FORMULA ONE WORLD CHAMPIONSHIP LTD. v. COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION - 3, DELHI & ANR.

of its PE in India, that too in the form of circuit where the race is to be A 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 fo1.1nd that FOWC had no physical control over the said circuit. In this behalf, he emphasised the test laid down by Andhra Pradesh High Court in Visaklrapatnam Port Trust, B which is recognised by Philip Baker in his commentary. He also argued that entire Formula One Event was a temporary model for three days in a year only and even if it is accepted that the FOWC had control over this place for those three days, possession of the site for three days in a year cannot be termed as PE. He also emphasised the fact that since FOWC was a UK resident company, it had been paying taxes in its own c country. For a non-resident to pay taxes in other country, as in India in the instant case, thre.shold has to be very high and the issue of PE had to be examined with this focus in mind. He submitted that this was precisely the reason that such sports events held in other countries are never taxed in those countries. D

51Copy pinpoint51. His alternate submission was that the 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 the events are concerned they were granted in UK and it is the grant of rights which was the determinative test and implementation of those rights took place in India. In support of this proposition, he relied on the judgment of this Court in the case of Commissioner of Income Tax, Andlira Pradeslt v. Mis. Toslwku Ltd., Guntur & Ors." where the law is discussed in the following manner: "I2. The second aspect of the same question is whether the commission amounts credited in the books of the statutory agent can be treated as incomes accrued, arisen, or deemed to have accrued or arisen in India to the non-resident assessees during the relevant year. This takes us to Section 9 of the Act.. It is 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 17 (1980)SuppSCC614=1981AIR148 H

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A overlooks the effect of clause (a) of the Explanation to dause (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. B 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 c 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 carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. [See C!Tv. R.D. Aggarwal & Co. (AIR D 1965 SC 1526: (1964) I SCR 234, 247: 56 ITR 20] and Carborandum Co. v. C/71( 1977) 2 SCC 862 : 1977 SCC (Tax) 391 : (1977) 3 SCR 4 75 : ( 1977) I 08 ITR 335] which are decided on the basis of Section 42 of the Indian Income Tax Act, 1922, which corresponds to Section 9( I )(i) of the Act.]"

52Copy pinpoint52. Another submission of Mr. Ganesh was that the High Court did not have jurisdiction, in exercise of its powers under Article 226 of the Constitution, to go into the 'findings' of AAR on the issue of 'fixed place'. He argued that under Article 226 of the Constitlltion, the High Court exercised Certiorari jurisdiction and in exercise of such a F jurisdiction, findings of facts recorded by the Tribunal, which are the subject matter ofjudicial review, cannot be gone ii1to.

53Copy pinpoint53. Without prejudice to the aforesaid submissions, n~xi argument · of Mr. Datar was that having regard to the facts of this case, no interest should be held payable under Section 201 of the Act. Referring to the G scheme of Chapter XXIX-B which pertains to advance rulings, he submitted that the parties had shown their bona fides in having the question raised before theAAR, and it was specifically agreed to between FOWC and Jaypee in Clause 24.6 of the.Agreement that the parties should approach AAR for determination of the questions which were referred. He pointed out that once an application was made before the H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 197 COMMISSIONER OF INCOME TAX (A. K. SIKRI, J.]

AAR, procedure that is contained in Section 245R, on receipt of such A. applications, had to be followed by AAR and in that event Section 245 RR mandates that no income tax authority or the appellate tribunal shall proceed to decide any issue in respect of which an application has been made by the applicant, being a resident, under Section 245QQ for advance ruling. Once advance ruling is pronounced by AAR, it was B binding on the applicant who had sought the same in respect of a particular transaction as well as on the Principal Commissioner and Commissioner oflncome Tax Authorities subordinate to him. According to him, in such a scenario, it should not be considered that Jaypee had failed to deduct tax at source from the amounts paid to FOWC and as a consequence of failure to deduct, it should be fastened with the liability to pay interest c under Section 20 I . In support, paragraph 12 of GE ln<fill Tecflnology Ce11tre Privllte Limited v. Commissioner of Income Tax & Anr. 18 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 D avoid any foture 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 E safeguard. From this it follows that w.here 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."

54Copy pinpoint54. 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.

