TaxTMI 
TaxTMI 
2017 (4) TMI 1109
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....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....
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....paid under RPC does not constitute royalty. Therefore, that aspect of the matter has attained finality. The main question in the appeals, therefore, pertains to PE. FACTUAL MATRIX 6) In order to decide this question, following facts, having bearing on the matter, need a recapitulation: 7) Federation Internationale de I' Automobile (for short, 'FIA'), a non-profit association, is established as the Association Internationale des Automobile Clubs Reconnus to represent the interests of motoring organizations and motor car users globally. FIA, as the federation of the world's leading motoring organizations and the governing body for motorsports worldwide, consists of 213 national member organizations in 125 countries internationally. FIA is the principal body for establishing the rules and regulations for all major international four-wheel motorsport events. FIA is a regulatory body; it regulates the FIA Formula One World Championship ('Championship') which has been the premier form of motor racing since its inception in 1950. This Championship is established and run every year subsequently since. The Championship is an annual series of motor races, conduct....
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....s the 'Concorde Agreement', with FOWC and the FIA. 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. They also bind themselves to an 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. 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. This is, in effect, a closed circuit event since no team other than those bound by contract with FOWC are permitted participation. Thus, on the 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 a promoter with whom FOWC as the right holder, enters into contract and whose event is nominated by the CRH (i.e. Commercial Right Holder, which is in effect, FOWC) to the FIA for inclusion in the official F-1 racing calendar. In other words, FOWC is the exclusive nominating body at whose i....
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....races were held in India in 2011, 2012 and 2013. 11) 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. 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. and hence was not in the nature of 'Royalty'. 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. For this purpose, ALA was executed to enable Jaypee to use F-1 Marks in a limited way ....
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....ions therefrom as admissible under different provisions of the 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 the previous year of every of such person. Section 5 contains the scope of total income of a resident and includes all income from whatever source derived by a 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, a resident is supposed to pay income tax on all incomes so earned whether in India or outside India. On the 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 the case of non-resident persons, if the income is derived from a business controlled in or a profession set up in India, these non-residents are subjected to pay tax for such an income earned in India. In their case, all such incomes from whatever source derived....
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....ulates that where all the business operations are not carried in India and only some such operations of business are carried in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the 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 the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident, - (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of gods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of gods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and o....
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.... "ARTICLE 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" shall include especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) premises used as a sales outlet or for receiving or soliciting orders; (g) a warehouse in relation to a person providing store facilities for others; (h) a mine, an oil or gas well, quarry on other place of extraction of natural resources; (i) an installation or structure used for the exploration or exploitation of natural resources; (j) a building site or construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than six months, or where such project or supervisory activity, being incidental to the sale or machinery or equipment, continues for a period not exceeding six months ....
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....sses solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of the paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. 4. A person acting in a Contracting State for or on behalf of an enterprise of the other contracting State - other than an agent of an independent status to whom paragraph (5) of this Article applies, shall be deemed to be a permanent establishment of that enterprise in the first mentioned State if: (a) he has, and habitually exercises in that State, an authority to negotiate and enter into contracts for or on behalf of the enterprise, unless his activities are limited to the purchase of gods or merchandise for the enterprise; or (b) he habitually maintains in the first-mentioned Contracting State a stock of gods or merchandise from which he regularly delivers goods or merchandise for or on behalf of the enterprise; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and the enterprises controlling, controlled by, or subj....
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.... activities of such an agent are carried out wholly or almost wholly for the enterprise, or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it or are subject to same common control, then, such an agent will be treated as an agent of an independent status. It means that if the business is carried out with such a kind of agent, the enterprise will be deemed to have a PE in India. THE LEGAL COMMENTARIES AND CASE LAW 22) It is an undisputed fact that Article 5 of DTAA between India and the United Kingdom follows the 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: "A Manual on the 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 the subject matter of judicial verdicts in India as well as in other countries. For better understanding of what may constitute a PE....
