Holding

The Supreme Court held that the Buddh International Circuit is a fixed place of business at the disposal of FOWC, giving rise to a Permanent Establishment in India, and therefore the income is taxable in India with Section 195 deductions limited to the portion attributable to the PE.

Summary

Formula One World Championship Ltd (FOWC), a UK company, entered into a Race Promotion Contract with Jaypee Sports International Ltd to host the Formula One Grand Prix in India for US$40 million. The dispute centered on whether FOWC had a Permanent Establishment (PE) in India under Article 5 of the India‑UK Double Taxation Avoidance Agreement, which would make the payment taxable at source under Section 195 of the Income Tax Act. The Supreme Court examined the nature of the Buddh International Circuit, finding it to be a fixed place of business that was at FOWC's disposal and through which it carried out its commercial activities. Consequently, the Court held that FOWC did have a PE in India and the income was taxable, with Section 195 deductions required only on the portion attributable to the PE. The appeals of FOWC and Jaypee were dismissed, and the Revenue's appeal was also dismissed as the dependent‑agent issue was deemed academic.

Issues considered

Whether the Buddh International Circuit constitutes a fixed place of business for FOWC under Article 5 of the India‑UK DTAA
Whether FOWC carried on business in India through that fixed place, thereby creating a Permanent Establishment
Whether the consideration paid by Jaypee to FOWC is taxable in India under Section 195 of the Income Tax Act
Interpretation of Section 195 regarding the extent of tax deduction required
Whether the High Court had jurisdiction under Article 226 to review the AAR's findings

Legislation cited

Income Tax Act, 1961s. 195, s. 4, s. 5, s. 6, s. 9, s. 92
India‑United Kingdom Double Taxation Avoidance Agreements. Article 5

Subjects

Permanent EstablishmentDouble Taxation Avoidance AgreementSection 195Income Tax ActFormula OneBuddh International CircuitTaxability of non‑residentCommercial Rights HolderArticle 5Tax deduction at source

Judgment

[2017] 2 S.C.R. 152

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

B (Civil Appeal No. 3849 of2017)
APRIL 24, 2017
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.)
Income Tax Act, 1961:
c s. 1-95 - TDS on non-residents - Appellants-FOWC, UK
Company (NRI), entered into Race Promotion Contract (RPC) with
Jaypee Sports, Indian entity -: Grant of rights to Jaypee to host,
stage and promote Formula One Grand Prix of India event at the
Buddh International Circuit in India for a consideration of US$ 40
million - FOWC, if having any Permanent Establishment in India in
D
terms of Art. 5 - Consideration received or receivable by FOWC
from Jaypee, if subject to tax at source u!s. 195 - Held: FOWC is
the Commercial Right Holder (CRH) - Buddh International Circuit
is a fixed place where the commercial/economic activity of
conducting F-1 Championship was carried out, and it was a virtual
E projection of foreign enterprise-FOWC in India - Fixed place of
business in the form of physical location-Buddh International
Circuit, was at the disposal of FOWC through which it conducted
business, though for a short duration - Thus, FOWC had a
Permanent Establishment in India - Taxable event took place in
India and non-resident FOWC is liable to pay tax in India on the
F
income it has earned in India - Since payments made by Jaypee to
FOWC under RPC were business income of the FOWC through PE
at Buddh International Circuit, and, thus, chargeable to tax, Jaypee
bound to make appropriate deductions from the amounts paid u/s.
195 - Double Taxation Avoidance Agreement (between India and
G United Kingdom) - Art. 5
Double Taxation Avoidance Agreement (between India and
United Kingdom):
Art. 5 - Permanent Establishment - What constitutes
Permanent Establishment - Explained.
H
152
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 153
COMMISSIONER OF INCOME TAX

Art. 5 - Permanent Establishment - Conditions to be A
··satisfied - Held: Twin conditions to be satisfied are existence of a
fixed place of business; and through that place business of an
enterprise is wholly or partly carried out.
Dismissing the appeals by FOWC and Jaypee and disposing
of the appeal by the Revenue, the Court B
HELD: 1.1 As per Article 5 of the Double Taxation
Avoidance Agreement, the Permanent Establishment has to be a
fixed place of business 'tftrougft' which business of an enterprise
is wholly or partly carried on. A combined reading of sub-articles
(1 ), (2) and (3) of Article 5 would clearly show that only certain . c
forms of establishment are excluded as mentioned in Article 5(3),
which would not be PEs. Otherwise; sub-article (2) uses the word
'include' which means that not only the places specified therein
are to be treated as PEs, the list of such PEs is not exhaustive.
In order to bring any other establishment which is not specifically
mentioned, the requirements laid down in sub-article (1) are to D
be satisfied. Twin conditions which need to be satisfied are: (i)
existence of a fixed place of business; and (b) through that place
business of an· enterprise is wholly or partly carried out. [Para
66] (207-C~F]

1.2 The Buddh International Circuit is a fixed place. From E
this circ.uit different races, including the Grand Prix is conducted,
which is undoubtedly an economic/business activity. The manner
in which commercial rights, which are held by FOWC and its
affiliates, have been exploited, the entire arrangement between
FOWC and its associates on the one hand and Jaypee on the F
other hand, is to be kept in mind. Various agreements cannot be
looked into by isolating them from each other. Their wholesome
reading would bring out the real transaction between the parties.
Such an approach is essentially required to find out as to who is
having real and dominant control over the Event, thereby
providing an answer to the question as to whether Buddh G
International Circuit was at the disposal of FOWC and whether it
carried out any business therefrom or not. There is an inalienable
relevance of witnessing the wholesome arrangement in order to
have complete picture of the relationship between FOWC and
H
154 SUPREME COURT REPORTS [2017] 2 S.C.R.

A Jaypee, to capture the real essence of FOWC's role. [Para 67)
[207-F-H; 208-A-B)
1.3 The agreement was analysed by the High Court in a
flawless manner. The High Court rightly concluded that having
regard to the duration of the event, which was for limited days,
B and for the entire duration FOWC had full access through its
personnel, number of days for which the access was there would
not make any difference. [Para 68, 70) [210-B; 212-E-F]
1.4 FOWC is the Commercial Right Holder (CRH). These
rights can be exploited with the conduct of F-1 Championship,
c which is organised in various countries. It was decided to have
this championship in India as well. In order to undertake
conducting of such races, the first requirement is to have a track
for this purpose. Then, teams are needed who would participate
in the competition. Another requirement is to have the public/
viewers who would be interested in witnessing such races from
I)
the places built around the track. Again, for augmenting the
earnings in these events, there would be advertisements, media
rights, etc. as well. It is FOWC and its affiliates which have been
responsible for all the aforesaid activities. The Concorde
Agreement is signed between FIA, FOA and FOWC whereby
E not only FOWC became Commercial Rights Holder for 100 years,
this agreement further e.nabled participation of the teams who
agreed for such participation in the FIA Championship each year
for every event and undertook to participate in each event with
two cars. FIA undertook to ensure that events were held and
FOWC, as CRH, undertook to enter into contracts with event
F promoters and host such events. All possible commercial rights,
including advertisement, media rights, etc. and even right to sell
paddock seats, were assumed by FOWC and its associates. Thus,
as a part of its business, FOWC (as well as its affiliates) undertook
the said commercial activities in India. [Para 73) [214-F-G; 215-
G A-C]
1.5 It cannot be said that it is Jaypee who was responsible
for conducting races and had complete control over the Event in
question. Mere construction of the track by Jaypee at its expense
would be of no consequence; Its ownership or organising other
H events by Jaypee is also immaterial. The examination is limited
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 155
COMMISSIONER OF INCOME TAX

to the conduct of the }'-1 Championship and control over the A
track during that period. Specific arrangement between the
parties relating to the aforesaid, and which FOWC and Jaypee
nnsuccessfully endeavoured to ignore, has in fact turned the table
against them. It cannot be said that FOWC had no role in the
conduct of the Championship and its role. came to an end with
B
granting permission to host the Event as a round of the
championship. Also it cannot be said that the Buddh International
Circuit was not under the control and at the disposal of FOWC.
No doubt, FOWC, as CRH of these events, is in the business of
exploiting these rights, including intellectual property rights.
However, these became possible, only with the actual conduct of c
these races and active participation of FOWC in the said races,
with access and control over the circuit. [Para 74, 75] [217-B-E]
1.6 Not only the Buddh International Circuit is a fixed place
where the commercial/economic activity of conducting F-1
Championship was carried out, one could clearly discern that it D
was a virtual projection of the foreign enterprise, namely, Formula-
1 (FOWC) on the soil of this .country. PE must have three
characteristics: stability, productivity and dependence. All
characteristics are present in the instant case. Fixed place of
business in the form of physical location, i.e. Buddh International
E
Circuit, was at the disposal of FOWC through which it conducted
business. Aesthetics of law and taxation jurisprudence leave no
doubt that taxable event has taken place in India and non-resident
FOWC is liable to pay tax in India on the income it has earned on
this soil. [Para 76] [217-F-H; 218-A]
Commissioner of Income Tax, A.P.-I v. Visakhapatnam F
Port Trust (1983) 144 ITR 146 - approYed.
A Manual on the OECD Model Tax Convention on
Income and on Capital by Philip Baker Q.C. - referred
to.
G
1. 7 As regards the interpretation of Section 195 of the Act,
it cannot be disputed that a person who makes the payment to a
non-resident is under an obligation to deduct tax under Section
195 of the Act on such payments. The High Court rightly held
that since payments made by Jaypee to }'OWC under the RPC
were bnsiness income of the }'OWC through PE at the Buddh H
156 SUPREME COURT REPORTS [2017] 2 S.C.R.

A International Circuit, and, therefore, chargeable to tax, Jaypee
was bound to make appropriate deductions from the amounts
paid under Section 195 of the Act. However, it is accepted that
only that portion of the income of FOWC, which is attributable to
the said PE, would be treated as business income of FOWC and
only that part of income deduction was required to be made under
B
Section 195 of the Act. This Court has clarified that though there
is an obligation to deduct tax, the obligation is limited to the
appropriate portion of income which is chargeable to tax in India
and in respect of other payments where no tax is payable, recourse
is to be made under Section 195(2) of the Act. It would be for the
c Assessing Officer to adjudicate upon the said aspects while
passing the Assessment Order, namely, how much business
income ofFOWC is attributable to PE in India, which is chargeable
to tax. [Para 77, 78] [218-C-F]
GE India Technology Centre Private Limited v.
D Commissioner ()f Income Tax & Anr. [2010] 10 SCR
1142 : (2010) 10 sec 29 - relied on.
Tekniskil (Sendirian) Bhd. v. Commissioner of Income
Tax. (1996) 222 l.T.R. 551 (Authority for Advance
Rulings, India); Deputy Commissioner of Income Tax v.
E Subsea Offshore Ltd. (1998) 66 l.T.D. 296 (Income Tax
Appellate Tribunal, Mumbai); Union of India & Anr. v.
Azadi Bachao Ando/an & Anr. [2003] 4 Suppl. SCR
222 : 2004 (lO) sec 1: 2003 (262) ITR 706;
Commissioner of Income Tax. Andhra Pradesh v. fvt!s.
Toshoku Ltd., Guntar & Ors. [1981] SCR 587: (1980)
F Supp SCC 614 : 1981AIR148; Maganbhai Ishwarbhai
Patel Etc. v. Union of India and Another [1969] 3 SCR
254; Columbia Sportswear Company v. Director of
Income Tax, Bangalore [2012] 7 SCR 187 - referred to.
Transvaal Associated Hide & Skin Merchants (Pty) Ltd.
G (1967) 29 S.A.T.C. 97 (Court of Appeal, Botswana);
Georges Simenon (1965) 44 T.C. (US) 820 (US Tax
Court); Joseph Fowler v. M.N.R. (1990) 90 D-T.C.
1834; (1990) 2 C.T.C. 2351 (Tax Court of Canada);
Antwerp Court of Appeal, decision of February 6, 2001,
noted in 2001 WTD 106-11; Income Tax Appeals Nos.
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 157
COMMISSIONER OF INCOME TAX

759/KB to 761/KB of 1997-98 (Tarom SA), (1998) A
PT.D (Trib.) 3749 (Income-tax Appellate Tribunal,
Pakistan); Commissioner of Internal Revenue v.
Consolidated Premium Iron Ores Ltd. (1959) 265 F 2d.
320; Lower Tax Court of the Hague, September 10,
1990, (1991) Tax Notes Intl. 161; William Dudney v. R
B
(1999) 99 DTC 147; Bundersfinanzhof. February 3,
1993, IR 80-81191, IStR 1993, p. 226 (1993) BSt Bl.,
II, 462; Decision of the Lower Tax Court of Baden-
Wurttemberg, May 11, 1992, decision No. 3K 309/91,
RIW 1993, 81, IStR 1992, p.104; Decision ofNovember
10, 1998, (199) Revue deDroit Fiscal, No. 25, comm .. 503, c
reported with translation in (1998) I ITLR 857; Cour de
Cassation of February 15, 1980 (1980) Jl. De Droit
Fiscal 321; Sepet v. Secretary of State for the Home
Department 2003 (3) All ER 304; Universal Furniture
Ind. AB v. Government of Norway (Stavan2er Court,
D
Case No. 99-00421, dated 19-12-1999 referred to in
Principles oflntemational Taxation byAnghard Miller and
· Lyn Oates, 2012); Joseph Fowler v. Her Majesty the
Queen 1990 (2) CTC 2351 - referred to.
'
Double Taxation Conventions by Klaus Vogel - referred
to. E

Case Law Reference
(1998) 66 I.T.D. 296 referred to Para28
[2003] 4 Suppl. SCR 222 referred to Para 49
F
(1981) SCR 587 referred to Para 51
11?69] 3 SCR 254 referred to Para 55
[2Q12] 7 SCR 187 referred Para55
(1996) 222 I.T.R. 551 approved Para 76
G
(2010) 10 SCR 1142 relied on Para 77, 7
CIVIL APPELLATE JURISDICTION : Civil Appeal No, 3849
of2017
From the Judgment and Order dated 30.11.2016 of the High Court
of Delhi at New Delhi in Writ Petition (Civil)No. 9509 of2016. H
158 SUPREME COURT REPORTS [2017] 2 S.C.R.

A Mukul Rohatgi, AG, Dushant Dave, S. Ganesh Arvind P. Datar,
Sr. Advs, Percy Pardiwala, Ms. Anuradha Dutt, Ms. Fereshte D. Sethna,
Sachit Jolly, Gautam Swarup,Ameya Pant, Ms. B. Vijayalakshmi Menon,
Kamaldeep Dayal, Ankur Saigal, Tushar Bakshi, Ms. Diksha Rai,
D.L. Chidananda, Rupesh Kumar, H.R. Rao, G.C. Srivastava, Mrs. Anil
Katiyar, E. C. Agrawala Shikhil Suri, Shiv Kumar Suri, Ms. Vinati Bhola,
B
Advs. for the appearing parties.
The Judgment of the Court was delivered by
A. K. SIKRI, J.
INTRODUCTION
c
I. These appeals are filed by Formula One World Championship
Limited (hereinafter referred to as 'FOWC'), Jaypee Sports International
Limited (for short, 'Jaypee') and Union oflndia (hereinafter referred to
as the 'Revenue'). In all these appeals, challenge is laid to the judgment
dated November 30, 2016 passed by the High Court of Defhi whereby
D three writ petitions preferred by FOWC, Jaypee and Revenue have been
decided.
2. The matter originated from filing of applications by FOWC
and Jaypee before the Authority for Advance Ruling (AA]l). FOWC
had entered into a 'Race Promotion Con tract' (RPC) dated September
E 13, 2011 with Jaypee, grantingJaypee the right to host, stage and promote
the Formula One Grand Prix oflndia event for a consideration of US$
40 million. Some other agreements were also entered into between FOWC
and Jaypee as well as group companies ofFOWC and Jaypee, particulars
whereby would be mentioned later at an appropriate stage. In the
applications filed by FOWC and Jaypee before theAAR, advance ruling
F
of AAR was solicited on two main questions/queries:
(i) whether the payment of consideration receivable by FOWC
in terms of the said RPC from Jaypee was or was not royalty
as defined in Article 13 of the 'Double Taxation Avoidance
Agreement '(DTAA) entered into between the Government
G
of United-kingdom and the Republic oflndia?; and
(ii) whether FOWC was having any 'Permanent
Establishment' (PE) in India in terms of Article 5 ofDTAA?
Ano.ther related question was also raised, viz.,
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 159
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

(iii) whether any part of the consideration received or receivable A
by FOWC from Jaypee outside India was subject to tax at
source under Section 195 of the Indian Income Tax Act,
1961 (hereinafter after referred to as the 'Act').
3. AAR answered the first question holding that the consideration
paid or payable by Jaypee to FOWC amounted to 'Royalty' under the B
DTAA. Second question was answered in favour of FOWC holding
that it did 11ot have any PE in India. As far as the question of subjecting
the payments to tax at source under Section 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 tQ pay tax there on to
the Income Tax Department in India, it was incumbent upon Jaypee to
c
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
t.he High Court contending that the payment would not constitute Royalty
under Article 13 of the DTAA. Revenue also filed the writ petition
challenging ·the answer of the AAR on the second issue by taking the D
stand that FOWC had PE in India in terms of Article 5 of the DTAA
and, therefore, tax was payable accordingly.
4. As mentioned above, all these three writ petitions have been
decided by the High Court vide common judgment dated November 30,
2016. Interestingly, the High Court has reversed the findings of the AAR E
on both the issues. Whereas it has held that the amount paid/payable
under RPC by Jaypee to FOWC would not be treated as Royalty, as per
the High Court FOWC had the PE in lndia and, therefore, taxable in
India. While deciding this question, the High Court has not accepted the
plea of the Revenue that it was not a dependent PE. The High Court has
also held, as the sequitur, that Jaypee is bound to make appropriate F
deductions from the amount payable to FOWC under Section 195 of the
Act. It is for this reason all the three parties are again before us.
5. As per FOWC and Jaypee, no tax is payable in India on the
consideration paid under RPC as it is neither Royalty nor FOWC has
any PE in India. It is pertinent to mention that the Revenue has not G
challenged the findings of the High Court that the amount paid under
RPC does not constitute royalty. Therefore, that aspect of the matter
has attained finality. The main question in the appeals, therefore, pertains
to PE.
H
160 SUPREME COURT REPORTS [2017) 2 S.C.R.

