept in mind for proper examination of issues in their right perspective. Mr. Rohtagi argued that Section 5(2)(b) of Act, which applies in instant case, specifically includes income of non-resident from whatever source derived , if this income accrues or arises or is deemed to accrue or arise to him in India during such year. Referring to Section 9 of Act, which specifies circumstances under which income shall be deemed to accrue or arise in India, he pointed out that it covers all income, whether directly or indirectly , that accrues or arises, if it is through or from any business connection in India . Therefore, if business connection is established, then all incomes, whether earned directly or indirectly, would come within net of taxability of such incomes in India. Referring to explanation (2) to Section 9(1)(i), he laid stress on submission that business connection shall include any business activity through person who acts on Page 81 behalf of non-resident. expression through is clarified in explanation (4) thereof to mean and include and shall be deemed to have always meant and include by means of , in consequence of or by reason of . He submitted that these deeming provisions are of very vide import and when facts of this case are examined keeping in view aforesaid provisions, High Court rightly concluded that FOWC had PE in India. He also argued that Jaypee was only to host event, whereas total access at time of construction as well as at time of event was that of FOWC. According to him, at most, it was in nature of Jaypee and FOWC as partners in business. 59) Mr. Rohatgi also submitted that comparisons of first Agreement of 2007 with second Agreement dated September 13, 2011 clearly demonstrates that second agreement was totally subterfuge to avoid payment of tax in India. He pointed out that in Agreement dated October 25, 2007, FOWC was granted only right to 'promote' event (Clause 4(1)), whereas in Agreement dated September 13, 2011, Page 82 right to 'host, stage and promote' event was allegedly given to Jaypee by FOWC. According to him, right to host and stage event was conferred upon Jaypee only on paper to give it semblance as if Jaypee was in real control of affairs, which was not actually so. Therefore, in any case, it would not make any difference when in reality rights of hosting and staging competition were with FOWC. 60) Referring to Agreement dated September 13, 2011 between Jaypee and three affiliates of FOWC, argument of Mr. Rohatgi was that so-called rights given to Jaypee were transferred back to FOWC affiliates inasmuch as Beta Prema 2 acquired circuit rights, mainly media and title sponsorship, whereas Allsports was given paddock rights. His submission was that business was carried from circuit, paddock, etc. and, therefore, it cannot be said that no business activity was carried from this place. He also pointed out how FOWC granted rights to FOAM to provide various services in case FOWC had no control over race. It also showed physical management of business as well. Page 83 61) Coming to issue of dependent PEs, submission of learned Attorney General was that in view of flowchart depicting commercial rights with FOWC and its affiliates, this issue was virtually academic issue once it is found that FOWC and its affiliates are one conglomerate, commercial rights of different nature, viz. CRH bouquet was with group companies under control of same management which exploited all these rights. These companies had pooled all profits and sharing thereof was in ratio of 50:50 between teams and CRH companies. 62) As far as power of High Court under Article 226 of Constitution of India to go into issue is concerned, Mr. Rohatgi drew attention of Court to its earlier judgment in Columbia Sportswear Company v. Director of Income Tax, Bangalore21 wherein this Court had impressed that from rulings of AAR aggrieved person was required to approach High Court in first instance. He, thus, submitted that it was first forum of judicial (2012) 11 SCC 224 Page 84 review of opinion given by AAR and, therefore, High Court was very well within its power to revisit issue; albeit within scope of jurisdiction of Article 226 of Constitution of India, and decide same. According to him, High Court had not exceeded its jurisdiction while deciding aforesaid issues in writ petitions filed by appellants themselves. 63) Refuting arguments of Mr. Datar predicated on Section 195 of Act, Mr. Rohatgi referred to judgment of this Court in GE India Technology Centre Private Limited v. Commissioner of Income Tax & Anr.22 wherein following principle is laid down in paragraph 18: 18. If contention of Department that any person making payment to non-resident is necessarily required to deduct TAS then consequence would be that Department would be entitled to appropriate monies deposited by payer even if sum paid is not chargeable to tax because there is no provision in IT Act by which payer can obtain refund. Section 237 read with Section 199 implies that only recipient of sum i.e. payee could seek refund. It must therefore follow, if Department is right, that law requires tax to be deducted on all payments. payer, therefore, has to deduct and pay tax, even if so-called deduction comes out of his own (2010) 10 SCC 29 Page 85 pocket and he has no remedy whatsoever, even where sum paid by him is not sum chargeable under Act. interpretation of Department, therefore, not only requires words chargeable under provisions of Act to be omitted, it also leads to absurd consequence. interpretation placed by Department would result in situation where even when income has no territorial nexus with India or is not chargeable in India, Government would nonetheless collect tax. In our view, Section 195(2) provides remedy by which person may seek determination of appropriate proportion of such sum so chargeable where proportion of sum so chargeable is liable to tax. He, thus, submitted that if there was any breach of said provision, Income Tax Department was well within its right to charge interest and/or impose penalty. 