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Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
December, 06th 2016
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                   Reserved on: 15.11.2016
                                 Pronounced on: 30.11.2016

+      W.P.(C) 10307/2016, C.M. APPL.40563/2016 & 40564/2016
       FORMULA ONE WORLD CHAMPIONSHIP LIMITED
                                                          ..... Petitioner
                       versus
       COMMISSIONER OF INCOME TAX, INTERNATIONAL
       TAXATION-3 & ANR.                           ..... Respondents

+      W.P.(C) 9509/2016, C.M. APPL.38021/2016, 41063/2016,
       41235/2016 & 41236/2016
       COMMISSIONER OF INCOME TAX INTERNATIONAL
       TAXATION-3, DELHI                    ..... Petitioner
                       versus
       FORMULA ONE WORLD CHAMPIONSHIP LTD. & ANR.
                                                 ..... Respondents

+      W.P.(C) 10145/2016, C.M. APPL.40169/2016
       JAIPRAKASH ASSOCIATES LTD.                   ..... Petitioner
                       versus
       COMMISSIONER OF INCOME TAX                   ..... Respondent
                       Through : Sh. S. Ganesh, Sr. Advocate with Ms.
                       Anuradha Dutt, Ms. Fereshte Sethna, Sh. Sachit
                       Jolly, Sh. Gautam Swarup, Sh. Siddhartha Singh
                       and Sh. Amaya Pant, Advocates, for petitioner in
                       W.P.(C) 10307/2016 and for Respondent No.1 in
                       W.P.(C) 9509/2016 & W.P.(C) 10145/2016.
                               Sh. Arvind Datar, Sr. Advocate with Sh. Kamal
                               Deep Dayal, Sh. Ankur Saigal and Sh. Shayan,
                               Advocates, for JAL.
                               Sh. G.C. Shrivastava, Sr. Standing Counsel and Sh.
                               Rahul Chaudhary, Sr. Standing Counsel, for
                               Income Tax Department.




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                  Page 1
       CORAM:
       HON'BLE MR. JUSTICE S. RAVINDRA BHAT
       HON'BLE MR. JUSTICE NAJMI WAZIRI
MR. JUSTICE S. RAVINDRA BHAT
%
1.     This judgment would dispose of three writ petitions: WP 9509/2016 (preferred by
the Commissioner of Income Tax, hereafter "the revenue's petition"; WP 10145/2016
(preferred by Jaypee Sports International Limited, hereafter called "Jaypee") and WP
10307/2016 (Formula One World Championship Limited (FOWC) hereafter called "the
F1 Championship Ltd" petition). Both Jaypee and FOWC had filed applications before
the Authority for Advance Ruling ("AAR"). The AAR held one question in favour of the
revenue and the other question in favour of the said two companies. All three parties
have, thus approached this court, under Article 226 of the Constitution.

2.     A brief background of the facts is necessary. FOWC is a UK tax resident company
incorporated on 7 March 2001. Consequent to agreements entered into between the
Federation Internationale de IAutomobile ("FIA" an international motor sports events
regulating association), Formula One Asset Management Limited (,,FOAM) and FOWC,
FOAM licensed all commercial rights in the FIA Formula One World Championship
(Championship) to FOWC for 100-year term effective from 1 January 2011. FOWC
entered into a "Race Promotion Contract" (,,RPC) dated 13 September 2011, by which it
granted to Jaypee Sports the right (,,Right) to host, stage and promote the Formula One
Grand Prix of India event for a consideration of USD 40 millions. An Artworks License
Agreement (ALA) contemplated in RPC was also entered into between FOWC and
Jaypee the same day, i.e. 13.09.2011, permitting the use of certain marks and intellectual
property belonging to FOWC for a consideration of USD 1. The RPC of 2011 was
preceded by another RPC of 25-10-2007; FOWC and Jaypee signed it.

3.     FIA is a regulatory body; it regulates the FIA Formula One World Championship
which has been the premier form of motor racing since its inception in 1950. The formula,
so called is with reference to a set of rules that all participants' cars must conform to. F1
seasons consist of a series of races, known as Grand Prix (from French, meaning grand




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prizes), held across the world on specially designed and built F1 circuits across 26
different locales.

4.      F1 Grand Prix events are held under the aegis of the FIA F1World championship's
competition -in which F1 racing cars, assembled and manufactured strictly in terms of the
F1 Technical regulations, compete against each other, under F1 Sporting Regulations and
the F1 International Sporting Code framed and made effective by the FIA. F1 drivers
across the world have the ability, competence and skill to drive an F1 car and participate
in F1 racing events. About 12 to 15 teams typically compete in these championships in
any one annual racing season. Some celebrated and well-known participants are the
Ferrari, McLain, Red Bull teams etc. The teams assemble and construct their vehicles,
which comply with defined technical specifications and engage drivers who can
successfully maneuver the F1 cars in the racing events. All 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 F1 event included in the official annual F1 racing 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 F1 racing teams exclusively participate in about 19
to 21 listed F1 annual racing events on the official racing calendar, set by the FIA. This is,
in effect, a closed circuit event since no team other than those bound by contract with
FOWC are permitted participation.
5.      Every F1 racing event is hosted, promoted and staged by a promoter with whom
FOWC as the right holder, enters into contract and whose event is nominated by the CRH
(i.e Contract Right Holder, which is in effect, FOWC), to the FIA for inclusion in the
official F1 racing calendar. In other words FOWC is the exclusive nominating body at
whose instance the event promoter is permitted participation. The points scored by each
F1 racing team in every event is listed in the official racing calendar and it counts towards
the Constructors championship and the Driver's championship for the racing season as a
whole. Any teams position in these championships at the end of the season determines,
together with certain other factors which are elaborately dealt with in the Concorde




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                             Page 3
agreement,(which in the present instance, was latest in the series of Concorde agreements
the last being the one of 2009) the prize money payable to the teams for their participation
during the season. Grant of a right to host, stage and promote the F1 racing event
therefore carries with it a covenant or representation that F1 racing teams with their cars,
drivers 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 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.
6.     FOWC and Jaypee both approached the AAR as did other entities such as Beta
Prema 2 (BP2); All Sports Management (Allsport); and Formula One Management
(FOM) with other applications. This judgment is not concerned with the applications that
sought advance ruling filed by other entities; the fate of those is apparently pending
consideration. The queries made for consideration and decision by the authority by
FOWC and Jaypee were firstly whether the payment of consideration receivable by
FOWC outside India in terms of RPC from Jaypee was or was not royalty as defined in
Article 13 of the Avoidance of Double taxation agreement entered into between the
Government of UK and the Republic of India ("the DTAA") and secondly whether
FOWC was justified in its position that it did not have a permanent establishment (PE) in
India in terms of Article 5 of the DTAA. A subsidiary question was whether any part of
the consideration received or receivable from Jaypee by FOWC outside India was subject
to tax at source under section 195 of the Indian income tax Act.
7.     The submissions of FOWC and Jaypee on the question of amounts received by the
former were that the entire consideration received/ receivable under the RPC was in
nature of business income and not 'royalty' as defined both under the Act and the DTAA
because what was granted to Jaypee was a commercial right (i.e. hosting right) and the
consideration received/ receivable by FOWC was not for use of trademark, copyright,
equipment, etc and hence, was not in the nature of 'royalty'. It was contended, in this




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context that no separate consideration was payable by Jaypee for the limited permitted use
of Formula One ('F1 ') Mark which was only to enable the Promoter to advertise the
Indian Grand Prix. It was routine and customary in business parlance to reproduce the
names (of sports events) in the same manner as they were known to the public at large. As
a consequence, the Artwork License Agreement ('ALA') was executed solely to enable
the Promoter for a limited use of F1 marks and to prevent it from using the marks for any
commercial exploitation. Such grant was similar to sale of prepackaged or branded
product; the main emphasis is sale of the product, the use of the mark was part of the sale.
The applicants relied on Para 10.1 of the OECD commentary on Article 12 of the Model
Convention which states that payments for the exclusive distribution rights of a product or
a service do not constitute royalties. Furthermore, according to FOWC, the sporting event
was known by the name F1 World Championship world over due to its fame and
reputation. The applicants - Jaypee and FOWC relied on Dy Director of Income Tax v.
Sheraton International Inc (2009) 313 ITR 276, of this Court. The court had held that as
long as the main object of the agreement did not relate to the use of the trademark, the
amount could not be characterized as royalty payment for use of trademark. The
applicants also relied on a tribunal decision in Harvard Medical International USA
('HMI') (2011) (13 ITR 503). Apart from this, it was emphasized that the definition of
royalty under the lndia-UK Tax Treaty is narrower than the definition under the Act. The
transactions in question involve payment of a lump sum amount, which does not involve
any payment dependent upon the use of the mark. As the consideration received by
FOWC was a lump sum amount for granting to Jaypee the right to host, stage and
promote the event, it did not qualify as 'royalty' under the provisions of the lndia-UK Tax
Treaty. Reliance was placed on this court's judgement in Director of Income Tax Vs.
Ericsson A.B (2012) (343 ITR 470).
8.     The revenue had opposed the arguments of the applicants and urged that the
principles enunciated in Sheraton's case were inapplicable because the consideration
comprised of both, hosting rights and permitted use of F1 Marks and the entire
consideration of US$ 40 million was attributable to the usage of F1 Marks in terms of the
ALA. The revenue submitted that the RPC and Artwork License Agreement had to be




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read together for a comprehensive view of the matter. The applicants deliberately did not
make reference to the ALA in question though it was also entered into between the parties
on the same day i.e. 13.09.2011.
9.     There was no agreement between FOWC and Formula One Licensing B.V.,
proprietor of the trade marks, for transfer or licensing of such rights in favour of FOWC.
The license was given by FOWC to Jaypee for the permitted use, in the territory, of the
licensed marks and materials. The licensed marks and materials are defined to include
marks stated above. The "permitted use" is defined to mean incidental use of the licensed
marks strictly for the purpose of hosting, staging and promoting the event. It was
furthermore argued that from a combined reading of Concorde and other agreements what
emerged was that Jaypee did not have to make any payment to FOWC for hosting,
staging and promoting any motor racing event. The payment became necessary for one
and the only reason that the mark of "Formula One World Championship" or "Grand Prix
of India" was to be used to make the event a part of the calendar of F1 World
Championship. It was also asserted that the marks were not used in a secondary manner,
or incidentally, rather, Jaypee used the marks prominently because of their fame and
reputation. Licensing of the mark gave Jaypee the right to hold the F1 championship or
Grand Prix of India event. This position was also supported by the fact that the promoter's
rights stipulated in the Concorde agreement clearly list out as being (i) right to promote
the event. (ii) right to designate the event as Formula One Championship event. Given the
relative lack of knowledge of the F1 sporting event, use of the mark became crucial and
necessary. The crowds visiting the circuit or watching from home were drawn towards the
name F1, which they were familiar with and not the car or circuit specifications that the
event associates itself with. The revenue arising from the commercial rights, be it sale of
tickets, advertisement rights or broadcasting rights are, therefore, all attributable to the
name of the event more than anything else.
10.    The revenue also urged that the definition of royalty both under the Indian
Income-tax Act as well as the DTAA encompasses within its ambit the use of trademark
among other things. It may be noted that there is no qualification to suggest that the use
must be incidental, primary, permitted or registered. As regards the issue of its taxability,




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                             Page 6
it was submitted that the subject income is taxable in India under the Act under Section
9(1)(vi)(b) since it was paid by a resident (Jaypee) to a non-resident as a consideration for
the utilization of the intellectual property for the purpose of carrying on business in India
or for the purpose of earning any income from any source in India. The property here is a
trademark of a sporting event. When the sporting event is held and the mark is used to
attract people with that mark, it is nothing but the commercial exploitation leading to
generation of revenue.
11.    The AAR, after hearing the parties and considering the materials on record,
concluded that the amounts paid were "royalty" on the basis of the following findings:
       "27. The first question in both applications relate to characterization of
       consideration of USD 40 million received by FOWC in the first year under
       the terms of RPC from Jaypee, i.e. whether it is in the nature of royalty
       under Article 13 of lndia-UK Tax Treaty. Jaypee had constructed a
       racing circuit in Yamuna Expressway Industrial Development Authority.
       Jaypee signed the RPC on 13.9.2011 with FOWC and on the same day
       Jaypee also entered into an Art Work License (ALA) agreement with
       FOWC. We have reproduced some relevant clauses of RPC and ALA
       earlier and wherever necessary we will reproduce again the relevant
       clauses at appropriate place to understand the issue in proper perspective.
       The RPC mentions that FOWC has the exclusive right to enter into
       contracts solely for the 'hosting, staging and promoting' of 'Formula One
       Grand Prix' events. FOWC has the exclusive right to exploit the
       commercial right in the championship, including the exclusive right to
       propose the championship calendars and to award to promoters the right
       to host, stage and promote Formula One Grand Prix events ............ The
       RPC gives right to Jaypee to host, stage and promote the 'event' as per
       clause 4.1 of RPC. The event has been defined in clause 1 (t) of RPC
       saying that 'event shall mean the Formula One Grand Prix of India'. RPC
       itself envisages signing of a separate AlA for incidental use of certain of
       the marks and intellectual property belonging to FOWC in Clause 23.2.