A FACTUAL MATRIX
6. In order to decide this question, following facts, having bearing
on the matter, need a recapitulation:
7. Federation Internationale de I' Automobile (for short, 'FIA'),
a non-profit association, is established as the Associatio11 lnter11atio11ale
B des Automobile Clubs Reconnus to represent the interests of motoring
organizations and motor car users globally. FIA, as the federation of the
world's leading motoring organizations and the governing body for
motorsports worldwide, consists of2 l 3 national member organizations
in 125 countries internationally. FIA is the principal body for establishing
c the rules and regulations for all major international four-wheel moton;port
events. FIA is a regulatory body; it regulates the FIA Formula One
World Championship ('Championship') which has been the premier form
of motor racing since its inception in 1950. This Championship is
established and run every year subsequently since. The Championship
is an annual series of motor races, conducted in the name and style of
D the Grand Prix over a three day duration at purpose-bui It circuits, and in
some cases, across public roads, in different countries around the world.
The Championship is considered the most prestigious motor sport series
in the world. 'Formula One' (F-1) refers to the rules and regulations
that define the characteristics of the race, as opposed to any other form
E of motor race. Thus, 'the formula', is with reference to a set of rules
that all participants' cars must conform to. F-1 seasons consist of a
series of races, known as Grand Prix (from French, meaning grand
prizes), held across the world on specially designed and built F-1 circuits
across 26 different locales. ·

F 8. F-1 Grand Prix events are held under the aegis of the FIA
Formula One World Championship's competition-in which F-1 racing
cars, assembled and manufactured strictly in terms of the F-1 technical
regulations, compete against each other, under Fl Sporting Regulations
and the F-1 International Sporting Code framed and made effective by
the FIA. F-1 drivers across the world have the ability, competence and
G skill to drive an F-1 car and participate in F-1 racing events. About 12 to
15 teams typically compete in these Championship in any one annual
racing season. Some celebrated and well-known participating teams
are the Ferrari, McLaren, Red Bull etc. The teams assemble and
construct their vehicles, which comply with defined technical
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 161
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

specifications, and engage drivers who can successfully manoeuvre the A
F-1 cars in the racing events.
9. FOWC is incorporated under the laws of the United Kingdom,
and is a tax resident of the United Kingdom. It is the Commercial Rights
Holder (CRH) in respect of the Championship with effect from January
0 I, 20 I I. FOWC has entered into an agreement with the FIA and B
Formula One Asset Management Limited ('FOAM'). Under these
agreements, FOAM licensed all commercial rights in the FIA Formula
One World Championship (hereinafter referred to as 'Fl Championship')
to FOWC for JOO year term effective from January 01, 2011. As
mentioned above, the teams which participate in FI World Championship
Competitions have to strictly comply with the terms and conditions set
c
out for such competitions as per Sporting Regulations and Sporting Code.
For this purpose, all these teams, known as 'Constructors', enter into a
contract, known as the 'Concorde Agreement·, with FOWC and the
FIA. In these agreements, they undertake to participate to the best of
their ability, in every F-1 event included in the official annual F-1 racing D
calendar. They also bind themselves to an unequivocal negative covenant
with FOWC that they would not participate in any other similar motor
racing event whatsoever nor would they promote in any manner any
other rival event. The F-1 racing teams exclusively participate in about
19 to 21 listed F-1 annual racing events on the official racing calendar,
set by the FIA. This is, in effect, a closed circuit event since no team E
other than those bound by contract with FOWC are permitted
participation.
Thus, on the one hand, participating teams enter into Concorde
Agreement. Likewise, promoters are also chosen for holding these F-1
racing events. Every F-1 racing event is hosted, promoted and staged F
by a promoter with whom FOWC as the right holder, enters into contract
and whose event is nominated by the CRH (i.e. Commercial Right Holder,
which is in effect, FOWC) to the FIA for inclusion in the official F-1
racing calendar. In other words, FOWC is the exclusive nominating
body at whose instance tlie event promoter is permitted participation. G
The points scored by each F-1 racing team in every event is listed in the·
official racing calendar and it counts towards the Constructor's
Championship and the Driver's Championship for the racing season as
a whole. Any team's position in these Championships at the end of the
season determines, together with certain 'other factors which are
H
162 SUPREME COURT REPORTS [2017] 2 S.C.R.

A elaborately dealt with in the Concorde Agreements (which in the present
instance, was latest in the series of Concorde Agreements the last being
the one of 2009 i.e. August 05, 2009), the prize money payable to the
teams for their participation during the season. Grant of a right to host,
stage and promote the F-1 racing event, therefore, carries with it a
covenant or representation that F-1 racing teams with their cars, drivers
B
and other auxiliary and supporting staff will participate in the motor racing
event hosted at the promoter's motor racing circuit displaying the highest
levels of technical skill achievement etc. in the fields of construction of
single seat motorcars to attain the highest levels of performance in the
world. These teams and the FOWC also represent that the highest
c levels of skill in racing management and maintenance of the cars would
be on display in the event. All these are a part of the relevant contractual
provisions, embodied in RPC 2011. In this manner, FOWC has acquired
all commercial rights in respect of the F-1 Championship wherever such
tournaments take place, i.e. with the permission of FOWC.
D 10. Jaypee was interested to acquire this right for hosting, staging
and promoting the F-1 Grand Prix oflndia event. In order to do so, it
entered into agreement with FOWC dated September 13, 2011 which is
known as 'Race Promotion Contract' (RPC). By this agreement,
FOWC granted Jaypee the right to host, stage and promote F-1 Grand
Prix of India event for a consideration of US$ 40 millions. Another
E agreement known as 'Anwork License Agreement' ('ALA') was
entered into between FOWC and Jaypee on the same day whereby
FOWC permitted Jaypee to use certain marks and intellectual property
belonging to FOWC for a consideration of US$ I million. Prior to this
RPC of 2011, another RPC of October 25, 2007 had been entered into
F between FOA and Jaypee which was replaced by agreement dated
September 13, 2011 between FOWC and Jaypee. Pursuant thereto,
races were held in India in 201l,2012 and 2013.
11. After entering into the aforesaid arrangement for hosting F-1
Grand Prix in India, both FOWC and Jaypee approached AAR seeking
G its advance ruling on the two questions, the nature of which, including
the opinion of AAR thereupon, is already mentioned above.
12. As pointed out earlier, first question was as to whether
considerations received/receivable under the RPC by FOWC from Jaypee
Sports was in the nature of business income and 'Royalty' as defined
under the Act as well as DTAA. Plea of FOWC and Jaypee "as that
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 163
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

what was granted to Jaypee by FOWC was a commercial right to use A
the event, i.e., a hosting right and the consideration received/receivable
therefrom by FOWC was not for the use of trademark, copyright,
equipment etc. and hence was not in the nature of 'Royalty'. It was
also stated by them that there was a limited permitted use of Formula
One ('F-1 ')Mark which was only to enable the promoter (Jaypee) to
B
advertise the Indian Grand Prix and reproduction of names of the sports
events was routine and customary in business parlance. For this purpose,
ALA was executed to enable Jaypee to use F-1 Marks in a limited way
and to prevent it from using the Marks for any commercial exploitation.
Revenue had opposed the aforesaid plea of FOWC and Jaypee
on the ground that the consideration comprised not only of hosting rights
c
but also permission to use F-1 Marks and, therefore, entire consideration
of US$ 40 million was attributable to the usage off-I Marks in terms of
ALA. According to the Revenue, RPC and ALA had to be read together
for a comprehensive view of the matter, particularly, whey they were
executed on the same day. D
The AAR accepted the argument of the Revenue holding that the
consideration received by FOWC amounted to royalty and was to be,
accordingly, taxed under the Indian Income Act. However, this view is
reversed by the High Court by the impugned judgment after detailed
discussion on this issue and in the opinion of the High Court the E
consideration received under the Agreement cannot be termed as royalty.
As mentioned above, Revenue has accepted the judgment of the High
Court on this issue and, therefore, it is not necessary to discuss in detail
the reasons given by the High Court for coming to the aforesaid
conclusion. This fact is mentioned only for the sake of completeness of
the issues raised and their outcome . F

. 13. The bone of contention before this Court pertains to the issue
of existence of a PE ofFOWC in India. We may say at the outset that
the arguments advanced by both the parties before us were virtually the
same arguments which were advanced before the High Court as well.
Therefore, spelling out the submissions of the parties before the High G
Court may not be necessary as it would be duplicating and repetitive. At
this stage, we would, therefore, record the arguments which were
presented before us and in the process mention the basis of the conclusion
arrived at by the High Court for the purpose of forming an opinion as to
whether the view of the High Court is correct and justified in law. H
164 SUPREME COURT REPORTS (2017] 2 S.C.R.

A RELEVANT STATUTORY PROVISIONS & DTAA REGIME
14. Before adverting to the question at hand, it would be appropriate
to take note of the scheme of the Act as well as relevant provisions of
DTAA on this subject. The Act provides two modes of taxation, namely,
resident based and source based. Any person who is a resident oflndia
B is subjected to the Act and liable to pay income tax on the 'total income'
earned by such a resident, after getting various deductions therefrom as
admissible under different provisions of the Act. Charging section is
Section 4 which, inter a!ia, stipulates that income tax shall be charged
for any Assessment Year in respect of total income of the previous year
of every of such person. Section 5 contains the scope of total income
c ofa resident and includes all income from whatever source derived by a.
person who is resident which is received or deemed to be received in
India, accrues or arises or is deemed to accrue or arise to him in India or
accrues or arises to him outside India during such year. Thus, a resident
is supposed to pay income tax on all incomes so earned whether in India·
D or outside India.
On the other hand, those persons who are not ordinarily residents
of India (which term is defined under sub-section (6) of Section 6) are
not liable to pay income tax on any income which accrues or arises to
such non-resident outside India. However, in the case of non-resident
E persons, if the income is derived from a business controlled in or a
profess;on set up in India, these non-residents are subjected to pay tax
for such an income earned in India. In their case, all such incomes from
whatever source derived which is received or is deemed to be received
in India in such a year by or on behalf of such person or accrues or
arises or is deemed to accrue or arise to them in India during that year,
F is taxable in India. In this sense, the income tax on non-resident is source
based, i.e., source of such income is India and, therefore, even a non-
resident is liable to pay tax on incomes earned in India. 'Resident in
India' and 'Not-ordi11urily Resident in India' are covered by the
provisions contai11cd in Section 6.
G 15. In the present case, we are concerned with the consideration
received by FOWC as a result of Agreement signed with Jaypee Sports.
FOWC, being a UK Company, is admittedly the non-resident in India.
Since the question is whether the aforesaid consideration/income earned
by FOWC is subject to tax in India or not, it is to be decided as to
whether that income accrued or arose in India. For this purpose, relevant
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 165
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

· provision is Section 9 of the Act. This section contains varied situations A
where income is deemed to accrue or arise in India and it is not necessary
to spell out each of such contingencies. Insofar as income by way of
royalty earned by a non-resident is concerned, that is mentioiied in clause
(vi) of Section 9(1) of the Act. As the consideration of US$ 40 million
received by FOWC from Jaypee is held as 'no income by way of
B
royalty', we may conveniently skip that provision.
16. Clause (i) of sub-section (I }of Section 9 of the Act mentions
certain kinds of income which are deemed to accrue or arise in India.
This clause is reproduced below:
"(i) all income accruing or arising, whether directly or indirectly, c
through or from any business connectioR in India, or through or
from any property in India, or through or from any asset or source
of income in India, or through the transfer of a capital asset
situate in India:"
17. It is clear from the reading of the said clause that it includes D
all those incomes, whether directly or indirectly, which are accruing or
arising through or from any business connection in India. It is, thus, clear
that an income which is earned directly or indirectly, i.e. even indirectly,
is to be deemed to accrue or earned in India. Further, such an income
should have some business connection in India. Explanation(\) for the
purpose of this clause provides five explanations from clauses (a) to (e). E
Clause (a) stipulates that where all the business operations are not carried
in India and only some such operations of business are carried in India,
the income of the business deemed under this clause to accrue or arise
in India shall be only such part of the income as is reasonably attributable
to the operations carried in India. We are not concerned with clauses (b) F
to (e). Explanati011 (2) provides certain exceptions in respect of 'business
connection ' and reads as un~er:
"Explanation 2. - Forthe removal of doubts, it is hereby declared
that "business connection" shall include any business activity
carried out through a person who, acting on behalf of the non- G
resident, -
(a) has and habitually exercises in India, an authority to conclude
contracts on behalfofthe non-resident, unless his activities
are limited to the purchase of gods or merchandise for the
non-resident; or
H
166 SUPREME COURT REPORTS (2017] 2 S.C.R.

A (b) ha~ no such authority, but habitually maintains in India a
stock of gods or merchandise from which he regularly
delivers goods or merchandise on behalf of the non-resident;
or
(c) habitually secures orders in India, mainly or wholly for the
B non-resident or for that non-resident and other non-residents
controlling, controlled by, or subject to the same common
control, as that non-resident:
Provided that such business connection shall not include any
business activity carried out through a broker, general commission
c agent or any other agent having an independent status, if such
broker, general commission agent or any other agent having an
independent status is acting in the ordinary course of his business:
Provided further that where such broker, general commission
agent or any other agent works mainly or wholly on behalf of a
D non-resident (hereafter in th is proviso refer;ed to as the principal
non-resident) or on behalf of such non-resident and other non-
residents which are controlled by the principal non-resident or
have a controlling interest in the principal non-resident or are
subject to the same common control as the principal non-resident,
he shall not be deemed to be a broker, general commission agent
E or an agent of an independent status."
18. This exception, thus, clarifies and declares that even when
business activity is carried 'tllrougll' a person who is acting on behalf of
the non-resident (which means agent of the non-resident), it will be treated
that the non-resident is having business connection in India. The meaning
F of the expression 'through' is again clarified in Explanation ( 4), which
reads as under:
"Explanation 4. - For the removal of doubts, it is hereby clarified
that the expression "through" shall mean and include and shall
be deemed to have always meant and included "by means of",
G "in consequence of' or "by reason of'."
19. If a non-resident has a PE in India, then business connection
in India stands established. Section 92F of the Act contains definitions
of certain terms, though those definitions have relevance for the purposes
of computation of arms length price, etc. Clause (3) thereof defines
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 167
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

'enterprise' and such an enterprise includes a PE of a person. PE is A
defined in clause (iiia) in the following manner:
"(iiia) "permanent establishment", referred to in clause (iii),
includes a fixed place of business through which the business of
the enterprise is wholly or partly carried on;"
20. At th is juncture, we would also like to point out that Article 5 B
of DTAA between India and United Kingdom lays· down as to what
would constitute a PE. It reads as under:
"ARTICLE 5
PERMANENT ESTABLISHMENT c
I. For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business through which
the business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" shall include especially:
D
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
E
(e) a workshop;
(I) premises used as a sales outlet or for receiving or soliciting
orders;
(g) a warehouse in relation to a person providing store facilities
for others; F
(h) a mine, an oil or gas well, quarry on other place of extraction
of natural resources;
(i) an installation or structure used for the exploration or
exploitation of natural resources;
G
(j) a building site or construction, installation or assembly project
or supervisory activities in connection therewith, where such
site, project or supervisory activity continues for a period of
more than six months, or where such project or supervisory
activity, being incidental to the sale or ma~hinety. or equipment,
H
168 SUPREME COURT REPORTS [2017] 2 S.C.R.