64) In rejoinder, M/s. Ganesh and Datar gave their answers to aforesaid submissions, but it may not be necessary to reproduce same at this stage as we would like to take note of same while dealing with respective submissions. ANALYSIS, FINDINGS & CONCLUSION 65) We have pondered over aforesaid submissions of learned counsel for parties with all seriousness and sincerity they deserve. We have also Page 86 minutely gone through material placed on record. We have kept in mind governing law that has already been stated in detail. We are also conscious of approach that is needed to examine these kinds of issues, as discussed in judgments referred to by Mr. Dave. Likewise, we have also microscopically examined judgment of High Court which is under challenge. 66) As per Article 5 of DTAA, PE has to be fixed place of business through which business of enterprise is wholly or partly carried on. Some examples of fixed place are given in Article 5(2), by way of inclusion. Article 5(3), on other hand, excludes certain places which would not be treated as PE, i.e. what is mentioned in clauses (a) to (f) as negative list . combined reading of sub-articles (1), (2) and (3) of Article 5 would clearly show that only certain forms of establishment are excluded as mentioned in Article 5(3), which would not be PEs. Otherwise, sub-article (2) uses word include which means that not only places specified therein are to be treated as PEs, Page 87 list of such PEs is not exhaustive. In order to bring any other establishment which is not specifically mentioned, requirements laid down in sub-article (1) are to be satisfied. Twin conditions which need to be satisfied are: (i) existence of fixed place of business; and (b) through that place business of enterprise is wholly or partly carried out. 67) We are of firm opinion, and it cannot be denied, that Buddh International Circuit is fixed place. From this circuit different races, including Grand Prix is conducted, which is undoubtedly economic/business activity. core question is as to whether this was put at disposal of FOWC? Whether this was fixed place of business of FOWC is next question. We would like to start our discussion on crucial parameter viz. manner in which commercial rights, which are held by FOWC and its affiliates, have been exploited in instant case. For this purpose entire arrangement between FOWC and its associates on one hand and Jaypee on other hand, is to be kept in mind. Various Page 88 agreements cannot be looked into by isolating them from each other. Their wholesome reading would bring out real transaction between parties. Such approach is essentially required to find out as to who is having real and dominant control over Event, thereby providing answer to question as to whether Buddh International Circuit was at disposal of FOWC and whether it carried out any business therefrom or not. There is inalienable relevance of witnessing wholesome arrangement in order to have complete picture of relationship between FOWC and Jaypee. That would enable us to capture real essence of FOWC's role. 68) mere running of eye over flowchart of these commercial rights, produced by Revenue, bring about following material factors, evidently discernible: (i) FIA had assigned commercial rights in favour of FOAM vide agreement dated April 24, 2001 and on same day another agreement was signed between FOAM and FOWC vide which these rights were transferred to FOWC. Vide another agreement of Page 89 2011, these rights stand transferred in favour of FOWC for period of 100 years. Vide Concorde Agreement of 2009, FOWC is authorised to exploit commercial rights directly or through its affiliates only. Significantly, this agreement defines F-1 Business to mean exploitation of various rights, including media rights, hospitality rights, title sponsorship, etc. (ii) Armed with aforesaid rights, FOWC signed first agreement with Jaypee on October 25, 2007 whereby it granted right to promote event to Jaypee. This is replaced by RPC dated September 13, 2011. Under this agreement, right to host, stage and promote event are given by FOWC to Jaypee for consideration of US$ 40 million. On same day, another agreement is signed between Jaypee and three affiliates of FOWC whereby Jaypee gives back circuit rights, mainly media and title sponsorship, to Beta Prema 2 and paddock rights to Allsports. FOAM is engaged to generate TV Feed. All revenues from aforesaid activities are to go to said companies, namely, Beta Prema 2, Allsports and Page 90 FOAM respectively. These three companies are admittedly affiliates to FOWC. Though Beta Prema 2 is given media rights, etc., on September 13, 2011, it had entered into title sponsorship agreement dated August 16, 2011 with