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....y or partly carried on. It entails two requirements which need to be fulfilled: (a) there must be a business of an enterprise of a Contracting State (FOWC in the instant case); and (b) PE must be a fixed place of business, i.e. a place which is at the disposal of the enterprise. It is universally accepted that for ascertaining whether there is a fixed place or not, PE must have three characteristics: stability, productivity and dependence. Further, fixed place of business connotes existence of a physical location which is at the disposal of the enterprise through which the business is carried on. 25) Some of the examples of fixed place of business given by Baker are the following: The place of business must be fixed and permanent. Thus, a shed which had been rented for thirteen years for storing and preparing hides was held to constitute a PE (Transvaal Associated Hide & Skin Merchants (Pty) Ltd. (1967) 29 S.A.T.C. 97 (Court of Appeal, Botswana). Similarly, a writer's study has been held to constitute a PE (Georges Simenon (1965) 44 T.C. (US) 820 (US Tax Court). A stand at a trade fair, occupied regularly for three weeks a year, through which the enterprise obtained contracts fo....
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....ent jurisdictions given by Baker in his commentary are contained in the following passages from that book: (i) In the Canadian case of William Dudney v. R (1999) 99 DTC 147, the taxpayer was a resident of the United States who was contracted to supply training to employees of a Canadian company. For the purposes of the training contract, the taxpayer was given various offices at the premises of the Canadian company, which he was only allowed to enter at normal office hours. He was allowed to use the client's telephone only on client's business. He spent 300 days in one tax year and 40 in the subsequent year at the premises. The Tax Court of Canada and the Federal Court of Appeal confirmed that he had no fixed base - which was treated as having the same meaning as PE - at the premises since he had no right to use the premises as the base for the operation of his own business. (ii) In a case generally referred to as Hotel Manager (Bundersfinanzhof, February 3, 1993, IR 80-81/91, IStR 1993, p. 226, (1993) BStBl., II, 462.), the Bundesfinanzhof held that a UK hotel management company had a PE in Germany when it entered into a 20 year contract with a limited partnershi....
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....is the term 'place'. Importance of the term 'place' is explained by him in the following manner: "In conjunction with the attribute 'fixed', the requirement of a place reflects the strong link between the land and the taxing powers of the State. This territorial link serves as the basis not only for the distributive rules which are tied to the existence of PE but also for a considerable number of other distributive rules and, above all, for the assignment of a person to either Contracting State on the basis of residence (Article 1, read in conjunction with Article 4 OECD and UN MC)." 31) We would also like to extract below the definition to the expression 'place' by Vogel, which is as under: "A place is a certain amount of space within the soil or on the soil. This understanding of place as a three-dimensional zone rather than a single point on the earth can be derived from the French Version ('installation fixe') as well as the term 'establishment'. As a rule, this zone is based on a certain area in, on, or above the surface of the earth. Rooms or technical equipment above the soil may quality as a PE only if they are fixed on the soil. This requirement, howev....
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....situated in State B, this company will usually be liable to tax on the basis of its worldwide income in both Contracting States under their respective domestic tax law. Under the A-B treaty, however, the company will be regarded as a resident of State B only (Article 4(3) OECD and UN MC). In the absence of both actual facilities and a dependent agent in State A, income of this company will be taxable only in State B under the 1st sentence of Article 7(1) OECD and UN MC. There is no minimum size of the piece of land. Where the qualifying business activities consist (in full or in part) of human activities by the taxpayer, his employees or representatives, the mere space needed for the 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 the notion of agent PEs were superfluous). This can be illustrated by the example of a salesman who regularly visits a major customer to take orders, and conducts meetings in the purchasing director's office. The OECD MC Comm. has convincingly denied the existence of a PE, based on the implicit understanding that the relevant geographical unit is not just the chai....