A continues for a period not exceeding six months and the
charges payable for the project or supervisory activity exceed
10 per cent of the sale price of the machinery and equipment;
(k) the furnishing of services including managerial services, other
than those taxable under Article 13 (Royalties and fees for
B technical services), within a Contracting State by an enterprise
through erpployees or other personnel, but only if:
(i) activities of that nature continue within that State for a
period or periods aggregating more than 90 days within any
twelve-month period; or
c (ii) services are performed within that State for an enterprise
within the meaning of paragraph 1 of Article 10 (Associated
enterprises) and continue for a period or periods aggregating
more than 30 days within any twelve-month period;
Provided that for the purposes of this paragraph an enterprise
D shall be deemed to have a permanent establishment in a
Contracting State and to carry on business through that
permanent establishment ifit provides services or facilities in
connection with, or supplies plant and machinery on hire used
or to be used in, the prospecting for, or extraction or production
E of mineral oils in that State.
3. The term "permanent establishment" shall not be deemed to
include:
(a) the use of facilities solely for the purpose of storage or
display of gods or merchandise belonging to the enterprise;
F
(b) the maintenance of a stock of goods or merchandise
belonging to the enterprise. solely for the purpose of storage
or display;
(c) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of
G processing by another enterprise;
(d) the maintenance ofa fixed place of business solely for the
purpose of purchasing goods or merchandise, or for
collecting information, for the enterprise;

H ( e) the maintenance of a fixed place of business solely for the
:;

...
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 169
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

purpose of advertising, for the supply of information or for A
scientific research, being activities solely of a preparatory
or auxiliary character in the trade of business of the
enterprise. However, this provision shall not be applicable
where the enterprise maintains any other fixed place of
business in the other Contracting State for any purpose or
B
purposes other than the purposes specified in this paragraph;
(f) the maintenance of a fixed place of businesses solely for
any combination of activities mentioned in sub-paragraphs
(a) to (e) of the paragraph, provided that the overall activity
of the fixed place of business resulting from this combination
is of a preparatory or auxiliary character. c
4. A person acting in a Contracting State for or on behalf of an
enterprise of the other contracting State- other than an agent of
an independent status to whom paragraph (5) of this Article
applies, shall be deemed to be a permanent establishment of that
enterprise in the first mentioned State if: D

(a) he has, and habitually exercises in that State, an authority to
negotiate and enter into contracts for or on behalf of the
enterprise, unless his activities are limited to the purchase
of gods or merchandise for the enterprise; or
E
(b) he habitually maintains in the first-mentioned Contracting
State a stock of gods or merchandise from which he
regularly delivers goods or merchandise for or on behalf of
the enterprise; or
(c) he habitually secures orders in the first-mentioned State,
F
wholly or almost wholly for the enterprise itself or for the
enterprise and the enterprises controlling, controlled by, or
subject to the same common control, as that enterprise.
5. An enterprise of a Contracting State shall not be deemed to
have a permanent establishment in the other Contracting State
G
merely because it carries on business in that other State through
a broker, general commission agent or any other agent of an
independent status, where such persons are acting in the ordinary
course of their business. However, ifthe activities of such an
agent are carried out wholly or almost wholly for the enterprise
(or for the enterprise and other enterprises which are controlled H
170 SUPREME COURT REPORTS [20 I 7] 2 S.C.R.

A by it or have a controlling interest in it or are subject to same
common control) he shall not be considered to be an agent of an
independent status for the purposes of this paragraph.
6. The fact that a company which is a resident of a Contracting
State controls or is controlled by a company which is a resident
B of the other Contracting State, or which carries on business in
that other State (whether through a permanent establishment or
otherwise), shall not of itself constitute either company a
permanent establishment of the other.
7. For the purposes of this Article the term "control", in relation
c to a company, means the ability to exercise control over the
company's affairs by means of the direct or indirect holding of
the greater part of the issued share capital or voting power in the
company."
21. As per sub-clause (I) of Article 5, a fixed place of business
D through which the business of an enterprise is wholly or partly carried
on, is known as 'permanent establishment'. It requires that there has
to be a fixed place of business. It also requires that from such a place
business of an enterprise (FOWC in the instant case) is carried on,
whether wholly or partly. Sub-clause (2) gives the illustrations of certain
places which will be treated as PEs. Likewise, sub-clause (3) excludes
E certain kinds of places from the term PE. Sub-clause (4) enumerates
the circumstances under which a person is to be treated as acting on
behalf of non-resident enterprise. Likewise, sub-clause (5) excludes
certain kinds of agents of enterprise, namely, broker, general commission
agent or agent ofan independent status, by clarifying that ifthe business
F is carried on through these persons, the enterprise shall not be deemed
to be a PE. However, one exception thereto is carved out, namely, ifthe
activities of such an agent are carried out wholly or almost wholly for
. the enterprise, or for the enterprise and other enterprises which are
controlled by it or have a controlling interest in it or are subject to same
common control, then, such an agent will be treated as an agent of an
G independent status. It means that if the business is carried out with such
a kind of agent, the enterprise will be deemed to have a PE in India.
THE LEGAL COMMENTARIES AND CASE LAW
22. It is an undisputed fact that Article 5 ofDTAA between India
and the United Kingdom follows the Organisation for Economic
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 171
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

Cooperation and Development's (OECD) Model of Double Taxation A
Convention. There are various commentaries on Double Taxation
Conventions. Celebrated among those are: "A Manual on the OECD
Model Tax Conve/1/ion on Income and on Capital" by Philip Baker
Q.C., and Klaus Vogel on "Double Taxation Conventions". OECD
has also given its 'condensed version ' on "Model Tax Convention on
B
Income. and on Capital". What constitutes PE under various
circumstances has also been the subject matter of judicial verdicts in
India as well as in other countries. For better understanding of what
may constitute a PE, it would be imperative to refer to these commentaries
and judicial decisions. This discussion would disclose the principles
enunciated to determine the existence of a PE, application whereof to c
the given facts would facilitate in answering the surging debate.
23. Philip Baker explains that the concept of PE is important for
several Articles of the Conventions; the concept, or its cognate, also
appears in the domestic law of some countries. According to him, the
concept marks the dividing line for businesses between merely trading D
with a country and trading in that country; if an enterprise has a PE, its
presence in a country is sufficiently substantial that it is trading in the
country. He has quoted the following passage from the judgment of the
Andhra Pradesh High Court, authored by Justice (Retd.) Jagannadha
Rao (as His Lordship's then was, later Judge of this Court) in
Commissioner of Income Tax, A.P.-I v. Vtsaklwpatnam Port Trust': E

"The words 'permanent establishment' postulate the existence
of a substantial element of an enduring or permanent nature of a
foreign enterprise in another country which can be attributed to
a fixed place of business in that country. It should be of such a
nature that it would amount to a virtual projection of the foreign F
enterprise of one country into the soil of another country."
24. Emphasising that as a creature of international tax law, the
concept of PE has a particularly strong claim to a uniform international
meaning, Philip Baker discerns two types of PEs contemplated under
Article 5 ofOECD Model. First, an establishment which is part of the G
same enterprise under common ownership and control - an office, branch,
etc., to which he gives his own description as an 'associated permanel1/
establishment'. The second type is an agent, though legally separate
from the enterprise, nevertheless who is dependent on the enterprise to
1
(1983) 144 ITR 146 H
172 SUPREME COURT REPORTS [2017] 2 S.C.R.

A the point of forming a PE. Such PE is given the nomenclature of
'unassociated permanent establishment' by Baker. He, however,
pointed out that there is a possibility of a third type of PE, i.e. a
construction or installation site may be regarded as PE under certain
circumstances. In the first type of PE, i.e. associaied permanent
establishments, primary requirement is that there must be a fixed place
B
of business through which the business of an enterprise is wholly or
partly carried on. It entails two requirements which need to be fulfilled:
(a) there must be a business of an enterprise of a Contracting State
(FOWC in the instant case); and (b) PE must be a fixed place of business,
i.e. a place which is at the disposal of the enterprise. It is universally
c accepted that for ascertaining whether there is a fixed place or not, PE
must have three c_haracteristics: stability, productivity and dependence.
Further, fixed place of business connotes existence of a physical location
which is at the disposal of the enterprise through which the business is
carried on.
25. Some of the examples of fixed place of business given by .
Baker are the following: The place of business must be fixed and
pennanent. Thus, a shed which had been rented for thirteen years for
storing and preparing hides was held to constitute a PE'. Similarly, a
writer's study has been held to constitute a PE'. A stand at a trade fair,
occupied regularly for three weeks a year, through which the enterprise
E obtained contracts for a significant part of its annual sales, has also been
held to constitute a PE". A temporary restaurant operated in a mirror
tent at a Dutch flower show for a period of seven months was held to
constitute a PP. An office, workshop and storeroom for the maintenance
of aircraft, which were leased out by the enterprise, has been held to
F constitute a PE'.
26. On the other hand, possession of a mailing address in a
state - without an office, telephone listing or bank account - has been
held not to constitute a PE'. The mere supply of skilled labour to work
'Transvaal Associated Hide & Skin Merchants (Ply) ltd. ( 1967) 29 S.A.T.C. 97 (Court
G of Appeal, Botswana).
7 Georges Simenon ( 1965) 44 T.C. (US) 820 (US Tax Court)

•Joseph Fowler v. M.N.R. ( 1990) 90 D.T.C. 1834: ( 1990) 2 C.T.C. 2351 (Tax Court of
Canada)
7
Antwerp Court of Appeal, decision ofFebruary 6, 200 I, noted in 200 I WTD 106-11
'Income Tax Appeals Nos. 759/KB to 761/KB of 1997-98 (Tarom SA). ( 1998) PTD
(Trib.) 3749 (Income-tax Appellate Tribunal. Pakistan)
7
H Consolidated Premium Iron Ores Ltd ( 1959) 265 F 2d. 320
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 173
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

in a country did not give rise to a PE of the company supplying the A
labour'. A drilling rig which, although anchored while in operation, was
moved to a new site every few months, has been held not to constitute a
PE'. Similarly, a remotely operated vessel which was used to inspect
and repair submarine pipelines was held not to constitute a PE because
a moving vessel is not a fixed place of business"-
B
27. The principal test, in order to ascertain as to whether an
establishment has a fixed place of business or not, is that such physically
located premises have to be '"11/te dispos"l' of the enterprise. For this
purpose, it is not necessary that the premises are owned or even rented
by the enterprise. It will be sufficient if the premises are put at the
disposal of the enterprise. However, merely giving access to such a c
place to' the enterprise for the purposes of the project would not suffice.
The place would be treated as 'at tlte di>pasa/' of the enterprise when
the enterprise has right to use the said place and has control thereupon.
28. Some of the illustrative cases decided by courts of different
jurisdictions given by Baker in his commentary are contained in the D
following passages from that book:
(i) In the Canadian case of William Dudney v. R", the
taxpayer was a resident of the United States who was
contracted to supply training to employees of a Canadian
company. For the purposes of the training contract, the E
taxpayer was given various offices at the premises of the
Canadian company, which he was only allowed to enter at
normal office hours. He was allowed to use the client's
telephone only on client's business. He spent 300 days in
one tax year and 40 in the subsequent year at the premises. F
The Tax Court of Canada and the Federal Court of Appeal
confirmed that he had no fixed base - which was treated
as having the same meaning as PE - at the premises since
he had no right to use the premises as the base for the
operation of his own business.
G
'Tekniskil (Sendirian) Bhd. v. Commissi01wr of Income Tax, (1996) 222 l.T.R. 551
(Authority for Advance Rulings, India)
9
Lower Tax Court oftheBaguc. September 10, 1990, noted in ( 1991) Tax Notes Intl.
161
10
Deputy Co1nmissioner of lncon1e Tax v: Subsea Offshore ltd. ( 1998) 66 I.T.D. 296
(Income Ta' Appellate Tribunal. Mumbai). noted in 17 Tax Notes Intl. 1795
II (1999) 99 DTC 147 H
174 SUPREME COURT REPORTS (2017] 2 S.C.R.

A (ii) In a case generally referred to as Hotel Manager", the
Bundesfinanzhof held that a UK hotel management
company had a PE in Germany when it entered into a 20
year contract with a limited partnership which owned a hotel.
The agreement required the UK company to supply a
general manager: the general manager's office constituted
B
the PE (and not the entire hotel) since the UK company
had a secured right to use this office for the purposes of
the agreement.
(iii) A Swiss company was held not to have a PE when it
contracted with a German company to produce salad
c dressings in the name of and in accordance ~ith the recipe
of the Swiss company. No employees of the Swiss company
were present at the production facility to supervise
production". The Bundestinanzhof has also held that a
scene painter who was commissioned to carry out a work
D in France for six weeks, and given special rooms for the
purpose, did not have a fixed base at those premises.
(iv) The Administrative Court of Appeal of Paris has held that
a German travel agency did not have a PE in France". A
travel agency in Paris had made an office available to the
E German company from time to time, and the manager of
the German company had a flat in Paris; the Court held
that the German company had no PE at its disposal in
France.
(v) The Brussels Court of Appeal has held that a German
F resident engaged in the transportation of vehicles had a PE
in Belgium". The taxpayer had an office 3m by 6m at his
disposal on the premises of his principal supplier in Belgium,
together with telephone and telex, where the taxpayer and
four of his staff worked.

G
"Bundersfinanzhof. February 3, 1993, IR 80-81/91. IStR 1993, p. 226, ( 1993) BStBI.,
II, 462.
13
Decision of the Lo\\·er Tax Court of Baden~ Wurttemberg. May 11. 1992. decision
No. 3K 309/91, RIW 1993, 81, !StR 1992, p. 104
" Decision of November Ip, 1998, ( 199) Revue de Droit Fiscal, No. 25, comm .. 503,
reported with translation in (1998) I ITLR 857
H " Cour de Cassation offebruary 15, 1980 ( 1980) JI. De Droit Fiscal 321.
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 175
CQMMISSIONER OF INCOME TAX [A. K. SIKRI, J.)

29. According to Philip Baker, the aforesaid illustrations confirm A
that the fixed place of business need not be owned or leased by the
foreign enterprise, provided that is atthe disposal of the enterprise in the
sense of having some right to use the premises for the purposes of its
business and not solely for the purposes of the project undertaken on
behalf of the owner of the premises.
B
30. Interpreting the OECD Article 5 pertaining to PE, Klaus Vogel
has remarked that insofar as the term 'business' is concerned, it is
broad, vague and of little relevance for the PE definition. According to
him, the crucial element is the term 'place'. Importance of the term
'place' is explained by him in the following manner:
c
"In conjunction with the attribute 'fixed', the requirement of a
place reflects the strong link between the land and the taxing
powers of the State. This territorial link serves as the basis not
only for the distributive rules which are tied to the existence of
PE but also for a considerable number of other distributive rules
and, above all, for the assignment of a person to either Contracting D
State on the basis of residence (Article 1, read in conjunction
. with Article 4 OECD and UN MC)."
3 I. We would alsil"iike to extract below the definition to the
expression 'place' by Vogel, which is as under:
E
"A place is a certain amount of space within the soil or on the
soil. This understanding of place as a three-dimensional zone
rather than a single point on the earth can be derived from the
French Version ('installation fixe') as well as the term
'establishment', As a rule, this zone is based on a certain area
in, on, or above the surface of the earth. Rooms or technical F
equipment above the soil may quality as a PE only if they are
fixed on the soil. This requirement, however, stems from the
term 'fixed' rather than the term 'place', given that a place (or
space) does not necessarily consist of a piece of land. On the
contrary, the term 'establishment' makes clear that .it is not the
G
soil as such which is the PE but that the,.PE is constituted by a
tangible facility as distinct from the soil. This is particularly evident
from the French version of Article 5(1) OECD MC which uses
the term 'installation' instead of 'place',
The term 'place' is used to define the term 'establishment'.
H
176 SUPREME COURT REPORTS (2017] 2 S.C.R.