55Copy pinpoint55. Mr. Dushant Dave, teamed senior counsel, again appearing for Jaypee, made an additional submission to the effect that international treaties which are signed between the two sovereign COU!)tries have to be given adequate an.ct due respect which they command. He exhorted the Court to keep this fundamental principle in mind while interpreting " (2010) lo sec 29 H

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A clause 5 of DTAA and submitted that such an approach has been commanded by this Court time and again. By way of example, he cited the judgements in the cases of Azadi Bacl1Uo Amlolan and Mllganhlllli ls/1warb/1ai Patel Etc. v. Union of India and Another". He also referred to paragraph 6 of the UK judgment in the case of Sepet v. Secretary of State/or tile Home Department" wherein it was pressed B that single autonomous meaning·was required to be given to the treaties which are living instruments whose meaning does not change over time but application will.

56Copy pinpoint56. From Azadi Bacllllo Antlolan fol lowing passages were relied upon: c "17. Every country seeks to tax the income generated within its territory on the basis of one or more connecting factors such as location of the source, residence ofthe taxable entity, maintenance of a permanent establishment, and so on. A country might choose to emphasise one or the other of the aforesaid factors for exercising fiscal jurisdiction to tax the entity. Depending on which of the factors is considered to be the connecting factor in different - countries, the same income of the 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 an anomalous and incongruous situation, the Governments of different countries enter into bilateral treaties, conventions or agree1nents for granting relief against double taxation. Such treaties, conventions or agreements are called Double Taxation Avoidance Treaties, Conventions or Agreements. F xx xx xx · 130. The principles adopted in interpretation of treaties are not the same as those in interpretation of a statutory legislation. While commenting on the interpretation of a treaty imported into a G municipal law, Francis Bennion observes: "With indirect enactment, instead of the substantive 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 19 I970(3)SCC400

H '" 2003 (3) AllER 304

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 199 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

· suitable for·embodying an international agreement become, at A · 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 B 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 c 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: D Statutory Interpretation, p. 461 [Butterworths, 1992 (2nd Edn.)].]" xx xx xx 131.An important principle which needs to be kept in mind in the interpretation ofthe provisions ofan international treaty, including E one for double taxation relief, is that treaties are negotiated and entered intci at a political level and have several considerations as their bases. Commenting on this aspect of the matter, David R. Davis in Principles of International Double Taxation Relief [David R. Davis: Principles of International Double F Taxation Relief, p. 4 (London, Sweet & Maxwell, 1985)], points out that the main function of a Double Taxation Avoidance Treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain betweel) two treaty countries as to the division of tax revenues between them in respect of income falling to be taxed in both G jurisdictions. It is observed (vide paragraph 1.06): "The benefits and detriments ofa double tax treaty will probably only be truly reciprocal where the flow of trade and investment between treaty partners is generally in balance. Where this is not the case, the benefits of the treaty may be weighed more H

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A in favour of one treaty partner than the other, even though the provisions of the treaty are expressed in reciprocal tenns. This has been identified as occurring in relation to tax treaties between developed and developing countries, where the flow of trade and investment is largely one-way. B Because treaty negotiations are largely a bargaining process with each side seeking concessions from the other, the final agreement will often represent a number of compromises, and it may be uncertain as to whether a full and sufficient quid pro quo is obtained by both sides."

c And, finally, in paragraph 1.08: "Apart from the allocation of tax between the treaty partners, tax treaties can also help to resolve problems and can obtain benefits which cannot be achieved unilaterally." xx xx xx D

134. Developing countries need foreign investments, and the treaty-shopping opportunities can be an additional factor to attract them. The use of Cyprus as a treaty haven has helped capital inflows into eastern Europe. Madeira (Portugal) is attractive for investments into the European Union. Singapore is developing itself as a base for investments in South-East Asia and China.· Mauritius 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." H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 201 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

57Copy pinpoint57. 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 the manner in which such rights are ultimately exploited by FOWC and its other group companies in respect of the F-1 race organized in India. For this purpose, he referred to eleven agreements between different parties highlighting certain features and aspects in the following manner: Agreement between FIA and FOAM dated April 24, 2001 - FIA parts with commercial rights in favour of FOAM. FOAM becomes the exclusive Commercial Rights Holder c (CRH).