       28.    It is relevant to point out that as per ALA, FOWC is providing
       Jaypee several of its intellectual property like event programme covers,
       templates for posters, official stationery, media kits etc. and licenced
       marks including FORMULA ONE GRAND PRIX of INDIA which is the
       name of event organized (host, stage and promote) by Jaypee.

       29.    It may be mentioned that the consideration as per RPC is USD $
       40 m and consideration as per ALA is USD $ 1 , though both agreements
       were signed on the same date and relate to the same event promoted by









W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                             Page 7
       Jaypee. It is only on the basis of ALA that Jaypee is able to organize the
       event which is called Formula One Grand Prix of India and is able to use
       all intellectual properties belonging to FOWC necessarily required to
       stage, host & promote the event. It is unthinkable that the event called
       Formula One Grand Prix of India can be organized in the absence of
       ALA. Use of this mark is sine qua non for organizing this event otherwise
       the event will not be known as 'event' in terms of RPC.

       30.     The above mentioned facts clearly establish that art work license
       agreement, though signed separately, is integral to RPC. It was not a
       standalone agreement. Clause 23.2 of RPC stipulated that Jaypee &
       FOWC shall enter into art work agreement permitting incidental use of
       certain of the marks and other intellectual property belonging to FOWC.
       Insufficiency of consideration in ALC cannot diminish its prime
       importance and relevance in the context of use of marks and intellectual
       property of Jaypee. In such a situation the stand of the applicants that the
       use of the marks permitted by the art works agreement is purely incidental
       to the RPC as mentioned in clause 23.2 is not a correct description of the
       facts. The nomenclature in the agreement cannot decide the main purpose
       of the contract. The settled position of law is that the dominant intention of
       the parties is to be seen as decided by the apex Court in the case of
       Sundaram Finance Ltd. v/s State of Kerala 1977 13 SCC 17. The Court
       ruled in para 24 that "The true effect of a transaction may be determined
       from the terms of the agreement considered in the light of the surrounding
       circumstances. In each case, the Court has, unless prohibited by statute,
       power to go behind the documents and to determine the nature of the
       transaction whatever may be the form of the documents'. The important
       point is to ascertain the dominant intention of the parties to RPC and art
       work license agreement. FOWC has tried to project that the promoter's
       intention is to host various sports events, as part of the sports city
       developed by it and to keep the circuit occupied by hosting various such
       events and attract people to buy real estate around the sports city. This is
       completely imaginary and is nowhere reflected in RPC or ALC. We cannot
       import such imagination in RPC or ALA in order to know the intention of
       the parties to the agreement. The intention has to come out from the
       agreement and purpose of the agreement. FOWC has further submitted
       that the promoter is 'hosting, staging and promoting the 'Indian GP'.
       There is nothing like Indian GP. The only event as per the agreement is
       Formula One Grade Prix of India. We cannot accept any other name for
       the event. The use of words 'Indian GP' has been done by FOWC only to
       show that Jaypee's intention was to host various events. This does not
       come out from RPC or ALC. The fact remains that Jaypee is staging an
       event which is called Formula One Grand Prix of India which, in turn is
       the licensed mark of FOWC as per Art work license agreement. RPC
       clearly and conclusively show that FOWC granted licence to Jaypee for




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                              Page 8
       limited purpose of organizing Formula Grand Prix of India event only and
       for no other event. Therefore, irrespective of other limitations imposed by
       clause 23.2 & 23.3 of RPC the licensed mark of Formula One Grand Prix
       of India and other intellectual property has been actually used by Jaypee.
       In these circumstances the creation of a separate agreement known as art
       work license agreement with a nominal and insignificant consideration of
       US $ 1 is purely artificial. Similarly, the use of words like 'incidental use'
       in these agreements will also not hide the dominant purpose. The
       definition of royalty in the lndo-UK DTAA covers 'payments of any kind
       received as a consideration for the use of .......... trade mark'. Section
       9(1)(VI) of the Income-tax Act also covers use of trade mark under
       royalty. Therefore, the payments.made by Jaypee for use of trade mark
       called Formula One Grand Prix of India in the event hosted by them is in
       the nature of royalty."
       *****************
                ********************
       37.      We have given serious thought to the proposition formulated as
       above. The art work agreement also mentions that Formula One licensing
       BV, Netherlands, is the owner of trademarks as mentioned in clause 3.3.
       There is no written agreement between FOWC and Formula One licensing
       BV for transfer of such rights in favour of FOWC. It is also relevant to
       point out that there is no written agreement between Jaypee and the
       proprietor of trademarks i.e. Formula one licencing BV for use of trade
       marks. These facts were confirmed repeatedly by Shri Pardiwala, the
       counsel of FOWC during the course of hearing and confirmed by him in
       the letter dated 19.7.2016. Mr. Datar presumes that because the artwork
       agreement mentions the words "permitted use" in clause 2.1 and defines
       "permitted use" as incidental use of the licenced mark solely as part of the
       artwork and the licenced material in clause 1.1, Jaypee is a permitted user
       under section 48(2) of the trademarks Act, 1999. We are afraid this is not
       a correct proposition. The trademarks act defines 'permitted use' in
       section 2(1 )(r), reproduced earlier, and this definition must be read in
       conjunction with section 48(2). The definition of 'permitted use' in this Act
       of 1999 is different from the definition given in section 2(1)(m) of the 1958
       Act. The 1999 Act enlarges the scope of permitted use to commercial use
       of a mark not only by the registered user, but also by an unregistered
       licencee who becomes entitled to use the mark by virtue of a written
       agreement with the registered proprietor. The law makes it clear that such
       use by a unregistered licencee should comply with the conditions or
       limitations to which such use is subject to in terms of the agreement,
       besides conditions or limitations to which the registration of a trademark
       itself is a subject with JPSIL As a matter of fact, the applicant has
       submitted that Formula One Licensing BV has only entered into an oral
       arrangement with FOWC for the transfer of trademark. As per the above
       provisions, since the user (Jaypee) has not entered into any agreement




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                              Page 9
       with the registered proprietor, the condition of 'permitted use' is not met
       and consequently Jaypee cannot be regarded as a permitted user within
       the meaning of section 2 (r)(ii) of the TM Act. The provisions of section
       48(2) cannot be invoked in the case of an entity which is not a permitted
       user within the meaning of that Act. The deeming fiction of section 48 (2)
       cannot be pressed into service into cases of this nature.

       b.       The deeming fiction of section 48(2) can also not be extended to
       the provisions contained in section 9(1)(vi) for the reason that
       Explanation 5 to section 9(1)(vi) introduced by the Finance Act of 2012
       provides that Royalty shall be deemed to arise whether the property is
       used directly or not. The implication of the Explanation would be that
       even if the property is deemed to be used by the proprietor and not by the
       licensee, it can still be regarded as indirect use of the property as the
       benefits of such use are flowing to the licensee and he has agreed to pay
       consideration to the licensor in lieu of the 'indirect' use of the property. If
       the interpretation of the applicant is accepted and the deeming fiction
       under section 48(2) is to be read in all circumstances and for the purposes
       of all existing laws irrespective of the context and purpose of enactment of
       this provision in the TM Act, the consequences would be that the use by
       the licensee would be of no consequence as the licensee, by the legal
       fiction so provided , would be deemed to have never used it, though in fact
       he may have actually used it. The definition of royalty under the Income
       Tax Act specifically includes the 'granting of a license' to use the IPR. If
       the fiction is imported under the IT Act, it would mean that the use by the
       licensee is the use by the proprietor. Such an interpretation leads to
       manifestly absurd results. It hits at the very root of the relationship
       between the licensor and the licensee in the context of IPRs and destroys
       the very concept of Royalty in this context. Such an interpretation is
       impermissible.

       c.      The object of law relating to Trade Marks is to protect the
       intellectual properties and the rights of the owner/proprietor thereof.
       Section 48(2) also enacts the deeming fiction to protect such rights and to
       regulate the relationship between different parties in law The reference to
       'other law' comes with the same object in The definition is in two parts.
       The first part is in respect of the use of a trademark by a registered user.
       The second part is in respect of the use of trademark by a person other
       than the registered proprietor and registered user by consent of such
       registered proprietor in a written agreement and complies with any
       conditions or limitations to which such user is subject and to which the
       registration of the trademark is subject. It is relevant to point out that the
       'consent' envisaged in section 2(1)(r) signed is not oral, but by a written
       agreement. Against this backdrop we may consider the facts of this case.
       The proprietor of the trademark in this case is Formula One licensing BV




W.P.(C) 10307/2016, W.P.(C) 9509/2016 & W.P.(C) 10145/2016                               Page 10
       which has admittedly not entered into any written agreement with Jaypee.
       In fact, it has not entered any kind of agreement with Jaypee, not even
       oral. Even FOWC has not entered into any written agreement with the
       proprietor and during the course of hearing Mr. Pardiwala confirmed that
       there is no written agreement in respect of use of trademark between the
       proprietor and FOWC and/or between the proprietor and Jaypee.
       Therefore, in terms of provisions of the section Jaypee would not be a
       permitted user under the trademark Act. In view of this legal position we
       cannot agree with Mr. Datar that section 48(2) of the Trademark Act will
       apply only on the basis of artwork agreement where Jaypee has been
       mentioned as the permitted user. This cannot be accepted because if the
       benefit of section 48(2) of the Trade Marks Act is to be obtained, Jaypee
       has to be a permitted user as per the provisions of this Act and admittedly
       it is not. Once such a conclusion is reached, there is no need to deal with
       other objections raised by the Department of Revenue i.e., the definition of
       royalty as given in Explanation 5 to section 9(1)(vi) of the Income Tax Act
       and the context in which 'any other law' came to be used in the
       Trademarks Act. The fact is that Jaypee is not the permitted user under the
       law and therefore, it is not entitled to take recourse to provisions relating
       to permitted user in section 48(2) of the Trademarks Act."

12.    On the second question, i.e whether FOWC had a PE in India under any of the
paragraphs of Article 5 of the DTAA, the applicants (FOWC and Jaypee) asserted that no
such PE existed because the revenue had to first establish that under Article 5(1) of the
lndia-UK DTAA, FOWC had a fixed place of business in India and that it carried on
business in India through such fixed place. FOWC stated that its only place of business is
its office in UK and it did not have any fixed place of business or office in India. By
granting the right to host, stage and promote the race, to Jaypee it did 'business with a
party that is a resident of India'. It did not undertake any business operations (or part
thereof) in India. FOWC stated that its business was limited to a grant outside India of the
right to Jaypee and after such grant of right, it could host, stage and promote the F1 event
in accordance with the FIA regulations. Arguendo if the limited access at the circuit
granted to FOWC by Jaypee amounted a fixed place it would come into existence only at
the time when the race is held which is after grant of right by FOWC. In this context, it
was argued that a mere provision in the RPC for Jaypee to allow access to FOWC and its
affiliates to the circuit prior to and during the F1 event could not make the circuit (which
belongs to the Promoter) as a place at the FOWC'S disposal. Added to this was the




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uncertainty as to the staging of the event on a regular basis, which could not result in
bringing into existence, a fixed place PE of FOWC. The permanence test is with respect
to both place of business (i.e. permanence of location) and duration (i.e. the business
activities must be more than temporary in nature). FOWC also argued that it did not have
any agent dependent or otherwise in India engaged in habitually concluding any contracts
on its behalf in India. Therefore, Article 5(4) of the DTAA also did not apply. Likewise,
the threshold conditions for applicability of Article 5(2)(i) of the DTAA were unmet and,
hence, the 'Service PE' test too failed.
13.    FOWC argued that merely because Jaypee entered into contractual arrangements
with FOWCs affiliates, which were conditions precedent to the RPC, it did not extend
the scope of its role nor did it result in its possessing, or operating from a fixed place of
business in India. Each affiliate entered into independent commercial arrangements with
Jaypee and no rights flowed from FOWC to 'BP2' or Allsport either under the FIA-
FOAM-FOWC agreements or under the Concorde Agreement in relation to revenues
earned by BP2 and Allsport with respect to the Indian GP. Circuit and other rights (which
BP2 and Allsport exploited) arose by virtue of the ownership of the circuit, which was
that of Jaypee; those rights could be exploited only when granted by it. They were neither
Championship rights (emanating from the FIA) nor were they covered by the above-
mentioned Agreements. Jaypees grant of rights to BP2 and Allsport was a legitimate
independent transaction consistent with the legal ownership of those rights. Jaypee and
FOWC engaged FOM independently for the production of feed and data and other
support services. For these reasons, FOWC urged that activities undertaken by each of the
affiliates independently and on their own account and did not constitute its PE. It was also
argued that even if they were dependent agents of FOWC their place of business could
not be a PE of the principal i.e. FOWC.
14.    The revenue argued that for deciding fixed place of business in terms of Article 5
it is adequate if the place is at the disposal of the enterprise to be used in business. He has
referred to paragraph 4 of OECD commentary as under:-
       "4. It is immaterial whether the premises, facilities or installations are
       owned or rented by or are otherwise at the disposal of the enterprise....




