Taxation Law

Formula One World Championship Ltd. v. Commissioner of Income Tax

AIR 2018 SC (Supp) 556; (2017) 15 SCC 602

Facts

Formula One World Championship Ltd., a United Kingdom company, held commercial rights relating to Formula One racing.
It entered into a Race Promotion Contract with Jaypee Sports International Ltd.
Jaypee constructed and owned the Buddh International Circuit in India.
Jaypee received the right to host and promote the Indian Formula One Grand Prix and agreed to pay substantial consideration.
Formula One exercised extensive rights concerning:
approval of the circuit;
access to restricted areas;
accreditation;
advertising;
media and broadcasting;
race organisation;
use of intellectual and commercial rights.
The Authority for Advance Rulings held that Formula One had no PE.
The Delhi High Court reversed that conclusion.
Formula One appealed to the Supreme Court.

A fixed-place PE requires:
a physical place of business;
sufficient fixity or permanence;
the place to be at the foreign enterprise’s disposal;
the enterprise’s business to be wholly or partly carried on through it.
Ownership or formal tenancy is unnecessary.
Mere access is insufficient, but effective control and the right to use the premises for the enterprise’s business may satisfy the disposal test.
Permanence must be judged in relation to the nature of the business.
Even a short-duration location may be fixed where the business itself is temporary, recurring or event-based.

Jaypee legally owned the circuit, but ownership was not decisive.
During the relevant event period, Formula One exercised extensive and dominant control.
It determined:
whether the circuit met Formula One standards;
who could enter restricted spaces;
how commercial and media rights were exploited;
how the event was presented and operated.
Jaypee could not independently conduct a Formula One race without Formula One’s participation and approvals.
The circuit was not merely a customer’s location casually visited by Formula One.
It was the essential physical projection of Formula One’s commercial business in India.
Formula One earned its income by commercially exploiting the race and associated rights through that circuit.
The event lasted three days, but contractual preparation and control extended over a wider period.
The Race Promotion Contract also contemplated repeated events over several years.
The Court therefore rejected the argument that a PE must exist continuously throughout the year.
Stability and permanence were present relative to the event-based nature of the business.
Formula One had sufficient disposal because it could effectively use and control the circuit for carrying on its core commercial activity.

The Supreme Court held that the Buddh International Circuit constituted Formula One’s fixed-place PE in India.
Business profits attributable to that PE were taxable in India under Article 7 of the India–UK DTAA.
Jaypee was required to deduct tax under section 195, but only from the portion of the payment reasonably attributable to the PE.
The Assessing Officer was directed to determine the attributable amount.