Bharti Airtel (i.e. more than month before getting these rights from Jaypee) whereby it transferred those rights to Bharti Airtel for consideration of US$ 8 million. Service agreement is signed between FOWC and FOAM on October 28, 2011 (i.e. on date of race) whereby FOAM engaged FOWC to provide various services like licensing and supervision of other parties at event, travel and transport and data support services. aforesaid arrangement clearly demonstrates that entire event is taken over and controlled by FOWC and its affiliates. There cannot be any race without participating/ competing teams, circuit and paddock. All these are controlled by FOWC and its affiliates. Event has taken place by conduct of race physically in India. Entire income is generated from conduct of Page 91 this event in India. Thus, commercial rights are with FOWC which are exploited with actual conduct of race in India. (iii) Even physical control of circuit was with FOWC and its affiliates from inception, i.e. inclusion of event in circuit till conclusion of event. Omnipresence of FOWC and its stamp over event is loud, clear and firm. Mr. Rohatgi is right in his submission that undisputed facts were that race was physically conducted in India and from this race income was generated in India. Therefore, commonsense and plain thinking of entire situation would lead to conclusion that FOWC had made their earning in India through said track over which they had complete control during period of race. appellants are trying to trivialize issue by harping on fact that duration of event was three days and, therefore, control, if at all, would be for that period only. His reply was that duration of agreement was five years, which was extendable to another five years. question Page 92 of PE has to be examined keeping in mind that aforesaid race was to be conducted only for three days in year and for entire period of race control was with FOWC. (iv) Even when we examine matter by examining RPC agreement itself, it points towards same conclusion. High Court in its judgment has reproduced relevant clauses of agreement which we have already reproduced above. This agreement is analysed by High Court. Therefore, we are spared of doing diagnostic of sorts, which exercise is accomplished by High Court itself in flawless manner: (a) Buddh International Circuit, is defined in Clause 1(q), as one suitable in every respect for staging of 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 circuit shall be constructed, laid out and prepared in accordance with agreement, i.e. RPC, "in form and manner approved by FOWC and FIA". Page 93 (b) inclusion of event is through FOWC's actions. In terms of its arrangement with FIA, it is exclusive agency through which any particular circuit is introduced for event in given calendar year. (c) term of RPC is 5 years according to Clauses 3.3 and 3.4. (d) In terms of Clause 11, Jaypee is obliged to take all action necessary to ensure that pit, paddock buildings and surrounding areas within circuit and land are open to receive competitors, FOWC, affiliates of FOWC, FOWC's contractors and licensees, other personnel and equipment at all times during period commencing 14 days before race and ending 7 days after race. It also has to assure security to these areas. (e) Under Clause 14, promoter is obliged to authorize access to parts of circuit not open to main public only through passes issued by FOWC. Under Clause 14(b), public cannot have access to cars in any of places where competitor's mechanics may be called upon to work on them and under Clause 14(c), validity of passes issued by FOWC is unquestionable. (f) Under Clause 18.1, throughout term during access period, from test session held at circuit till end of event, promoter, i.e. Jaypee cannot permit, access, enable, procure or in any manner encourage others to make, create, store, record or transmit any sound recording or visual or audio-visual footage whatsoever, for broadcast or any other purpose, of any of at or pertaining to event, including cars, drivers, competitors etc. and in fact cannot make any such recording etc. within confines of circuit or land over which Jaypee itself has control. (g) Under Clause 18.2, Jaypee has to ensure Page 94 that terms of ticket sale, giving admittance to event include condition imposed on ticket holder not to make any kind of recording or take any recording device that can store or transmit any part of event and that ticket holder as spectator could be filmed and sound made by him could be recorded for broadcast or any other such item that FOWC could impose on Jaypee. (h) Jaypee is obliged to engage third party approved by FOWC to carry out and perform on its behalf all service relating to origination of international television feed and host broadcasting for each event during term specified in guidelines published by FOWC and provided to Jaypee. (i) Jaypee unconditionally and irrevocably under Clause 19.2 assigned to FOWC all copyright and other intellectual property rights, titles and interest which it may now or may in future possess, in any image or recording or other presentation or recording in any image/form whatsoever for duration of rights and also give consent to FOWC to deal with such rights as it pleased. (j) Clause 20.1 obliged Jaypee to ensure that those accredited and authorized by FOWC were permitted to enter upon premises to make