A Therefore, 'place' includes all tangible assets used for carrying
on the busines~, but one such tangible asset can be sufficient.
The ~haracterization of such assets under private law as real
property r~rthan personal property (in common law countries)
or immovable ktherthan movable property (in civil law countries)
is not authoritative. It is rather the context (including, above all,
B
the terms 'fixed'/'fixe'), as well as the object and purpose of
Article 5 OECD and UN MC itself, in the light of which the
term 'place' needs to be interpreted. This approach, which follows
from the general rules on treaty interpretation, gives a certain
leeway for including movable property in the understanding of
c 'place' and, therefore, the assume a PE once such property has
been 'fixed' to the soil.
For example, a work bench in a caravan, restaurants on
permanently anchored river boats, steady oil rigs, or a
transformator or generator on board a former railway wagon
D qualify as places (and may also be 'fixed').
In contrast, purely intangible property cannot qualify in any case.
In particular, rights such a participations in a corporation, claims,
bundles of claims (like bank accounts), any other type ofintangible
property .(patents, software, trademarks etc.) or intangible
economic assets (a regular clientele or the goodwill of an
E enterprise) do not in themselves constitute a PE. They can only
form part of PE .constituted otherwise. Likewise, an internet
website (being a combination of software and other electronic
data) does not constitute tangible property and, therefore, does
not constitute a PE.
F Neither does the mere incorporation of a company in a
Contracting State in itself constitute a PE of the company in that
State. Where a company has its seat, according to its by-laws
and/or registration, in State A while the POEM is situated in
State B, this company will usually be liable to tax on the basis of
its worldwide income in both Contracting States under their
G
respective domestic tax law. Under the A-B treaty, however,
the company will be regarded as a residen_t of.State B only (Article
4(3) OECD and UN MC). In the absence of both actual facilities
and a dependent agent in State A, income of this company will
be taxable only in State B under the 1" sentence of Article 7( 1)
H OECD and UN MC.
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 17.7
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

There is no minimum size of the piece of land. Where the A
qualifying business activities consist (in full or in part) of human
activities by the taxpayer, his employees or representatives, the
mere space needed forthe physical presence of these individuals
is not sufficient (if it were sufficient, Article 5(5) OECD MC
and Article 5(5)(a) UN MC and the notion of agent PEs were
B
superfluous). This can be illustrated by the example ofa salesman
who regularly visits a major customer to take orders, and conducts
meetings in the purchasing director's office. The OECD MC
Comm. has convincingly denied the existence of a PE, based on
the implicit understanding that the relevant geographical unit is
not just the chair where the salesman sits, but the entire office of c
the customer, and the office is not at the disposai of the enterprise
for which the salesman is working."
I
32. Taking cue from the word 'through' in the Article, Vogel has
also emphasised that the place of business qualifies only if the place is
'at the disposal' of the enterprise. According to him, the enterprise will D
not be able to use the place of business as an instrument for carrying on
its business unless it controls the place of business to a considerable
extent; He hastens to add that there are no absolute standards for the
modalities and intensity of control. Rather, the standards depend on the
type of business activity at issue. According to him, 'disposal' is the
power (or a certain fraction thereot) to use the place of business directly. E
Some of the instances given by Vogel in this behalf, of relative standards
of control, are as under:
"The degree of control depends on the type of business activity
that the taxpayer carries on. It is therefore not necessary that
the taxpayer is able to exclude others from entering or using the F
POB.
The painter example in the OECD MC Comm. (no. 4.5 OECD
MC Comm. on Article 5) (however questionable it might be with
regard to the functional integration test) suggests that the type
and extent of control need not exceed the level of what' is required G
for the specific type of activity which is determined by the
concrete business.
By contrast, in the case of a self-employed engineer who had
free access to his customer's premises to perform the services
required by his contract, the·Canadian Federal Court of Appeal H
178 SUPREME COURT REPORTS [2017] 2 S.C.R.

A ruled that the engineer had no control because he had access
only· during the customer's regular office hours and was not
entitled to carry on businesses of his own on the premises.
Similarly, a Special Bench of Delhi's Income Tax Appellate
Tribunal denied the existence of a PE in the case of Ericsson.
B The Tribunal held that it was not sufficient that Ericsson's
employees had access to the premises of Indian mobile phone
providers to deliver the hardware, software and know-how
required for operating a network. By contrast, in the case of a
competing enterprise, the Bench did assume an Indian PE
because the employees of that enterprise (unlike Ericsson's) had
c exercised other businesses of their employer.
The OECD view can hardly be reconciled with the two court
cases. All three examples do indeed shed some light onto the
method how the relative standards for the control threshold should
be designed. While the OECD MC Comm. suggests that it is
D sufficient to require not more than the type and extent of control
necessary for the specific business activity which the taxpayer
wants to exercise in the source State, the Canadian and Indian
decisions.advocate for stricter standards for the control threshold.
The OECD MC shows a paramount tendency (though no strict
E rule) that PEs should be treated like subsidiaries (cf. Article 24(3)
OECD and UN MC), and that facilities of a subsidiary would
rarely been unusable outside the office hours of one of its
customers (i.e. a third person), the view of the two courts is still
more cqnvincing.
F Along these lines, a POB will usually exist only where the taxpayer
is free to use the POB:
- at any time of his own choice;
for work relating to more than one customer; and
G for his internal administrative and bureaucratic work.
In all, the taxpayer will usually be regarded as controlling the
POB only where he can employ it at his discretion. This does
not imply that the standards of the control test should not be
flexible and adaptive. Generally, the less invasive the activities
H are, and the more they allow a parallel use of the same POB by
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 179
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.)

other persons, the lower are the requirements under the control A
test. There are, however, a number of traditional PEs which by
their nature require an exclusive use of the POB by only one
taxpayer and/or his personnel. A small workshop (cf. Article
5(2)(e) OECD and UN MC) of 10 or 12 square meters can
hardly be used by more than one person. The same holds true
B
for a room where the taxpayer runs a noisy machine."
33. OECD commentary on Model Tax Convention mentions that
a general definition of the term 'PE' brings out its essential characteristics,
i.e. a distinct ""situs", a 'fixed place of business", This definition,
therefore, contains the following conditions:
c
the existence of a "place of business", i.e. a facility such as
premises or, in certain instances, machinery or equipment.
this place of business must be "fixed", i.e. it must be
established at a distinct place with a certain degree of
permanence; D
the carrying on of the business of the enterprise through this
fixed place ofbusiness. This means usually that persons who,
in one way or another, are dependent on the enterprise
(personnel) conduct the business of the enterprise in the State
in which the fixed place is situated. E
34. The term ''place of business" is explained as covering any
premises, facilities or installations used for carrying on the business of
the enterprise whether or not they are used exclusively for that purpose.
It is clarified that a place of business may also exist where no premises
are available or required for carrying on the business of the enterprise
F
and it simply has a certain amount of space at its disposal. Further, it is
immaterial whether the premises, facilities or installations are owned or
. rented by or are otherwise at the disposal of the enterprise. A certain
amount of space atthe disposal of the enterprise which is used for business
activities is sufficient to constitute a place of business. No formal legal
right to use that place is required. Thus, where an enterprise illegally G
occupies a certain location where it carries on its business, that would
also constitute a PE. _Some of the examples where premises are treated
at the disposal of the enterprise and, therefore, constitute PE are: a
place of business may thus be constituted by a pitch in a market place,
or by a certain permanently used area in a customs depot (e.g. for the
H
180 SUPREME COURT REPORTS [2017] 2 S.C.R.

A storage of dutiable goods). Again the place of business may be situated
in the business facilities of another enterprise. This may be the case for
instance where the foreign enterprise has at its constant disposal certain
premises or a part thereof owned by the other enterprise. At the same
time, it is also clarified that the mere presence of an enterprise at a
particular location does not necessarily mean that the location is at the
B
disposal of that en.terprise.
35. The OECD commentary gives as many as four examples where
location will not be treated at the disposal of the enterprise. These are:
(a) The first example is that ofa salesman who regularly visits a
c major customer t.o take orders and meets the purchasing
director in his office to do so. In that case, the customer's
premises are not at the disposal of tqe enterprise for which
the salesman is working and therefore do not c.<mstitute a
fixed place of business through which the business of that
enterprise is carried on (depending on the circumstances,
D however, paragraph 5 could apply to deem a permarent
establishment to exist).
(b) Second example is that of an employee of a company who,
for a long period of time, is allowed to use an office in the
headquarters of another company (e.g. a newly acquired
E subsidiary) in order to ensure that the latter company complies
with its obligations under contracts concluded with the former
company. In that case, the employee is carrying on activities
related to the business of the former company and the office
that is at his disposal at the headquarters ofthe other company
F will constitute a permanent establishment of his employer,
provided that the office is at his disposal for a sufficiently
long period of time so as to constitute a "fixed place of
business" (see paragraphs 6 to 6.3) and that the activities
that are performed there go beyond .the activities referred to·
in paragraph 4 of the Article. '
G
(c) The third example is that ofa road transportation enterprise
which would use a delivery dock at a customer's warehouse
every day for a number of years for the purpose of delivering
goods purchased by that customer. In that case, the presence
of the road tran~portation enterprise at the delivery dock
H would be so limited that that enterprise could not consider
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 181
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.] ·

that place as being at its disposal so as to constitute a A
permanent establishment of that enterprise.
(d) Fourth example is that of a painter, who, for two years, spends
three days a week in the large office building of its main
client. In that case, the presence of the painter in that office
building where he is performing the most important functions B
of his business (i.e. painting) constitute a permanent
establishment of that painter.
36. It also states that the words 'through which' must be given a
. wide meaning so as to apply to any situation where business activities
are carried on at a particular location which is at the disposal of the c
enterprise for that purpose. For this reason, an enterprise engaged in
paving a road win be considered to be carrying on its business 'through'
the location where this activity takes place;
THE AGREEMENTS
37. Having got a fair idea of what would constitute a PE, we may D
advert to the discussion in that part of the impugned judgment where the
High Court has given its reasons to conclude that FOWC had a PE in
India in the relevant Assessment Year. However, before that, it would
be necessary to refer to the salient provisions of the relevant agreements
between the parties, not only between FOWC and Jaypee, but some E
agreements which were entered into by the group companies ofFOWC
with Jaypee.
38. We have already mentioned above that there is an Agreement
between FIA and FOAM which is dated April 24, 2001 whereby FIA
has parted with the commercial rights in favour of FOAM making FOAM
F
exclusive CRH. Thereafter, vide the aforesaid agreement FOAM
transferred the commercial rights in favour ofFOWC with effect from
2011 for a period of 10 years. Insofar as Concorde Agreement which is
signed between FIA, FOWC and team·s is concerned, that is of the year
2009.
G
39. It is relevant to mention that before RPC dated September
13, 2011 was entered into between FOWC and Jaypee, one Organisation
Agreement (OA) dated January 20, 2011 was signed between FIA/
FM SCI and Jaypee. As per this agreement, Jaypee was to organise the
event. Thereafter, another agreement known as 'Title Sponsorship
Agreement' dated August 16, 2011 was signed between Beta Prema 2 H
182 SUPREME COURT REPORTS [2017] 2 S.C.R.

A (an associated company of FOWC) and Bharti Airtel, as per which Beta
Prema 2 transferred title sponsorship rights to Bharti Airtel for US$ 8
million in respect of the race which was conducted on October 29, 2011.
It is thereafter that RPC dated September 13, 2011 was signed by FOWC
and Jaypee. That was one month before the scheduled date of race,
which was fixed as October 29, 2011. Under this agreement, right to
B
host, stage and promote the event was given to Jaypee by FOWC. As
per the Revenue, FOWC carried on business in India through a fixed
place of business, namely, the Buddh International Circuit. Salient features
of this Agreement, which is the most vital document, are as follows:
"WHEREAS
c
(A) The Federation Internationale de I' Automobile (FIA) is the
governing body of world motor sport. The FIA is responsible for
the sporting organization and regulation of the FIA Formula One
World Championship (the Championship), and has the right to
supervise the sporting organization of individual rounds of the
D Championship
(B) Pursuant to various agreements between the FIA, POWC
and its Affiliates (as defined in Clause l(p) etc. FOWC has the
exclusive right to exploit the commercial rights in the
Championship, including the exclusive right to propose the
E Champion~hip calendar and to award, to promoters the right to
host, stage and promote Formula One Grand Prix events that ·
count towards the Championship, exclusive media rights
(including all use of audio-visual material and data in the media
space).
F (C) FOWC has the exclusive right to enter into contracts solely
for the hosting, standing and promotion of Formula One Grand
Prix events entered on the FIA International Sporting Calendar
and counting towards the Championship, it being understood that
such a contract will govern exclusively the commercial and
G· financial management of the Event (as defined in Clause 3.1
(xx not legible)).
(D) The Promoter is the owner of a motor racing circuit in the
National Capital Region of India which is capable of hosting
various motor racing events. The Promoter wishes to host various
motor racing events at such circuit, to include the hosting of
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 183
COMMISSIONER OF INCOME TAX [A. K. SIKR!, J.]

Formula One Grand Prix events. The Promoter had secured the A
privilege to host such events and is no executing this agreement
with FOWCto set out the terms and conditions on which it will
host; stage and promote Formula One Grand Prix events at such
circuit.
xxxxxxxxxxxxxxxxxx B
Definitions 11ml lnterpret11tion
· I. In this Agreement unless the context requires otherwise:
xxxxxxxxxxxxxxxxxx
·(q) Circuit shall mean a motor racing' circuit suitable in eve!)' c
respect for the staging of the Event (including permanent
buildings, permanent infrastructure, track layout, amenities,
spectator viewing facilities, the pit/paddock, building, media
centre, car parks, helipads, garages, race control and
administration, office administration, fuel and tyre storage, utilities D
(including back up power supplies), concrete based areas suitable
to host the Competitors and sponsors, vending and exhibition
areas, international TV compounds, host and broadcast facilities
and medical centre);
xxxxxxxxxxxxxxxxxx E
(t) Event shall mean the FORMULA 1 GRAND PRIX OF
INDIA (including all support events therein and peripheral
entertainment), designated and endorsed as a round of the FIA
Formula One World Championship, which shall commence at
the Circuit at the time scheduled by the FIA for Scrutinizing and
F
Sporting Checks and including all Practice and the Race itself
and ending at the later of the time for the lodging of.a Protest
under the terms of the Sporting Code and the time when a
technical or sporting verification has been carried out under the
terms of the Sporting Code; and
xxxxxxxxxxxxxxxxxx G

Conditions Precedent
2.1. The grant of rights by FOWC to the Promoter under this
Agreement is conditional on the Conditions having been fulfilled
or waived in accordance with this Agreement and the Promoter H
184 SUPREME COURT REPORTS [2017) 2 S.C.R.

A shall use its best endeavour to satisfy the Conditions in accordance
with this Clause 2.
xxxxxxxxxxxxxxxxxx
Term
B 3.I This Agreement shall commence and become operative when
it is signed by the parties and dated.
3.2 Subject to Clause 2 the rights granted to the Promoter under
this Agreement shall be exercisable from the Unconditional Date.
Accordingly, the initial term ofthisAgreement (the Initial Term)
c shall begin on the Unconditional Date and shall expire on 31
December 2015 and shall apply to the Championship for the
calendar years 2011 to 2015 (inclusive).
3.3 On or before 30 June 2015, FOWC shall in its absolute
discretion be entitled to give notice to the Promoter which, if
given, shall be effective to extend the Term for a further period
of up to five calendar years (the Extended Term). The terms
of this Agreement shall apply to the Extended Term save for this·
Clause 3.3.
3.4 The term of this Agreement as prescribed in this Clause 3
shall be referred to as the Term and shall include the initial Term
E
and (if applicable) the Extended Term.
3.5 Subject to the performance by FOWC of its obligations
contained in Clause 4, the Promoter agrees to host, stage and
promote the Event as the FORMULA 1 GRAND PRIX OF
INDIA or [Year] GRAND PRIX OF INDIA in accordance with
F
this Agreement once in every calendar year of the Term
commencing 2011 at the Circuit on the date approved and
announced by the FIA on and subject to the terms of the
Regulations and the Sporting Code.
FOWC's Obligations and Warranties
G
xxxxxxxxxxxxxxxxxx
Promoter's Warranties
(e) On the area of land, the outer perimeter of which is edged in
red, depicted on the document attached to this Agreement as the
H Annex and initialed by the Parties for identification, the Circuit
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. , 185
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

shall be constructed, laid out and prepared in accordance with A
this Agreement, in a form and manner approved by both FOWC
and the FIA, meeting all requirements of the Regulations
(including as to timing of inspections) and completed in good.
time for final inspection by the FIA not later than 12 October
2011; ,
B
xXXXXXXXXXXXXXXXXX
Access to Circuit Prior to Event
11. The Promoter shall take whatever action is necessary to
ensure that the pit and paddock buildings and surrounding areas
within Circuit and the Land are open to receive the competitors, c
FOWC,Affiliates ofFOWC, FOWC's contractors and licensees
and their respective personnel and equipment (ifany) at all times
during the period commencing fourteen days before the day of
the race and ending seven days after the Race (the Access
Period) and the security of the paddock and garage area is
properly safeguarded at all times during the Access Period. D
xxxxxx xxxxxx xxxxxx
Compelitor/Media Facilities
13. l The Promoter will in so far as the same is practicable provide
an entrance for the Competitor personnel and for Officials E
separate from the public entrance to the Circuit.
13 .2 The Promoter will provide free of charge a zone measuring
whichever is the greater of that which has last been provided in
respect ofa round of the FIA Formula One World Championship
at that Circuit and 140 metres by I 00 metres or 15,0000 square
F
metres within or adjoining the paddock for the'promotional facilities
of the Competitors and/or their sponsors.
13.3 The Promoter undertakes to set up a media compound and
telephones and facsimile equipment, Press Room plus the
···installations and premises necessary for national and international
G
television commentators and journalists (such premises and
installations to meet the prestige ofa World Championship) and
to grant professional accredited journalists use of all facilities for
the exercise of their profession as well as the organization of a
Press Conference with the winner of the Race immediately after
the Podium Ceremony. H
186 SUPREME COURT REPORTS [2017) 2 S.C.R.