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....iew can hardly be reconciled with the two court cases. All three examples do indeed shed some light onto the method how the relative standards for the control threshold should be designed. While the OECD MC Comm. suggests that it is sufficient to require not more than the type and extent of control necessary for the specific business activity which the taxpayer wants to exercise in the source State, the Canadian and Indian decisions advocate for stricter standards for the control threshold. The OECD MC shows a 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 a subsidiary would rarely been unusable outside the office hours of one of its customers (i.e. a third person), the view of the two courts is still more convincing. Along these lines, a POB will usually exist only where the taxpayer is free to use the 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, the taxpayer will usually be regarded as controlling the POB only where he ca....
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....e premises are treated at the disposal of the enterprise and, therefore, constitute PE are: a place of business may thus be constituted by a pitch in a market place, or by a certain permanently used area in a customs depot (e.g. for the storage of dutiable goods). Again the place of business may be situated in the business facilities of another enterprise. This may be the case for instance where the foreign enterprise has at its constant disposal certain premises or a part thereof owned by the other enterprise. At the same time, it is also clarified that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise. 35) The OECD commentary gives as many as four examples where location will not be treated at the disposal of the enterprise. These are: (a) The first example is that of a salesman who regularly visits a major customer to take orders and meets the purchasing director in his office to do so. In that case, the customer's premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a fixed place of business through which the....
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....its reasons to conclude that FOWC had a PE in India in the relevant Assessment Year. However, before that, it would be necessary to refer to the salient provisions of the relevant agreements between the parties, not only between FOWC and Jaypee, but some agreements which were entered into by the group companies of FOWC with Jaypee. 38) We have already mentioned above that there is an Agreement between FIA and FOAM which is dated April 24, 2001 whereby FIA has parted with the commercial rights in favour of FOAM making FOAM exclusive CRH. Thereafter, vide the aforesaid agreement FOAM transferred the commercial rights in favour of FOWC with effect from 2011 for a period of 10 years. Insofar as Concorde Agreement which is signed between FIA, FOWC and teams is concerned, that is of the 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 the event. Thereafter, another agreement known as 'Title Sponsorship Agreement' dated August 16, 2011 was signed between Beta Prema 2 (a....
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....age and promote Formula One Grand Prix events at such circuit. XXXXXX XXXXXX XXXXXX Definitions and Interpretation 1. In this Agreement unless the context requires otherwise: XXXXXX XXXXXX XXXXXX (q) Circuit shall mean a motor racing circuit suitable in every respect for the staging of the Event (including permanent buildings, permanent infrastructure, track layout, amenities, spectator viewing facilities, the pit/paddock, building, media centre, car parks, helipads, garages, race control and administration, office administration, fuel and tyre storage, utilities (including back up power supplies), concrete based areas suitable to host the Competitors and sponsors, vending and exhibition areas, international TV compounds, host and broadcast facilities and medical centre); XXXXXX XXXXXX XXXXXX (t) Event shall mean the FORMULA 1 GRAND PRIX OF INDIA (including all support events therein and peripheral entertainment), designated and endorsed as a round of the FIA Formula One World Championship, which shall commence at the Circuit at the time scheduled by the FIA for Scrutinizing and Sporting Checks and including all Practice and the Race its....
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.... and manner approved by both FOWC and the FIA, meeting all requirements of the Regulations (including as to timing of inspections) and completed in good time for final inspection by the FIA not later than 12 October 2011; XXXXXX XXXXXX XXXXXX Access to Circuit Prior to Event 11. 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 (if any) at all times during the period commencing fourteen days before the day of the race and ending seven days after the Race (the Access Period) and the security of the paddock and garage area is properly safeguarded at all times during the Access Period. XXXXXX XXXXXX XXXXXX Competitor/Media Facilities 13.1 The Promoter will in so far as the same is practicable provide an entrance for the Competitor personnel and for Officials separate from the public entrance to the Circuit. 13.2 The Promoter will provide free of charge a zone measuring whichever is the greater of tha....
