TMI Blog2017 (4) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... is defined in Clause 1(q), as one suitable in every respect for the staging of the event, including permanent buildings, permanent structure, track laid-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. These specifications are more elaborately spelt out in Clause 5(e) which states that a circuit shall be constructed, laid out and prepared in accordance with the agreement, i.e. RPC, "in a form and manner approved by the FOWC and the FIA. We are also of the opinion that the High Court [2016 (12) TMI 123 - DELHI 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. It is difficult to accept the arguments of the appellants that it is Jaypee who was responsible for conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Technology Centre Private Limited (Refer Footnote 23). 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 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. We are, however, inclined to accept the submission of Mr. Datar that only that portion of the income of FOWC, which is attributable to the said PE, would be treated as business income of FOWC and only that part of income deduction was required to be made under Section 195 of the Act. In GE India Technology Centre Private Limited (Refer Footnote 23), 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee, particulars whereby would be mentioned later at an appropriate stage. In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions/queries: (i) whether the payment of consideration receivable by FOWC in terms of the said RPC from Jaypee was or was not royalty as defined in Article 13 of the 'Double Taxation Avoidance Agreement' (DTAA) entered into between the Government of United Kingdom and the Republic of India?; and (ii) whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA? Another related question was also raised, viz., (iii) whether any part of the consideration received or receivable by FOWC from Jaypee outside India was subject to tax at source under Section 195 of the Indian Income Tax Act, 1961 (hereinafter after referred to as the 'Act'). 3) AAR answered the first question holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, conducted in the name and style of the Grand Prix over a three day duration at purpose-built circuits, and in some cases, across public roads, in different countries around the world. The Championship is considered the most prestigious motor sport series in the world. 'Formula One' (F-1) refers to the rules and regulations that define the characteristics of the race, as opposed to any other form of motor ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 instance the event promoter is permitted participation. The points scored by each F-1 racing team in every event is listed in the official racing calendar and it counts towards the Constructor's Championship and the Driver s Championship for the racing season as a whole. Any team s position in these Championships at the end of the season determines, together with certain other factors which are elab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and to prevent it from using the Marks for any commercial exploitation. Revenue had opposed the aforesaid plea of FOWC and Jaypee on the ground that the consideration comprised not only of hosting rights but also permission to use F-1 Marks and, therefore, entire consideration of US$ 40 million was attributable to the usage of F-1 Marks in terms of ALA. According to the Revenue, RPC and ALA had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident 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 which is received or is deemed to be received in India in such a year by or on behalf of such person or accrues or arises or is deemed to accrue or arise to them in India during that year, is taxable in India. In this sense, the income tax on non-resident is source based, i.e., source of such income is India and, therefore, even a non-resident is liable to pay tax on incomes earned in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery and equipment; (k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 subject to the same common control, as that enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, if the 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 controlli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, it would be imperative to refer to these commentaries and judicial decisions. This discussion would disclose the principles enunciated to determine the existence of a PE, application whereof to the given facts would facilitate in answering the surging debate. 23) Philip Baker explains that the concept of PE is important for several Articles of the Conventions; the concept, or its cognate, also appears in the domestic law of some countries. According to him, the concept marks the dividing line for businesses between merely trading with a country and trading in that country; if an en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 for a significant part of its annual sales, has also been held to constitute a PE (Joseph Fowler v. M.N.R. (1990) 90 D.T.C. 1834; (1990) 2 C.T.C. 2351 (Tax Court of Canada). A temporary restaurant operated in a mirror tent at a Dutch flower show for a period of seven months was held to constitute a PE (Antwerp Court of Appeal, decision of February 6, 2001, noted in 2001 WTD 106-11). An office, workshop and storeroom for the maintenance of aircraft, which were leased out by the enterprise, has been held to constitute a PE (Income Tax Appeals Nos. 759/KB to 761/KB of 1997-98 (Tarom SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 partnership which owned a hotel. The agreement required the UK company to supply a general manager: the general manager s office constituted the PE (and not the entire hotel) since the UK company had a secured right to use this office for the purposes of the agreement. (iii) A Swiss company was held not to have a PE when it contracted with a German company to produce salad dressings in the name of and in accordance with the recipe of the Swiss company. No employees of the Swiss company were present at