A 13.4 Upon the arrival of the Formula One cars and their spares
and ancillary equipment at nearest suitable International airport
(as such is determined by FOWC) (the Landing) the Promoter
will transport them free of charge from the Landing to the Circuit
and from the Circuit back to the Landing. The Promoter shall
procure that transportation from the Circuit to the Landing shall
B
take place on the day following the Race. All ancillary costs
including airport taxes customs clearance handling, loading and
unloading both at the Landing and at the Circuit shall be paid by
the Promoter. The Parties agree to liaise with each other
throughout the Term with a view to discussing and implementing
c all reasonable measures which may reduce such ancillary cots.
13 .5 The Promoter undertakes to provide all such o_ther facilities
as specified in the Circuit General Specifica.tions Manual.
Access to Restricted Areas
D 14. The Promoter undertakes to ensure that:
(a) only Passes and tabards issued by FOWC under the
authorization of the FIA will authorize access to parts of the
Circuit not open to the paying public;
(b) notwithstanding Clause 14(a) above, the public do not have
E access to the cars in any of the places where any Competitor's
mechanics may be called upon to work on them and without
prejudice to the generality of the foregoing there is at no time
any obstruction to the free passage of the cars and Competitor
personnel in the paddock or pit area;
F (c) the validity ofany Passes and ta bards issued by FOWC under
the authorization of the FIA is upheld; and
(d) the necessary steps are taken to ensure that all police and
Circuit officials are familiar with the Passes and tabards and
uphold their validity.
G Insurance
15.1 The Promoter shall provide at its expense third party liability
insurance (in a fom1 approved by FOWC and the FIA insuring
FOWC and all its Affiliates, Beta Prema 2 Limited and all its
Affiliates, the Competitors, Drivers and guests of any of the
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 187
COMMISSIONER OF INCOME TAX (A. K. SIKRI, J.]

above mentioned parties (such parties to include where relevant A
all directors, officers, employees, agents and contractors) and
such other persons involved in the organization of the Event
(including officials, marshals, rescue and medical staff) as the
FIA or FOWC may from time to time advise the Promoter (the
Insured Parties) against all risks (including death ofor bodily or
B
mental injury to any person) relating to (i) the event (ii) support
races and (iii) peripheral entertainment organized as part of the
Event, for the Access Period. If such insurance is not permitted
under the law of the country in which the Event takes place or
the FIA is satisfied that such insurance is not commercially viable
then the insurance shall be the maximum permitted by that law c
or the market conditions. The insurers must be a company
recognized by Standard and Poor's and/or AM. Best and must
be of first class international standing with sufficient resources
to honour and discharge in full the insurance requirements
prescribed in this agreement. A copy of the relevant policy will
be given to FOWC by the Promoter at least 60 days before the
D
start of the first practice session (with the exception of the year
2011, when such copy will be given to FOWC at least 30 days
before the start of the first Practice session of the Event in 2011 ).
If the language of the relevant policy is in a language other than
English, FOWC shall obtain a translation of the policy at the E
expense of the Promoter.
xxxxxxxxxxxxxxxxxx
Filmin1:/Recordin1: at tlle Event
18.1 Save with the prior written consent of the FOWC and save
forthe Promoter's obligation i!! Clause.18.3, throughout the Term F
during the Access Period (and any test session held at the Circuit
in which more than one Competitor is participating (Non-Private
FI Test Series) the
Promoter shall not (nor shall the Promoter permit, enable, assist,
procure or encourage others to) make, create, store, record or G
transmit an kind of sound recording or visual or audio-visual
footage (Recording) whatsoever, whether for broadcast or any
other purpose.
(a) of at or pertaining to the Event (including cars, Drivers,
H
188 SUPREME COURT REPORTS [2017] 2 S.C.R.

A Competitors), any Non-Private Fl Test Session or any aspect of
them; or
(b) within the confines of the Circuit or the Land (or any other
part of its surroundings over which the Promoter has control).
18.2 Without prejudice to the generality of Clause 18.1, the
B Promoter shall ensure that the terms of sale of tickets giving .
admittance to an Event include acceptance by a ticket holder:
(a) that he shall not make, create, store, record or transmit any
Recording of the Event (including cars, Drivers, Competitors) or
any aspect of it, and shall not take into the Circuit any equipment
c that may enable him to do the aforementioned acts (other than
mobile telephones use of which is subject to this Clause 18 and
Clause 19. I below);
(b) that as a spectator he may be filmed and sound made by him
may be recorded for broadcast (or similar transmission); and
D
(c) of such other terms and conditions as FOWC(acting
reasonably) may request the Promoter to include from time to
time provided that the Promoter is notified in due time and that
such terms and conditions are compatible with applicable local
laws.
E
18.3 The Promoter shall engage a third party (the Identity of
which shall be approved by FOWC in its sole discretion) to carry
out and perform on behalf of the Promoter all services relating
to the origination of the international television feed and host
broadcasting for each Event during the Term as are specified in
F guidelines published annually by FOWC and provided to the
Promoter from time to time.
Intellectual Property
xxxxxxxxxxxx xxxxxx
G 19.2 The Promoter hereby irrevocably and unconditionally:-
(a) assigns to FOWC with full title guarantee all copyright and
other intellectual property rights and all other rights, titles and
interests (if any) which it may now or in the future have in any
Image or Recording or any other representation or recording in
H any media whether now known ot hereafter invented or
c
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 189
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

developed in, of or pertaining to the Event, any NonPrivate Fl A
Test Session or any aspect ofthem (irrespective of who originated
the same)for the duration of th-ose rights (including all renewals,
extensions, reversions and revivals thereof); and
(b) gives its con~ent (if such consent should be required) for
FOWC to deal in such rights in any way it may see fit. B
Accreditation for Filming/recording
20.1 The Promoter shall ensure that persons accredited and
authorized by FOWC are permitted to enter upon the Circuit to
make sound, television or other recordings or transmissions or to
make films or other moving picture and use the facilities c
thfoughout the Access Period and the Promoter shall accord all
such persons the help and facilities that they or FOWC may
reasonably require for such purposes, including assistance with
obtaining any necessary consents, permissions or authorizations
with any local authority. D
20.2 The Promoter undertakes to Notify FOWC of the dates of
any test sessions which are proposed to be held at the Circuit.
Circuit Advertising
21. The Promoter shall not cause, permit, enable, assist, procure
E
or encourage the display of any advertising (other than the
advertising normally displayed on any Competitor's cars, Drivers
or personnel) or other displays on, near or which can be seen
from the Circuit and/or the Land which might (in the opinion of
FOWC which shall be final and binding upon the Parties) Prevent
the lawful transmission of Images or Recordings of the Events F
or any part of it in any country."
JUDGMENT OF THE HIGH COURT
40. Taking note of this agreement, the High Court went ahead to
decide the following aspects, which revolved around the question of PE:
G
(a) Whether FOWC had control over the Buddh International Circuit
and that-the circuit could be constituted as a fixed place of
business?
(b) Whether FOWC carried on business? IF so, they did carry on
business and commercial activity in India.
H
190 SUPREME COURT REPORTS [2017) 2 S.C.R.

A (c) Whether FOWC carried on business through its agents unde.r
Article 5(4) or i\rticle 5(5) of the DTAA?
41. Answering the first question, the High Court discerned that
for the duration of the event as well as two weeks prior to it and a week
succeeding it. FOWC had full access through its personnel, the team
B contracted to it, both racing as well as spectator teams to the said Buddh
International Circuit. It could also dictate who was authorised to enter
the areas reserved for it. As per the High Court, though Jaypee was
designated as the promoter or the host of the event in terms of RPC,
when the matter was to be examined in a correct perspective by seeking
through the other terms contained in the agreement as well as terms of
c agreements between JP and Allsports, Beta Prema 2 as well as FOA, it
was clear that Jaypee's capacity to act was extremely restricted. At all
material times, FOWC had exclusive access to the circuit and all the
places where the teams were located. The High Court was also
conscious of the fact that such an access or right to access was not
D permanent in the sense of its being everlasting. However, having regard
to the model of commercial transactions, such an access for a period up
to six weeks ata time during the F-1 Championship season was sufficient
for the purposes of Article 5( I) of DTAA. Further, as the tenure ofRPC
was five years, it meant that such an access for the period in question
was of repetitive nature. Moreover, FOWC was entitled to two years
E payment of the assured consideration of US$ 40 million in the event of
termination of RPC.
42. While discussing the second question. the High Court took
note of agreement between FIA and FOWC under which FOWC became
CRH. It also pointed out that the Concorde Agreement assured the
F participating teams that the FIA had exclusive rights in the F-1
Championship and was entitled to the grant of CRH, the exclusive right
to exploit the commercial rights in the F-1 Championship. Subject to
these conditions, each team undertook to participate in the FIA F-1 ·
Championship each year for several events and make cars available. Jn
fact, every team undertook to participate in each event with two cars.
G
Taking note of the aforesaid arrangement and other clauses of these
agreements, the High Court concluded that FOWC carried on business
in India within the meaning of expression under Article 5(1) of the DTAA.
43. The High Court was conscious of the fact that after its finding
to the effect that FOWC had PE in India, the issue as to whether FOWC
H carried on business through its agents or not, became academic.
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 191
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

Notwithstanding the same, it chose to discuss that issue as well so that A
. the judgment had the coverage of all the questions that had arisen before
it. This aspect has been discussed in the light of sub-articles (4) and (5)
of Article 5 of DTAA. It is pertinent to mention that argument of the
Revenue was that since FOWC had to exploit commercial rights arising
from races and this business is carried on through exploitation of these
B
commercial rights either by itself or through anyone or more members
of CRH group, as mentioned in the ConordeAgreement, FOWC is obi iged
to propose consolidated accounts incorporating profits of all entities
forming part of CRH group. The Revenue had relied on the Events right
from the time when commercial rights were originally owned by FIA
and thereafter transferred to SLEC Holding Company (parent company c
of FOWC) for a consideration, then given to FOAM and with effect
from January 01, 2011 transferred to FOWC. It was also pointed out
that FOWC's three affiliates, i.e. Formula One Management Ltd.
· ('FOM'), Allsports Management SA and Beta Prema 2 Ltd. were its
agents who carried on its business and on its behalf, through the fixed
D
place.
AAR had rejected this submission of the Revenue holding that
the theory of Revenue that all the three entities were acting on behalf of
FOWC was unfounded as there was no evidence to this effect and all
arrangements and agreements in relation to activ,ities performed by three
entities were sham. The High Court approved the aforesaid approach E
ofAAR in the following manner:
"64. Article 5(5) has certain preconditions if an entity has to be
treated as dependent agent. The agent must have the authority
to conclude contracts, which bind the represented enterprise,
and it must habitually exercise such authority. If these positive F
preconditions are met, then only an enterprise shall be deemed
to have a PE in that state in respect of any activities, which that
person undertakes for the enterprise. The contention that because
the three entities were subsidiaries ofFOWC, they acted on its
behalf and thus become dependent agents is insubstantial. The
mere circumstance that the three subsidiaries had a connection G
with FOWC was not enough; what is to be shown is that the
contracts they entered into and the businesses they were engaged
in, was for and on behalf ofFOWC. Each of the three agreements
independently entered into by them with Jaypee contains no
pointers to this fact." H
192 SUPREME COURT REPORTS [20 I 7] 2 S.C.R.

A THE ARGUMENTS
44. Mr. Ganesh, opened the case of FOWC, whereafter Mis.
Arvind P. Datar and Dushant Dave, learned senior advocates, made
their submissions on behalf of Jaypee. Mr. Mukul Rohatgi, learned
Attorney General for India, argued on behalf of the Revenue and
B countered those submissions. He also argued the appeal of Union of
India insofar as it challenges the findings of the High Court interpreting
Article 5(4) and (5) and holding that the other companies of FOWC
group did not act as agents of FOWC in India. Mis. S. Ganesh and
Arvind P. Datar made their submissions in rejoinder and also refuted the
arguments of Mr. Mukul Rohatgi advanced in the appeal of Union of
c India, to which Mr. Rohatgi made his submissions in rejoinder.
45. After referring to the important dates and events, Article 5 of
DTAA and the commentaries of OECD, Philip Baker and Klaus Vogel
thereon, salient features whereof have already been reproduced by us,
emphasis in the submission of Mr. Ganesh was that in order to constitute
D a PE, condition which was necessary to satisfy was that the particular
'fixed place· is 'at the disposal' of FOWC and further that from the
said 'fixed place 'FOWC was doing its business activity. Submission of
Mr. Ganesh was that both the ingredients were missing in the instant
case. For this purpose, he referred to the agreement of2009 which was
E entered into between FIA and Jaypee and pointed out that FOWC was
not party to the said agreement and contended that this agreement clearly
evinced that it is the FIA which had control over the manner in which
the Championship was to be conducted. This agreement fu1ther reflected
that it is Jaypee who was responsible for conducting races and had
complete control of the Event in question. All obligations for conduct of
F the Championship were to be discharged by Jaypee as organisers. For
this purpose, he referred to the counter affidavit filed by Jaypee in
SLP(Civil) No. 3112 of2017 wherein the role of Jaypee in organising
these Events is stated. From there, it was pointed out that the track was
constructed by Jaypee; for this purpose they had their own engineers,
G architects etc.; entire expenditure for this purpose was borne by Jaypee.
It was also stated that this circuit was owned by Jaypee and contr-01
thereon was that of Jaypee on which not only Championship in question
was organised, but Jaypee was utilising this track for many other events
which are organised on regular basis, all year round.

H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 193
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

46. Mr. Ganesh also drew the attention of this Court to A
Organisation Agreement dated January 20, 2011 signed between FIA,
Jaypee and Federation of Motors Sports Clubs oflndia wherein Jaypee
is described as the 'Organiser' and given the responsibility to organise
the Event. It specifically delineates various responsibilities of Jaypee as
organisers which have already been taken note of above. In nutshell, he
B
submitted that right from construction/laying down the contract for the
motor races people till the conclusion of the Events/Championship, all
acts and obligations were to be performed by Jaypee, with no role of.
FOWC therein. According to him, in contrast, it could be seen from the
Agreement dated September 13, 2011 between FOWC and Jaypee that
FOWC had simply given permission to host the Event as a round of the c
Championship, since it is the FOWC, who has the exclusive right to
exploit the commercial rights in the Championship, including exclusive
right to propose the Championship calendar. Condition precedent from
entering into this Agreement, as mentioned in theAgreement itself, was
that Jaypee (as promoter) had entered into a valid and binding agreement
D
with such third party in accordance with Clause 18.3 (Service
Agreement). Referring to the clause pertaining to obligations and
warranties of FOWC, Mr. Ganesh submitted that the role of FOWC
was primarily that of advising, assisting and consulting with the promoter
in relation to the Event in such manner as FOWC shall consider
necessary and/or appropriate forthe staging and promotion of the Event E
to the mutual benefit of the parties. On the other hand, Jaypee was
given exclusive right to act as the promoter of the Event, to construct
the circuit which was to be laid out and prepared in accordance with
that agreement in a form and manner approved both by FOWC and
FIA. Thus, construction was to be carried out by Jaypee; albeit, in the
F
form and the manner approved by FOWC and FIA to ensure that the
track meets all requirements of the Regulations. Otherwise, all those
rights which were necessary for the purposes of hosting and staging the
Event at the circuit were that of Jaypee exclusively.
47. On the basis of the aforesaid documents and clauses and terms
therein, Mr. Ganesh submitted that the circuit was not under the control G
or at the disposal of FOWC. As regards 4500 seats in paddock space
given'to FOWC in that circuit is concerned, explanation of Mr. Ganesh
was that it is Allsports which was in-charge of paddock and the same
was taken from Allsports by FOWC in the year 2006 and, therefore, it
would not make any difference. · H
194 SUPREME COURT REPORTS (2017] 2 S.C.R.