sound, television or recordings or transmissions or make films or other pictures and use facilities throughout access period and also undertook to accord to such personnel all help and facilities that FOWC would require, including assistance for consent, permission or authorization with any local authority. (k) Under Clause 21, Jaypee was prohibited from causing, permitting, enabling assisting or in any manner encouraging display of any advertisement (other than normal advertisement displayed on any competitor's cars) or other displays on, near or which Page 95 could be seen from circuit or land which, in opinion of FOWC, could prevent lawful transmission of images or recordings of event. FOWC's say in this regard was final. (l) In Director s report of FOWC, company significantly mentioned that its current company had entered into agreement with FIA as result of which FOWC acquired commercial interests in championship which became operative from 01.11.2011 and that in exploitation of such commercial rights in championship, total revenues generated was US$ 1205 million. There is express advertence of Indian part of turn-over inasmuch as report said that company paid US$ 127 million to FOM in return of provision of services. 69) We are in agreement with aforesaid analysis which correctly captures substance of relevant clauses of agreement. 70) We are also of opinion that High Court has rightly concluded that having regard to duration of event, which was for limited days, and for entire duration FOWC had full access through its personnel, number of days for which access was there would not make any difference. This aspect is discussed by High Court in following manner, and rightly so: 52. It is evident that for duration of Page 96 event as well as two weeks prior to it and week succeeding it, FOWC had full access through its personnel, team contracted to it, both racing as well as spectator teams and could also dictate who were authorized to enter areas reserved for it. No doubt, in terms of agreement, i.e. RPC, Jaypee was designated as promoter or event host. look at RPC and its terms as well as other terms contained in agreement between Jaypee on one hand and Allsports, Beta Prema 2 as well as FOAM show that Jaypee's capacity to act - though it promoted event, was extremely restricted. At all material times, FOWC had access - exclusively, to circuit, and all spaces where teams were located. Jaypee created circuit for purposes of event and other events; yet, during event, i.e. F1 Championship, no other event was possible. 53. Having regard to nature of preceding discussion, it is evident that though FOWC's access or right to access was not permanent, in sense of its being everlasting, at same time, model of commercial transactions it chose is such that its exclusive circuit access - to team and its personnel or those contracted by it, was for up-to six weeks at time during F1 Championship season. This nature of activity, i.e racing and exploitation of all bundle of rights FOWC had as CRH, meant that it was shifting or moving presence: teams competed in race in given place and after its conclusion, moved on to another locale where similar race is conducted. Now with this kind of activity, although there may not be substantiality in absolute sense with regard to time period, both exclusive nature of access and period for which it is accessed, in opinion of Court, makes presence of kind contemplated under Article 5(1), i.e. it is fixed. In other words, presence is neither ephemeral or fleeting, or sporadic. fact that Page 97 RPC-2011's tenure is of five years, meant that there was repetition; furthermore, FOWC was entitled even in event of termination, to two years' payment of assured consideration of US$ 40 million (Clause 24 of RPC). Having regard to OECD commentary and Klaus Vogel's commentary on general principles applicable that as long as presence is in physically defined geographical area, permanence in such fixed place could be relative having regard to nature of business, it is hereby held that circuit itself constituted fixed place of business. 71) stand at trade fair, occupied regularly for three weeks year, through which enterprise obtained contracts for significant part of its annual sales, was held to constitute PE23. Likewise, temporary restaurant operated in mirror tent at Dutch flower show for period of seven months was held to constitute PE24. 72) High Court has also referred to some of judgments which are of relevance. We would like to take note of those judgments as we had agreed with conclusions of High Court on this issue: In Universal Furniture Ind. AB v. Government of Norway25, Swedish company sold furniture abroad that was assembled in Sweden. It hired individual tax Refer Footnote 4 Refer Footnote 5 (Stavanger Court, Case No. 99-00421, dated 19-12-1999 referred to in Principles of International Taxation by Anghard Miller and Lyn Oates, 2012) Page 98 resident of Norway to look after its sales in Norway, including sales to Swedish company, which used to compensate him for use of phone and other facilities. Later, company discontinued such payments and increased his salary. Norwegian tax authorities said that Swedish company had its place of business in Norway. Norwegian court agreed, holding that salesman s house amounted to place of business: it was sufficient that Swedish Company had place at its disposal, i.e Norwegian individual s home, which could be regarded as fixed . In Joseph Fowler v. Her Majesty Queen26, issue was whether United States tax resident individual who used to visit and sell his wares in camper trailer, in fairs, for number of years had fixed place of business in Canada. fairs used to be once year, approximately for three weeks each. court observed that nature of individual s business was such that he held sales in similar fares, for duration of two or three weeks, in two other locales in United States. court 1990 (2) CTC 2351 Page 99 held that conceptually, place was one of business, notwithstanding short duration, because it amounted to place of management or branch having regard to peculiarities of business. 