the production facility to supervise production (Decision of the Lower Tax Court of Baden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, however, stems from the term fixed rather than the term place , given that a place (or space) does not necessarily consist of a piece of land. On the contrary, the term establishment makes clear that it is not the soil as such which is the PE but that the PE is constituted by a tangible facility as distinct from the soil. This is particularly evident from the French version of Article 5(1) OECD MC which uses the term installation instead of place . The term place is used to define the term establishment . Therefore, place includes all tangible assets used for carrying on the business, but one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 chair where the salesman sits, but the entire office of the customer, and the office is not at the disposal of the enterprise for which the salesman is working. 32) Taking cue from the word through in the Article, Vogel has also emphasised that the place of business qualifies only if the place is at the disposal of the enterprise. According to him, the enterprise will not be able to use the place of business as an instrument for carrying on its business unless it controls the place of business to a considerable extent. He hastens to add that there are no absolute standards for the modalities and intensity of control. Rather, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 can employ it at his discretion. This does not imply that the standards of the control test should not be flexible and adaptive. Generally, the less invasive the activities are, and the more they allow a parallel use of the same POB by other persons, the lower are the requirements under the control test. There are, however, a number of traditional PEs which by their nature require an exclusive use of the POB by only one taxpayer and/or his personnel. A small workshop (cf. Article 5(2)(e) OECD and UN MC) of 10 or 12 square meters can hardly be used by more than one person. The same holds true for a room where the taxpayer runs a noisy machine. 33) OECD commentary on Model Tax Convention ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 business of that enterprise is carried on (depending on the circumstances, however, paragraph 5 could apply to deem a permanent establishment to exist). (b) Second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company (e.g. a newly acquired subsidiary) in order to ensure that the latter company complies with its obligations under contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 (an associated company of FOWC) and Bharti Airtel, as per which Beta Prema 2 transferred title sponsorship rights to Bharti Airtel for US$ 8 million in respect of the race which was conducted on October 29, 2011. It is thereafter that RPC dated September 13, 2011 was signed by FOWC and Jaypee. That was one month before the scheduled date of race, which was fixed as October 29, 2011. Under this agreement, right to host, stage and promote the event was given to Jaypee by FOWC. As per the Revenue, FOWC carried on business in India through a fixed place of business, namely, the Buddh International Circuit. Salient features of this Agreement, which is the most vital document, are as follows: WHEREAS (A) The Federatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 itself and ending at the later of the time for the lodging of a Protest under the terms of the Sporting Code and the time when a technical or sporting verification has been carried out under the terms of the Sporting Code; and XXXXXX XXXXXX XXXXXX Conditions Precedent 2.1 The grant of rights by FOWC to the Promoter under this Agreement is conditional on the Conditions having been fulfilled or waived in accordance with this Agreement and the Promoter shall use its best endeavour to satisfy the Conditions in accordance with this Clause 2. XXXXXX XXXXXX XXXXXX Term 3.1 This Agreement shall commence and become operative when it is signed by the parties and dated. 3.2 Subject to Clause 2 the rights granted to the Promoter under this Agreement s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes 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 that which has last been provided in respect of a round of the FIA Formula One World Championship at that Circuit and 140 metres by 100 metres or 15,0000 square metres within or adjoining the paddock for the promotional facilities of the Competitors and/or their sponsors. 13.3 The Promoter undertakes to set up a media compound and telephones and facsimile equipment, Press Room plus the installations and premises necessary for national and international television commentators and journalists (such premises and installations to meet the prestige of a World Championship) and to grant professional accredited journalists use of all facilities for the exercise of their profession as well as the organization of a Press Conference with the winner of the Race immediately after the Podium Ceremony. 13.4 Upon the arrival of the Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 insurance shall be the maximum permitted by that law or the market conditions. The insurers must be a company recognized by Standard and Poor s and/or AM. Best and must be of first class international standing with sufficient resources to honour and discharge in full the insurance requirements prescribed in this agreement. A copy of the relevant policy will be given to FOWC by the Promoter at least 60 days before the start of the first practice session (with the exception of the year 2011, when such copy will be given to FOWC at least 30 days before the start of the first Practice session of the Event in 2011). If the language of the relevant policy is in a language other than English, FOWC shall obtain a translation of the policy at the expense of the Promoter. XXXXXX XXXXXX XXXXXX Filming/Recording at the Event 18.1 Save with the prior written consent of the FOWC and save fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the same)for the duration of those rights (including all renewals, extensions, reversions and revivals thereof); and (b) gives its consent (if such consent should be required) for FOWC to deal in such rights in any way it may see fit. Accreditation for Filming/recording 20.1 The Promoter shall ensure that persons accredited and authorized by FOWC are permitted to enter upon the Circuit to make sound, television or other recordings or transmissions or to make films or other moving picture and use the facilities throughout the Access Period and the Promoter shall accord all such persons the help and facilities that they or FOWC may reasonably require for such purposes, including assistance with obtaining any necessary consents, permissions or authorizations with any local authority. 