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       Again the place of business may be situated in the business facilities of
       another enterprise.
       4. 1 As noted above, the mere fact that an enterprise has a certain amount
       of space at its disposal which is used for business activities is sufficient to
       constitute a place of business. No formal/legal right to use that place is
       therefore required."

15.    It was further argued that a fixed place PE may also be constituted if dependant
agents work for and on behalf of the enterprise from the place made available to the
enterprise and in such a situation it may not be necessary to examine the PE under para 4
or 5 of Article 5 and to apply more stringent conditions of having authority to conclude
contracts. Reference was made to para 10 of OECD commentary; it reads as follows:
       "The business of an enterprise is carried on mainly by the entrepreneur or
       persons who are in a paid-employment relationship with the enterprise
       personnel. This personnel includes employees and other persons receiving
       instructions from the enterprise (e.g. dependent agents). The powers of
       such personnel in its relationship with third parties are irrelevant. It
       makes no difference whether or not the dependent agent is authorised to
       conclude contracts if he works at the fixed place of business (see
       paragraph 35 below).
       "35. Under paragraph 5, only those persons who meet the specific
       conditions may create a permanent establishment; all other persons are
       excluded. It should be borne in mind, however, that paragraph 5 simply
       provides an alternative test of whether an enterprise has a permanent
       establishment in a State. If it can be shown that the enterprise has a
       permanent establishment within the meaning of paragraphs 1 and 2
       (subject to the provisions of paragraph 4), it is not necessary to show that
       the person in charge is one who would fall under paragraph 5."

16.    With regard to duration of the business reliance on Para 6 of the OECD
commentary was placed; it reads as follows:
       "A place of business may, however, constitute a permanent establishment
       even though it exists, in practice, only for a very short period of time
       because the nature of the business is such that it will only be carried on
       for that short period of time."

17.    According to the revenue, FOWCs business is to exploit commercial rights
arising from races and this business is carried on through exploitation of these
commercial rights either by itself or through any one or more members of CRH group as




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mentioned in the Concorde Agreement to say that FOWC is obligated to propose
consolidated accounts incorporating profits of all entities forming part of CRH group.
Reference was made to the fact that commercial rights were originally owned by FIA,
transferred in 2001 to SLEC Holding Company (parent company of FOWC) for a
consideration, then given to FOAM and w.e.f. 1.1.2011 transferred to FOWC. It was
pointed out that on the one hand, the organization Agreement between FINFMSCI was
entered into on 20.01.2011, the RPC and the Artworks License Agreement are dated
13.09.2011 Going by RPC dated ·13.09.2011, it is evident that GP contract did not exist
on the date of the signing of the Organization Agreement in January 2011. The recital (B)
in the Organization Agreement reads as under:
"The Promoter has entered into an agreement with the Commercial Rights Holder to
promote the event."

18.    The revenue asserted that FOWCs stand that its agreement (RPC) was entered
into with Jaypee on 13.09.2011 is inexplicable, having regard to the above Recital in the
Organization Agreement in January 2011 by reference to the RPC of September 2011.
Secondly, on lines similar to the RPC of September 2011, was an agreement dated
25.10.2007, between FOAL and JPSK Sports Pvt., Ltd. This agreement is in tune with the
Format provided under Schedule 4 of the Concorde Agreement. It is plain that FIA could
sign the Organization Agreement in January 2011 only on the basis that the Promoter had
already entered into GP contract with FOAM (predecessor of FOWC) in 2007. Thirdly,
discrepancies and omissions in the RPC of 2011 as opposed to the RPC of 2007 were
pointed out. The revenue, to say that FOWC had a PE in India underlined all these facts.
The fixed place- according to the revenue is the Buddha circuit in Greater Noida and
owned by Jaypee which was designed and constructed in terms of RPC dated 25.10.2007
and RPC dated 13.9.2011 is only continuation of earlier arrangement. The revenue also
stated that clause 11 of the RPC dated 13.9.2011 makes available to FOWC and other
entities access to circuit, clause 8.1 obliges Jaypee to allocate promotional area in such a
manner as FOWC shall specify, access to restricted area is regulated by passes and
tabards issued by FOWC. He has also submitted that International Broadcast is one of the
major commercial rights which vests in FOWC and because the promoter has set up a




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media compound and installations necessary for national and international commentators,
such business is also made available to FOWC at the circuit.
19.    The revenue further stated that that the three affiliates of FOWC, i.e. Formula One
Management Ltd. ('FOM'), Allsports Management SA and Beta Prema 2 Ltd. are its three
agents who had carried on business of FOWC on its behalf, through the fixed place. It
was contended that that all commercial rights originally vested and were granted to only
FOWC under the Concorde agreement, with a stipulation that FOWC may transfer or
assign such rights only to other group entities. It has further said that the commercial
rights could only stay within the Commercial Rights Holder group (CRH group), which
included FOWC, its affiliates and other entities. These three group entities have acted for
and on behalf of Jaypee, which did not get anything from these arrangements and these
entities were not holders of commercial rights. Therefore, these entities acted for and on
behalf of FOWC. According to the revenue, FOM was business manager of FOWC, it had
a business management agreement with FOWC, 146 employees of FOM were in India for
40 days and based on these facts Revenue's counsel has concluded that FOM managed the
entire business of FOWC in lndia. As regards All Sports too, which carried out sale of
tickets it acted on behalf of FOWC because no commercial rights were transferred to it. A
like inference had to be drawn in case of Beta Prema 2 because it exploited certain
commercial rights available only with FOWC. The revenue submitted that a PE gets
constituted under Article 5(4) of DTAA also for the reason that FOM is agent and
business manager of FOWC and Beta Prema 2 and All Sports have no independent status.
15.    The AARs findings on the question of existence of a PE in India, of the FOWC,
are as follows:
       "47. Determination of PE is question of fact and the provisions of
       Article 5 of DTAA lay down several tests. If an enterprise qualifies to be
       PE on these laid down tests then only it can be considered to have a PE
       and in that case only that portion of income will be taxable in the country
       of PE which is attributable to PE. Under Article 5(1) the first test is place
       of business test. Its concept in terms of PE can be seen as any substantial,
       physical object which is commercially suitable to serve as the basis of
       business activity. It also encompasses separate part of an enterprise,
       foreign branches or place of management or office etc. Revenue's
       contention that mere access to the racing circuit owned by JP amounts to




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       place of business through which business activity of FOWC is carried out
       is completely misleading. FOWC is commercial rights holder and has to
       be necessarily involved in design of the circuit and other related activates
       from the beginning so that required specifications for Formula One Grand
       Prix events are maintained in design and build of the circuit. Equating
       such access with the place of business is not at all appropriate. Moreover,
       as per RPC the promoter is to ensure that the pit and paddock buildings
       and surrounding areas with circuit and land are open to receive
       competitors, FOWC, Affiliates of FOWC, FOWC's contractors and
       licensees and their respective personnel and equipment. This is to
       facilitate the work relating to event. This does not mean that all entities
       getting access to the circuit have PE. Such an inference will be completely
       misleading.

       48. The second test in respect of deciding PE is location test and a
       movable activity like a concert tour or circus or racing event meets this
       test if the activity is regularly repeated at the same spots, or the work is
       commercially integrated as one project performed for one client For
       example travelling circus. ice skating shows and similar business
       enterprises which carry on their business on a itinerant basis do not
       create a PE at the places where they perform for no more than a short
       period, as mentioned by Vogel K. in his authoritative book on Double
       Taxation Conventions, third edition. In the US also dancing and music
       groups who come to the source state only once in a year or a repeated
       entry of a horse in race within the source state have not been treated as
       PE. Both the applicant and the Department have cited the rulings given in
       the case of 'Golf in Dubai' wherein the observation was made that if a
       short term activity is carried out even once a year but on a regular basis if
       it is repeated, the same may constitute a PE provided the same place is
       kept at the disposal of the enterprise and there is certainty that the event
       will be repeated. Mere intention to repeat is not sufficient. We do not think
       this ruling is appropriate in this case because even if there is an event for
       a short period and there is intention to repeat it in future but not certainty,
       the main ingredient is missing, i.e., whether FOWC is carrying on any
       business activity through the circuit. The definition of PE presupposes that
       the business of the enterprise must be carried on through this fixed place
       of business. FOWC is not carrying on any business activity here unless we
       accept the theory of Revenue that all three entities Beta Prema, Allsports,
       FOM are acting on behalf of FOWC. Unfortunately, this is not true and
       we have rejected such presumption in the section on tax avoidance.
       Therefore, the business activity test also fails because we have already
       concluded in the section of issue of tax avoidance that there is no evidence
       to suggest that Beta Prema 2, All Sports and FOM are acting on behalf of
       the FOWC and all arrangements and agreements in relation to activities
       performed by these 3 entities are sham. It is also relevant that USD 40 m




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       has been paid for use of certain marks and intellectual property of FOWC
       and this use cannot be equated with business activity in India.

       49. Article 5(5) has several pre-requisites 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 habitually exercises such
       authority. If these positive 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. Here again Shri
       Srivastava has given same argument that because the 3 entities were
       acting on behalf of FOWC they become dependent agents. Such
       insinuations made by Revenue are based only on selective reading of some
       clauses in agreements and making facetious presumptions based on that.
       We are of the firm view that FOWC had no fixed place of business, is not
       doing any business activity in India and has not authorized any
       organization or entity to conclude contracts on their behalf and therefore
       has no PE in India."

Contentions of parties: FOWC and Jaypee

16.    Arguing first on the issue of royalty, both FOWC and Jaypee contend, through
their Senior Counsel, Mr. S. Ganesh and Mr. Arvind Datar, that AAR's order is premised
on a fallacious premise, i.e that FOWCs grant to the promoter (Jaypee) under the RPC is
a permission given to the latter to use F1 trademarks, logos and other intellectual property
rights ("I.P. rights"). The AAR assumed that if Jaypee described or advertised any racing
event as "Indian Formula One Grand Prix", ipso facto that was sufficient to make the race
an F1 event; the premise was unfounded. It was this erroneous assumption which
prompted the AAR to record that "royalty" within the meaning of Article 12 of the DTAA
comprehended the amounts paid by Jaypee. Here it is argued that the IP rights given to
Jaypee were only for the purpose of facilitating the event that was to be held in terms of
the RPC, and for no other purpose whatsoever. If the RPC were to be terminated under
any of the circumstances set out in Clause 28.1 of the RPC, then too Jaypee continued to
be liable to pay the contracted amounts in the year of termination and in the next year; but
the user of all I.P. rights ceased the moment the RPC was terminated. This clearly
established that the amounts paid under the RPC were for the rights and privilege of
hosting and staging the event and not for IP rights.




