Saturday, 3 December 2016

HC : Reverses AAR, Formula One Championship circuit constitutes fixed-place PE

Delhi HC reverses AAR order in the case of Formula One World Championship Ltd. (‘FOWC’ / ‘assessee’, a UK tax resident Company), holds that assessee constituted a fixed place PE in India under Article 5(1) of India-UK DTAA through the international
circuit (i.e. place were the motor racing event is hosted); Comprehensively peruses stipulations outlined in the RPC (race promotion contract) entered into between FOWC and the Indian Promoter (‘Promoter’) in relation to the F1 Grand Prix Championship (‘the event’) and notes that FOWC had full access to the circuit for the (i) duration of the event, (ii) 2 weeks prior to it and (iii) a week succeeding it; Further notes that assessee could dictate as to who was authorized to access the circuit and organising any other event on the circuit was not permitted, further, FOWC was entitled to 2 years' payment of assured consideration in the event of termination; To elucidate on “how permanent is 'permanent' and how 'fixed' should the establishment be” refers to international jurisprudence, OECD Commentary and Klaus Vogel's Commentary on DTAA and the Coordinate Bench ruling in E Funds & AAR ruling in Golf in Dubai LLC; Thus holds that assessee’s presence is “of a kind contemplated under Article 5(1), i.e. it is fixed” and not “ephemeral or fleeting, or sporadic” based on the exclusive nature of the access and the period for which it is accessed, hence, holds that the circuit itself constituted a fixed place of business; Notes that save a limited class of rights (those relating to ticketing, hospitality at the venue, restricted advertising), assessee held all the exclusive rights and was entitled to commercially exploit all media and other rights to earn “bulk of the revenue” for a 100 year period, also holds AAR erred in ruling that FOWC did not function through a PE/carry on business through a fixed place of business in India; With regards to the taxability of consideration receivable by the assessee under the RPC from the Promoter, rejects AAR conclusion that such payment constituted royalty under Article 13(3) of Indo-UK treaty; Notes that the Promoter was obliged to host, stage and promote the event and thus it was bound to use the F1 marks, logos and devices, however it wasn’t authorized to use it otherwise; Refers to the ALA (artwork license agreement)wherein it was specifically stated that assessee had permitted “incidental use” of certain IP rights for the limited purpose of promoting the event, thus opines that the subject payment was in effect “for the privilege of hosting and staging the championship race and not for the IP rights”; On observing that the subject payment was a lumpsum amount and not based on the extent of IP rights’ use holds that amount received by the assessee as business income, relies on Coordinate Bench ruling in Ericsson A.B and Sheraton International Inc:HC 

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