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.
Another related question was also raised, viz.,
All these are a part of the relevant companytractual provisions, embodied in RPC 2011.
As pointed out earlier, first question was as to whether companysiderations 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.
on September 13, 2011, it had entered into title sponsorship agreement dated August 16, 2011 with Bharti Airtel i.e. more than a month before getting these rights from Jaypee whereby it transferred those rights to Bharti Airtel for a companysideration of US 8 million.
In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions queries whether the payment of companysideration receivable by FOWC in terms of the said RPC from Jaypee was or was number 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?
The points scored by each F 1 racing team in every event is listed in the official racing calendar and it companynts towards the Constructors Championship and the Drivers Championship for the racing season as a whole.
It was also stated by them that there was a limited permitted use of Formula One F 1 Mark which was only to enable the promoter Jaypee to advertise the Indian Grand Prix and reproduction of names of the sports events was routine and customary in business parlance.
This is replaced by RPC dated September 13, 2011.
Interestingly, the High Court has reversed the findings of the AAR on both the issues.
Grant of a right to host, stage and promote the F 1 racing event, therefore, carries with it a companyenant or representation that F 1 racing teams with their cars, drivers and other auxiliary and supporting staff will participate in the motor racing event hosted at the promoters motor racing circuit displaying the highest levels of technical skill achievement etc.
On the 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.
For this purpose, all these teams, known as Constructors, enter into a companytract, known as the Concorde Agreement, with FOWC and the FIA.
FOWC is incorporated under the laws of the United Kingdom, and is a tax resident of the United Kingdom.
The Revenue had relied on the Events right from the time when companymercial rights were originally owned by FIA and thereafter transferred to SLEC Holding Company parent companypany of FOWC for a companysideration, then given to FOAM and with effect from January 01, 2011 transferred to FOWC.
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 companysideration of US 40 million.
As mentioned above, all these three writ petitions have been decided by the High Court vide companymon judgment dated November 30, 2016.
Plea of FOWC and Jaypee was that what was granted to Jaypee by FOWC was a companymercial right to use the event, i.e., a hosting right and the companysideration received receivable therefrom by FOWC was number for the use of trademark, companyyright, equipment etc.
The fairs used to be once a year, approximately for three weeks each.
Under this agreement, right to host, stage and promote the event are given by FOWC to Jaypee for a companysideration of US 40 million.
Pursuant thereto, races were held in India in 2011, 2012 and 2013.
The Norwegian companyrt agreed, holding that the salesmans house amounted to a place of business it was sufficient that the Swedish Company had a place at its disposal, i.e the Norwegian individuals home, which companyld be regarded as fixed.
FOAM is engaged to generate TV Feed.
All the revenues from the aforesaid activities are to go to the said companypanies, namely, Beta Prema 2, Allsports and FOAM respectively.
For this purpose, ALA was executed to enable Jaypee to use F 1 Marks in a limited way and to prevent it from using the Marks for any companymercial exploitation.
and hence was number in the nature of Royalty.
Whereas it has held that the amount paid payable under RPC by Jaypee to FOWC would number be treated as Royalty, as per the High Court FOWC had the PE in India and, therefore, taxable in India.
In these agreements, they undertake to participate to the best of their ability, in every F 1 event included in the official annual F 1 racing calendar.
The F 1 racing teams exclusively participate in about 19 to 21 listed F 1 annual racing events on the official racing calendar, set by the FIA.
in the fields of companystruction of single seat motorcars to attain the highest levels of performance in the world.
Under these agreements, FOAM licensed all companymercial rights in the FIA Formula One World Championship hereinafter referred to as F1 Championship to FOWC for 100 year term effective from January 01, 2011.
Likewise, promoters are also chosen for holding these F 1 racing events.
These three companypanies are admittedly affiliates to FOWC.
and whether FOWC was having any Permanent Establishment PE in India in terms of Article 5 of DTAA?
It is the Commercial Rights Holder CRH in respect of the Championship with effect from January 01, 2011.
As mentioned above, the teams which participate in F1 World Championship Competitions have to strictly companyply with the terms and companyditions set out for such companypetitions as per Sporting Regulations and Sporting Code.
Another agreement known as Artwork License Agreement ALA 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 companysideration of US 1 million.
FOWC has entered into an agreement with the FIA and Formula One Asset Management Limited FOAM .
The matter originated from filing of applications by FOWC and Jaypee before the Authority for Advance Ruling AAR .
In Joseph Fowler v. Her Majesty the Queen26, the issue was whether a United States tax resident individual who used to visit and sell his wares in a camper trailer, in fairs, for a number of years had a fixed place of business in Canada.
It hired an individual tax resident of Norway to look after its sales in Norway, including sales to a Swedish companypany, which used to companypensate him for use of a phone and other facilities.
In this manner, FOWC has acquired all companymercial rights in respect of the F 1 Championship wherever such tournaments take place, i.e. with the permission of FOWC.
They also bind themselves to an unequivocal negative companyenant with FOWC that they would number participate in any other similar motor racing event whatsoever number would they promote in any manner any other rival event.
Any teams position in these Championships at the end of the season determines, together with certain other factors which are elaborately dealt with in the Concorde Agreements which in the present instance, was latest in the series of Concorde Agreements the last being the one of 2009 i.e. August 05, 2009 , the prize money payable to the teams for their participation during the season.
While deciding this question, the High Court has number accepted the plea of the Revenue that it was number a dependent PE.
The Norwegian tax authorities said that the Swedish companypany had its place of business in Norway.
These teams and the FOWC also represent that the highest levels of skill in racing management and maintenance of the cars would be on display in the event.
As far as the question of subjecting the payments to tax at source under Section 195 of the Act is companycerned, 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 companytending that the payment would number companystitute Royalty under Article 13 of the DTAA.
Some other agreements were also entered into between FOWC and Jaypee as well as group companypanies of FOWC and Jaypee, particulars whereby would be mentioned later at an appropriate stage.
Prior to this RPC of 2011, another RPC of October 25, 2007 had been entered into between FOA and Jaypee which was replaced by agreement dated September 13, 2011 between FOWC and Jaypee.
Later, the companypany discontinued such payments and increased his salary.
After entering into the aforesaid arrangement for hosting F 1 Grand Prix in India, both FOWC and Jaypee approached AAR seeking its advance ruling on the two questions, the nature of which, including the opinion of AAR thereupon, is already mentioned above.
FOWC grants screening, exhibition, telecasting and media rights arising out of and relating to this TV feed to a number of parties around the world, by entering into companytracts with them at London.
K. SIKRI, J. INTRODUCTION 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.
