Formula One World Championship Ltd. Vs DCIT (ITAT Delhi)
ITAT Delhi held that deposit of TDS without actual deduction of TDS on the payment made, such TDS amount is to be treated as income of the assessee partaking the character of RPC fee.
Facts-
The assessee is a non-resident corporate entity incorporated in the United Kingdom (UK) and a tax resident of the UK. Therefore, the assessee is eligible to claim benefits under India – UK Double Taxation Avoidance Agreement (DTAA). The assessee is the commercial rights holder of the Formula One World Championship.
The assessee is exclusively entitled to award event promoters with the right to host, stage and promote Grand Prix on various Circuits worldwide and in that capacity entered into an RPC with Jaypee Sports International Ltd. [now merged with Jaiprakash Associates Limited (JAL)] granting right to host the Indian Grand Prix.
As a consequence of granting the Indian Grand Prix the right to JAL, the assessee earned the RPC fee. To ascertain the nature and character of the RPC fee and its taxability in India, the assessee applied to the Authority of Advance Ruling (‘AAR’) under section 254Q of the Act.
AAR held that the RPC fee received by the assessee is like royalty in terms of Article 13 of India – UK DTAA. Further, it was held that the assessee had no fixed place Permanent Establishment (PE) or agency PE in India and the JAL was obliged to deduct tax at source while paying the RPC fee to the assessee.
Delhi High Court reversed the decision of AAR, however, held that the assessee had a fixed place PE in India and JAL was bound to make a deduction of tax at source under section 195 of the Act on the RPC paid to the assessee.
In the meanwhile, AO framed a draft assessment order bringing to tax the profit taxable in India by dividing global operating profit by number of races conducted during the year.
AO did not grant credit for TDS by JAL, though, the TDS amounts were reflected in Form 26AS of the assessee. In the final assessment orders, AO held that the consideration received by the assessee with the Indian Grand Prix represented its profit with 56% of the said profit being attributable to the PE in India.
Assessee mainly contested that, as per the provisions of section 199 of the Act read with Rule 37BA of the Rules, taxes deposited by JAL under section 201 read with section 195 of the Act should be regarded as tax deducted at source deposit of which was made by JAL, to the account of assessee. Hence, credit for the said TDS should be allowed to the assessee against the final tax liability.
Conclusion-
Held that the TDS credit partakes the character of original income, i.e., the RPC fee and has to be taxed in the same manner in which the Assessing Officer taxed the RPC fee.
We direct AO to factually verify the actual amount of TDS credit by matching figures in Form 26AS and TDS certificates issued in Form 16A and thereafter treat the TDS credit as income of the assessee partaking the character of RPC fee and tax it in the same manner in which RPC fee was brought to tax in the final assessment order.
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeals by the same assessee arise out of final assessment orders passed by the Assessing Officer under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short ‘the Act’) pertaining to assessment years 2012-13, 2013-14 and 2014-15, in pursuance to directions of learned Dispute
Resolution Panel (DRP).
2. Common grounds raised by the assessee in all these appeals are as under:
1. On the facts and in the circumstances of the case and in law, the learned AO has completely disregarded the observations of the Hon’ble Supreme Court of India which has held that Jaypee Associates Limited (‘JAL’) has a liability to withhold taxes in respect of payment made to the Appellant and hence erred in not granting credit to the Appellant of such taxes already deposited by JAL.
2. On the facts and in the circumstances of the case and in law, the learned AO while arriving at the tax liability of the Appellant, erred in not granting credit of taxes already deposited by JAL into the Indian Government Treasury with respect to income earned by the Appellant from JAL as per the provisions of Section 199 read with Section 205 of the Act.
3. On the facts and in the circumstances of the case and in law, the learned AO erred in not granting the refund due to the Appellant, of excess taxes paid/deposited for the subject AY.
3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in United Kingdom (UK) and a tax resident of UK. Therefore, the assessee is eligible to claim benefit under India – UK Double Taxation Avoidance Agreement (DTAA). The assessee is the commercial rights holder of Formula One World Championship. The assessee is exclusively entitled to award event promoters with the right to host, stage and promote Grand Prix
on various Circuits worldwide and in that capacity entered into a Race Promotion Contract (RPC) with Jaypee Sports International Ltd. [now merged with Jaiprakash Associates Limited (JAL)] granting right to host the Indian Grand Prix. As a consequence of granting the Indian Grand Prix right to JAL, the assessee earned RPC fee. To ascertain the nature and character of RPC fee and its taxability in India, the assessee filed an application before the Authority of Advance Ruling (in short ‘AAR’) under section 254Q of the Act. Simultaneously, JAL also filed an application with the AAR seeking determination on its obligation to deduct tax at source. In its Ruling dated 17th August, 2016, the AAR held that the RPC fee received by the assessee is in the nature of royalty in
terms of Article 13 of India – UK DTAA. Further, it was held that the assessee had no fixed place Permanent Establishment (PE) or agency PE in India. Further, the AAR held that JAL was obliged to deduct tax at source while paying RPC fee to the assessee. The Ruling was challenged both by the assessee and JAL before the Hon’ble Delhi High Court. Though, the Hon’ble Delhi High Court reversed the decision of the AAR concerning nature of payment as royalty as well as existence of agency PE, however, the Hon’ble High Court held that the assessee had a fixed place PE in India and JAL was bound to make deduction of tax at source under section 195 of the Act on the RPC paid to the assessee. Though, the assessee challenged the decision of the Hon’ble Delhi High Court before the Hon’ble Supreme Court, however, the Hon’ble Supreme Court upheld the judgment of the Hon’ble Delhi High Court, both on the issue of existence of fixed place PE and liability of JAL to deduct tax at source under section 195 of the Act on the RPC fee paid to the assessee. In the meanwhile, the Assessing Officer framed a draft assessment orders bringing to tax the profit taxable in India by dividing global operating profit by number of races conducted during the year. Against the draft assessment order proposed by the Assessing Officer, the assessee raised objections before learned DRP. In pursuance to the directions of learned DRP, the Assessing Officer passed the final assessment orders, impugned in the present appeals.
3. However, while computing the tax demand, the Assessing Officer did not grant credit for TDS by JAL, though, the TDS amounts were reflected in Form 26AS of the assessee. In the final assessment orders the Assessing Officer held that the consideration received by the assessee with the Indian Grand Prix represented its profit with 56% of the said profit being attributable to the PE in India.
4. Before us, Sh. Percy Pardiwalla, learned Senior Counsel appearing for the assessee submitted that as per the notices of demand issued by the Assessing Officer in pursuance to the final assessment orders the assessee had deposited tax in all these years. He submitted, pursuant to the decision of the Hon’ble Delhi High Court, JAL deposited the TDS amount in respect of RPC fees paid in all the assessment years under dispute which are in addition to the taxes already paid by the assessee on such income. Thus, he submitted, as per the statutory principle laid down under section 205 of the Act as well as settled legal principle, taxes cannot be recovered twice on same item of income. He submitted, though, the assessee filed rectification applications before the Assessing Officer, they were dismissed after repeated follow up action by the assessee on the following grounds:
