Supreme Court: F1 income accruing from permanent establishment taxable

The Supreme Court on Monday held that Formula One World Championship (FOWC) which conducts Formula One car racing events, has a permanent establishment (PE) for its business in India and the income accruing from it is taxable.

The first edition of the F1 championship took place in 2011. However, the race has not taken place since 2014 because of an ongoing tax dispute with the Uttar Pradesh government.   -  Rajeev Bhatt

The Supreme Court on Monday held that Formula One World Championship (FOWC) which conducts Formula One car racing events, has a permanent establishment (PE) for its business in India and the income accruing from it is taxable.

A permanent establishment (PE) is a fixed place of business which generally gives rise to income or value-added tax liability in a particular jurisdiction.

“We have held that FOWC has PE in India and income that is attributable in India will be taxed. The amount that is to be taxed is to be assessed by an assessing officer,” a bench of Justices A. K. Sikri and Ashok Bhushan said.

Advocate Ankur Saigal, who appeared for Jaypee Group, said that though the detailed judgement is awaited but the apex court has held that an assessing officer will assess the income to be taxed.

Jaypee Group, in association with others, has organised Formula One car races in Greater Noida, adjacent to national capital in the past few years.

The first edition of the championship took place on October 30, 2011. Jaypee Sports International Limited is the organiser of Formula One racing in India and has signed a five-year contract with Formula One Management (FOM) to host the championship in India.

The event did not take place in 2014 and since then because of an ongoing tax dispute with the Uttar Pradesh government, the event has not been held.

FOWC has challenged last year’s Delhi High Court judgement which had ruled that a payment by Jaiprakash Associates Ltd for the use of FOWC logos and symbols to promote the Grand Prix couldn’t be considered royalty and be taxed as such.

The high court had also ruled that FOWC has a permanent establishment in India for conducting its business and set aside the finding of the Authority of Advance Ruling (AAR) on the issue.

It had said the use of trademarks was ‘purely incidental’ and as event organiser and host of the F1 Grand Prix Championship, Jaypee was bound to use the F1 marks, logos and devices.

FOWC and Jaypee group had approached the AAR to ascertain if the payment received by FOWC outside India from Jaypee could be considered royalty or not in terms of the double taxation avoidance agreement between the UK and Indian governments.

Another question for consideration before the AAR was whether FOWC had a permanent establishment for its business in India which it found that the payment was royalty and taxable and that Formula One did not have a permanent establishment in India.