Objective

A reader should be able to come to his / her own conclusion by applying the legislative enactments and judicial pronouncements to the facts of the case. While re-producing any portion of legislative enactment or judicial pronouncement, it is para phrased and emphasis is supplied by way of underline.

Background

You would be aware that, recently Supreme Court upheld the decision of Delhi High Court in the case of Fomrula One [1] that it does have Permanent Establishment [PE] in India.

Both the Judgements i.e. Delhi HC and as upheld by SC are scholarly written. I have tried to bring out the facts, the impact on the assessee and or the revenue.

Citation of the case

Formula One World Championship Ltd. Resident of UK V CIT – by SC dated 24-April-2017 [running in 110 pages] arising out of appeal against the Delhi HC judgement dated 30-Nov-2016. [running in 67 pages]

Attachments

Take Away Points.

The assessee offered only USD $ 40 millians whicvh was upheld by AAR. [Authority on Advance Ruling]

Total revenue generated was around was USD$ 1205 million which came under tax net after the decision of Delhi HC and SC which set aside the order of AAR.

Elaborate and a scholarly written judgment on fixed place PE.

Issues and Answer

Question Answer by Legal forum  
Whether on facts aqnd in law AAR favouring HC / SC favouring
The amount paid by Jaypee to FOWC was royalty ? Yes Assessee No Revenue
FOWC did have a permanent establishment in India No Assessee Yes Revenue
What is the obligation of Jaypee u/s 195 i.e. TDS ? # # # #

# only on the portion that is exigible to tax in India.

Author’s conclusion

Without going into tax impact, it is important to recognise that, the tax base offered for taxation by the assessee was USD $ 40 millions whereas Hc and SC have concluded that the tax base should be an appropriate portion where the potential revenue can be USD $ 1205 millions.

This is an important case law elaborating the principles of fixed place PE. It will not be out of place to refer to a decision of AAR in the case of Re Golf in Dubai 2008 (306)

ITR 374 which still holds the field. In this case, the arrangement was such that the premises were in fact leased for a period for use. In the present case, no space for work or commercial activity was offered to or taken by FOWC. This decision has been referred to and distinguished by the Court.

(Author CA. Yogesh S. Limaye can be reached at yogesh@salcoca.com)

Read Other Articles of CA Yogesh S. Limaye

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