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....rization of the FIA is upheld; and (d) the necessary steps are taken to ensure that all police and Circuit officials are familiar with the Passes and tabards and uphold their validity. Insurance 15.1 The Promoter shall provide at its expense third party liability insurance (in a form approved by FOWC and the FIA insuring FOWC and all its Affiliates, Beta Prema 2 Limited and all its Affiliates, the Competitors, Drivers and guests of any of the above mentioned parties (such parties to include where relevant all directors, officers, employees, agents and contractors) and such other persons involved in the organization of the Event (including officials, marshals, rescue and medical staff) as the FIA or FOWC may from time to time advise the Promoter (the Insured Parties) against all risks (including death of or bodily or mental injury to any person) relating to (i) the event (ii) support races and (iii) peripheral entertainment organized as part of the Event, for the Access Period. If such insurance is not permitted under the law of the country in which the Event takes place or the FIA is satisfied that such insurance is not commercially viable then the insura....
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.... FOWC(acting reasonably) may request the Promoter to include from time to time provided that the Promoter is notified in due time and that such terms and conditions are compatible with applicable local laws. 18.3 The Promoter shall engage a third party (the Identity of which shall be approved by FOWC in its sole discretion) to carry out and perform on behalf of the Promoter all services relating to the origination of the international television feed and host broadcasting for each Event during the Term as are specified in guidelines published annually by FOWC and provided to the Promoter from time to time. Intellectual Property XXXXXX XXXXXX XXXXXX 19.2 The 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 the 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 the Event, any NonPrivate F1 Test Session or any aspect of them (irrespective of who originated th....
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.... the High Court, though Jaypee was designated as the promoter or the host of the event in terms of RPC, when the matter was to be examined in a correct perspective by seeking through the other terms contained in the agreement as well as terms of agreements between JP and Allsports, Beta 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 the circuit and all the places where the teams were located. The High Court was also conscious of the fact that such an access or right to access was not permanent in the sense of its being everlasting. However, having regard to the model of commercial transactions, such an access for a period up to six weeks at a time during the F-1 Championship season was sufficient for the purposes of Article 5(1) of DTAA. Further, as the tenure of RPC was five years, it meant that such an access for the period in question was of repetitive nature. Moreover, FOWC was entitled to two years payment of the assured consideration of US$ 40 million in the event of termination of RPC. 42) While discussing the second question, the High Court took note of agreement between FIA....
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....were sham. The High Court approved the aforesaid approach of AAR in the following manner: "64. Article 5(5) has certain preconditions if an entity has to be treated as dependent agent. The agent must have the authority to conclude contracts, which bind the represented enterprise, and it must habitually exercise such authority. If these positive preconditions are met, then only an enterprise shall be deemed to have a PE in that state in respect of any activities, which that person undertakes for the enterprise. The contention that because the three entities were subsidiaries of FOWC, they acted on its behalf and thus become dependent agents is insubstantial. The mere circumstance that the three subsidiaries had a connection with FOWC was not enough; what is to be shown is that the contracts they entered into and the businesses they were engaged in, was for and on behalf of FOWC. Each of the three agreements independently entered into by them with Jaypee contains no pointers to this fact." THE ARGUMENTS 44) Mr. Ganesh, opened the case of FOWC, whereafter M/s. Arvind P. Datar and Dushant Dave, learned senior advocates, made their submissions on behalf of Jaypee. Mr. Muk....
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.... 2011 signed between FIA, Jaypee and Federation of Motors Sports Clubs of India wherein Jaypee is described as the 'Organiser' and given the responsibility to organise the 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 the contract for the motor races people till the conclusion of the 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 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. Condition precedent from entering into this Agreement, as mentioned in the Agreement itself, was that Jaypee (as promoter) had entered into a valid and binding agreement with such third party in accordance with Clause 18.3 (Service Agreement). Referring to the clause pertaining to obli....