73) Coming to second aspect of issue, namely, whether FOWC carried on any business and commercial activity in India or not, substantial part of this aspect has already been discussed and taken care of above. Without being repetitive and pleonastic or tautologous, we may only add that FOWC is Commercial Right Holder (CRH). These rights can be exploited with conduct of F-1 Championship, which is organised in various countries. It was decided to have this championship in India as well. In order to undertake conducting of such races, first requirement is to have track for this purpose. Then, teams are needed who would participate in competition. Another requirement is to have public/viewers who would be interested in witnessing such races from places built around track. Again, for augmenting earnings in these events, there would be advertisements, media rights, etc. as Page 100 well. It is FOWC and its affiliates which have been responsible for all aforesaid activities. Concorde Agreement is signed between FIA, FOA and FOWC whereby not only FOWC became Commercial Rights Holder for 100 years, this agreement further enabled participation of teams who agreed for such participation in FIA Championship each year for every event and undertook to participate in each event with two cars. FIA undertook to ensure that events were held and FOWC, as CRH, undertook to enter into contracts with event promoters and host such events. All possible commercial rights, including advertisement, media rights, etc. and even right to sell paddock seats, were assumed by FOWC and its associates. Thus, as part of its business, FOWC (as well as its affiliates) undertook aforesaid commercial activities in India. Without explaining this aspect further, our purpose would be served by reproducing following discussion, so starkly put in judgment of High Court: 55. If terms of Concorde Agreement are read conjointly with RPC-2011, it is apparent that CRH, which is FOWC, only and none else has right to include venue in any FIA annual calendar. FIA is bound to accord permission for such inclusion; FOWC is Page 101 exclusive commercial rights holder of host of rights (evident from recital in Concorde Agreement that FIA, FOWC and other members of CRH group had entered into such contracts to enable commercial exploitation of rights for 100 year period). Under RPC-2011, only FOWC has exclusive rights towards making sound, television and other recordings and exploitation of its media rights. FOWC has copyright over databases and all related information, etc. generated, during event, including practice sessions etc. (Clause 22, RPC-2011). Only those accredited by FOWC can enter promoter's premises and circuit to make sound and television recordings, etc. 56. It is quite apparent that save limited class of rights (those relating to paddock entry, ticketing, hospitality at venue and restricted class of advertising), all commercial exploitation rights vest exclusively with FOWC. FOWC did accept them and was entitled to charge fees or such other consideration as it deemed appropriate for recording, telecasting, broadcasting and creation of internet and media rights, including data transmission, and all other such commercially exploitable rights. In addition, FOWC charged, by Clause 24 of RPC-2011, fee of US$ 40 million annually from Jaypee, in relation to race event or FIA F1 Championship event conducted on circuit in India. 57. It is also noteworthy that by virtue of Concorde Agreement, teams have undertaken to engage in every race - with added condition that each team would involve two cars for every race in any circuit chosen by FOWC. RPC-2011 also assured that FOWC would ensure that such team did in fact participate in event in Budh Circuit. This is important fact- which shows that entire event, i.e. F1 FIA Championship in circuit was organized and controlled in every sense of term by FOWC. peculiarity of this activity is such that FOWC's dominant role is evident; it is moving spirit with all pervasive presence and control through teams, which are contracted to participate in event. In fact, it creates event, i.e. race. Each actor, such promoter/Jaypee, racing teams, constructing teams and other affiliates, plays part in event. FOWC's participation and undertakings given to it by each of these actors, who are responsible for Page 102 event as whole, brings out its central and dominant role. If Jaypee is event promoter, which owns title to circuit in sense that it owns land, FOWC is commercial rights owner of event, by virtue of Concorde Agreement. FIA parted with all its rights over each commercial right it possessed to FOWC. bulk of revenue earned