Agreement between FOAM and FOWC dated April 24, 200 I - FOAM transfers the commercial rights in favour D ofFOWC with effect from 2011 fora period of 100 years.

RPC dated October 25. 2007 between FOWC and Jaypee: ( l) Building of the circuit was started in terms of this RPC. E (2) FOWC was granted only the rightto promote the event (clause 4(1 ). (3) FOM was declared the business manager and agent of FOWC (Recital D). (4) This agreement was signed by FOM on behalf of F FOWC. (5) No condition precedent clause obligating Jaypee to enter into any agreements with FOWC group entities. (6) No clause obligating Jaypee to enter into an agreement G with FOM for generation of television feed. (7) Agreement in the same template as Schedule IV to the Concorde Agreement.

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A l oncorcte 4 areement 1 f 1111 '-' l between I"'• A • ana teams: (I) FOWC becomes the exclusive CRH. (2) FOWC could exploit the commercial rights directly or through its affiliates only. B (3) 'Fl business' defined to mean exploitation of various rights, including media rights, hospitality rights, title· sponsorship, etc. (4) Revenue ofFOWC and its affiliates to be taken for c distributing the prize money to the teams under Schedule x Organisation Agreement dated January 20. 2011 between FIA/FMSCI and Jaypee: (I) Jaypee to organise the event. D (2) As of this date, Jaypee has entered into an agreement with the CRH (Recital B). (3) Template of the agreement contained in Schedule VI of the Concorde Agreement. E 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. F (2) This agreement is one month before the agreement between Beta Prema 2 and Jaypee through which Beta Prema 2 allegedly acquired this right.

G RPC dated September 13, 2011 between FOWC and Jaypee: (I) Agreement entered one month before the race. (2) Fresh RPC entered without rescinding the RPC of 2007. H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 203 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

A (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 ofFOWC. B

(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. c

Agreements between JP and the three affiliates (September 13. 20 I I) (I) Agreements entered on the same day as RPC, i.e. D 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. E (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 thatthere does not exist an agency relationship between the affiliates and Jaypee (clause 26). F

Service.Agreement dated October 28, 2011 between FOWC and FOM: (I) Agreement entered into on October 28, 2011, on the G day of race. (2) FOM engaged by FOWC to provide various services - liaison and supervision ofother parties atthe event, travel, transport and data support services. H

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A Director's report of financial statements of FOWC for the year 201 I :Defines the business of FOWC as 'The company s principal activity during the year was the organisation, management and administration OJ B motorsport conducted principally through the exploitation of the commercial rights to the FIA Formula One World Championship".

58Copy pinpoint58. From the features described above, it was submitted by the learned Attorney General that clear manifestation of the aforesaid c agreements was that FOWC and its subsidiaries had taken total control over the event that took place in India which, according to him, was to be kept in mind for proper examination of the issues in their right perspective. Mr. Rohtagi argued that Section 5(2)(b) of the Act, which applies in the instant case, specifically includes 'income' ofa non-resident from '1vhatever source derived', if this income accrues or arises or is D deemed to accrue or arise to him in lndia during such year. Referring to. Section 9 of the Act, which specifies the circumstances under which income shall be deemed to accrue or arise in India, he pointed out that it covers all income, 'll'hetherdirectly or indirectly', that accrues or arises, if it is through or from any 'business connection in India'. Therefore, E if business connection is established, then all incomes, whether earned directly or indirectly, would come within the net oftaxability of such incomes in India. Referring to explanation (2) to Section 9( I )(i), he laid stress on the submission that 'business connection' shall include any business activity 'through' a person who acts on behalf of the non- resident. The expression 'through' is clarified in explanation (4) thereof F 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 Qf very vide import and when the facts of this case are examined keeping in view the aforesaid provisions, the High Court rightly concluded that FOWC had PE in India. G He also argued that Jaypee was 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.

59Copy pinpoint59. Mr. Rohatgi also submitted that comparisons of first Agreement of2007 with the second Agreement dated September 13, 201 I clearly H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 205 COMMISSIONER OF INCOME TAX [A. K. SlKRl, J.]

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 !O '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.