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17.    The relevant clauses of the RPC relied on by FOWC and Jaypee are discussed as
follows. (a) Recital 'B', which states that the FOWC has the exclusive right to exploit the
commercial rights in the championship and to award Jaypee the right to host, stage and
promote Formula One Grand Prix events; (b) Recital 'D', which states that the RPC sets
out the terms and conditions on which FOWC has granted to Jaypee the privilege of
hosting, staging and promoting the event at the motor racing circuit owned by Jaypee
situated in N.C.R (National Capital Region). Reliance is also placed on Clause l (t), which
defines "Event" to mean the Formula One Grand Prix of India designated as a round of
the FIA Formula One World Championship. (d) Clause 4, which set out the grant by
FOWC to Jaypee of the right to host, stage and promote the 'Event' and clarified that the
right was limited to the event. (e) Clause 17, which stated that FOWC would use its
reasonable endeavors to ensure that at least sixteen cars participate in the Event. (f)
Clause 18, which forbids Jaypee from making any audio or visual image of the event. (g)
Clause 23.2, permits FOWC to make incidental use of I.P. rights solely for the limited
purpose of facilitating Jaypee to promote the event and (h) Clause 28.2 refers to
termination of the RPC on the declaration by FOWC that an "event of default" has
occurred, upon which the RPC stood terminated forthwith. However, it is of importance
to note that Jaypee's liability to make payments under the RPC continues, not only in
respect of the year in which the termination has taken place but also in the immediate
subsequent year. Therefore, even though FOWC remained liable to pay the full
contractual amount in the year of termination and in the subsequent year, the right to use
trademarks, logos and IP Rights ceases instantly, the moment the termination takes place.
This was a clear indication that the amounts payable by Jaypee to FOWC under the RPC
are really for the privilege of hosting and staging the championship race and not for the IP
rights, which in any event, could be utilized by it only to promote the race and for no
other purpose. It was also urged that by virtue of the Artwork License Agreement (ALA),
clauses 23.3 and 23.4 of the RPC had to be read in conjunction with the ALA. Mr.
Ganesh emphasized that the said Artwork agreement did not confer any additional rights,
nor could too much significance be attached on its provisions beyond what was actually
said and that in the circumstances of the case, neither was a license nor any form of right




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to use the trademark given to Jaypee by FOWC which resulted in royalty payment within
the meaning of Article 13 of the DTAA.
18.    It was argued on behalf of FOWC that the judgment in Director of Income Tax v.
Ericsson A.B. [2012] 343 ITR 470 (Del), which held that a lump-sum payment which is
not based on or connected with the extent of the user of the IP rights would not constitute
"royalties" within the meaning of the DTAA. In the present case, the payments made
under the RPC were separate lump-sum amounts in respect of the three separate race
events held in each of the three (3) years 2011 to 2013. It is not a payment, which is based
on either the number of tickets, sold or the total amount of revenue earned by Jaypee in
each of the said years or indeed on any other measure. It is submitted that such a lump-
sum payment is squarely covered by the Ericsson(supra) case.
19.    It was next highlighted by Mr. Datar that recital (B) of the ALA specifically stated
that FOWC wished to grant a license to Jaypee permitting only the incidental use of
certain IP rights and artwork "solely for the limited purpose of facilitating the hosting,
staging and promotion of the event". The definition of "permitted use" in clause 1.1 of the
ALA again states that it means only the incidental use of the licensed marks and materials
"for the purpose of hosting, staging or promoting the event, but for the avoidance of
doubt, not to include use for any merchandising or other products or services whatsoever,
whether distributed free of charge or for sale". It was argued that Clauses 2.2 and 6.2 of
the ALA provide that the ALA will continue only until the RPC terminates or expires;
Clause 2.3 of the ALA prohibit Jaypee from using any of the licensed marks, or as part of
the name of the circuit, any corporate name, any domain name, website address or other
URL identification or equivalent used in association with Jaypee. Jaypee thus has no IP
rights whatsoever independently of the staging and hosting of the Event. To the same
effect are the undertakings given by Jaypee, set out in Clauses 3.1(e) and 3.6 of the ALA.
Counsel also argued that the definition of "royalty" as set out in Explanation 2 to Section
9(1)(vi) of the Act, is significantly broader than the definition of "royalties" set out in
Article 13(3) of the India-UK DTAA. The definition in the Act specifically covers and
includes lumpsum payments, whereas Article 13(3) of the DTAA only refers to payments.
The impugned order neither contains any discussion nor finding whatsoever on this




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crucial issue even though it goes to the root of the entire case. It is argued that the
payments made to it under the RPC are not "royalty" either under the Act or the DTAA,
these payments are in reality not for the use of trademarks or IP rights, but rather for the
grant of the privilege of staging, hosting and promoting the Event at the promoter's racing
circuit in Noida(NCR). FOWC under the RPC, made available to Jaypee all of the
elements which constitute the event. In particular, this includes nominating (to FIA) the
promoter's event for inclusion in the official Formula One racing calendar; after such
inclusion the Formula One racing teams with their Formula One cars and drivers were
bound to participate in Jaypee's event held at the Promoter's racing circuit, strictly in
conformity with the requirements of the F1 Sporting and Technical Regulations and the
FIA Sporting Code. Therefore, the grant of Formula One rights by the FOWC to Jaypee is
merely incidental to the hosting and staging of the event by the Promoter, and this is clear
from the fact that the use of rightsby Jaypee has been strictly confined and limited to use
only for the promotion of the event, and for no other purpose and in no other manner
whatsoever.
20.    Reliance is placed on the decision in Director of Income Tax v. Sheraton
International Inc.[2009] 313 ITR 267, which held that if a contract for the supply of
goods and services also permits "incidental use" of trademarks, logos and other I.P.
rights, only in connection with such supply of goods and services and not for any
independent purpose, then in such a case the payments made under the contract cannot be
considered to be "royalty" either under the Act or the DTAA. In the Sheraton case
(supra), this Court had used the said term "incidental" only in the sense of "ancillary to"
or "connected with" the supply of goods and services under the Agreement. This Court
did not use the term "incidental" to convey the idea that trademarks and IP rights were of
reduced value or importance as compared to the supply of goods and services under the
contract. In other words, the use of the word "incidental" by this Court in Sheraton
(supra) is not based on any value judgment regarding the relative importance of the
supply of goods and services as compared to permitting the use of the trademarks and I.P.
rights. This used the term "incidental" only to connote the close and immediate
connection between the supply of goods and services and the user of the trademarks/ I.P.




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rights that are inextricably interconnected with such supply. Thus, when no autonomous
I.P. rights are created that are de hors or independent of the supply of the goods and
services, then the payments under the contract cannot be regarded as consideration for the
user of the trademarks / I.P. rights and, therefore, would only constitute 'business income'
and not "royalty" in the hands of the recipient. It is argued that the judgment fully covers
the present case in favor of FOWC, and the AAR committed an egregious and patent
error of law in not following the binding principles of law laid down. It is further argued
that the term "incidental "used by this court in Sheraton is in conformity with the sense in
which the Supreme Court has understood the said term. Learned senior counsel relied on
Works Manager Central Railway vs. Vishwanath & Ors. (1969) 3 SCC 95,State of Orissa
vs. Chakobhai [1961] 1 SCR 719 and Shroff & Covs Municipal Corporation of Greater
Bombay (1989) Supp. 1 SCC 347. It is urged that the AAR fell into error in interpreting
the expression "incidental" in a completely different sense than what was held in
Sheraton thereby in effect re-writing it. Furthermore, the impugned order is flawed
because it holds that the dominant purpose of the RPC is to grant I.P. rights because the
Promoter has been given the right to use the F1 name and marks, overlooking that this
was exclusively so that the F1 racing event could be staged and hosted by the Promoter in
full accordance with the F1 rules and regulations. Mr. Datar lastly relied on Section 48 of
the Trademarks Act and said that use of the mark by a permitted user is not considered to
be grant of any property right and in fact, such use inures to the benefit of the I.P
proprietor.
21.    It is argued, next, on the issue of existence of PE in India, that the preconditions
for creation of a permanent establishment where, or through which business is earned in
India, have not been proved. Learned counsel relied on the OECD Model Tax Convention
on Income and on Capital, Para 10, which reads as follows:

       "10. The business of an enterprise is carried on mainly by the
       entrepreneur or persons who are in a paid-employment relationship with
       the enterprise (personnel). This personnel includes employees and other
       persons receiving instructions from the enterprise (e.g. dependent agents).
       The powers of such personnel in its relationship with third parties are
       irrelevant. It makes no difference whether or not the dependent agent is
       authorized to conclude contracts if he works at the fixed place of business




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       (see paragraph 35 below). But a permanent establishment may
       nevertheless exist if the business of the enterprise is carried on mainly
       through automatic equipment, the activities of the personnel being
       restricted to setting up, operating, controlling and maintaining such
       equipment. Whether or not gaming and vending machines and the like set
       up by an enterprise of a State in the other State constitute a permanent
       establishment thus depends on whether or not the enterprise carries on a
       business activity besides the initial setting up of the machines. A
       permanent establishment does not exist if the enterprise merely sets up the
       machines and then leases the machines to other enterprises. A permanent
       establishment may exist, however, if the enterprise, which sets up the
       machines also operates and maintains them for its own account. This also
       applies if the machines are operated and maintained by an agent
       dependent on the enterprise."

22.    Mr. Ganesh learned senior counsel argued that under Article 5.1 of the DTAA, a
permanent establishment is said to exist in relation to a business and income is said to be
earned in India, if it has a "fixed" place of business "through" which income is earned by
means of an economic activity. It is argued that the limitation and framework within
which tax incidence can be said to arise, if at all, is that of the need for an enterprise to
have a fixed place. The OECD commentary states that the premises need not be owned or
even rented by the enterprise. What is however, essential is that the premises or place
should be at the disposal of the enterprise. Mr. Ganesh submitted that there was nothing in
the RPC or any agreement with FOWC whereby a fixed place was ever placed at its
exclusive disposal. Thus, a place of business, which houses the fixed "place" would not
imply mere empty space, available for some such purpose, but existence of objects in that
place, such as furniture, equipment, etc which facilitate business, needed for the
concerned commercial activity. The place of management, though considered a PE,
requires existence of an office or similar facility in order to constitute a PE and the
management activities should be conducted through such fixed place. Counsel relied on
the decision reported as Director of Income Tax v. E Funds Corporation [2014] 364 ITR
256 (Delhi) which, after quoting from various authors, states that "The term 'through'
postulates that the taxpayer should have the power or liberty to control the place and,
hence, the right to determine the conditions according to its needs". It is urged that
Jaypee neither leased the stadium, or its premises or any part thereof to FOWC or granted




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license to FOWC. That FOWC facilitated the drivers and constructors to use them did not
further the revenues case in any manner, because they were professionals, and had
independent contracts. The access provided to them, or that provided to Allsports, or
FOM, or Beta Prema2 did not mean that they, or FOWC had a fixed place of business. No
part of the income generating activity of FOWC actually arose in India.

23.    It is submitted that the entire right to promote, stage, host and endorse the event,
i.e the F1 Grand Prix race, vested with Jaypee; FOWC only got the fee for assuring
participation of the teams and constructors, in the agreed manner. That it was entitled to
the live feed from the event, which it used, did not mean that any part of its business was
transacted in India. The agreement, i.e the RPC, nor any other agreement containing any
significant stipulation conferring it with a right to set up office in India, in relation to the
F1 event, ever entered in the country; it did not have or set up even a liaison office for the
purpose of its F1 event work or transaction. Therefore, the question of FOWC having a
fixed place of business, even for a transient place, did not arise.

24.    It was next argued that the question of any PE existing through Articles 5 (4) or
(5) also could not have arisen, in the circumstances of the case. It is highlighted by Mr.
Ganesh that none of the three companies, which entered into agreements with Jaypee, has
or had any office in India; though they were subsidiaries of FOWC, such status arose
because of acquisition of their shares in 2006. The transactions by them with Jaypee were
independent. Moreover, the three companies did not act on behalf of FOWC, nor could
they ever be said to have acted "habitually" in that regard, because the contract with
Jaypee was a "one off" transaction. Thus, none of the ingredients of Article 5(4) of the
DTAA applied. Equally, provisions of Article 5 (5) of the DTAA had no application
because, none of the subsidiaries activities were "carried out wholly or almost wholly
for" FOWC. It was submitted that there was, nor could there have been, any finding that
the said subsidiaries (Allsports, Beta Prema2 or FOM) acted "wholly" in the course of
their business for FOWC or for its benefit. There was no material or evidence shown by
the revenue in support of its contention. It is submitted that the business contracts
therefore, entered into between FOWCs subsidiaries were independent bargains and




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concluded on principal to principal basis. The benefit or amounts derived from those
contracts did not flow back to FOWC. Lastly, learned counsel submitted that the reliance
placed by the revenue on the AARs ruling in the case of Re Golf in Dubai 2008 (306)
ITR 374 is inappropriate, because in that case, the arrangement was such that the
premises were in fact leased for a period for use. In the present case, no space for work or
commercial activity was offered to or taken by FOWC.

