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Apex court order based on decision that FOWC has Permanent Establishment in the country, which makes it taxable

Formula One races quit India in 2013 and they aren’t likely to return any time soon, if the tax issue remains as the roadblock that cut short the five-year contract in the first place. The Supreme Court on April 24 clarified that F1 in India is indeed a business and has to pay taxes.

Formula One World Championship (FOWC) does not believe in paying local taxes and that caused a problem that resulted in the contract being cancelled.

The Jaypee Group had invested heavily in constructing the Buddh International Circuit at Greater Noida in Uttar Pradesh through its subsidiary Jaypee Sports International Ltd and held three very successful race years on the FOWC calendar between 2011 and 2013. However, they had not factored in the tax provisions of India, and assumed that the international contract would hold.

The Authority of Advance Ruling (AAR) had ruled for Jaypee, but the Delhi High Court had ruled that when Jaiprakash Associates Ltd paid FOWC for the use of its logos and symbols to promote the Grand Prix it wasn’t a loyalty payment free of any tax component, but would be taxed as any business.

The court had ruled that FOWC has a Permanent Establishment (PE) in India, a precondition for the consideration of taxation for a business, and declared that the use of trademarks was “purely incidental”. The entire company would be treated as an event organizer, said the court, and all pertinent taxes would be levied.

FOWC moved the Supreme Court against this order, but on April 24 the apex court upheld the high court’s order.

The Supreme Court bench of Justices AK Sikri and Ashok Bhushan declared that a PE is a fixed place of business, generally giving rise to income or value-added tax liability in a particular jurisdiction. The FOWC has that in India. The bench said: “We have held that FOWC has PE in India and income that is attributable in India will be taxed. The amount that is to be taxed is to be assessed by an assessing officer.”

Declaring the details, advocate Ankur Saigal counsel for Jaypee Group reportedly said he was awaiting a copy of the detailed judgement.

—India Legal Bureau

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