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.... a third party (FIA in the present case). He also pointed out that insofar as sale of advertisement rights during the Event is concerned that was also to be given to Beta Prema 2 Ltd. which was again an independent company and taken over by FOWC in the year 2006. 49) Mr. Ganesh, extensively referred to the findings of AAR on this issue wherein the case of FOWC and Jaypee on this aspect was accepted by AAR and pleaded that the aforesaid findings be accepted and restored by this Court. Referring to the judgment of the High Court, his submission was that the Organisation Agreement entered into between FIA and Jaypee was not even discussed and the conclusions given in paragraphs 52 and 53 of the said judgment were erroneous. He also relied upon certain observations of this Court in Union of India & Anr. Vs. Azadi Bachao Andolan & Anr. (2004 (10) SCC 1 = 2003 (262) ITR 706) in respect of his submission that transactions could not be treated as sham. 50) Mr. Datar, learned senior counsel appearing for Jaypee, supplemented the aforesaid submissions of Mr. Ganesh on the issue of the PE. He argued that the judgment of the High Court was flawed in its approach as it had gone by inducti....
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.... urged that the commission amounts should be treated as incomes deemed to have accrued or arisen in India as they, according to the Department, had either accrued or arisen through and from the business connection in India that existed between the non-resident assessees and the statutory agent. This contention overlooks the effect of clause (a) of the Explanation to clause (i) of sub-section (1) of Section 9 of the Act which provides that in the case of business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the 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 the operations carried out in the taxable territories. If no operations of business are c....
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....o deduct, it should be fastened with the liability to pay interest under Section 201. In support, paragraph 12 of GE India Technology Centre Private Limited v. Commissioner of Income Tax & Anr. (2010) 10 SCC 29 was pressed into service which reads as follows: "12. Reference to ITO(TDS) under Section 195(2) or Section 195(3) either by the non-resident or by the resident payer is to avoid any future hassles for both the resident as well as the non-resident. In our view, Sections 195(2) and 195(3) are safeguards. The said provisions are of practical importance. This reasoning of ours is based on the decision of this Court in Transmission Corpn. [(1999) 7 SCC 266 : (1999) 239 ITR 587] in which this Court has observed that the provision of Section 195(2) is a safeguard. From this it follows that where a person responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the 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 t....
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....ive legislation taking the well-known form of an Act of Parliament, it has the form of a treaty. In other words, the form and language found suitable for embodying an international agreement become, at the stroke of a pen, also the form and language of a municipal legislative instrument. It is rather like saying that, by Act of Parliament, a woman shall be a man. Inconveniences may ensue. One inconvenience is that the interpreter is likely to be required to cope with disorganised composition instead of precision drafting. The drafting of treaties is notoriously sloppy usually for a very good reason. To get agreement, politic uncertainty is called for. ... The interpretation of a 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 the optimistic dictum of Lord Widgery, C.J. that the words 'are to be given their general meaning, general to lawyer and layman alike ... the meaning of the diplomat rather than the lawyer'. [Francis Bennion: Statutory Interpretation, p. 461 [Butterwor....
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....s today provides a suitable treaty conduit for South Asia and South Africa. In recent years, India has been the beneficiary of significant foreign funds through the "Mauritius conduit". Although Indian economic reforms since 1991 permitted such capital transfers, the amount would have been much lower without the India-Mauritius Tax Treaty 135. Overall, countries need to take, and do take, a holistic view. Developing countries allow treaty shopping to encourage capital and technology inflows, which developed countries are keen to provide to them. The loss of tax revenues could be insignificant compared to the other non-tax benefits to their economy. Many of them do not appear to be too concerned unless the revenue losses are significant compared to the other tax and non-tax benefits from the treaty, or the treaty shopping leads to other tax abuses." 57) Mr. Mukul Rohtagi, learned Attorney General, came out with strong refutation to the aforesaid submissions. Responding in an equally salubrious style, he demonstrated the 'flow of commercial rights' in relation to these events, under various agreements executed between different stakeholders from time to time and t....
