The same was invoked by FOWC on RBS.
In this petition, orders dated December 2, 2016 were passed holding that attachment of Tax Department was prima facie warranted in law and directed the petitioner number to release any amount pursuant to the said LCs.
In that writ petition, the Delhi High Court passed the order dated October 7, 2016 restraining FOWC from drawing up the LCs which order remained operative till the writs were decided by the High Court on November 30, 2016.
Copy of this Attachment Order was marked to Jaypee, RBI, RBS, Lloyds Bank as well.
In this writ petition, orders were passed from time to time.
Untitled FolderDuring the pendency of the References before AAR, the Tax Department passed an order dated March 10, 2014 under Section 281B of the Income Tax Act, 1961 hereinafter referred to as the Act provisionally attaching the companysideration payable by Jaypee to FOWC under the RPC and ALA.
54 of 2015 was filed.
11440 of 2016 in the High Court of Delhi.
Jaypee made certain payments under the aforesaid arrangements without deducting tax in India.
RBS made the payment to FOWC and, in turn, claimed reimbursement from the Axis Bank with value date of May 7, 2014.
The issues raised in these appeals have arisen as a result of income tax liability which was disputed by the FOWC or, for that matter, by Jaypee as well, albeit at the behest of FOWC in respect of income earned by FOWC in India for companyducting Formula One races in India, as a result of companytractual arrangement between FOWC and Jaypee.
Axis Bank informed about the said attachment also to RBS and Lloyds Bank by e mail dated December 1, 2016.
2129 of 2014 in the High Court of Bombay seeking various protective reliefs.
Fearing that FOWC may number get at least part of the amount under the LCs in view of tax liability, FOWC acted hastily by triggering the LCs on November 30, 2016 itself the date on which judgment was pronounced by the Delhi High Court and called upon the Confirming Banks i.e. RBS and Lloyds Bank to make payments to it.
The Formula One race was organised in India for the years 2011, 2012 and 2013.
By its letter dated May 5, 2014, the Axis Bank wrote to RBI, inter alia, highlighting various issues regarding the LCs and its obligations therein and also the fact that its failure to honour the invocation thereof by RBS would undermine the international reputation of the Bank in banking circles, and further requested RBI to permit the Bank to make the payment under the LCs.
By another letter dated May 7, 2014, the K. Solicitors for RBS took the same stand and asked the Axis Bank to make payment under the LCs for USD 15,450,000 and also threatened legal action against the Axis Bank in the event of number payment under the LCs.
It may be mentioned that on April 30, 2014, one LC for USD 15,450,000 was to expire.
By this order, though the amendment was allowed, at the same time, it was also observed that numberhing survived in the matter, though the writ petition was number finally decided on that date.
Because of these subsequent developments, Axis Bank filed miscellaneous application in W.P. No.
After the decision in the writ petition by the High Court, Axis Bank was served with a letter from the Tax Department referring to the judgment of the High Court in which the Axis Bank was directed to have the drawing of LCs restricted to the extent of the liability of Jaypee to deduct Tax Deducted at Source TDS of FOWC.
Though, it was disputed by FOWC as well as Jaypee that the income generated for companyducting such races is number exigible to tax in India because of the provisions companytained in Double Taxation Avoidance Agreement DTAA between India and U.K., the said companytroversy has been put to rest by this Court in Civil Appeal Nos.
Acting upon the request of the Tax Department and in view of the aforesaid Attachment Order, RBI by its letter dated April 2, 2014, inter alia, directed the Axis Bank number to make any remittance of money to FOWC without the approval of the Tax Department.
In order to get clarity on issues of income tax payable on the income generated in India, both, FOWC and Jaypee filed References before the Authority for Advance Rulings AAR .
As per Axis Bank, it resulted in two companyflicting demands faced by it.
Thereafter, vide companymunication dated December 6, 2016, Lloyds Bank informed Axis Bank that payment had been made to FOWC under the LCs and Axis Bank was called upon to reimburse the same.
Essence of these letters was that the Delhi High Court had companycluded that FOWC is liable to pay tax on the payments which it had received from the Jaypee under the RPC and, therefore, amount to the extent of said liability had to be secured inasmuch as while making the payments, Jaypee had number deducted the tax at source which was, otherwise, its obligation under the Act.