A 48. His further submission was that no business was conducted
by the FOWC from the said site as well. According to him, since FOWC
was commercial rights holder of these events, main business ofFOWC
was to exploit these rights. including intellectual property rights. According
to him, the exploitation of these commercial rights yields two revenue
streams-first, the consideration received from the Promoter/Organizer
B
of the Event, to whom FOWC has granted the necessary right to host,
stage and promote the Event; secondly, FOWC exploits the TV feed in
respect of the Event, which is made available to it by the Promoter/
Organiser, at his cost. FOWC grants screening, exhibition, telecasting
and media rights arising out of and relating to this TV feed to a number
c of parties around the world, by entering into contracts with them at
London. It is for this reason that insofar as holding of the Event is
concerned, FOWC was not responsible therefor and for this reason it
was necessary for Jaypee as promoter to enter into a valid and binding
agreement with a third party (FIA in the present case). He also pointed
out that insofar as sale of advertisement rights during the Event is
D
concerned that was also to be given to Beta Prema 2 Ltd. which was
again an independent company and taken over by FOWC in the year
2006.
49. Mr. Ganesh, extensively referred.to the findings of AAR on
this issue wherein the case of FOWC and Jaypee on this aspect was
E accepted by AAR and pleaded that the aforesaid findings be accepted
and restored by this Court. Referring to the judgment of the High Court,
his submission was that the Organisation Agreement entered into between
FIA and Jaypee was not even discuss.ed and the conclusions given in
paragraphs 52 and 53 of the said judgment were erroneous. He also .
F relied upon certain observations of this Court in Union ofIndia & Anr.
Vs. Azadi BacliaoAndo/an &Anr.1' in respect of his submission that
transactions could not be treated as sham.
50. Mr. Datar, learned senior counsel appearing for Jaypee,
supplemented the aforesaid submissions of Mr. Ganesh on the issue of
G the PE. He argued that the judgment of the High Court was flawed in
its approach as it had gone by inductive logic instead of deductive logic.
According to him, the first question which has to be focused upon was
as to what is the business of FOWC. His submission was that since in
this case business ofFOWC was not to organise these races, the question
"' 2004 (IO) sec I ~ 2003 (262) ITR 706
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 195
COMMISSIONER OF INCOME TAX [A. K. SIKRJ, J.]

of its PE in India, that too in the form of circuit where the race is to be A
held, could not be PE of FOWC. He also submitted that even after
going through all the clauses.of the agreement between FOWC and
Jaypee with a toothcomb, it would be fo1.1nd that FOWC had no physical
control over the said circuit. In this behalf, he emphasised the test laid
down by Andhra Pradesh High Court in Visaklrapatnam Port Trust,
B
which is recognised by Philip Baker in his commentary. He also argued
that entire Formula One Event was a temporary model for three days in
a year only and even if it is accepted that the FOWC had control over
this place for those three days, possession of the site for three days in a
year cannot be termed as PE. He also emphasised the fact that since
FOWC was a UK resident company, it had been paying taxes in its own c
country. For a non-resident to pay taxes in other country, as in India in
the instant case, thre.shold has to be very high and the issue of PE had to
be examined with this focus in mind. He submitted that this was precisely
the reason that such sports events held in other countries are never
taxed in those countries.
D
51. His alternate submission was that the agreement in question
was signed in UK under which consideration of US$ 40 million was paid
and, therefore, this income accrued in UK. Thus, such income was
taxable in UK. He argued that insofar as rights to hold the events are
concerned they were granted in UK and it is the grant of rights which
was the determinative test and implementation of those rights took place E
in India. In support of this proposition, he relied on the judgment of this
Court in the case of Commissioner of Income Tax, Andlira Pradeslt
v. Mis. Toslwku Ltd., Guntur & Ors." where the law is discussed in
the following manner:
"I2. The second aspect of the same question is whether the F
commission amounts credited in the books of the statutory agent
can be treated as incomes accrued, arisen, or deemed to have
accrued or arisen in India to the non-resident assessees during
the relevant year. This takes us to Section 9 of the Act.. It is
urged that the commission amounts should be treated as incomes G
deemed to have accrued or arisen in India as they, according to
the Department, had either accrued or arisen through and from
the business connection in India that existed between the non-
resident assessees and the statutory agent. This contention
17
(1980)SuppSCC614=1981AIR148 H
196 SUPREME COURT REPORTS [2017] 2 S.C.R.

A overlooks the effect of clause (a) of the Explanation to dause
(i) of sub-section ( 1) of Section 9 of the Act which provides that
in the case of business of which all the operations are not carried
out in India, the income of the business deemed under that clause
to accrue or arise in India shall be only such part of the income
as is reasonably attributable to the operations carried out in India.
B
If all such operations are carried out in India, the entire income
accruing therefrom shall be deemed to have accrued in India. If,
however, all the operations are not carried out in the taxable
territories, the profits and gains of business deemed to accrue in
India through and from business connection in India shall be only
c such profits and gains as are reasonably attributable to that part
of the operations carried out in the taxable territories. If no
operations of business are carried out in the taxable territories, it
follows that the income accruing or arising abroad through or
from any business connection in India cannot be deemed to
accrue or arise in India. [See C!Tv. R.D. Aggarwal & Co. (AIR
D
1965 SC 1526: (1964) I SCR 234, 247: 56 ITR 20]
and Carborandum Co. v. C/71( 1977) 2 SCC 862 : 1977 SCC
(Tax) 391 : (1977) 3 SCR 4 75 : ( 1977) I 08 ITR 335] which are
decided on the basis of Section 42 of the Indian Income Tax Act,
1922, which corresponds to Section 9( I )(i) of the Act.]"
E 52. Another submission of Mr. Ganesh was that the High Court
did not have jurisdiction, in exercise of its powers under Article 226 of
the Constitution, to go into the 'findings' of AAR on the issue of 'fixed
place'. He argued that under Article 226 of the Constitlltion, the High
Court exercised Certiorari jurisdiction and in exercise of such a
F jurisdiction, findings of facts recorded by the Tribunal, which are the
subject matter ofjudicial review, cannot be gone ii1to.
53. Without prejudice to the aforesaid submissions, n~xi argument ·
of Mr. Datar was that having regard to the facts of this case, no interest
should be held payable under Section 201 of the Act. Referring to the
G scheme of Chapter XXIX-B which pertains to advance rulings, he
submitted that the parties had shown their bona fides in having the
question raised before theAAR, and it was specifically agreed to between
FOWC and Jaypee in Clause 24.6 of the.Agreement that the parties
should approach AAR for determination of the questions which were
referred. He pointed out that once an application was made before the
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 197
COMMISSIONER OF INCOME TAX (A. K. SIKRI, J.]

AAR, procedure that is contained in Section 245R, on receipt of such A.
applications, had to be followed by AAR and in that event Section 245
RR mandates that no income tax authority or the appellate tribunal shall
proceed to decide any issue in respect of which an application has been
made by the applicant, being a resident, under Section 245QQ for
advance ruling. Once advance ruling is pronounced by AAR, it was
B
binding on the applicant who had sought the same in respect of a particular
transaction as well as on the Principal Commissioner and Commissioner
oflncome Tax Authorities subordinate to him. According to him, in such
a scenario, it should not be considered that Jaypee had failed to deduct
tax at source from the amounts paid to FOWC and as a consequence of
failure to deduct, it should be fastened with the liability to pay interest c
under Section 20 I . In support, paragraph 12 of GE ln<fill Tecflnology
Ce11tre Privllte Limited v. Commissioner of Income Tax & Anr. 18
was pressed into service which reads as follows:
"12. Reference to ITO(TDS) under Section 195(2) or Section
195(3) either by the non-resident or by the resident payer is to D
avoid any foture hassles for both the resident as well as the non-
resident. In our view, Sections 195(2) and 195(3) are safeguards.
The said provisions are of practical importance. This reasoning
of ours is based on the decision of this Court in Transmission
Corpn. ((1999) 7 SCC 266: (1999) 239 ITR 587] in which this
Court has observed that the provision of Section 195(2) is a E
safeguard. From this it follows that w.here a person responsible
for deduction is fairly certain then he can make his own
determination as to whether the tax was deductible at source
and, if so, what should be the amount thereof."
54. Last submission of Mr. Datar was that in any case it was yet F
to be determined as to how much of US$ 40 million fee paid by Jaypee
to FOWC could be attributed to PE, inasmuch as it is only that portion of
income that is relatable to PE which is liable for tax in India. This has
not happened so far.
55. Mr. Dushant Dave, teamed senior counsel, again appearing G
for Jaypee, made an additional submission to the effect that international
treaties which are signed between the two sovereign COU!)tries have to
be given adequate an.ct due respect which they command. He exhorted
the Court to keep this fundamental principle in mind while interpreting
" (2010) lo sec 29 H
198 SUPREME COURT REPORTS [2017] 2 S.C.R.

A clause 5 of DTAA and submitted that such an approach has been
commanded by this Court time and again. By way of example, he cited
the judgements in the cases of Azadi Bacl1Uo Amlolan and Mllganhlllli
ls/1warb/1ai Patel Etc. v. Union of India and Another". He also
referred to paragraph 6 of the UK judgment in the case of Sepet v.
Secretary of State/or tile Home Department" wherein it was pressed
B
that single autonomous meaning·was required to be given to the treaties
which are living instruments whose meaning does not change over time
but application will.
56. From Azadi Bacllllo Antlolan fol lowing passages were relied
upon:
c
"17. Every country seeks to tax the income generated within its
territory on the basis of one or more connecting factors such as
location of the source, residence ofthe taxable entity, maintenance
of a permanent establishment, and so on. A country might choose
to emphasise one or the other of the aforesaid factors for
D exercising fiscal jurisdiction to tax the entity. Depending on which
of the factors is considered to be the connecting factor in different
- countries, the same income of the same entity might become
liable to taxation in different countries. This would give rise to
harsh consequences and impair economic development. In order
E to avoid such an anomalous and incongruous situation, the
Governments of different countries enter into bilateral treaties,
conventions or agree1nents for granting relief against double
taxation. Such treaties, conventions or agreements are called
Double Taxation Avoidance Treaties, Conventions or
Agreements.
F
xx xx xx
· 130. The principles adopted in interpretation of treaties are not
the same as those in interpretation of a statutory legislation. While
commenting on the interpretation of a treaty imported into a
G municipal law, Francis Bennion observes:
"With indirect enactment, instead of the substantive legislation
taking the well-known form of an Act of Parliament, it has the
form of a treaty. In other words, the form and language found
19 I970(3)SCC400

H '" 2003 (3) AllER 304
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 199
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

· suitable for·embodying an international agreement become, at A
· the stroke of a pen, also the form and language of a municipal
legislative instrument. It is rather like. saying that, by Act of
Parliament, a woman shall be a man. Inconveniences may
ensue. One inconvenience is that the interpreter is likely to be
required to cope with disorganised composition instead of
B
precision drafting. The drafting of treaties is notoriously sloppy
usually for a very good reason. To get agreement, politic
uncertainty is called for .
. . . The interpretation of a treaty imported into municipal law
by indirect enactment was described by Lord Wilberforce as
being 'unconstrained by technical rules of English law, or by c
English legal precedent, but conducted on broad principles of
general acceptation. This echoes the optimistic dictum of Lord·
Widgery, C.J. that the words 'are to be given their general
meaning, general to lawyer and layman alike ... the meaning
of the diplomat rather than the lawyer'. [Francis Bennion: D
Statutory Interpretation, p. 461 [Butterworths, 1992 (2nd
Edn.)].]"
xx xx xx
131.An important principle which needs to be kept in mind in the
interpretation ofthe provisions ofan international treaty, including E
one for double taxation relief, is that treaties are negotiated and
entered intci at a political level and have several considerations
as their bases. Commenting on this aspect of the matter, David
R. Davis in Principles of International Double Taxation
Relief [David R. Davis: Principles of International Double F
Taxation Relief, p. 4 (London, Sweet & Maxwell, 1985)], points
out that the main function of a Double Taxation Avoidance Treaty
should be seen in the context of aiding commercial relations
between treaty partners and as being essentially a bargain
betweel) two treaty countries as to the division of tax revenues
between them in respect of income falling to be taxed in both G
jurisdictions. It is observed (vide paragraph 1.06):
"The benefits and detriments ofa double tax treaty will probably
only be truly reciprocal where the flow of trade and investment
between treaty partners is generally in balance. Where this is
not the case, the benefits of the treaty may be weighed more H
200 SUPREME COURT REPORTS (2017) 2 S,C.R.

A in favour of one treaty partner than the other, even though the
provisions of the treaty are expressed in reciprocal tenns. This
has been identified as occurring in relation to tax treaties
between developed and developing countries, where the flow
of trade and investment is largely one-way.
B Because treaty negotiations are largely a bargaining process
with each side seeking concessions from the other, the final
agreement will often represent a number of compromises, and
it may be uncertain as to whether a full and sufficient quid
pro quo is obtained by both sides."

c And, finally, in paragraph 1.08:
"Apart from the allocation of tax between the treaty partners,
tax treaties can also help to resolve problems and can obtain
benefits which cannot be achieved unilaterally."
xx xx xx
D
134. Developing countries need foreign investments, and the
treaty-shopping opportunities can be an additional factor to attract
them. The use of Cyprus as a treaty haven has helped capital
inflows into eastern Europe. Madeira (Portugal) is attractive for
investments into the European Union. Singapore is developing
E itself as a base for investments in South-East Asia and China.·
Mauritius today provides a suitable treaty conduit for South Asia
and South Africa. In recent years, India has been the beneficiary
of significant foreign funds through the "Mauritius conduit".
Although Indian economic reforms since 1991 permitted such
capital transfers, the amount would have been much lower
F
without the India-Mauritius Tax Treaty
135. Overall, countries need to take, and do take, a holistic view.
Developing countries allow treaty shopping to encourage capital
and technology inflows, which developed countries are keen to
provide to them. The loss of tax revenues could be insignificant
G
compared to the other non-tax benefits to their economy. Many
of them do not appear to be too concerned unless the revenue
losses are significant compared to the other tax and non-tax
benefits from the treaty, or the treaty shopping leads to other tax
abuses."
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 201
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

57. Mr. Mukul Rohtagi, learned Attorney General, came out with A
strong refutation to the aforesaid submissions. Responding in an equally
salubrious style, he demonstrated the 'flow of commercial rights' in
relation to these events, under various agreements executed between
different stakeholders from time to time and the manner in which such
rights are ultimately exploited by FOWC and its other group companies
B
in respect of the F-1 race organized in India. For this purpose, he referred
to eleven agreements between different parties highlighting certain
features and aspects in the following manner:
Agreement between FIA and FOAM dated April 24, 2001
- FIA parts with commercial rights in favour of FOAM.
FOAM becomes the exclusive Commercial Rights Holder c
(CRH).

Agreement between FOAM and FOWC dated April 24,
200 I - FOAM transfers the commercial rights in favour D
ofFOWC with effect from 2011 fora period of 100 years.

RPC dated October 25. 2007 between FOWC and Jaypee:
( l) Building of the circuit was started in terms of this RPC.
E
(2) FOWC was granted only the rightto promote the event
(clause 4(1 ).
(3) FOM was declared the business manager and agent
of FOWC (Recital D).
(4) This agreement was signed by FOM on behalf of F
FOWC.
(5) No condition precedent clause obligating Jaypee to
enter into any agreements with FOWC group entities.
(6) No clause obligating Jaypee to enter into an agreement
G
with FOM for generation of television feed.
(7) Agreement in the same template as Schedule IV to
the Concorde Agreement.

H
202 SUPREME COURT REPORTS [2017) 2 S.C.R.

A l oncorcte 4 areement 1 f 1111 '-' l between I"'• A • ana
teams:
(I) FOWC becomes the exclusive CRH.
(2) FOWC could exploit the commercial rights directly or
through its affiliates only.
B
(3) 'Fl business' defined to mean exploitation of various
rights, including media rights, hospitality rights, title·
sponsorship, etc.
(4) Revenue ofFOWC and its affiliates to be taken for
c distributing the prize money to the teams under Schedule
x
Organisation Agreement dated January 20. 2011 between
FIA/FMSCI and Jaypee:
(I) Jaypee to organise the event.
D
(2) As of this date, Jaypee has entered into an agreement
with the CRH (Recital B).
(3) Template of the agreement contained in Schedule VI
of the Concorde Agreement.
E
Title Sponsorship Agreement dated August 16, 2011
between Beta Prema 2 and Bharti Airtel:
(1) Transfer of title sponsorship rights by Beta to Bharti
Airtel for US$ 8 million.
F
(2) This agreement is one month before the agreement
between Beta Prema 2 and Jaypee through which Beta
Prema 2 allegedly acquired this right.