Revenue's contentions

25.    The revenue argues that a (PE) defined under Article 5 of the may exist under Para
(1) of Article 5, if there is a fixed place of business available to the enterprise through
which its business is wholly or partly earned on. A PE may also get constituted under
Para (4) of the said Article, if the enterprise carries on its business functions through a
dependent agent who has an authority to conclude contracts on behalf of the enterprise. If
the agent works wholly or almost wholly for the enterprise, he shall be deemed to be a
dependent agent under Para (5) of Article 5, subject to other conditions. Relying on its
Directors report, Mr. Srivastava, learned counsel argues that FOWCs business is to
exploit commercial rights arising from the conduct of FIA Formula One World
Championships in various parts of the world, including India in the relevant years.
26.    It is argued that FIA, the international regulatory body, organizes and controls
motor races in various parts of the world. For the F-1 championship, it enters into an
'Organization Agreement' with the local Promoter. The format of such 'Organization
Agreement' is contained in Schedule 6 to the Concorde Agreement (the mother
agreement). The Concorde Agreement provides that the 'Organization Agreement' would
be entered into only after the Promoter has entered into an agreement with the
Commercial Rights Holder. The Organization Agreement makes it explicit that FIA is the
sole and exclusive owner of the Formula One World Championship event
27.    FIA entered into an agreement with FOAM (predecessor of FOWC) under which
FOAM was given the right to exploit commercial rights and it became the Commercial
Rights Holder (CRH). On the back of the above agreement, FOAM (CRH) entered into an
RPC with JPSK (Jaypees predecessor) in 2007. The promoter (JPSIL), entered into an




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'Organization Agreement' with FIA and obtained the right to organize the FIA Formula
One World Championship in India. In the meanwhile, by a new 'Concorde Agreement' of
2009, FOWC became the new commercial rights holder (CRH). As per the stipulation in
the 'Concorde Agreement', the commercial rights could not be assigned/transferred by the
commercial rights holder (CRH) to any entity other than its affiliates. Under the terms of
such Concorde Agreement, FOWC could exploit such rights either directly or through its
affiliates.
28.     It is argued that the Buddh International Circuit (Noida), which includes not only
the racing circuit but all the attached buildings in the complex, including vending areas,
hosting and broadcasting facilities, media centres, administrative offices etc. as widely
defined in the Race Promotion Contract itself was available to FOWC and its affiliates
(including their employees and third party contractors appointed by them) for carrying on
their business operations. This circuit along with all the facilities was constructed in a
form and manner approved by both FOWC and FIA. (Clause 5(e) of RPC). FOWC and its
affiliates have complete access to the circuit in all its dimensions for a period beginning
14 days prior to the event and ending 7 days after the event. The place is available not
only to FOWC but to its contractors, licensees, FOWC's affiliates, their personnel etc.
(Clause 11 of RPC). Further, access to the restricted area is regulated by passes and
tickets issued by FOWC. In effect, FOWC had complete control over the entire area
during the term of the event. (Clause 14 of RPC) The fixed place is available to FOWC
under the terms of the RPC for carrying out its business functions for a period of 5 years,
extendable by another 5 years.
29.     It is argued that consistent with the stipulations of the Concorde Agreement,
FOWC exploited certain commercial rights directly (such as media rights) and certain
other commercial rights indirectly through other group entities, namely Allsports
Management SA ('Allsports') and Beta Prema 2 Ltd. The business functions were given to
the affiliates by interposing the promoter, Jaypee being oblivious of the fact that under the
Concorde Agreement, FOWC could not have transferred such rights to JPSIL. The effect
of such interposition was that while the terms of Concorde Agreement were not violated,
the exposure of FOWC to a PE in India was sought to be avoided. Despite the fact that the




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RPC of 2007 was not rescinded, FOWC entered into a fresh Race Promotion Contract
with JPSIL(successor of Jaypee) in departure from the RPC of2007 on 13.09.2011. (both
agreements were signed by Mr. B. Eccelstone for EGA and FOWC). Some of the changes
made in the latter agreement were:
· Under RPC of 2007, the promoter was given only the right to 'promote' the event but in
the RPC. of 2011, the words 'host' and 'stage' were inserted before the word 'promote'
solely with a view to escape the tax incidence.
· As a condition precedent, JPSIL (R 2) was mandated to transfer the commercial rights
back to the group entities of FOWC (R I), namelyAllsports Management SA and Beta
Prema 2 Ltd. and to obtain the services of FOAM for executing certain obligations
pertaining to the exploitation of media rights, which FOWC had undertaken directly.
· The declaration in the RPC of 2007 that FOAM acted as a Business Manager and agent
of FOWC was deliberately dropped, without the business model undergoing any change.
· Clause 18.3 was introduced, casting an obligation on JPSIL to engage FOAM to carry
out services for the origination of international television feed, to be provided to
telecasting companies with which FOWC had already made agreements.
30.    It is argued that Beta Prema 2 had transferred title Sponsorship rights to Bharti
Airtel Ltd. on 16.08.2011 for a consideration of USD $ 8 million, long before it acquired
these rights from Jaypee on13.09.2011. On 16.08.2011, when such rights existed only
with FOWC, Beta Prema 2 could have concluded an agreement with Bharti Airtel only on
behalf of FOWC or as an agent of FOWC and not otherwise. It is argued thus by Mr.
Srivastava that a holistic reading of these agreements particularly the five agreements
executed simultaneously on 13.09.2011 leads to the following irresistible inferences:
(i) FOWC alone was the commercial rights holder (CRH) for the championship under the
Concorde Agreement.
(ii)FOWC could exploit the commercial rights either itself or through its group entities
only and the same could not have been transferred to a third party, outside the group,
including JPSIL.
(iii) The entire arrangement of showing that the rights moved from FOWC to JPSIL and
then from Jaypee to Allsports and Beta Prema 2 is wholly artificial and far removed from




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the true state of affairs and intent of the parties.
(iv) Jaypee was interposed in the above arrangement only to avoid the exposure of FOWC
to a PE in India. The commercial rights, in effect and for all intent and purposes,
remained only with FOWC or its affiliates.
(v)     The transfer of commercial rights to Jaypee on 13.09.2011 and its further transfer
to the affiliates of FOWC on the same day shows that the rights did not rest with Jaypee
for any period of time and the entire arrangement was pre-ordained.
31.     The revenue argues that the agreements entered into by Jaypee with Beta Prema 2
and Allsports stipulate that entire revenues from exploitation of commercial rights arose
only to Beta Prema 2 and Allsports, as the case be, and Jaypee would not have any share
in the same. The agreements also provide that there does not exist any agency relationship
between the affiliates and Jaypee (clause 26 of the Beta Prema 2 agreement and clause 19
of the Allsports agreement). Seen from this backdrop, the stipulations in the agreements
to the effect that these entities acted on behalf of Jaypee are misleading and made only to
project a wholly unreal state of affairs. The transfer of such valuable rights which yielded
revenues worth US $ several millions (exact amount of revenues not provided) to these
entities was made for a pittance (USD 1 million each),making the whole arrangement
commercially unrealistic and wholly artificial.
32.     It is argued that the AAR had correctly understood and enunciated the test, in the
Golf in Dubai(supra) decision, but failed to apply it correctly in the facts of the present
case. FOWC was responsible for inclusion of the F1 event in the Budh Circuit, which was
built according to specifications suited for F1 Formula One championship. The circuit
was made available to FOWC as the entity which guaranteed the participation of a
minimum number of teams; the circuit itself constituted a fixed place of business for
FOWC. No other event could or was staged for the duration the event was held;
moreover, the RPC stipulated that the circuit had to be kept free only for the F1 racing
event in which FOWC chosen and contracted teams participated. The promoter, Jaypee
only had the privilege of being called "event promoter" in reality, the entire ownership of
the event and the economic advantages, in the form of media and television rights, were
exclusively owned by FOWC. Even though the promoter was obliged to get in equipment




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and infrastructure to enable feed creation and transmission, it could not avail any benefit
from it: that belonged, in every sense of the term, to FOWC and none else.
33.    FOWC's business is the exploitation of commercial rights arising from races
which is carried on through exploitation of these commercial rights either by itself or
through any one or more members of CRH group mentioned in the Concorde Agreement.
Counsel urged that commercial rights were originally owned by FIA, transferred in 2001
to SLEC Holding Company (parent company of FOWC) for a consideration, then given
to FOAM and w.e.f. 1.1.2011 transferred to FOWC. He also pointed out certain
inconsistencies as under:-
(a) The Organization Agreement between FINFMSCI was entered into on 20.01.2011.
The RPC and the Artworks License Agreement are dated 13.09.2011 Going by RPC dated
·13.09.2011, it is evident that GP contract did not exist on the date of the signing of the
Organisation Agreement in January 2011. It would be relevant to refer to recital (B) in the
Organization Agreement which reads as under:
"The Promoter has entered into an agreement with the Commercial Rights Holder to
promote the event."

According to FOWC, its agreement with Jaypee was entered into on 13.09.2011. It would
be difficult to explain the Recital in the Organization Agreement in January 2011 by
reference to the RPC of September 2011.
(b) The agreement, dated 25.10.2007, between FOAL and Jaypee, is on the same lines as
RPC of September 2011. This agreement is in tune with the Format provided under
Schedule 4 of the Concorde Agreement. It is obvious that FIA could sign the
Organization Agreement in January 2011 only on the basis that the Promoter had already
entered into GP contract with FOAM (predecessor of FOWC) in 2007.
(c) The RPC of 2007 has the following distinguishing features:
i) The right given to the Promoter is only to promote the event under clause 4(1) thereof.
ii) Clause 18.3 appearing in RPC of 2011 is not there in the RPC of 2007.
iii) The conditions precedent in Clause 2 are limited to obligating the Promoter to enter
into an agreement with APM (Ireland) Ltd. (APM). Nothing is known about this entity or
the role to be played by it in the exploitation of commercial rights. In fact, nothing is




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known to Revenue about the ownership of this entity or its business nature or the
functions performed by it. There is no reference of any agreement with Beta Prema 2,
Allsports or FOAM in this RPC.
d) Recital (D) clearly records as under:
"FOA has appointed its subsidiary, Formula One Management Limited ("FOM') as its
agent and business manager to conclude contracts on its behalf and to exercise its rights
and perform its obligations under such contracts."

34.    The revenue urges that FOWC's contention that the 2007 agreement was not acted
upon is incorrect. Mr. Srivastava, therefore, argues that FOWC has a PE in India. The
fixed place is Buddha circuit located in Greater Noida and owned by Jaypee which was
being designed and constructed in terms of RPC dated 25.10.2007 and RPC dated
13.9.2011 is only continuation of earlier arrangement. He further urges that clause 11 of
the RPC dated 13.9.2011 makes available to FOWC and other entities access to circuit,
clause 8.1 obliges the promoter to allocate promotional area in such a manner as FOWC
shall specify, access to restricted area is regulated by passes and tickets issued by FOWC.
He has also submitted that International Broadcast is one of the major commercial rights
which vests in FOWC and because the promoter has set up a media compound and
installations necessary for national and international commentators, such business is also
made available to FOWC at the circuit.
35.    The revenue further argued that that the three affiliates of FOWC, i.e. Formula
One Management Ltd. ('FOM'), Allsports Management SA and Beta Prema 2 Ltd. are
FOWC's agents who carried on its business and on its behalf, through the fixed place. It
has submitted that that all commercial rights originally vested and were granted to only
FOWC under the Concorde agreement, with a stipulation that FOWC may transfer or
assign such rights only to other group entities. It is argued that each of FOWC's affiliates
acted on its behalf; the rights they exploited were ostensibly that of Jaypee; however, a
close reading of the agreements with that concern showed that their own rights originated
in effect from the arrangements entered into FOWC; the contracts with Jaypee were
mandated by the RPC between FOWC and Jaypee, where the latter was bound to enter
into agreements and contracts with these affiliates. Given the admitted relationship




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between FOWC and each affiliate and the fact that they collected huge sums of money
through the contract, in lieu of which Jaypee was given US $ 1 million in each contract,
the only inference that could reasonably be drawn was that they entered into contracts on
behalf of FOWC.
36.     On the issue of whether the payment by Jaypee was royalty, the revenue argued
that the RPC and Artwork License Agreement had to be read together for a
comprehensive view. It is argued that there is no agreement between FOWC and Formula
One Licensing B.V., proprietor of the trademarks for transfer or licensing of such rights in
favour of FOWC. The latter stated this in its letter, dated 19.07.2016. What FOWC
licensed to Jaypee was the permitted use, in the territory, of the licensed marks and
materials. The licensed marks and materials are defined to include marks stated above.
The "permitted use" is defined to mean incidental use of the licensed marks strictly for the
purpose of hosting, staging and promoting the event.
37.     Mr. Srivastava urges that a combined reading of Concorde Agreement and other
agreements reveals that Jaypee was not required to make any payment to FOWC for
hosting, staging and promoting any motor racing event. The payment was for only the
reason that the mark of "Formula One World Championship" or "Grand Prix of India" had
to be used to make the event a part of the calendar of F1 World Championship. Thus, it is
the staging of Formula One World Championship which is an event involving use of the
FOWC's marks and this factor impelled payment of USD 40 million by Jaypee to FOWC.
Thus, the right given by FOWC entailed the right to use the mark and licensed material to
characterize the event as Formula One World Championship event. FOWC could only
grant Jaypee, the right to use the mark to identify it as Formula One World Championship
and/or Grand Prix of India. Jaypee could have entered into Artworks license Agreement
with FOWC and the Organization Agreement with FIA and could have acquired the rights
necessary for hosting, staging or promoting the event (Formula One World
Championship). FOWC's attempt to show a consideration of US $ 1 was an attempt to
show the consideration of USD $40 million for rights different from what it was actually
paid.




