- (1.) These appeals are filed by Formula One World Championship Limited (hereinafter referred to as 'FOWC'), Jaypee Sports International Limited (for short, 'Jaypee') and Union of India (hereinafter referred to as the 'Revenue'). In all these appeals, challenge is laid to the judgment dated November 30, 2016 passed by the High Court of Delhi whereby three writ petitions preferred by FOWC, Jaypee and Revenue have been decided.
(2.) The matter originated from filing of applications by FOWC and Jaypee before the Authority for Advance Ruling (AAR). FOWC had entered into a 'Race Promotion Contract' (RPC) dated September 13, 2011 with Jaypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a 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 an appropriate stage. In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions/queries: (i) whether the payment of consideration receivable by FOWC in terms of the said RPC from Jaypee was or was not royalty as defined in Article 13 of the 'Double Taxation Avoidance Agreement' (DTAA) entered into between the Government of United Kingdom and the 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 the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income Tax Act, 1961 (hereinafter after referred to as the 'Act').
(3.) AAR answered the first question holding that the consideration paid or payable by Jaypee to FOWC amounted to 'Royalty' under the DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as the question of subjecting the payments to tax at source under Section 195 of the Act is concerned, AAR ruled 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, therefore, tax was payable accordingly.;