60Copy pinpoint60. Referring to the Agreement dated September 13, 2011 between Jaypee and three affiliates of FOWC, the argument of Mr. c Rohatgi was that the 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, whereasAllsports was given paddock rights. His submission was that business was carried from the 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 FO WC had no control over the race. It also showed physical management of the . business as well.

61Copy pinpoint61. Coming to the issue of dependent PEs, submission of the learned Attorney General was that in view of the flowchart depicting commercial rights with FOWC and its affiliates, this issue was virtually an academic issue once it is found that FOWC and its affiliates are one conglomerate, the commercial rights of different nature, viz. the CRH bouquet was With the group companies under the control of same management which exploited all these rights. These companies had pooled all the profits and sharing thereof was in the ratio of50:50 between the teams and CRH companies.

62Copy pinpoint62. As far as power of the High Court under Article 226 of the Constitution oflndia to go into the issue is concerned, Mr. Rohatgi drew the attention of the Court to its earlier judgment in Columbia Sportswear G Company v. Director of Income Tax, Bangalore" wherein this Court had impressed that from the rulings of AAR the aggrieved person was required to approach the High Court in the first instance. He, thus, submitted that it was the first forum of judicial review of the opinion 21 (2012) 11 sec 224 H

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A given by the AAR and, therefore, the High Court was very well within its power to revisit the issue; albeit within the scope of jurisdiction of Article 226 of the Constitution oflndia, and decide the same. According to him, the High Court had not exceeded its jurisdiction while deciding the aforesaid issues in the writ petitions filed by the appellants themselves.

63Copy pinpoint63. Refuting the arguments of Mr. Datar predicated on Section 195 of the Act, Mr. Rohatgi referred to the judgment of this Court in GE India Tecltnology Centre Private Limited v. Commissioner ofIncome Tax & Anr." wherein following principle is laid down in paragraph 18: "18. If the contention of the Department that any person making c payment to a non-resident is necessarily required to deduct TAS then the cons.equence 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 D 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 ifthe so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by E .. 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 \vhen the income has no territorial nexus with India or is not chargeable F in India, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax." G He, thus, submitted that if there was any breach of the said provision, the Income Tax Department was well within its right to charge interest and/or impose penalty.

64Copy pinpoint64. In rejoinder, Mis. Ganesh and Datar gave their answers to the aforesaid submissions, but it may not be necessary to reproduce.the H "(2010) 10 sec 29

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 207 COMMISSIONER OF INCOME TAX (A. K. SIKRI, J.]

same at this stage as we would like to take note of the same while dealing with the respective submissions. ANALYSIS, FINDINGS & CONCLUSION

65Copy pinpoint65. We have pondered over the aforesaid submissions of the learned counsel for the parties with all seriousness and sincerity they deserve. We have also minutely gone through the material placed on record. We have kept in mind the governing law that has already been stated in detail. We are also conscious of the approach that is needed to examine these kinds of issues, as discussed in the judgments referred to by Mr. Dave. Likewise, we have also microscopically examined the judgment of the High Court which is under challenge. c

66Copy pinpoint66. As per Article 5 of the DTAA, the PE has to be a fixed place of business ··through' which business of an enterprise is wholly or partly carried on. Some examples of fixed place are given in Article 5(2), by way of an inclusion. Article 5(3), on the other hand, excludes certain places which would not be treated as PE, i.e. what is mentioned in clauses D (a)to (f) as the 'negative list'. A 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 the word 'include' which means that not only the places specified therein are to be treated as PEs, the list of such PEs is not exhaustive. In order to bring any other E establishment which is not specifically mentioned, the requirements laid down in sub-article (1) are to be satisfied. Twin conditions which need to be satisfied are: (i) existence of a fixed place of business; and (b) through that place business of an enterprise· is wholly or partly carried out. F

67Copy pinpoint67. We are of the firm opinion, and it cannot be denied, that Buddh International Circuit is a fixed place. From this circuit different races, including the Grand Prix is conducted, which is undoubtedly 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 G 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 !nd 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 H

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A 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 B 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.