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38.    The revenue resists the argument that there was an incidental use of the mark in
these circumstances. The use was in fact, primary and the only use. The mark's licensing
gave Jaypee the right to hold the F1 championship or Grand Prix of India event. This fact
is supported by the circumstances that Jaypee's rights as stipulated in the Concorde
agreement are clearly listed as (i) right to promote the event. (ii) right to designate the
event as Formula One Championship event.
39.    The revenue argues that the SLEC group (of which FOWC is a part)had acquired
the 'Formula One' trademark for a substantial consideration from FlA. It is unrealistic that
a mark acquired for a hefty consideration, would be licensed to a third party (Jaypee)
without consideration. Counsel argues that the trademark's significance is evidenced by
the fact that there are several other motor sport racing events held in India such as 'Honda
1 Make Race', 'JK National Tyre Racing Championship', 'MRF 1600 Championship',
'Maruti Suzuki National Superleague' etc. Yet these events hardly come in the public eye;
and saying that the revenues from such events are miniscule as compared to that of
FOWC would be an understatement. Given the relative ignorance of motor sports in
India, crowds, visiting the circuit or watching from home are thus drawn towards the
name 'Formula One', that they are familiar with and not the car or circuit specifications
that the event associates itself with. The revenue arising from the commercial rights, be it
sale of tickets, advertisement rights or broadcasting rights are, therefore, all attributable to
the name of the event more than anything else.


Analysis and Conclusions

Re question no. 1: whether FOWC had a fixed place permanent establishment (PE)
under Article 5(1) of the DTAA in the facts of the present case -

40.    Article 5(1) defines the term "PE" as "a fixed place of business through which the
business of an enterprise is wholly or partly carried on". Article 5(2) enumerates - by way
of an inclusion "especially various places such as place of management; a branch; office;
a factory; a workshop; premises used as sales outlet or for receiving or soliciting order;
the ware house in relation to a person providing store facilities for others; a mine; an oil




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or gas well etc. used for extraction of natural resources; an installation/structure used for
exploration or exploitation of natural resources; a building, site or construction;
installation or assembly, project or supervisory activities in connection therewith where
the site, project or supervisory activity continues for more than six months etc; furnishing
services including managerial services other than those taxable under Article 13 within a
contracting state by an enterprise through employees or other personnel subject to specific
conditions etc. Article 5(3) contains a "negative list", enumerating what is not deemed to
be a PE.
41.    FOWC and Jaypee argue that there is no "fixed place PE" in the sense of the term
under Article 5(1). It is emphasized that FOWC merely sought right to exploit
commercial rights in the championship and is awarded the permission and right to hold
and promote Formula One Grand Prix events and that the RPC sets out the terms and
conditions for the grant of privilege of hosting, staging and promoting the event to
Jaypee. FOWC only assures that it would use its reasonable endeavor to ensure that at
least 16 cars participate in the event. It is stated that no part of the RPC or artwork license
or indeed any contract between other entities which assures specific services to Jaypee
(All Sports, Beta Prema 2 and FOM) ever mentioned that FOWC had any place at its
disposal for any point of time. It neither had any office nor any place of business in the
sense as is commercially understood, from where its personnel were allowed to operate.
At all relevant and material times, the ownership and exclusive possession of the stadium
and all the premises therein vested and continued with Jaypee. Since the concept of a
fixed place PE is entirely dependent upon functioning of a company or commercial entity
within a physical place provided for that purpose (not necessarily for whole year but at
least a substantial period thereof), the question of FOWC ever having functioned in any
premises or even licensed to do by Jaypee did not arise. It is furthermore urged that the
revenue's argument that the AAR fell into error is baseless because the impugned order
correctly concluded that there was no fixed place of business from where FOWC
operated. Furthermore, it was argued that each participating team was under a contract
and none of its members were engaged as employees of FOWC in the sense that they
were performers whom the FOWC assured, would participate. Moreover, there was no




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activity on part of the FOWC within such fixed place that yielded income in India. It is
emphasized that the relationship between the fixed place and the business carried on
through it has to be established in any case to say that income arising from such activity is
taxable in India. Reliance is placed upon the OECD Model Convention on Income and
Capital, 2010, para 10, which elaborates that mainly the enterprises or persons who are in
paid employment relationship with it carry on the business of an enterprise. Such
personnel would include employers and other persons receiving directions from the
enterprise, learned counsel relied upon the decision reported as E Funds (supra). The
revenue argues that the entire event is the creation of FOWC, which is an extension of
FIA. Elaborating on this submission, it is stated by the revenue that inclusion of any
circuit in the FIA's calendar of events is through the FOWC. Therefore, from the
inception, i.e. inclusion of event in a circuit till the conclusion of the event itself, (i.e.
Formula One Grand Prix Championship race in any circuit), the FOWC's role dominates.
Elaborating on this, it is argued that the Buddh Circuit was built to suit the specifications
needed for a Formula One race, including the Grand Prix Championship. For three weeks
before the event and a week after it, the entire circuit or any part thereof was exclusively
meant for the event; FOWC or its personnel or agent had access to every part of the
circuit. Moreover, every team that participated in the event was under contract with
FOWC and had to do so as a condition precedent for the payment of consideration and
importantly prize money and share of its prize money. In other words, though seemingly
independent contractors of FOWC, in reality, the teams were bound to honor the
commitment of FOWC. This was the business model adopted by it and in any given year,
FOWC's mandate bound each team to participate in a certain preordained manner, in
events stipulated by it. Furthermore, even though the right to promote, host and endorse
the event ostensibly was that of the Jaypee, it could not in real sense of the term exploit its
rights. Under the RPC, it was bound to contract out those rights to three sport entities;
what is even more important is that it did not even possess any copyright or intellectual
property right in respect of the media and television recordings created of the event. The
ownership and exploitation of those rights exclusively vested with the FOWC. Most
crucially, the revenue argues that the entire ownership of the live feed and the right to









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exploit it through sport contracts for media, television network, gaming, rights etc. were
exclusively that of FOWC. In the real sense of the term, therefore, FOWC was the
commercial owner which yielded income - in the form of consideration for facilitating the
event, its inclusion in the FIA calendar and the revenues derived from the contracts,
especially media, television network contracts.

42.    Since both the parties relied on the provisions of the RPC, it would be useful to
extract some of its relevant conditions. They are reproduced below:

       "WHEREAS
       (A)    The Federation Internationale de l'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 Championship.
       (B)     Pursuant to various agreements between the FIA, POWC and its
       Affiliates (as defined in Clause I(p) etc. FOWC has the exclusive right to
       exploit the commercial rights in the Championship, including the exclusive
       right to propose the Championship 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).
       (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 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 Formula One Grand Prix
       events. The Promoter had secured the privilege to host such events and is
       no executing this agreement with FOWC to set out the terms and
       conditions on which it will host, stage and promote Formula One Grand
       Prix events at such circuit.
       XXXXXX                  XXXXXX                  XXXXXX

       Definitions and Interpretation




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       1.      In this Agreement unless the context requires otherwise:
       XXXXXX                  XXXXXX                  XXXXXX
       (q)      Circuit shall mean a motor racing circuit suitable in every 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 (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);
       XXXXXX                  XXXXXX                  XXXXXX
       (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 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
       XXXXXX                  XXXXXX                  XXXXXX

       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 shall use its
       best endeavour to satisfy the Conditions in accordance with this Clause 2.
       XXXXXX                  XXXXXX                  XXXXXX

       Term
       3.1    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 of this Agreement (the Initial Term)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).




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       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 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 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
       XXXXXX                  XXXXXX                  XXXXXX

       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 Annex and
       initialed by the Parties for identification, the Circuit shall be constructed,
       laid out and prepared in accordance with 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;
       XXXXXX                  XXXXXX                  XXXXXX

       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, FOWC, Affiliates of
       FOWC, FOWC's contractors and licensees and their respective personnel
       and equipment (if any) 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.
       XXXXXX                  XXXXXX                  XXXXXX

       Competitor/Media Facilities




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       13.1 The Promoter will in so far as the same is practicable provide an
       entrance for the Competitor personnel and for Officials 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 of
       a round of the FIA Formula One World Championship at that Circuit and
       140 metres by 100 metres or 15,0000 square 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 television commentators
       and journalists (such premises and installations to meet the prestige of a
       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.
       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 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 all reasonable
       measures which may reduce such ancillary cots.
       13.5 The Promoter undertakes to provide all such other facilities as
       specified in the Circuit General Specifications Manual.

       Access to Restricted Areas
       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 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




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       foregoing there is at no time any obstruction to the free passage of the
       cars and Competitor personnel in the paddock or pit area;
       (c)    the validity of any Passes and tabards 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.

       Insurance
       15.1 The Promoter shall provide at its expense third party liability
       insurance (in a form 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 above mentioned parties
       (such parties to include where relevant 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 of or
       bodily or 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 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 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
       expense of the Promoter.
       XXXXXX                  XXXXXX                  XXXXXX

       Filming/Recording at the Event
       18.1 Save with the prior written consent of the FOWC and save for the
       Promoter's obligation in Clause 18.3, throughout the Term during the
       Access Period (and any test session held at the Circuit in which more than
       one Competitor is participating (Non-Private F1 Test Series) the
       Promoter shall not (nor shall the Promoter permit, enable, assist, procure




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       or encourage others to) make, create, store, record or 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,
       Competitors), any Non-Private F1 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 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 that may
       enable him to do the aforementioned acts (other than mobile telephones
       use of which is subject to this Clause 18 and Clause 19.1 below);
       (b)    that as a spectator he may be filmed and sound made by him may
       be recorded for broadcast (or similar transmission); and
       (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.
       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 guidelines published annually by
       FOWC and provided to the Promoter from time to time.

       Intellectual Property
       XXXXXX                  XXXXXX                  XXXXXX
       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 any media whether now known or
       hereafter invented or developed in, of or pertaining to the Event, any Non-
       Private F1 Test Session or any aspect of them (irrespective of who




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       originated the same)for the duration of those rights (including all
       renewals, extensions, reversions and revivals thereof); and
       (b)     gives its consent (if such consent should be required) for FOWC to
       deal in such rights in any way it may see fit.

       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 throughout 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.
       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 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 or any part of it in any country."
43.    The OECD Model Tax Convention on Income and on Capital,(Condensed
Version- July 2010) contains a useful commentary on what could be said to constitute
fixed place of business. The relevant extracts of the same are reproduced below:

       "3.     It could perhaps be argued that in the general definition some
       mention should also be made of the other characteristic of a permanent
       establishment to which some importance has sometimes been attached in
       the past, namely that the establishment must have a productive character,
       i.e. contribute to the profits of the enterprise. In the present definition, this
       course has not been taken. Within the framework of a well-run business
       organization it is surely axiomatic to assume that each part contributes to
       the productivity of the whole. It does not, of course, follow in every case
       that because in the wider context of the whole organization a particular
       establishment has a "productive character" it is consequently a permanent
       establishment to which profits can properly be attributed for the purpose
       of tax in a particular territory (see Commentary on paragraph 4).