G RPC dated September 13, 2011 between FOWC and
Jaypee:
(I) Agreement entered one month before the race.
(2) Fresh RPC entered without rescinding the RPC of
2007.
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 203
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

A
(3) Right to host, stage and promote the event allegedly
given to Jaypee by FOWC, unlike the previous RPC which
only gave the right to promote.
(4) Conditions precedent binding Jaypee to transfer the
rights back to the affiliates ofFOWC. B

(5) Clause 18.3 binding Jaypee to engage FOM for
generating television feed introduced in this RPC.
(6) Recital D of the previous RPC which declared FOM
the business manager and agent removed. c

Agreements between JP and the three affiliates
(September 13. 20 I I)
(I) Agreements entered on the same day as RPC, i.e.
D
September 13, 2011.
(2) Rights allegedly given to Jaypee are transferred back
to the FOWC affiliates. Beta Prema 2 acquires circuit
rights (mainly media and title sponsorship) and Allsports
gets paddock rights.
E
(3) FOM engaged to generation television feed.
(4) Agreement provides that all revenues from the rights
would flow to the affiliates and not Jaypee (clause 11 ).
(5) Agreement provides thatthere does not exist an agency
relationship between the affiliates and Jaypee (clause 26). F

Service.Agreement dated October 28, 2011 between
FOWC and FOM:
(I) Agreement entered into on October 28, 2011, on the G
day of race.
(2) FOM engaged by FOWC to provide various services
- liaison and supervision ofother parties atthe event, travel,
transport and data support services.
H
204 SUPREME COURT REPORTS [2017] 2 S.C.R.

A
Director's report of financial statements of FOWC for
the year 201 I :Defines the business of FOWC as 'The
company s principal activity during the year was the
organisation, management and administration OJ
B motorsport conducted principally through the
exploitation of the commercial rights to the FIA
Formula One World Championship".
58. From the features described above, it was submitted by
the learned Attorney General that clear manifestation of the aforesaid
c agreements was that FOWC and its subsidiaries had taken total control
over the event that took place in India which, according to him, was to
be kept in mind for proper examination of the issues in their right
perspective. Mr. Rohtagi argued that Section 5(2)(b) of the Act, which
applies in the instant case, specifically includes 'income' ofa non-resident
from '1vhatever source derived', if this income accrues or arises or is
D deemed to accrue or arise to him in lndia during such year. Referring to.
Section 9 of the Act, which specifies the circumstances under which
income shall be deemed to accrue or arise in India, he pointed out that it
covers all income, 'll'hetherdirectly or indirectly', that accrues or arises,
if it is through or from any 'business connection in India'. Therefore,
E if business connection is established, then all incomes, whether earned
directly or indirectly, would come within the net oftaxability of such
incomes in India. Referring to explanation (2) to Section 9( I )(i), he laid
stress on the submission that 'business connection' shall include any
business activity 'through' a person who acts on behalf of the non-
resident. The expression 'through' is clarified in explanation (4) thereof
F to mean and include and shall be deemed to have always meant and
include 'by means of',. 'in consequence of' or 'by reason of'. He
submitted that these deeming provisions are Qf very vide import and
when the facts of this case are examined keeping in view the aforesaid
provisions, the High Court rightly concluded that FOWC had PE in India.
G He also argued that Jaypee was only to host the event, whereas total
access at the time of construction as well as at the time of event was
that of FOWC. According to him, at the most, it was in the nature of
Jaypee and FOWC as partners in the business.
59. Mr. Rohatgi also submitted that comparisons of first Agreement
of2007 with the second Agreement dated September 13, 201 I clearly
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 205
COMMISSIONER OF INCOME TAX [A. K. SlKRl, J.]

demonstrates that the second agreement was totally subterfuge to avoid A
payment of tax in India. He pointed out that in the Agreement dated
October 25, 2007, FOWC was granted only the right to promote' the
event (Clause 4(1 )), whereas in the Agreement dated September 13,
2011, right !O 'host, stage and promote' the event was allegedly given
to Jaypee by FOWC. According to him, right to host and stage the
B
event was conferred upon Jaypee only on paper to give it a semblance
as if Jaypee was in real control of the affairs, which was not actually so.
Therefore, in any case, it would not make any difference when in reality
the rights of hosting and staging the competition were with FOWC.
60. Referring to the Agreement dated September 13, 2011
between Jaypee and three affiliates of FOWC, the argument of Mr.
c
Rohatgi was that the so-called rights given to Jaypee were transferred
back to FOWC affiliates inasmuch as Beta Prema 2 acquired circuit
rights, mainly media and title sponsorship, whereasAllsports was given
paddock rights. His submission was that business was carried from the
circuit, paddock, etc. and, therefore, it cannot be said that no business D
activity was carried from this place. He also pointed out how FOWC
granted rights to FOAM to provide various services in case FO WC had
no control over the race. It also showed physical management of the
. business as well.
61. Coming to the issue of dependent PEs, submission of the E
learned Attorney General was that in view of the flowchart depicting
commercial rights with FOWC and its affiliates, this issue was virtually
an academic issue once it is found that FOWC and its affiliates are one
conglomerate, the commercial rights of different nature, viz. the CRH
bouquet was With the group companies under the control of same
management which exploited all these rights. These companies had F
pooled all the profits and sharing thereof was in the ratio of50:50 between
the teams and CRH companies.
62. As far as power of the High Court under Article 226 of the
Constitution oflndia to go into the issue is concerned, Mr. Rohatgi drew
the attention of the Court to its earlier judgment in Columbia Sportswear G
Company v. Director of Income Tax, Bangalore" wherein this Court
had impressed that from the rulings of AAR the aggrieved person was
required to approach the High Court in the first instance. He, thus,
submitted that it was the first forum of judicial review of the opinion
21
(2012) 11 sec 224 H
206 SUPREME COURT REPORTS (2017] 2 S.C.R.

A given by the AAR and, therefore, the High Court was very well within
its power to revisit the issue; albeit within the scope of jurisdiction of
Article 226 of the Constitution oflndia, and decide the same. According
to him, the High Court had not exceeded its jurisdiction while deciding
the aforesaid issues in the writ petitions filed by the appellants themselves.
B 63. Refuting the arguments of Mr. Datar predicated on Section
195 of the Act, Mr. Rohatgi referred to the judgment of this Court in GE
India Tecltnology Centre Private Limited v. Commissioner ofIncome
Tax & Anr." wherein following principle is laid down in paragraph 18:
"18. If the contention of the Department that any person making
c payment to a non-resident is necessarily required to deduct TAS
then the cons.equence would be that the Department would be
entitled to appropriate the monies deposited by the payer even if
the sum paid is not chargeable to tax because there is no provision
in the IT Act by which a payer can obtain refund. Section 237
read with Section 199 implies that only the recipient of the sum
D i.e. the payee could seek a refund. It must therefore follow, if
the Department is right, that the law requires tax to be deducted
on all payments. The payer, therefore, has to deduct and pay
tax, even ifthe so-called deduction comes out of his own pocket
and he has no remedy whatsoever, even where the sum paid by
E .. him is not a sum chargeable under the Act. The interpretation of
-the Department, therefore, not only requires the words
"chargeable under the provisions of the Act" to be omitted, it
also leads to an absurd consequence. The interpretation placed.
by the Department would result in a situation where even \vhen
the income has no territorial nexus with India or is not chargeable
F in India, the Government would nonetheless collect tax. In our
view, Section 195(2) provides a remedy by which a person may
seek a determination of the "appropriate proportion of such sum
so chargeable" where a proportion of the sum so chargeable is
liable to tax."
G He, thus, submitted that if there was any breach of the said provision,
the Income Tax Department was well within its right to charge interest
and/or impose penalty.
64. In rejoinder, Mis. Ganesh and Datar gave their answers to
the aforesaid submissions, but it may not be necessary to reproduce.the
H "(2010) 10 sec 29
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 207
COMMISSIONER OF INCOME TAX (A. K. SIKRI, J.]

same at this stage as we would like to take note of the same while A
dealing with the respective submissions.
ANALYSIS, FINDINGS & CONCLUSION
65. We have pondered over the aforesaid submissions of the
learned counsel for the parties with all seriousness and sincerity they
deserve. We have also minutely gone through the material placed on B
record. We have kept in mind the governing law that has already been
stated in detail. We are also conscious of the approach that is needed to
examine these kinds of issues, as discussed in the judgments referred to
by Mr. Dave. Likewise, we have also microscopically examined the
judgment of the High Court which is under challenge. c
66. As per Article 5 of the DTAA, the PE has to be a fixed place
of business ··through' which business of an enterprise is wholly or partly
carried on. Some examples of fixed place are given in Article 5(2), by
way of an inclusion. Article 5(3), on the other hand, excludes certain
places which would not be treated as PE, i.e. what is mentioned in clauses D
(a)to (f) as the 'negative list'. A combined reading of sub-articles (1 ),
(2) and (3) of Article 5 would clearly show that only certain forms of
establishment are excluded as mentioned in Article 5(3), which would
not be PEs. Otherwise, sub-article (2) uses the word 'include' which
means that not only the places specified therein are to be treated as
PEs, the list of such PEs is not exhaustive. In order to bring any other E
establishment which is not specifically mentioned, the requirements laid
down in sub-article (1) are to be satisfied. Twin conditions which need
to be satisfied are: (i) existence of a fixed place of business; and (b)
through that place business of an enterprise· is wholly or partly carried
out. F
67. We are of the firm opinion, and it cannot be denied, that Buddh
International Circuit is a fixed place. From this circuit different races,
including the Grand Prix is conducted, which is undoubtedly an economic/
business activity. The core question is as to whether this was put at the
disposal of FOWC? Whether this was a fixed place of business of G
FOWC is the next question. We would like to start our discussion on a
crucial parameter viz. the manner in which commercial rights, which
are held by FOWC !nd its affiliates, have been exploited in the instant
case. For this purpose entire arrangement between FOWC and its
associates on the one hand and Jaypee on the other hand, is to be kept in·
mind. Various agreements cannot be looked into by isolating them from H
208 SUPREME COURT REPORTS [2017] 2 S.C.R.

A each other. Their wholesome reading would bring out the real transaction
between the parties. Such an approach is essentially required to find out
as to who is having real and dominant control over the Event, thereby
providing an answer to the question as to whether Buddh International
Circuit was at the disposal of FOWC and whether it carried out any
business therefrom or not. There is an inalienable relevance of witnessing
B the wholesome arrangement in order to have complete picture of the
relationship between FOWC and Jaypee. That would enable us to capture
the real essence of FOWC's role.
68. A mere running of the eye over the flowchart of these
commercial rights, produced by the Revenue, bring about the following
c material factors, evidently discernible:
(i) FIA had assigned commercial rights in favour of FOAM
vide agreement dated April 24, 2001 and on the same day
another agreement was signed between FOAM and FOWC
vide which these rights were transferred to FOWC. Vide
D another agreement of201 l, these rights stand transferred in
favour of FOWC for a period of 100 years. Vide Concorde
Agreement of 2009, FOWC is authorised to explpit the
commercial rights directly or through its affiliates only.
Significantly, this agreement defines 'F-1 Business' to mean
E exploitation of various rights, including media rights, hospitality

.
rights, title sponsorship, etc .
(ii) Armed with the aforesaid rights, FOWC signed first
agreement with Jaypee on October 25, 2007 whereby it
granted right to promote the event to Jaypee. This is replaced
F by RPC dated September 13, 2011. Under this agreement,
right to host, stage and promote the event are given by FOWC
to Jaypee for a consideration of US$ 40 million. On the
same day, another agreement is signed between Jaypee and
three affiliates ofFOWC whereby Jaypee gives back circuit
rights, mainly media and title sponsorship, to Beta Prema 2
G and paddock rights to Allsports. FOAM is engaged to
generate TV Feed. All the revenues from the aforesaid
activities are to.go to the said companies, namely, Beta Prema
2, Allsports and FOAM respectively. These three companies
are admittedly affiliates to FOWC.
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 209
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

Though Beta Prema 2 is given media rights, etc., on September A
13, 2011, it had entered into title sponsorship agreement dated
August 16, 2011 with Bharti Airtel (i.e. more than a month before
getting these rights from Jaypee) whereby it transferred those
rights to Bharti Airtel for a consideration ofUS$ 8 mill ion.
Service agreement is signed between FOWC and FOAM on B
October 28, 2011 (i.e. on the date of the race) whereby FOAM
engaged FOWC to provide various services like licensing and
supervision of other parties at the event, travel and transport and
data support services. The aforesaid arrangement clearly
demonstrates that the entire event is taken over and controlled
by FOWC and its affiliates. There cannot be any race without
c
· participating/ competing teams, a circuit and a paddock. All these
are controlled by FOWC and its affiliates. Event has taken place
by conduct of race physically in India. Entire income is generated
from the conduct of this event in India. Thus, commercial rights
are with FOWC which are exploited with actual conduct ofrace D
in India.
(iii) Even the physical control of the circuit was with FOWC
and its affiliates from the inception, i.e. inclusion of event in
a circuit till the conclusion of the event. Omnipresence of
FOWC and its stamp over the event is loud, clear and firm. E
Mr. Rohatgi is right in his submission that the undisputed
facts were that race was physically conducted in India and
from this race income was generated in India. Therefore, a
commonsense and plain thinking of the entire situation would
lead to the conclusion that FOWC had made their earning in
India through the said track over which they had complete F
control during the period of race. The appellants are trying
to trivialize the issue by harping on the fact that duration of
the event was three days and, therefore, control, if at all,
would be for that period only. His reply was that the duration
of the agreement was five years, which was extendable to . G
·another five years. The question of th~ PE has to be
examined keeping in mind that the aforesaid race was to be
conducted only for three days in a year and for the entire
period of race the control was with FOWC.

H
210 SUPREME COURT REPORTS [2017] 2 S.C.R.

.A (iv) Even when we examine the matt<~r by examininf: the RPC
agreement itself, it points towards the same conclusion. The
High Court in its judgment has reproduced relevant clauses
of the agreement which we have already reproduced above.
This agreement is analysed by the High Court. Therefore, we
B are spared of doing a diagnostic of sorts, which exercise is accomplished
by the High Court itself in a flawless manner:
"(a) The Buddh International Circuit, is defined in Clause l(q),
as one suitable in every respect for the staging of the event,
including permanent buildings, permanent struc1ture, track laid-
c out, amenities, spectator viewing facilities, paddock building, media
centre, car parks, helipads, garages, race control and
administration, office administration, fuel and storage:, tyre store,
utilities, including backup power supplies, concrete-based areas
suitable to host competitors and sponsor, vending and exhibition
areas, international TV compounds etc. Thes-!: specilfications are
D more elaborately spelt out in Clause S(e) which states that a
circuit shall be constructed, laid out and prepar~d in accordance
with the agreement, i.e. RPC, "in a form and manner approved ·
by the FOWC and the FIA".
(b) The inclusion of the event is through the FOWC's actions.
E • Jn terms of its arrangement with ·the FIA, it is the exclusive
agency through which any particular circuit is introduced for an
event in a given calendar year.
(c) The term of the RPC is 5 years accorcling to Clauses 3.3
and 3.4. •
F (d) Jn terms of Clause 11, Jaypee is obliged to take all action
necessary to ensure that the pit, paddock buildings and surrounding
areas within the circuit and land are open to receive the
competitors, FOWC, affiliates ofFOWC, FOWC's contractors
and licensees, other personnel and equipment at all times during
the period_commencing 14 days before the race and ending 7
G days after the race. It also has to assure _security to these areas.
(e) Under Clause 14, the promoter is obliged to authorize access
to parts of the circuit not open to the main public only through
passes issued by the FOWC. Under Clause 14(b), the public
cannot have access to the cars in any of the places where the
H competitor's mechanics may be called upon to wo·-,k on them
FOT<.'MULA ONE WORLD CHAMPIONSHIP LTD. v. 211
COMMISSIONER OF IN1C:OME TAX [A. K. SIKRI, J.]

and ull'Cl'er Clause 14( c), the validity of passes issued by FOWC A
is unque~:tionable.
(f) Unde1- Clause 18.1, throu1;hout the term during the access
. period, from the test session heh'l at the circuit till the end ~f!Jl!l
event, the promoter, i.e. Jaype,e cannot permit, access, enable,
procure or .in any manner en1;ourage others to make, create, B
store, record or transmit any so1'J't1d recording or visual or audio-
visual foe itage whatsoever, for .br.oadcast or any other purpose,
of any of at or pertaining to the e\vent, including cars, drivers,
competitc !TS etc. and in fact canno,\ make any such recording
etc. withiin the confines of the circuit or the land over which
Jaypee its1)Ifhas control. c
(g) Under Clause 18.2, Jaypee has to ensure that the terms of
the ticket sale, giving admittance to 1the event include a CP11c\itioll
imposed on the ticket holder not to make any kind of recartJipg
or take an~11recording device that ci m store or trarnsmit any part
of the event. and that the ticket ho I der as a spectator could be D
filmed and a sound made by him cou Id be recorded for broadcast
or any oth,er .such item thatthe FO\\IC could impose onJaypee.
(h) Jaype•: is obliged to engage a thir- d party approved by F,g>W~
to carry c iut and perform on its beha If all service re!S"dng to the
originati ion of the international ·television feed and host
E
broadcas :ting for each event durin1•; the tenn specified in the
guidelin• es published by FOWC and ,provided to Jaypee.
(i)Jaype e unconditionally and irrev·ocably ·unc\\lf Clause 19.2
assignee I to FOWC all copyright and other intellect,ual property
rights, t :itles and interest which it may now or may in future
possess, iin any image or recording or other preS!JXlfation or F
recordi1 tg in any image/fonn what: ;oe ver for the durmio.n of the
rights and also give consent to FOV/C to deal with such rights as
it pleas ed.
(j) Ck mse 20.1 obliged Jaypee to ensmre that those accredite~
and a uthrnrized by FOWC were perm,itted to enter upon the .G
premi ises to make sound, television' ~rrecordings or transmissions
or m: ake films or other pictures anc I use th•e facilities throughout
the f 1ccess period and also undertoc 1k to ac1;ord to such pernonniri
all 'help and facilities tll"t FOW C wou]o require, including
8.SS istance forconsent, pennissi01,1 m autho:rization with any local
H
212 SUPREME COURT REPORTS (2017] 2 S.C.R.

