(2017) 394 ITR 80 (SC)
Income deemed to accrue or arise in India; double taxation relief
Yes. The circuit was at the company's disposal and its commercially significant activity was carried on through it. A permanent establishment does not require a long or continuous presence where the activity is by nature short and recurring.
Did a motor racing circuit, made available to a foreign company for a few days each year, constitute a fixed place permanent establishment in India?
The taxpayer, a UK resident company, held the commercial rights to the Formula One World Championship. It entered into a Race Promotion Contract with an Indian company, granting it the right to host and promote the Indian Grand Prix at the Buddh International Circuit for a consideration of USD 40 million. Associated agreements granted the taxpayer and its affiliates extensive rights over the circuit — including access for the race weekend and the days surrounding it, control over paddock and pit areas, media and broadcasting rights, and the ability to dictate arrangements at the venue. The race occupied a few days each year. The question was whether the taxpayer had a permanent establishment in India through which its income was taxable.
The Authority for Advance Rulings and the Delhi High Court reached differing conclusions on aspects of the arrangement. The matter came to the Supreme Court, which examined the disposal test in detail.
For the assessee
The circuit was owned and operated by the Indian promoter. The taxpayer merely licensed commercial rights and had access for a few days a year, which lacks the permanence a fixed place of business requires. Income from licensing rights is business income not attributable to any Indian fixed place.
For the Revenue
The taxpayer and its affiliates had complete control of the circuit during the event and dictated how it was used. The championship is the taxpayer's business and it was conducted through the circuit. Permanence must be judged against the nature of the activity, which consists of discrete race events.
The Court applied the disposal test: whether the foreign enterprise had a place at its disposal through which its business was carried on. Examining the web of agreements, it found that the taxpayer and its affiliates had effective control of the circuit during the relevant period — access to the whole venue, control over the paddock, pit lane and media facilities, the right to exclude others, and the ability to direct how the event was conducted. The Indian promoter's role was to make the circuit available on the taxpayer's terms. On the question of permanence, the Court held that the requirement is relative to the nature of the business: where the commercial activity consists of a handful of race days a year, a presence coinciding with those days is sufficient, and the recurring annual nature of the arrangement reinforced rather than undermined that conclusion. It rejected the argument that a short duration is fatal, observing that the test asks whether the place was at the enterprise's disposal for the conduct of its business, not for how many days in the calendar. Having found a fixed place permanent establishment, the Court held that income attributable to it was taxable in India and left quantification to the assessment process.
The leading Indian authority on the disposal test for a fixed place permanent establishment, still applied under Section 9 and the treaty relief framework of Section 159. It is regularly cited for events, exhibitions, tournaments, concerts and other short-duration commercial activity in India, and its treatment of permanence is the aspect most often relied on.