68Copy pinpoint68. A mere running of the eye over the flowchart of these commercial rights, produced by the Revenue, bring about the following c material factors, evidently discernible: (i) FIA had assigned commercial rights in favour of FOAM vide agreement dated April 24, 2001 and on the same day another agreement was signed between FOAM and FOWC vide which these rights were transferred to FOWC. Vide D another agreement of201 l, these rights stand transferred in favour of FOWC for a period of 100 years. Vide Concorde Agreement of 2009, FOWC is authorised to explpit the 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 the aforesaid rights, FOWC signed first agreement with Jaypee on October 25, 2007 whereby it granted right to promote the event to Jaypee. This is replaced by RPC dated September 13, 2011. Under this agreement, right to host, stage and promote the event are given by FOWC to Jaypee for a consideration of US$ 40 million. On the same day, another agreement is signed between Jaypee and three affiliates ofFOWC whereby Jaypee gives back circuit rights, mainly media and title sponsorship, to Beta Prema 2 G and paddock rights to Allsports. FOAM is engaged to generate TV Feed. All the revenues from the aforesaid activities are to.go to the said companies, namely, Beta Prema 2, Allsports and FOAM respectively. These three companies are admittedly affiliates to FOWC. H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 209 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

Though Beta Prema 2 is given media rights, etc., on September A 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 consideration ofUS$ 8 mill ion. Service agreement is signed between FOWC and FOAM on B October 28, 2011 (i.e. on the date of the race) whereby FOAM engaged FOWC to provide various services like licensing and supervision of other parties at the event, travel and transport and data support services. The aforesaid arrangement clearly demonstrates that the entire event is taken over and controlled by FOWC and its affiliates. There cannot be any race without c · participating/ competing teams, a circuit and a 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 the conduct of this event in India. Thus, commercial rights are with FOWC which are exploited with actual conduct ofrace D 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. E 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 F 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 . G ·another five years. The question of th~ PE has to be examined keeping in mind that the aforesaid race was to be conducted only for three days in a year and for the entire period of race the control was with FOWC.

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.A (iv) Even when we examine the matt<~r by examininf: the RPC agreement itself, it points towards the same conclusion. The High Court in its judgment has reproduced relevant clauses of the agreement which we have already reproduced above. This agreement is analysed by the High Court. Therefore, we B are spared of doing a diagnostic of sorts, which exercise is accomplished by the High Court itself in a flawless manner: "(a) The Buddh International Circuit, is defined in Clause l(q), as one suitable in every respect for the staging of the event, including permanent buildings, permanent struc1ture, track laid- c 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. Thes-!: specilfications are D more elaborately spelt out in Clause S(e) which states that a circuit shall be constructed, laid out and prepar~d in accordance with the agreement, i.e. RPC, "in a form and manner approved · by the FOWC and the FIA". (b) The inclusion of the event is through the FOWC's actions. E • Jn terms of its arrangement with ·the FIA, it is the exclusive agency through which any particular circuit is introduced for an event in a given calendar year. (c) The term of the RPC is 5 years accorcling to Clauses 3.3 and 3.4. • F (d) Jn terms of Clause 11, Jaypee is obliged to take all action necessary to ensure that the pit, paddock buildings and surrounding areas within the circuit and land are open to receive the competitors, FOWC, affiliates ofFOWC, FOWC's contractors and licensees, other personnel and equipment at all times during the period_commencing 14 days before the race and ending 7 G days after the race. It also has to assure _security to these areas. (e) Under Clause 14, the promoter is obliged to authorize access to parts of the circuit not open to the main public only through passes issued by the FOWC. Under Clause 14(b), the public cannot have access to the cars in any of the places where the H competitor's mechanics may be called upon to wo·-,k on them

FOT<.'MULA ONE WORLD CHAMPIONSHIP LTD. v. 211 COMMISSIONER OF IN1C:OME TAX [A. K. SIKRI, J.]