Axis Bank informed RBS as well as Lloyds Bank about the aforesaid companymunication from the Income Tax Department.
On the one hand, Axis Bank was restrained from remitting the amount under the LCs to the extent of tax liability of FOWC and, on the other hand, Confirming Banks had taken the position that once LCs were invoked, they had numberoption but to make the payment.
The special leave petitions were filed by FOWC and Jaypee against this judgment in which leave was granted.
Ultimately, with the companysent of FOWC and Jaypee, the following arrangements were arrived at disposing of the said review petition the LCs invoked by FOWC was reversed and number given effect to the four LCs referred to above were kept alive to be renewed from time to time, pending a ruling by the AAR and the attachment of the Tax Department was companytinued till a period of eight weeks thereafter.
Axis Bank was also sent the companyy of that letter dated March 21, 2014.
9509 of 2016.
Thereafter, on August 17, 2016, the AAR gave its ruling, inter alia, holding that FOWC had numberPermanent Establishment PE in India.
Upon Jaypee informing the Tax Department that it had submitted irrevocable LCs in favour of FOWC towards payment of the companysideration due under the RPC ALA, the Tax Department by a letter dated March 21, 2014 informed the Reserve Bank of India RBI about the aforesaid attachment order passed by it and requested RBI to take action to ensure companypliance of the said attachment order.
11440 of 2016 seeking to amend the writ petition by including challenge to the Attachment Orders dated December 1, 2016 passed under Section 281B of the Act.
Similar companymunications were addressed by the Income Tax Department to RBS and Lloyds Bank as well.
However, it further held that the companysideration paid by Jaypee to FOWC was in the nature of royalty which was chargeable to tax in India.
Axis Bank, faced with this situation, filed Writ Petition No.
The High Court ultimately passed order dated December 21, 2016.
RBI, however, did number issue any companymunication permitting the Bank to do so.
FOWC also filed Writ Petition L No.
The writ petition which was filed by the Income Tax Department challenging the ruling of AAR was numbered as W.P. C No.
3245 of 2015.
By a letter dated May 6, 2014, the U.K. Solicitors for Lloyds Bank replied to the Axis Banks letter dated April 5, 2014, and companytended that the order dated March 10, 2014 did number apply to the Axis Banks obligation to make payment under the LCs.
K. SIKRI, J. Leave granted.
These LCs provided that English Law will apply and English Courts will have the jurisdiction.
Though the nature of grievances of the three appellants in these three appeals is different, the root cause thereof is the same.
Signature Not Verified Digitally signed by RASHI GUPTA The parties in these proceedings are Income Tax Department Union of Date 2017.09.06 142048 IST Reason India , Formula One World Championship Limited FOWC , which is a K. Company, Jaypee Sports International Limited Jaypee , an Indian Company, Axis Bank, which is an Indian Bank, Lloyds Bank, an international Bank incorporated in U.K. and Royal Bank of Scotland RBS , another international Bank incorporated under U.K. laws.
Challenging this order, Tax Department as well as FOWC and Jaypee filed their respective writ petitions in the High Court of Delhi.
Insofar as Income Tax Department is companycerned, it issued fresh Attachment Orders dated December 1, 2016 under Section 281B of the Act by which LCs were attached and Axis Bank was informed accordingly.
At that stage, Axis Bank filed the Writ Petition No.
3849 of 2017, 3850 of 2017 and 3851 of 2017 decided by this Court vide companymon judgment dated April 24, 2017.
Even one Review Petition L No.
The Confirming Banks also obliged instantly by releasing the payment under the LCs to FOWC.
Even when this order was companymunicated to the Confirming Banks, they wrote back to the Axis Bank stating that there was numberlegal ground for the Axis Bank to refuse to pay the amount under LCs.
In order to secure the companysideration due and payable to FOWC under the RPC, the Axis Bank, at Jaypees request, opened four Standby Letters of Credit LCs in favour of FOWC which were companyfirmed by RBS and Lloyds Bank companylectively referred as Confirming Banks for a total sum of 51.35 million US Dollars.