A authority.
(k) Under Clause 21. Jaypee was prohibited from causing,
pennitting, enabling assisting or in any manner encouraging display
of any advertisement (other than the normal advertisement
displayed on any competitor's cars) or other displays on, near or
B which could b~seen from the circuit or the land which, in the
opinion of the FOWC, could prevent lawful transmission of
images or recordings of the event. FOWC's say in this regard
was final.
(I) In the Directors repo1t ofFOWC, the company significantly
mentioned that its current company had entered into an agreement
c with FIA as a result of which FOWC acquired commercial
interests in the championship which became operative from
01.11.2011 and that in exploitation of such commercial rights in
the championship, the total revenues generated was US$ 1205
million. There is an express advertence of the Indian part of the
D turn-over - inasmuch as the report said that the company paio
US$ 127 million to FOM in return of provision of services."
69. We are in agreement with the aforesaid analysis which
correctly captures the substance of the relevant clauses of the agreement.
70. We are also of the opinion that the High Court has rightly
E concluded that having regard to the duration of the event, which was for
limited days, and for the entire duration FOWC had full access through
its personnel, number of days for which the access was there would not
make any difference. This aspect is discussed by the High Court in the
following manner, and rightly so:
F "52. It is evident that for the duration of the event as well as two
weeks prior to it and a week succeeding it, FOWC had full access
through its personnel, the team contracted to it, both racing as
well as spectator teams and could also dictate who were
authorized to enter the areas reserved for it. No doubt, in terms
of the agreement, i.e. RPC, Jaypee was designated as the
G
promoter or the event host. A look at the RPC and its terms as
well as the other terms contained in the agreement between the
Jaypee on the one band and Allsports, Beta Prema 2 as well as
FOAM show that Jaypee's capacity to act - thougl) it promoted
cl1e event, was extremely restricted. At all material times, FOWC
H had access - exclusively, to the circuit, and all the spaces where
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 213
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.)

the teams were located. Jaypee created the circuit for the A
purposes of the event and other events; yet, during the event,
i.e. the Fl Championship, no other event was possible.
53. Having regard to the nature of the preceding discussion, it is
evident that though FOWC's access or right to access was not
permanent, in the sense of its being everlasting, at the same B
time, the model of commercial transactions it chose is such that
its exclusive circuit access - to the team and its personnel or
those contracted by it, was for up-to six weeks at a time during
the Fl Championship season. This nature of activity, i.e racing
and exploitation of all the bundle of rights the FOWC had as
CRH, meant that it was a shifting or moving presence: the teams c
competed in the race in a given place and after its conclusion,
moved on to another locale where a similar race is conducted.
Now with this kind of activity, although there may not be
substantiality in an absolute sense with regard to the time period,
both the exclusive nature of the access and the period for which D
it is accessed, in the opinion of the Court, makes the presence of
a kind contemplated under Article 5(1 ), i.e. it is fixed. In other
words, the presence is neither ephemeral or fleeting, or sporadic.
The fact that RPC-2011 's tenure is of five years, meant that
there was a repetition; furthermore, FOWC was entitled even in
the event of a termination, to two years' payment of the assured E
consideration of US$ 40 million (Clause 24 of the RPC). Having
regard to the OECD commentary and Klaus Vogel's commentary
on the general principles applicable that as long as the presence
is in a physically defined geographical area, permanence in such
fixed place could be relative having regard to the nature of the
F
business, it is hereby held thatthe circuit itself constituted a fixed
place of business.
71. A stand at a trade fair, occupied regularly for three weeks a
year, through which an enterprise obtained contracts for a significant
part of its annual sales, was held to constitute a PE". Likewise, a
G
· temporary restaurant operated in a mirror tent at a Dutch flower show
for a period of seven months was held to constitute a PE".
72. The High Court has also referred to some of the judgments
23
Refer Footnote 4
24
Refer Footnote 5
H
214 SUPREME COURT REPORTS [2017] 2 S.C.R.

A which are of relevance. We would like to take note of those judgments
as we had agreed with the conclusions of the High Court on this issue:
..
In Universal Furniture Ind. AB v. Government of Norway", a
Swedish company sold furniture abroad that was assembled in Sweden.
It hired an individual tax resident of Norway to look after its sales in
B Norway, including sales to a Swedish company, which used to compensate
him for use of a phone and other facilities. Later, the company
discontinued such payments and increased his salary. The Norwegian
tax authorities said that the Swedish company had its place of business
in Norway. The Norwegian court agreed, holding that the salesman's
house amounted to a place of business: it was sufficient that the Swedish
c Company had a place at its disposal, i.e the Norwegian individual's home,
which could be regarded as 'fixed'.
In Joseph Fowler v. Her Majesty tile Queen", the issue was
whether a United States tax resident individual who used to visit and sell
his wares in a camper trailer, in fairs, for a number of years had a fixed
D place of business in Canada. The fairs used to be once a year,
approximately for three weeks each. The court observed that the nature
of the individual's business was such that he held sales in similar fares,
for duration of two or three weeks, in two other locales in the United
States. The court held that conceptually, the place was one of business,
E notwithstanding the short duration, because it amounted to a place of
management or a branch having regard to peculiarities of the business.
73. Coming to the second aspect of the issue, namely, whether
FOWC carried on any business and commercial activity in India or not,
substantial part of this aspect has already been discussed and taken
F care of above. Without being repetitive and pleonastic or tautologous,
we may only add that FOWC is the Commercial Right Holder (CRH).
These rights can be exploited with the conduct of F-1 Championship,
which is organised in various countries. It was decided to have this
championship in India as well. In order to undertake conducting of such
races, the first requirement is to have a track for this purpose. Then,
G teams are needed who would participate in the competition. Another
requirement is to have the public/viewers who would be interested in
witnessing such races from the places built around the track. Again, for

" (Stavanger Court, Case No. 99-00421, dated 19-12-1999 referred to in Principles
of International Taxation by Anghard Miller and Lyn Oates, 2012)
H "' 1990 (2) CTC 2351
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 215
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

augmenting the earnings in these events, there would be advertisements, A
media rights, etc. as well. It is FOWC and its affiliates which have been
responsible for all the afore~aid activities. The Concorde Agreement is
signed between FIA, FOA and FOWC whereby not only FOWC became
Commercial Rights Holder for I 00 years, this agreement further enabled
participation of the teams who agreed for such participation in the FIA
B
Championship each year for every event and undertook to participate in
each event with two cars. FIA undertook to ensure that events were
held and FOWC, as CRH, undertook to enter into contracts with event
promoters and host such events. All possible commercial rights, including
advertisement, media rights, etc. and even right to sell paddock seats,
were assumed by FOWC and its associates. Thus, as a part of its business, c
FOWC (as well as its affiliates) undertook the aforesaid commercial
activities in India. Without explaining this aspect further, our purpose
would be served by reproducing the following discussion, so starkly put
in the judgment of the High Court:
"55. If the terms of the Concorde Agreement are read conjointly D
with the RPC-2011, it is apparent that the CRH, which is the
FOWC, only and none else has the right to include a venue in
any FIA annual calendar. FIA is bound to accord permission for
such inclusion; FOWC is the exclusive commercial rights holder
of a host of rights (evident from the recital in the Concorde
Agreement that FIA, FOWC and other members of the CRH E
group had entered into such contracts to enable commercial
exploitation of the rights for a I 00 year period). Under the RPC-
2011, only FOWC has exclusive rights towards making sound,
television and other recordings and exploitation of its media rights.
FOWC has copyright over databases and all related information, F
etc. generated, during the event, including practice sessions etc.
(Clause 22, RPC-2011). Only those accredited by FOWC can
enter the promoter's premises and circuit to make sound and
television recordings, etc.
56. It is quite apparent that save a limited class ofrights (those G
relating to paddock entry, ticketing, hospitality at the venue and a
restricted class of advertising), all commercial exploitation rights
vest exclusively with FOWC. FOWC did accept them and was
entitled to charge fees or such other consideration as it deemed
appropriate for the recording, telecasting, broadcasting _and
H
216 SUPREME COURT REPORTS [2017) 2 S.C.R.

A creation of internet and media rights, including data transmission,
and all other such commercially exploitable rights. In addition,
FOWC charged, by Clause 24 of RPC-2011, a fee of US$ 40
million annually from Jaypee, in relation to the race event or FIA
Fl Championship event conducted on the circuit in India.
B 57. It is also noteworthy that by virtue of the Concorde Agreement,
the teams have undertaken to engage in every race - with the
added condition that each team would involve two cars for every
race in any circuit chosen by FOWC. RPC-2011 also assured
that the FOWC would ensure that such team did in fact participate
in the event in the Budh Circuit. This is an important fact-which
c shows that the entire event, i.e. Fl FIA Championship in the
circ.uit was organized and controlled in every sense of the term
by FOWC. The peculiarity of this activity is such that FOWC's
dominant role is evident; it is the moving spirit with all pervasive
presence and control through the teams, which are contracted
D to participate in the event. In fact, it creates the event, i.e. the
race. Each actor, such the promoter/Jaypee, the racing teams,
the constructing teams and the other affiliates, plays a part in the
event. FOWC's participation and the undertakings given to it by
each of these actors, who are responsible for the event as a
whole, brings out its central and dominant role. If Jaypee is the
E
event promoter, which owns the title to the circuit in the sense
that it owns the land, FOWC is the commercial rights owner of
the event, by virtue of the Concorde Agreement. FIA parted
with all its rights over each commercial right it possessed to
FOWC. The bulk of the revenue earned is through media,
F television and other related rights. The terms or the basis of
those rights is the event. The conceptualization of the event and
the right to include it in any particular circuit, such as Buddh
Circuit is that of the FOWC; it decides the venue and the
participating teams are bound to it to compete in the race in the
terms agreed with the FOWC. All these, in the opinion of the
G Court, unequivocally, show that the FOWC carried on business
in India for the duration of the race (and for two weeks before
the race and a week thereafter). Every right, which it possessed
was monetized; the US$ 40 million which Jaypee paid was only
a pa1t of that commercial exploitation by the FOWC.
H
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 217
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

58. Consequently, the Court concludes that the FOWC carried A
on business in India within the meaning of expression under
Article 5(1) of the DTAA. It is consequently held that the AAR
fell into error oflaw in holding that FOWC did not function through
a PE/carry on business through a fixed place of business in India."
74. In view of the above, it is difficult to accept the arguments of B
the appellants that it is Jaypee who was responsible for conducting races
and had complete control over the Event in question. Mere construction
of the track by Jaypee at its expense will be of no consequence. Its
ownership or organising other events by Jaypee is also immaterial. Our
examination is limited to the conduct ofthe F-1 Championship and control
over the track during that period. Specific arrangement between the c
parties relating to the aforesaid, which is elaborated above and which
FOWC and Jaypee unsuccessfully endeavoured to ignore, has in fact
turned the table against them. It is also difficultto accept their submission
that FOWC had no role in the conduct of the Championship and its role
came to an end with granting permission to host the Event as a round of D
the championship. We also reject the argument of the appellants that
the Buddh International Circuit was not under the control and at the
disposal of FOWC.
75. No doubt, FOWC, as CRH of these events, is in the business
of exploiting these rights, including intellectual property rights. However, E
these became possible, in the instant case, only with the actual conduct
of these races and active participation ofFOWC in the said races, with
access and control over the circuit.
76. We are of the opinion that the test laid down by the Andhra
Pradesh High Court in Visaklwpatnam Port Trust case fully stands F
satisfied. Not only the Buddh International Circuit is a fixed place where
the commercial/economic activity of conducting F-1 Championship was
carried out, one could clearly discern that it was a virtual projection of
the foreign enterprise, namely, Formula-I (i.t>. FOWC) on the soil of this
country. It is already noted above that as per Philip Baker", a PE must
have three characteristics: stability, productivity and dependence. All G
characteristics are present in this case. Fixed place of business in the
form of physical location, i.e. Buddh International Circuit, was at the
disposal ofFOWC through which it conducted business. Aesthetics of
law and taxation jurisprudence leave no doubt in our mind that taxable
27
A Manual on the OECD Model Tax Convention on lncon1e.and on Capital H
218 .. SUPREME COURT REPORTS [2017) 2 S.C.R.

A event has taken place in India and non-resident FOWC is liable to pay
tax in India on the income it has earned on this soil.
77. We are now left with two other incidental issues which were
raised by Mr. Datar. First was on the interpretation of Section 195 of
the Act. It cannot be disputed that a person who makes the payment to
B a non-resident is under an obligation to deduct tax under Section 195 of
the Act on such payments. Mr. Rohatgi had submitted, and rightly so,
that this issue is covered by the judgment in the case of GE India
Tecftno/ogy Centre Private Limited". Precisely this very judgment is
taken note of and relied upon by the High Court also in holding that since
payments made by Jaypee to FOWC under the RPC were business
c income of the FOWC through PE at the Buddh International Circuit,
and, therefore, chargeable to tax, Jaypee was bound to make appropriate
deductions from the amounts paid under Section 195 of the Act.
78. We are, however, inclined to accept the submission of Mr.
Datarthat only that portion of the income ofFOWC, which is attributable
D to the said PE, would be treated as business income ofFOWC and only
that part of income deduction was required to be made under Section
195 of the Act. In GE Im/ill Teclino/ogy Centre Private Limitetf9,
this Court has clarified that though there is an obligation to deduct tax,
the obligation is limited to the appropriate portion of income which is
E chargeable to tax in India and in respect of other payments where no tax
is payable, recourse is to be made under Section 195(2) of the Act. It
would be for the Assessing Officer to adjudicate upon the aforesaid
aspects while passing the Assessment Order, namely, how much business
income of FOWC is attributable to PE in India, which is chargeable to
tax. At that stage, Jaypee can also press its argument that penalty etc.
F be not charged as the move on the part of Jaypee in not deducting tax at
source was bona fide. We make it clear that we have not expressed
any opinion either way.
79. Insofar as the argument of Mr. Datar on the powers of the
High Court under Article 226 of the Constitution oflndia is concerned,
G we are not impressed by the said argument. It is Jaypee itself which
had filed the writ petition (and for that matter FOWC as well) and they
had challenged the orders of AAR on certain aspects. The High Court
has examined legal issues while delivering the impugned judgment, of
s Refer Footnote 23
2

H ''' Refer Footnote 23
FORMULA ONE WORLD CHAMPIONSHIP LTD. v. 219
COMMISSIONER OF INCOME TAX [A. K. SIKRI, J.]

course having regard to the facts which were culled out from the A
documents on record.
80. In view of the foregoing, the appeals preferred by the FOWC
and Jaypee are dismissed, subject to observations as made above.
81. Insofar as the appeal filed by the Commissioner of Income
Tax is concerned, it was submitted by Mr. Rohatgi himself that the issue B
of dependent PE had become academic. Therefore, we need not examine
this issue and dispose of the appeal of the Revenue accordingly.
No costs.
Nidhi Jain Appeals disposed o(