is through media, television and other related rights. terms or basis of those rights is event. conceptualization of event and right to include it in any particular circuit, such as Buddh Circuit is that of FOWC; it decides venue and participating teams are bound to it to compete in race in terms agreed with FOWC. All these, in opinion of Court, unequivocally, show that FOWC carried on business in India for duration of race (and for two weeks before race and week thereafter). Every right, which it possessed was monetized; US$ 40 million which Jaypee paid was only part of that commercial exploitation by FOWC. 58. Consequently, Court concludes that FOWC carried on business in India within meaning of expression under Article 5(1) of DTAA. It is consequently held that AAR fell into error of law in holding that FOWC did not function through PE/carry on business through fixed place of business in India. 74) In view of above, it is difficult to accept arguments of appellants that it is Jaypee who was responsible for conducting races and had complete control over Event in question. Mere construction of 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 conduct of F-1 Page 103 Championship and control over track during that period. Specific arrangement between parties relating to aforesaid, which is elaborated above and which FOWC and Jaypee unsuccessfully endeavoured to ignore, has in fact turned table against them. It is also difficult to accept their submission that FOWC had no role in conduct of Championship and its role came to end with granting permission to host Event as round of championship. We also reject argument of appellants that Buddh International Circuit was not under control and at disposal of FOWC. 75) No doubt, FOWC, as CRH of these events, is in business of exploiting these rights, including intellectual property rights. However, these became possible, in instant case, only with actual conduct of these races and active participation of FOWC in said races, with access and control over circuit. 76) We are of opinion that test laid down by Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satisfied. Not only Buddh Page 104 International Circuit is fixed place where commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was virtual projection of foreign enterprise, namely, Formula-1 (i.e. FOWC) on soil of this country. It is already noted above that as per Philip Baker27, PE must have three characteristics: stability, productivity and dependence. All characteristics are present in this case. Fixed place of business in form of physical location, i.e. Buddh International Circuit, was at 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 income it has earned on this soil. 77) We are now left with two other incidental issues which were raised by Mr. Datar. First was on interpretation of Section 195 of Act. It cannot be disputed that person who makes payment to non-resident is under obligation to deduct tax Manual on OECD Model Tax Convention on Income and on Capital Page 105 under Section 195 of Act on such payments. Mr. Rohatgi had submitted, and rightly so, that this issue is covered by judgment in case of GE India Technology Centre Private Limited28. Precisely this very judgment is taken note of and relied upon by High Court also in holding that since payments made by Jaypee to FOWC under RPC were business income of FOWC through PE at Buddh International Circuit, and, therefore, chargeable to tax, Jaypee was bound to make appropriate deductions from amounts paid under Section 195 of Act. 78) We are, however, inclined to accept submission of Mr. Datar that only that portion of income of FOWC, which is attributable to 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 Act. In GE India Technology Centre Private Limited29, this Court has clarified that though there is obligation to deduct tax, obligation is limited to appropriate portion of income which is chargeable to tax in India and in Refer Footnote 23 Refer Footnote 23 Page 106 respect of other payments where no tax is payable, recourse is to be made under Section 195(2) of Act. It would be for Assessing Officer to adjudicate upon aforesaid aspects while passing 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 move on 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. 79) Insofar as argument of Mr. Datar on powers of High Court under Article 226 of Constitution of India is concerned, we are not impressed by said argument. It is Jaypee itself which had filed writ petition (and for that matter FOWC as well) and they had challenged orders of AAR on certain aspects. High Court has examined legal issues while delivering impugned judgment, of course having regard to facts which were culled out from documents on record. 80) In view of foregoing, appeals preferred by Page 107 FOWC and Jaypee are dismissed, subject to observations as made above. 81) Insofar as appeal filed by Commissioner of Income Tax is concerned, it was submitted by Mr. Rohatgi himself that issue of dependent PE had become academic. Therefore, we need not examine this issue and dispose of appeal of Revenue accordingly. No costs. .................J. (A.K. SIKRI) ................J. (ASHOK BHUSHAN) NEW DELHI; APRIL 24, 2017. Page 108 Formula One World Championship Ltd. v. Commissioner of Income-tax, International Taxation-3, Delhi & Anr
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