20.2 The Promoter undertakes to Notify FOWC of the dates of any test sessions which are proposed to be held at the Circuit. Circuit Advertising 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and FOWC under which FOWC became CRH. It also pointed out that the Concorde Agreement assured the participating teams that the FIA had exclusive rights in the F-1 Championship and was entitled to the grant of CRH, the exclusive right to exploit the commercial rights in the F-1 Championship. Subject to these conditions, each team undertook to participate in the FIA F-1 Championship each year for several events and make cars available. In fact, every team undertook to participate in each event with two cars. Taking note of the aforesaid arrangement and other clauses of these agreements, the High Court concluded that FOWC carried on business in India within the meaning of expression under Article 5(1) of the DTAA. 43) The High Court was conscious of the fact that after its finding to the effect that FOWC had PE in India, the issue as to whether FOWC carried on business through its agents or not, became academic. Notwithstanding the same, it chose to discuss that issue as well so that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Mukul Rohatgi, learned Attorney General for India, argued on behalf of the Revenue and countered those submissions. He also argued the appeal of Union of India insofar as it challenges the findings of the High Court interpreting Article 5(4) and (5) and holding that the other companies of FOWC group did not act as agents of FOWC in India. M/s. S. Ganesh and Arvind P. Datar made their submissions in rejoinder and also refuted the arguments of Mr. Mukul Rohatgi advanced in the appeal of Union of India, to which Mr. Rohatgi made his submissions in rejoinder. 45) After referring to the important dates and events, Article 5 of DTAA and the commentaries of OECD, Philip Baker and Klaus Vogel thereon, salient features whereof have already been reproduced by us, emphasis in the submission of Mr. Ganesh was that in order to constitute a PE, condition which was necessary to satisfy was that the particular fixed place is at the disposal of FOWC and further that from the said fixed place FOW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 obligations and warranties of FOWC, Mr. Ganesh submitted that the role of FOWC was primarily that of advising, assisting and consulting with the promoter in relation to the Event in such manner as FOWC shall consider necessary and/or appropriate for the staging and promotion of the Event to the mutual benefit of the parties. On the other hand, Jaypee was given exclusive right to act as the promoter of the Event, to construct the circuit which was to be laid out and prepared in accordance with that agreement in a form and manner approved both by FOWC and FIA. Thus, construction was to be carried out by Jaypee; albeit, in the form and the manner approved by FOWC and FIA to ensure that the track meets all requirements of the Regulations. Otherwise, all those rights which were necessary for the purposes of hosting and staging the Event at the circuit were that of Jaypee exclusively. 47) On the basis of the aforesaid documents and clauses and terms therein, Mr. Ganesh submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior 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 inductive logic instead of deductive logic. According to him, the first question which has to be focused upon was as to what is the business of FOWC. His submission was that since in this case business of FOWC was not to organise these races, the question of its PE in India, that too in the form of circuit where the race is to be 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 found 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 Visakhapatnam Port Trust , 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 empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 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 CIT v. R.D. Aggarwal Co. [AIR 1965 SC 1526 : (1964) 1 SCR 234, 247 : 56 ITR 20] and Carborandum Co. v. CIT [(1977) 2 SCC 862 : 1977 SCC (Tax) 391 : (1977) 3 SCR 475 : (1977) 108 ITR 335] which are decided on the basis of Section 42 of the Indian Income Tax Act, 1922, which corresponds to Section 9(1)( i ) of the Act.] 52) 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 Constitution, the High Court exercised Certiorari jurisdiction and in exercise of such a jurisdiction, findings of facts recorded by the Tribunal, which are the subject matter of judicial re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 that portion of income that is relatable to PE which is liable for tax in India. This has not happened so far. 55) Mr. Dushant Dave, learned senior counsel, again appearing for Jaypee, made an additional submission to the effect that international treaties which are signed between the two sovereign countries have to be given adequate and due respect which they command. He exhorted the Court to keep this fundamental principle in mind while interpreting 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 Bachao Andolan and Maganbhai Ishwarbhai Patel Etc. v. Union of India and Another 1970 (3) SCC 400. He also referred to paragraph 6 of the UK judgment in the case of Sepet v. Secretary of State for the Home Department 2003 (3) AllER 304 wherein it was pressed that single autonomous meaning was required to be given to the treaties whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 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 [Butterworths, 1992 (2nd Edn.)].] xx xx xx 131. An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into 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 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 between two treaty countries as to the division of tax revenues between them in respect of income falling to be taxed in both jurisdictions. It is observed (vide paragraph 1.06): The benefits and detriments of a double tax treaty will probabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, 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 ( CRH ). Agreement between FOAM and FOWC dated April 24, 2001 FOAM transfers the commercial rights in favour of FOWC with effect from 2011 for a period of 100 years . RPC dated October 25, 2007 between FOWC and Jaypee : (1) Building of the circuit was started in terms of this RPC. (2) FOWC was granted only the right to promote the event (clause 4(1). (3) FOM was declared the business manager and agent of FOWC (Recital D). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PC, 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 (clause 26). Service Agreement dated October 28, 2011 between FOWC and FOM: (1) Agreement entered into on October 28, 2011, on the day of race. (2) FOM engaged by FOWC to provide various services liaison and supervision of other parties at the event, travel, transport and data support services. Director s report of financial statements of FOWC for the year 2011: Defines the business of FOWC as The company s principal activity during the year was the organisation, management and administration of motorsport conducted principally through the exploitation of the commercial rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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. 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, whereas Allsports 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 FOWC had no control over the race. It also showed physical management of the business as well. 61) Comin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 determination of the appropriate proportion of such sum so chargeable where a proportion of the sum so chargeable is liable to tax. 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. 64) In rejoinder, M/s. Ganesh and Datar gave their answers to the aforesaid submissions, but it may not be necessary to reproduce the same at this stage as we would like to take note of the same while dealing with the respective submissions. ANALYSIS, FINDINGS CONCLUSI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 eye over the flowchart of these commercial rights, produced by the Revenue, bring about the following 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 another agreement of 2011, these rights stand transferred in favour of FOWC for a period of 100 years. Vide Concorde Agreement of 2009, FOWC is authorised to exploit the commercial rights directly or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 the 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. (iv) Even when we examine the matter by examining 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 are spared of doing a diagnostic of sorts, which exercise is accomplished by the High Court itself in a flawless mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titors 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 that the FOWC could impose on Jaypee. (h) Jaypee is obliged to engage a third party approved by FOWC to carry out and perform on its behalf all service relating to the origination of the international television feed and host broadcasting for each event during the term specified in the guidelines published by FOWC and provided to Jaypee. (i) Jaypee unconditionally and irrevocably under Clause 19.2 assigned to FOWC all copyright and other intellectual property rights, titles and interest which it may now or may in future possess, in any image or recording or other presentation or recording in any image/form whatsoever for the durat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 event and other events; yet, during the event, i.e. the F1 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 F1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sman 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 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. 73) 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated, 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 consideration as it deemed appropriate for the recording, telecasting, broadcasting and 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 F1 Championship event conducted on the circuit in India. 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. 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 role came to an end with granting permission to host the Event as a round of 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. 75) No doubt, FOWC, as CRH of these events, is in the business of exploiting these rights, including intellectual property rights. However, these became possible, in the instant case, only with the actual conduct of these races and active participation of FOWC in the said races, with access and control over the circuit. 76) We are of the opinion that the test laid down by the Andhra Pradesh High Court in Visakhapatnam Port Trust case fully stands satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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. 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. 79) Insofar as the argument of Mr. Datar on the powers of the High Court under Article 226 of the Constitution of India is concerned, 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 course having regard to the facts which were culled out from the documents on record. 80) In view of the foregoing, the appeals preferred by the FOWC and Jaypee are dismissed, subject to observations as made above. 81) Insofar as the appeal filed by the Commissioner of Income Tax is concerned, it was submitted by Mr. Rohatgi ..... 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