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       4.       The term "place of business" covers any premises, facilities or
       installations used for carrying on the business of the enterprise whether or
       not they are used exclusively for that purpose. A place of business may
       also exist where no premises are available or required for carrying on the
       business of the enterprise and it simply has a certain amount of space at
       its disposal. It is immaterial whether the premises, facilities or
       installations are owned or rented by or are otherwise at the disposal of the
       enterprise. 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 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 other enterprise.
       4.1     As noted above, the mere fact that an enterprise has a certain
       amount of space at its disposal which is used for business activities is
       sufficient to constitute a place of business. No formal legal right to use
       that place is therefore required. Thus, for instance, a permanent
       establishment could exist where an enterprise illegally occupied a certain
       location where it carried on its business.
       4.2     Whilst no formal legal right to use a particular place is required
       for that place to constitute a permanent establishment, the mere presence
       of an enterprise at a particular location does not necessarily mean that
       that location is at the disposal of that enterprise. These principles are
       illustrated by the following examples where representatives of one
       enterprise are present on the premises of another enterprise. A first
       example is that of a salesman who regularly visits a major customer to
       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 the enterprise for
       which the salesman is working and therefore do not constitute a fixed
       place of business through which the business of that enterprise is carried
       on (depending on the circumstances, however, paragraph 5 could apply to
       deem a permanent establishment to exist).
       4.3     A 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 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 of the other company 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




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       the activities that are performed there go beyond the activities referred to
       in paragraph 4 of the Article.
       4.4     A third example is that of a 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 transportation enterprise
       at the delivery dock would be so limited that that enterprise could not
       consider that place as being at its disposal so as to constitute a permanent
       establishment of that enterprise.
       4.5     A 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 of his business (i.e. painting)
       constitute a permanent establishment of that painter.
       4.6     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 that is at the disposal of the enterprise for that
       purpose. Thus, for instance, an enterprise engaged in paving a road will
       be considered to be carrying on its business "through" the location where
       this activity takes place.
       5.      According to the definition, the place of business has to be a
       "fixed" one. Thus in the normal way there has to be a link between the
       place of business and a specific geographical point. It is immaterial how
       long an enterprise of a Contracting State operates in the other
       Contracting State if it does not do so at a distinct place, but this does not
       mean that the equipment constituting the place of business has to be
       actually fixed to the soil on which it stands. It is enough that the
       equipment remains on a particular site (but see paragraph 20 below).
       XXXXXX                          XXXXXX                       XXXXXX
       10.     The business of an enterprise is carried on mainly by the
       entrepreneur or persons who are in a paid-employment relationship with
       the enterprise (personnel). This personnel includes employees and other
       persons receiving instructions from the enterprise (e.g. dependent agents).
       The powers of such personnel in its relationship with third parties are
       irrelevant. It makes no difference whether or not the dependent agent is
       authorized to conclude contracts if he works at the fixed place of business
       (see paragraph 35 below). But a permanent establishment may
       nevertheless exist if the business of the enterprise is carried on mainly
       through automatic equipment, the activities of the personnel being
       restricted to setting up, operating, controlling and maintaining such




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       equipment. Whether or not gaming and vending machines and the like set
       up by an enterprise of a State in the other State constitute a permanent
       establishment thus depends on whether or not the enterprise carries on a
       business activity besides the initial setting up of the machines. A
       permanent establishment does not exist if the enterprise merely sets up the
       machines and then leases the machines to other enterprises. A permanent
       establishment may exist, however, if the enterprise which sets up the
       machines also operates and maintains them for its own account. This also
       applies if the machines are operated and maintained by an agent
       dependent on the enterprise."


44.    Klaus Vogel in the commentary Double Taxation Conventions (Kluver Law
International, 2005) states that the main features of Article 5(1) are: (a) existence of an
enterprise; (b) its carrying on a business; (c) existence of a place of business, the nature of
such place being fixed and (d) through which (i.e. through the place) the business should
be carried on.

45.    Vogel further states that a place would mean an establishment and, therefore,
comprehend all the tangible assets used for carrying on a business and "Rights, such as
participation in a corporation, claims (as well as accounts) or intangible property rights
(patents, software etc.) do not amount to permanent establishment.....the term covers both
premises and other tangible assets used by the enterprise, i.e. the place of business as a
whole must be of 'used' and not necessarily each of its component parts. Special facilities
for carrying on business are not necessarily required." A room in which the enterprise's
business is carried on could qualify for "permanent establishment." Weight is attached to
"used" criterion. That is why the living accommodation of a travelling salesman may well
be classifiable as PE. The place of business must be "fixed one", the existence of link
between the place of business and the specific geographical bond would be sufficient.
Vogel further states that:

       "d)     Power of disposition: The fixed place of business must be more
       than merely temporarily at the enterprise's disposal. A fixed place of
       business owned by an enterprise but placed at the disposal of a third party
       for the latter's own purposes (and hence not for the enterprise's), would
       not be a permanent establishment of the enterprise. It is sufficient if the




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          entrepreneur has the power of disposition through an employee; even if he
          himself is forbidden to enter the State in question this does not preclude
          the existence of a permanent establishment in that State.........."
          XXXXXX                        XXXXXX                        XXXXXX
                  It is not necessary for the enterprise alone to have power of
          disposition; in fact, several parties may have such power, whether jointly
          or severally. If jointly, the fixed place of business may constitute a
          permanent establishment of each of the parties involved......"
46.       In E-Funds(supra), though the court discussed what could constitute "fixed" place
of business and did conclude that a physical presence in a geographical area is essential,
the decision was more related to an interpretation of who is a dependent agent, so as to
bring within the fold of domestic taxation an enterprise that has an overseas tax resident
status.

47.       For a better understanding, the court proposes to consider a few illustrative cases
that have ruled- across various jurisdiction how permanent is "permanent" and how
"fixed" should the establishment be. In this regard, this Court has relied upon the
commentary in Taxmann's Permanent Establishment in International Taxation by Dr.
Amar Mehta, May 2012. In Universal Furniture Ind. AB v Government of Norway
(Stavanger Court, Case No. 99-00421, dated 19-12-1999 referred to in Principles of
International Taxation by Anghard Miller and Lyn Oates, 2012) 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 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 salesmans house amounted to a place of business: it was
sufficient that the Swedish Company had a place at its disposal, i.e the Norwegian
individuals home, which could be regarded as "fixed".

48.       In the Swiss Server decision[Case No. II 1224/97 dated 6 September 2001,
Finanzgericht of Schleswig-Holstein (Tax Court of First Instance)], D Co ­tax resident




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company of Germany ­ owned an Internet server installed at a rented place in
Switzerland. The company stored programs and dealt with its Swiss clients files, in the
server. The server functioned without involvement of D Cos employees in Switzerland.
A second company, S Co, which was D COs affiliate and a Swiss tax resident, managed
the server (i.e. computer programs and information about D Cos clients in Switzerland).
D Co argued before the German tax authorities that its Swiss server amounted to
permanent establishment and its income attributable to it was exempt from German tax.
The German tax authorities rejected this argument. In D Cos appeal, the German Tax
Court of First Instance held that the server constituted D.Cos fixed place of business and
a fixed place permanent establishment in Switzerland. The Courts view was that, for a
fixed place permanent establishment to exist, it was unnecessary that the server had to be
operated by human beings (i.e. employees of D Co, a contractor or any other enterprise).
The Court pointed out that any equipment could amount to a fixed place permanent
establishment even if it functioned fully automatically without human intervention. In so
holding the Court also took into account Art. 5(3)(a) of the Germany-Switzerland tax
treaty (which was similar to Art. 5(4)(a) of the OECD MC 2010). As per that provision,
the term "permanent establishment" did not include facilities used solely for the purpose
of storage, display or delivery of goods or merchandise belonging to the enterprise. In that
respect, the Court expressed that only the assets that could be ,,itemized on the
enterprise's balance sheet could be regarded as goods and merchandise. Therefore, in the
Court's view, Art. 5(3)(a) of the tax treaty did not apply to the server used for storing the
information that was supplied by D Co to its customers in Switzerland.

49.    The Court also examined Art. 5(3)(e) of the Germany-Switzerland tax treaty. That
provision negated existence of a fixed place permanent establishment if a fixed place of
business was maintained solely for the purpose of (i) advertising, (ii) for the supply of
information, (iii) for scientific research, or (iv) for similar activities that were of
preparatory or auxiliary character. In this respect, the Court observed, the decisive
criterion was whether the activity carried on in the said place of business formed an
essential and significant part of the core business of the enterprise as a whole. In that
context, the Court observed, D Cos activities through the server were not preparatory or




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auxiliary since the transfer of information formed part of D Cos core business.
Accordingly, the Court concluded, Art. 5(3)(e) of the Germany-Switzerland tax treaty did
not apply in the present case.

The German Court took note of paragraphs 42.1 to 42.10 of the OECD Commentary on
Art. 5, which distinguished between server hardware and server software. As per the said
commentary, a server hardware constituted a permanent establishment if the content
provider owned the server and he exercised his business through the server. In such a
situation, it was not relevant whether the foreign enterprise used personnel in the host
country where the server was situated. Therefore, the Tax Court of first Instance
concluded that the above-mentioned computer server amounted to D. Cos fixed place
permanent establishment in Switzerland.

50.    In Joseph Fowler v Her Majesty the Queen 1990 (2) CTC 2351, the issue was
whether a US 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 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 individuals business was such that he held sales in similar fares, for two or
three week periods, in two other locales in the US. The court held that conceptually, the
place was one of business, notwithstanding the short duration, because it amounted to a
place of management or a branch having regard to peculiarities of the business. The
question before the AAR in Golf in Dubai LLC (AAR No.770/2008) was whether it could
be deemed to have a fixed PE since the tournaments which it organized lasted only for 6-
7 days. The AAR concurred, however, significantly, in the course of this order, which
relied upon Applegate v. FCT 78 ATC 4054, where it was observed that the word,
"permanent" is contrasted with temporary or transitory but does not connote "everlasting"
and that the question is one of fact and degree. The AAR also noted that a place of
business can, however, constitute permanent establishment ­ relying upon para 6 of
OECD commentary even though it exists in practice "only for a very short period of time
because of the nature of the business." Significantly, even though in the facts of the case,
the AAR ruled that a fixed place of business existed, it acknowledged that, "even if the




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business was done for short duration with intermittent gaps, the existence of fixed place
of business at a particular spot, i.e. golf course may not be ruled out.", no hard and fast
rule can be laid down as to the number of days which can impart a degree of permanence
to the place of business to make it a fixed place.

51.    It would, for the purposes of deciding whether FOWC carried on business in
India, through a fixed place of business (which the revenue argues is the Buddh
international circuit) be necessary to consider the conditions and stipulations in the RPC.
The following, in the opinion of the Court, are material conditions necessary for
determination of whether FOWC had a PE in India:

(a)    The Budh International Circuit, is defined in Clause 1(q), as one suitable in every
respect for the staging of the event, including permanent buildings, permanent structure,
track laid-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. These specifications are more elaborately spelt out in Clause 5(e) which
states that a circuit shall be constructed, laid out and prepared 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. In 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 according to Clauses 3.3 and 3.4.

(d)    In 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 of FOWC, FOWC's contractors and licensees,
other personnel and equipment at all times during the period commencing 14 days before
the race and ending 7 days after the race. It also has to assure security to these areas.




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(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
competitor's mechanics may be called upon to work on them and under Clause 14(c), the
validity of passes issued by FOWC is unquestionable.

(f)       Under Clause 18.1, throughout the term during the access period, from the test
session held at the circuit till the end of the event, the promoter, i.e. Jaypee cannot permit,
access, enable, procure or in any manner encourage others to make, create, store, record
or transmit any sound recording or visual or audio-visual footage whatsoever, for
broadcast or any other purpose, of any of at or pertaining to the event, including cars,
drivers, competitors etc. and in fact cannot make any such recording etc. within the
confines of the circuit or the land over which Jaypee itself has control.

(g)       Under Clause 18.2, Jaypee has to ensure that the terms of the ticket sale, giving
admittance to the event include a condition imposed on the ticket holder not to make any
kind of recording or take any recording device that can store or transmit any part of the
event and that the ticket holder as a spectator could be filmed and a sound made by him
could be recorded for broadcast or any other such item that the FOWC could impose on
Jaypee.

(h)       Jaypee is obliged to engage a third party approved by FOWC to carry out and
perform on its behalf all service relating to the origination of the international television
feed and host broadcasting for each event during the term specified in the guidelines
published by FOWC and provided to Jaypee.