and ull'Cl'er Clause 14( c), the validity of passes issued by FOWC A is unque~:tionable. (f) Unde1- Clause 18.1, throu1;hout the term during the access . period, from the test session heh'l at the circuit till the end ~f!Jl!l event, the promoter, i.e. Jaype,e cannot permit, access, enable, procure or .in any manner en1;ourage others to make, create, B store, record or transmit any so1'J't1d recording or visual or audio- visual foe itage whatsoever, for .br.oadcast or any other purpose, of any of at or pertaining to the e\vent, including cars, drivers, competitc !TS etc. and in fact canno,\ make any such recording etc. withiin the confines of the circuit or the land over which Jaypee its1)Ifhas control. c (g) Under Clause 18.2, Jaypee has to ensure that the terms of the ticket sale, giving admittance to 1the event include a CP11c\itioll imposed on the ticket holder not to make any kind of recartJipg or take an~11recording device that ci m store or trarnsmit any part of the event. and that the ticket ho I der as a spectator could be filmed and a sound made by him cou Id be recorded for broadcast or any oth,er .such item thatthe FO\\IC could impose onJaypee. (h) Jaype•: is obliged to engage a thir- d party approved by F,g>W~ to carry c iut and perform on its beha If all service re!S"dng to the originati ion of the international ·television feed and host broadcas :ting for each event durin1•; the tenn specified in the guidelin• es published by FOWC and ,provided to Jaypee. (i)Jaype e unconditionally and irrev·ocably ·unc\\lf Clause 19.2 assignee I to FOWC all copyright and other intellect,ual property rights, t :itles and interest which it may now or may in future possess, iin any image or recording or other preS!JXlfation or F recordi1 tg in any image/fonn what: ;oe ver for the durmio.n of the rights and also give consent to FOV/C to deal with such rights as it pleas ed. (j) Ck mse 20.1 obliged Jaypee to ensmre that those accredite~ and a uthrnrized by FOWC were perm,itted to enter upon the .G premi ises to make sound, television' ~rrecordings or transmissions or m: ake films or other pictures anc I use th•e facilities throughout the f 1ccess period and also undertoc 1k to ac1;ord to such pernonniri all 'help and facilities tll"t FOW C wou]o require, including 8.SS istance forconsent, pennissi01,1 m autho:rization with any local H

212 SUPREME COURT REPORTS (2017] 2 S.C.R.

A authority. (k) Under Clause 21. Jaypee was prohibited from causing, pennitting, enabling assisting or in any manner encouraging display of any advertisement (other than the normal advertisement displayed on any competitor's cars) or other displays on, near or B which could b~seen from the circuit or the land which, in the opinion of the FOWC, could prevent lawful transmission of images or recordings of the event. FOWC's say in this regard was final. (I) In the Directors repo1t ofFOWC, the company significantly mentioned that its current company had entered into an agreement c with FIA as a result of which FOWC acquired commercial interests in the championship which became operative from 01.11.2011 and that in exploitation of such commercial rights in the championship, the total revenues generated was US$ 1205 million. There is an express advertence of the Indian part of the turn-over - inasmuch as the report said that the company paio US$ 127 million to FOM in return of provision of services."

69Copy pinpoint69. We are in agreement with the aforesaid analysis which correctly captures the substance of the relevant clauses of the agreement.

70Copy pinpoint70. We are also of the opinion 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: F "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 G 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 band and Allsports, Beta Prema 2 as well as FOAM show that Jaypee's capacity to act - thougl) it promoted cl1e event, was extremely restricted. At all material times, FOWC H had access - exclusively, to the circuit, and all the spaces where

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 213 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.)

the teams were located. Jaypee created the circuit for the purposes of the event and other events; yet, during the event, i.e. the Fl Championship, no other event was possible.

53. Having regard to the nature of the preceding discussion, it is evident that though FOWC's access or right to access was not permanent, in the sense of its being everlasting, at the same time, the model of commercial transactions it chose is such that its exclusive circuit access - to the team and its personnel or those contracted by it, was for up-to six weeks at a time during the Fl Championship season. This nature of activity, i.e racing and exploitation of all the bundle of rights the FOWC had as CRH, meant that it was a shifting or moving presence: the teams c competed in the race in a given place and after its conclusion, moved on to another locale where a similar race is conducted. Now with this kind of activity, although there may not be substantiality in an absolute sense with regard to the time period, both the exclusive nature of the access and the period for which it is accessed, in the opinion of the Court, makes the presence of a kind contemplated under Article 5(1 ), i.e. it is fixed. In other words, the presence is neither ephemeral or fleeting, or sporadic. The fact that RPC-2011 's tenure is of five years, meant that there was a repetition; furthermore, FOWC was entitled even in the event of a termination, to two years' payment of the assured consideration of US$ 40 million (Clause 24 of the RPC). Having regard to the OECD commentary and Klaus Vogel's commentary on the general principles applicable that as long as the presence is in a physically defined geographical area, permanence in such fixed place could be relative having regard to the nature of the business, it is hereby held thatthe circuit itself constituted a fixed place of business.