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....and Jaypee: (1) Agreement entered one month before the race. (2) Fresh RPC entered without rescinding the RPC of 2007. (3) Right to host, stage and promote the event allegedly given to Jaypee by FOWC, unlike the previous RPC which only gave the right to promote. (4) Conditions precedent binding Jaypee to transfer the rights back to the affiliates of FOWC. (5) Clause 18.3 binding Jaypee to engage FOM for generating television feed introduced in this RPC. (6) Recital D of the previous RPC which declared FOM the business manager and agent removed. Agreements between JP and the three affiliates (September 13, 2011) (1) Agreements entered on the same day as RPC, i.e. September 13, 2011. (2) Rights allegedly given to Jaypee are transferred back to the 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 the rights would flow to the affiliates and not Jaypee (clause 11). (5) Agreement provides that there does not exist an agency relationship between the affiliates and Jaypee (clau....
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....s only to host the event, whereas total access at the time of construction as well as at the time of event was that of FOWC. According to him, at the most, it was in the nature of Jaypee and FOWC as partners in the business. 59) Mr. Rohatgi also submitted that comparisons of first Agreement of 2007 with the second Agreement dated September 13, 2011 clearly demonstrates that the second agreement was totally subterfuge to avoid payment of tax in India. He pointed out that in the Agreement dated October 25, 2007, FOWC was granted only the right to 'promote' the event (Clause 4(1)), whereas in the Agreement dated September 13, 2011, right to 'host, stage and promote' the event was allegedly given to Jaypee by FOWC. According to him, right to host and stage the event was conferred upon Jaypee only on paper to give it a semblance as if Jaypee was in real control of the affairs, which was not actually so. Therefore, in any case, it would not make any difference when in reality the rights of hosting and staging the competition were with FOWC. 60) Referring to the Agreement dated September 13, 2011 between Jaypee and three affiliates of FOWC, the argument of Mr. Rohatg....
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....n-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the monies deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum i.e. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determi....
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....an economic/business activity. The core question is as to whether this was put at the disposal of FOWC? Whether this was a fixed place of business of FOWC is the next question. We would like to start our discussion on a crucial parameter viz. the manner in which commercial rights, which are held by FOWC and its affiliates, have been exploited in the instant case. For this purpose entire arrangement between FOWC and its associates on the one hand and Jaypee on the other hand, is to be kept in mind. Various agreements cannot be looked into by isolating them from each other. Their wholesome reading would bring out the real transaction between the parties. Such an approach is essentially required to find out as to who is having real and dominant control over the Event, thereby providing an answer to the question as to whether Buddh International Circuit was at the disposal of FOWC and whether it carried out any business therefrom or not. There is an inalienable relevance of witnessing the wholesome arrangement in order to have complete picture of the relationship between FOWC and Jaypee. That would enable us to capture the real essence of FOWC's role. 68) A mere running of the e....
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....and its affiliates. Event has taken place by conduct of race physically in India. Entire income is generated from the conduct of this event in India. Thus, commercial rights are with FOWC which are exploited with actual conduct of race in India. (iii) Even the physical control of the circuit was with FOWC and its affiliates from the inception, i.e. inclusion of event in a circuit till the conclusion of the event. Omnipresence of FOWC and its stamp over the event is loud, clear and firm. Mr. Rohatgi is right in his submission that the undisputed facts were that race was physically conducted in India and from this race income was generated in India. Therefore, a commonsense and plain thinking of the entire situation would lead to the conclusion that FOWC had made their earning in India through the said track over which they had complete control during the period of race. The appellants are trying to trivialize the issue by harping on the fact that duration of the event was three days and, therefore, control, if at all, would be for that period only. His reply was that the duration of the agreement was five years, which was extendable to another five years. The question of th....
