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

JUDGEMENT

(1.) These appeals are filed by Formula One World Championship Limited (hereinafter referred to as 'FOWC'), Jaypee Sports International Limited (for short, 'Jaypee') and Union of India (hereinafter referred to as the 'Revenue'). In all these appeals, challenge is laid to the judgment dated

(2.) The matter originated from filing of applications by FOWC and Jaypee before the Authority for Advance Ruling (AAR). FOWC had entered into a 'Race Promotion Contract' (RPC) dated Sept. 13, 2011 with Jaypee, granting Jaypee the right to host, stage and promote the Formula One Grand Prix of India event for a consideration of US$ 40 million. Some other agreements were also entered into between FOWC and Jaypee as well as group companies of FOWC and Jaypee, particulars whereby would be mentioned later at an appropriate stage. In the applications filed by FOWC and Jaypee before the AAR, advance ruling of AAR was solicited on two main questions/queries:

(3.) AAR answered the first question holding that the consideration paid or payable by Jaypee to FOWC amounted to 'Royalty' under the DTAA. Second question was answered in favour of FOWC holding that it did not have any PE in India. As far as the question of subjecting the payments to tax at source under Sec. 195 of the Act is concerned, AAR ruled that since the amount received/receivable by FOWC was income in the nature of Royalty and it was liable to pay tax there on to the Income Tax Department in India, it was incumbent upon Jaypee to deduct the tax at source on the payments made to FOWC. FOWC and Jaypee challenged the ruling on the first issue by filing writ petitions in the High Court contending that the payment would not constitute Royalty under Art. 13 of the DTAA. Revenue also filed the writ petition challenging the answer of the AAR on the second issue by taking the stand that FOWC had PE in India in terms of Art. 5 of the DTAA and, therefore, tax was payable accordingly.