71Copy pinpoint71. A stand at a trade fair, occupied regularly for three weeks a year, through which an enterprise obtained contracts for a significant part of its annual sales, was held to constitute a PE". Likewise, a G · temporary restaurant operated in a mirror tent at a Dutch flower show for a period of seven months was held to constitute a PE".

72Copy pinpoint72. The High Court has also referred to some of the judgments 23 Refer Footnote 4 24 Refer Footnote 5 H

214 SUPREME COURT REPORTS [2017] 2 S.C.R.

A which are of relevance. We would like to take note of those judgments as we had agreed with the conclusions of the High Court on this issue: .. In Universal Furniture Ind. AB v. Government of Norway", 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 B 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 c 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 tile Queen", 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 court observed that the nature of the individual's business was such that he held sales in similar fares, for duration of two or three weeks, in two other locales in the United States. The court held that conceptually, the place was one of business, notwithstanding the short duration, because it amounted to a place of management or a branch having regard to peculiarities of the business.

73Copy pinpoint73. Coming to the second aspect of the 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 the Commercial Right Holder (CRH). These rights can be exploited with the 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, the first requirement is to have a track for this purpose. Then, G teams are needed who would participate in the competition. Another requirement is to have the public/viewers who would be interested in witnessing such races from the places built around the track. Again, for

" (Stavanger Court, Case No. 99-00421, dated 19-12-1999 referred to in Principles of International Taxation by Anghard Miller and Lyn Oates, 2012) H "' 1990 (2) CTC 2351

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 215 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

augmenting the earnings in these events, there would be advertisements, A media rights, etc. as well. It is FOWC and its affiliates which have been responsible for all the afore~aid activities. The Concorde Agreement is signed between FIA, FOA and FOWC whereby not only FOWC became Commercial Rights Holder for I 00 years, this agreement further enabled participation of the teams who agreed for such participation in the FIA B 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 a part of its business, c FOWC (as well as its affiliates) undertook the aforesaid commercial activities in India. Without explaining this aspect further, our purpose would be served by reproducing the following discussion, so starkly put in the judgment of the High Court: "55. If the terms of the Concorde Agreement are read conjointly D with the RPC-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 E group had entered into such contracts to enable commercial exploitation of the rights for a I 00 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 ofrights (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 consideration as it deemed appropriate for the recording, telecasting, broadcasting _and H

216 SUPREME COURT REPORTS [2017) 2 S.C.R.

A 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, a fee of US$ 40 million annually from Jaypee, in relation to the race event or FIA Fl Championship event conducted on the circuit in India.

B 57. It is also noteworthy that by virtue of the Concorde Agreement, the teams have undertaken to engage in every race - with the added condition that each team would involve two cars for every race in any circuit chosen by FOWC. RPC-2011 also assured that the FOWC would ensure that such team did in fact participate in the event in the Budh Circuit. This is an important fact-which c shows that the entire event, i.e. Fl FIA Championship in the circ.uit was organized and controlled in every sense of the term by FOWC. The peculiarity of this activity is such that FOWC's dominant role is evident; it is the moving spirit with all pervasive presence and control through the teams, which are contracted to participate in the event. In fact, it creates the event, i.e. the race. Each actor, such the promoter/Jaypee, the racing teams, the constructing teams and the other affiliates, plays a part in the event. FOWC's participation and the undertakings given to it by each of these actors, who are responsible for the event as a whole, brings out its central and dominant role. If Jaypee is the event promoter, which owns the title to the circuit in the sense that it owns the land, FOWC is the commercial rights owner of the event, by virtue of the Concorde Agreement. FIA parted with all its rights over each commercial right it possessed to FOWC. The bulk of the revenue earned is through media, television and other related rights. The terms or the basis of those rights is the event. The conceptualization of the event and the right to include it in any particular circuit, such as Buddh Circuit is that of the FOWC; it decides the venue and the participating teams are bound to it to compete in the race in the terms agreed with the FOWC. All these, in the opinion of the G Court, unequivocally, show that the FOWC carried on business in India for the duration of the race (and for two weeks before the race and a week thereafter). Every right, which it possessed was monetized; the US$ 40 million which Jaypee paid was only a pa1t of that commercial exploitation by the FOWC. H

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 217 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

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 oflaw in holding that FOWC did not function through a PE/carry on business through a fixed place of business in India."