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....n any of the places where the competitor's mechanics may be called upon to work on them and under Clause 14(c), the validity of passes issued by FOWC is unquestionable. (f) Under Clause 18.1, throughout the term during the access period, from the test session held at the circuit till the end of the event, the 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 the event, including cars, drivers, competitors etc. and in fact cannot make any such recording etc. within the confines of the circuit or the land over which Jaypee itself has control. (g) Under Clause 18.2, Jaypee has to ensure that the terms of the ticket sale, giving admittance to the event include a condition imposed on the ticket holder not to make any kind of recording or take any recording device that can store or transmit any part of the event and that the ticket holder as a spectator could be filmed and a sound made by him could be recorded for broadcast or any other such item tha....
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....n that the High Court has rightly concluded that having regard to the duration of the event, which was for limited days, and for the entire duration FOWC had full access through its personnel, number of days for which the access was there would not make any difference. This aspect is discussed by the High Court in the following manner, and rightly so: "52. It is evident that for the duration of the event as well as two weeks prior to it and a week succeeding it, FOWC had full access through its personnel, the team contracted to it, both racing as well as spectator teams and could also dictate who were authorized to enter the areas reserved for it. No doubt, in terms of the agreement, i.e. RPC, Jaypee was designated as the promoter or the event host. A look at the RPC and its terms as well as the other terms contained in the agreement between the Jaypee on the one hand and Allsports, Beta Prema 2 as well as FOAM show that Jaypee's capacity to act - though it promoted the event, was extremely restricted. At all material times, FOWC had access - exclusively, to the circuit, and all the spaces where the teams were located. Jaypee created the circuit for the purposes of the....
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....n Universal Furniture Ind. AB v. Government of Norway (Stavanger Court, Case No. 99-00421, dated 19-12-1999 referred to in Principles of International Taxation by Anghard Miller and Lyn Oates, 2012), a Swedish company sold furniture abroad that was assembled in Sweden. It hired an individual tax resident of Norway to look after its sales in Norway, including sales to a Swedish company, which used to compensate him for use of a phone and other facilities. Later, the company discontinued such payments and increased his salary. The Norwegian tax authorities said that the Swedish company had its place of business in Norway. The Norwegian court agreed, holding that the salesman's house amounted to a place of business: it was sufficient that the Swedish Company had a place at its disposal, i.e the Norwegian individual's home, which could be regarded as 'fixed'. In Joseph Fowler v. Her Majesty the Queen 1990 (2) CTC 2351, 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. The fairs used to be once a year, approximately for three weeks each. The c....
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....C-2011, it is apparent that the CRH, which is the FOWC, only and none else has the right to include a venue in any FIA annual calendar. FIA is bound to accord permission for such inclusion; FOWC is the exclusive commercial rights holder of a host of rights (evident from the recital in the Concorde Agreement that FIA, FOWC and other members of the CRH group had entered into such contracts to enable commercial exploitation of the rights for a 100 year period). Under the 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 the event, including practice sessions etc. (Clause 22, RPC-2011). Only those accredited by FOWC can enter the promoter's premises and circuit to make sound and television recordings, etc. 56. It is quite apparent that save a limited class of rights (those relating to paddock entry, ticketing, hospitality at the venue and a 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 consi....
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.... 40 million which Jaypee paid was only a part of that commercial exploitation by the FOWC. 58. Consequently, the Court concludes that the FOWC carried on business in India within the meaning of expression under Article 5(1) of the DTAA. It is consequently held that the AAR fell into error of law in holding that FOWC did not function through a PE/carry on business through a fixed place of business in India." 74) In view of the above, it is difficult to accept the arguments of the appellants that it is Jaypee who was responsible for conducting races and had complete control over the Event in question. Mere construction of the 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 the conduct of the F-1 Championship and control over the track during that period. Specific arrangement between the parties relating to the aforesaid, which is elaborated above and which FOWC and Jaypee unsuccessfully endeavoured to ignore, has in fact turned the table against them. It is also difficult to accept their submission that FOWC had no role in the conduct of the Championship and its ....