74Copy pinpoint74. 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 ofthe F-1 Championship and control over the track during that period. Specific arrangement between the c 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 difficultto accept their submission that FOWC had no role in the conduct of the Championship and its role came to an end with granting permission to host the Event as a round of D the championship. We also reject the argument of the appellants that the Buddh International Circuit was not under the control and at the disposal of FOWC.

75Copy pinpoint75. No doubt, FOWC, as CRH of these events, is in the business of exploiting these rights, including intellectual property rights. However, E these became possible, in the instant case, only with the actual conduct of these races and active participation ofFOWC in the said races, with access and control over the circuit.

76Copy pinpoint76. We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visaklwpatnam Port Trust case fully stands F satisfied. Not only the Buddh International Circuit is a fixed place where the commercial/economic activity of conducting F-1 Championship was carried out, one could clearly discern that it was a virtual projection of the foreign enterprise, namely, Formula-I (i.t>. FOWC) on the soil of this country. It is already noted above that as per Philip Baker", a PE must have three characteristics: stability, productivity and dependence. All G characteristics are present in this case. Fixed place of business in the form of physical location, i.e. Buddh International Circuit, was at the disposal ofFOWC through which it conducted business. Aesthetics of law and taxation jurisprudence leave no doubt in our mind that taxable 27 A Manual on the OECD Model Tax Convention on lncon1e.and on Capital H

218 .. SUPREME COURT REPORTS [2017) 2 S.C.R.

A event has taken place in India and non-resident FOWC is liable to pay tax in India on the income it has earned on this soil.

77Copy pinpoint77. We are now left with two other incidental issues which were raised by Mr. Datar. First was on the interpretation of Section 195 of the Act. It cannot be disputed that a person who makes the payment to B a non-resident is under an obligation to deduct tax under Section 195 of the Act on such payments. Mr. Rohatgi had submitted, and rightly so, that this issue is covered by the judgment in the case of GE India Tecftno/ogy Centre Private Limited". Precisely this very judgment is taken note of and relied upon by the High Court also in holding that since payments made by Jaypee to FOWC under the RPC were business c income of the FOWC through PE at the Buddh International Circuit, and, therefore, chargeable to tax, Jaypee was bound to make appropriate deductions from the amounts paid under Section 195 of the Act.

78Copy pinpoint78. We are, however, inclined to accept the submission of Mr. Datarthat only that portion of the income ofFOWC, which is attributable to the said PE, would be treated as business income ofFOWC and only that part of income deduction was required to be made under Section 195 of the Act. In GE Im/ill Teclino/ogy Centre Private Limitetf9, this Court has clarified that though there is an obligation to deduct tax, the obligation is limited to the appropriate portion of income which is chargeable to tax in India and in respect of other payments where no tax is payable, recourse is to be made under Section 195(2) of the Act. It would be for the Assessing Officer to adjudicate upon the aforesaid aspects while passing the 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. F be not charged as the move on the 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.

79Copy pinpoint79. Insofar as the argument of Mr. Datar on the powers of the High Court under Article 226 of the Constitution oflndia is concerned, G we are not impressed by the said argument. It is Jaypee itself which had filed the writ petition (and for that matter FOWC as well) and they had challenged the orders of AAR on certain aspects. The High Court has examined legal issues while delivering the impugned judgment, of s Refer Footnote 23 2

H ''' Refer Footnote 23

FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 219 COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

course having regard to the facts which were culled out from the documents on record.

80Copy pinpoint80. In view of the foregoing, the appeals preferred by the FOWC and Jaypee are dismissed, subject to observations as made above.

81Copy pinpoint81. Insofar as the appeal filed by the Commissioner of Income Tax is concerned, it was submitted by Mr. Rohatgi himself that the issue of dependent PE had become academic. Therefore, we need not examine this issue and dispose of the appeal of the Revenue accordingly. No costs. Nidhi Jain Appeals disposed o(