(i)       Jaypee unconditionally and irrevocably under Clause 19.2 assigned to FOWC all
copyright and other intellectual property rights, titles and interest which it may now or
may in future possess, in any image or recording or other presentation or recording in any
image/form whatsoever for the duration of the rights and also give consent to FOWC to
deal with such rights as it pleased.




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(j)    Clause 20.1 obliged Jaypee to ensure that those accredited and authorized by
FOWC were permitted to enter upon the premises to make sound, television or recordings
or transmissions or make films or other pictures and use the facilities throughout the
access period and also undertook to accord to such personnel all help and facilities that
FOWC would require, including assistance for consent, permission or authorization with
any local authority.

(k)    Under Clause 21, Jaypee was prohibited from causing, permitting, 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
which could be 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.

(l)    In the Directors report of FOWC, the company significantly mentioned that i ts
current company had entered into an agreement 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 turn-over ­ inasmuch as the report said that the company paid US$ 127
million to FOM in return of provision of services.

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 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 hand and All
Sports, Beta Prema 2 as well as FOAM show that Jaypee's capacity to act - though it
promoted the event, was extremely restricted. At all material times, FOWC had access -
exclusively, to the circuit, and all the spaces where the teams were located. Jaypee created




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the circuit for the purposes of the event and other events; yet, during the event, i.e. the F1
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 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 F1 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 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 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 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
business, it is hereby held that the circuit itself constituted a fixed place of business.

Did FOWC carry on business and if so, did it carry on business and commercial activity
in India?
54.     For a better understanding and appreciation of this question, it would be essential
to recount briefly, certain salient facts. FIA is the motorsport regulatory authority. It had a
pre-existing arrangement with Formula One Administration Ltd. (FOA), which held all
commercial rights. In terms of a Concorde Agreement, between FIA, FOA and FOWC, it
was decided that all commercial rights would continue with FOA till31.12.2010 and then
vest for 100 years (01.01.2011 to 31.12.2110) with FOWC, which was called the




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"Commercial Rights Holder" (CRH). The Concorde Agreement assured the participating
teams (detailed in a schedule) that the FIA had exclusive right in the F1 Championship
and was "entitled to grant to the Commercial Rights Holder" the exclusive right to exploit
the commercial rights in the F1 championship." Subject to these conditions, each team
undertook to "participate in the FIA F1 Championship each year for every Event" and
make cars available and compete in fact, every team undertook to participate in each
event with two cars. FIA undertook to ensure that events were held and the CRH (i.e.
FOWC) undertook to enter into contracts with event promoters to host such events
[4.3(c)]. Under Clause 10, the FOWC had the right to draw the FIA F1 Championship for
any season to be approved by FIA (which could not be unreasonably withheld). FIA also
gave its undertakings. Under Clause 11, the right to issue passes is with FOWC. Clause
17 sets out the conditions of payment to the teams.

55.    If the terms of the Concorde Agreement are read conjointly 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 group had entered into such contracts to enable commercial exploitation of the
rights for a 100 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, 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 of rights (those 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 creation of internet and media rights, including




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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 F1 Championship event conducted on the circuit in India.

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 shows that the entire event, i.e. F1 FIA
Championship in the circuit 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 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 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, 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 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 part of that commercial exploitation by the FOWC.

58.     Consequently, the Court concludes that the FOWC carried on business in India
within the meaning of expression under Article 5(1) of the DTAA. It is consequently held




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that the AAR fell into error of law in holding that FOWC did not function through a
PE/carry on business through a fixed place of business in India.

Regarding Question No.2, did the FOWC carry on business through its agents under
Article 5(4) or Article 5(5)

59.      The discussion on whether there was or were dependent agents which led to
FOWCs PE is rendered academic, in view of this courts finding that there was a fixed
PE. However, we are conscious that this judgment is subject to appeal; therefore we
proceed to discuss the issue of existence of dependent PEs.

60.      The relevant provisions of the DTAA- Articles 5 (4) and 5 (5) are extracted
below:

         "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:

         (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 goods or merchandise
         for the enterprise; or

         (b) he habitually maintains in the first-mentioned Contracting State a
         stock of goods 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, 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 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, if
         the activities of such an agent are carried out wholly or almost wholly for
         the enterprise (or for the enterprise and other enterprises which are




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       controlled 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."
61.    The revenues argument was that the terms of Article 5 were satisfied if the place
is at the disposal of the enterprise to be used in business. He has referred to paragraph 4 of
OECD commentary as under:-
       "4. It is immaterial whether the premises, facilities or installations are
       owned or rented by or are otherwise at the disposal of the enterprise....
       Again the place of business may be situated in the business facilities of
       another enterprise.

       4. 1 As noted above, the mere fact that an enterprise has a certain amount
       of space at its disposal which is used for business activities is sufficient to
       constitute a place of business. No formal/legal right to use that place is
       therefore required."

62.    It was argued that dependent agents worked for and on behalf of the enterprise
(FOWC) from the place made available to the enterprise and in such a situation it may not
be necessary to examine the PE under para 4 or 5 of Article 5 and to apply more stringent
conditions of having authority to conclude contracts. He has referred to para 10 of OECD
commentary as under:-
       "The business of an enterprise is carried on mainly by the entrepreneur or
       persons who are in a paid-employment relationship with the enterprise
       personnel. This personnel includes employees and other persons receiving
       instructions from the enterprise (e.g. dependent agents). The powers of
       such personnel in its relationship with third parties are irrelevant. It
       makes no difference whether or not the dependent agent is authorised to
       conclude contracts if he works at the fixed place of business (see
       paragraph 35 below).

       "35. Under paragraph 5, only those persons who meet the specific
       conditions may create a permanent establishment; all other persons are
       excluded. It should be borne in mind, however, that paragraph 5 simply
       provides an alternative test of whether an enterprise has a permanent
       establishment in a State. If it can be shown that the enterprise has a
       permanent establishment within the meaning of paragraphs 1 and 2
       (subject to the provisions of paragraph (4), it is not necessary to show that
       the person in charge is one who would fall under paragraph 5."
Since FOWC has to exploit commercial rights arising from races and this business is




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carried on through exploitation of these commercial rights either by itself or through any
one or more members of the CRH group as mentioned in the Concorde Agreement,
FOWC is obligated to propose consolidated accounts incorporating profits of all entities
forming part of CRH group. The revenue had relied on the fact that commercial rights
were originally owned by FIA, transferred in 2001 to SLEC Holding Company (parent
company of FOWC) for a consideration, then given to FOAM and w.e.f. 1.1.2011
transferred to FOWC. It was urged that FOWCs 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 place. It was
submitted that that all the commercial rights originally vested and were granted to only
FOWC under the Concorde agreement, with a stipulation that FOWC may transfer or
assign such rights only to other group entities. It has further said that the commercial
rights could only stay within the Commercial Rights Holder group (CRH group), which
included FOWC, its affiliates and other entities. These entities acted for and on behalf of
Jaypee, which did not get anything from these arrangements, and these entities were not
holder of commercial rights. Therefore, he argued that these entities acted for and on
behalf of FOWC. According to him FOM was business manager of FOWC, it had a
business management agreement with FOWC, 146 employees of FOM were in India for
40 days and based on these facts Revenue's counsel has concluded that FOM managed the
entire business of FOWC in lndia. As regards Allsports, which carried out sale of tickets,
it too acted on behalf of FOWC because no commercial rights were transferred to
Allsports. Similar conclusion arguments were made in case of Beta Prema 2 for the reason
that it exploited certain commercial rights available only with FOWC. It was also
submitted that PE gets constituted under Article 5(4) of DTAA also for the reason that
FOM is agent and business manager of FOWC and Beta Prema 2 and All Sports have no
independent status.
63.    AAR rejected the revenues contention, holding that the theory of Revenue that all
three entities Beta Prema 2, Allsports, FOM were acting on behalf of FOWC was
unfounded. It was held that there is no evidence to suggest that Beta Prema 2, All Sports
and FOM are acting on behalf of the FOWC and all arrangements and agreements in




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relation to activities performed by these 3 entities are sham.
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
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 of FOWC, they acted on its behalf and
thus become dependent agents is insubstantial. The mere circumstance that the three
subsidiaries had a connection 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
of FOWC. Each of the three agreements independently entered into by them with Jaypee
contains no pointers to this fact.
Re Question No. 3: Was the payment made by Jaypee to FOWC in the nature of royalty,
under the DTAA, for the use of the latter's trademark

65.    FOWC and Jaypee argue that the rights given to the latter under the RPC was the
grant of a bundle of rights the basic objective of which were to enable it, as the promoter
to stage a motor racing event in India at its circuit, the Buddh International Circuit, that
would be an official round of the FIA Formula One World Championship, in which all
participant teams and drivers in that Championship would therefore compete. The
permission to use the F1 marks for purposes limited to advertising the Event was
incidental to the grant of that principal right to enable hosting of the event. They also
argue that under the terms of the RPC and the ALA Jaypee had no independent right of
commercial exploitation of the marks. Therefore, the two independent contracting parties
agreed that no consideration was payable to FOWC in relation to the use of the marks.
Though the right included the right to name the event specifically, it was predominantly
in the nature of a pure commercial right. It was argued that the payment to FOWC was
the dominant purpose of securing the right to "put on" (i.e. host, stage and promote) at its
circuit and as its own commercial venture, an official round of a globally popular
international sporting series. The consideration was not paid for the use of any copyright,
trademark or other intellectual property mentioned in the definition of 'royalty', whether




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under second Explanation to Section 9(1)(vi) of the Act or Article 13(3) of the India-UK
DTAA. The ALA was incidental to and a mere consequence of the RPC. Its purpose was
to ensure that the use of Fl and related marks would be strictly controlled and limited to
the sole purpose of promoting the event(s), and that Jaypee and other third parties would
not be permitted to use the marks in connection with any other unauthorized activity or
commercial venture that could damage or dilute the reputation and prestige of the
Championship. FOWC and Jaypee therefore urge that the AARs finding that the payment
amounted to "royalty" is contrary to law. They argue that the AAR also erred in
distinguishing and not following Sheraton(supra). The revenue on the other hand,
supports the AARs conclusions and findings; it urges that the terms of the ALA and the
RPC clearly show that the payment of US$ 40 million was to enable Jaypee the use of the
F1 trademark and logo; they point out that these marks figured prominently in the
trackside advertisements and the tickets that were printed. The use of the logo, to promote
the event, therefore meant use of the F1 marks. The nomenclature or terms of an
agreement are not always determinative of the true nature of the transaction; in this case,
it clearly was to permit the use of the F1 mark. The character of the event would have
been different had the F1 marks not been used by Jaypee. It was held that the popularity
of the event is a result only of the use of the Marks, and that without those marks it would
not enjoy its popularity otherwise.
66.    Under trademark law, particularly in India, trademark use even for advertisement
purposes is to be preceded by prior consent of the proprietor and any unauthorized use of
the trademark without such prior permission of the proprietor could lead to an
infringement of the trademark (in India, under section 29 of the Trade Marks Act,1999).
To secure registration for the marks in India from the Trademark Registry, FOWC and
Jaypee entered into the ALA. The function of the ALA was (a) to provide for a strictly
limited usage of the marks i.e. only for advertisement and promotion of the Indian Grand
Prix Event; (b) to provide for restrictions on usage of such marks, i.e. not for any
commercial purposes such as use on merchandise, etc.
67.    The grant of a right, in the form of license to use the trademark is primarily to be
utilized in the licensees product. In a typical case of licensing, the trademark proprietor




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does not wish to mark its products in an area; it licenses the mark, to be used by the
licensees products, subject to limitations. The licensee has no right to initiate legal
proceedings, in the event of infringement, unless specifically authorized; the property in
the mark always vests with the owner. Even the use of the mark by the licensee inures to
the owner, as the latters continuous use, in terms of Section 48 of the Trademarks Act.
Typically, therefore when a trade vendor or establishment sells branded goods, it is
incorrect to state that the income earned by the vendor is generated from the brand or
mark, associated with the product, rather than from sale of the product itself. It would be
incorrect therefore, to conclude that income earned is not from the sale of the product, but
from marketing intangibles connected with the reputation of the mark, though that
reputation guarantees a high demand for the product, from which the seller benefits.
Likewise, in the case of distribution, a distribution agent is under an agreement with the
manufacturer to sell its good; it also possesses the right to advertise the goods and brands
of the manufacturer. This implies a license of the manufacturers trademark. In such an
event, the distributor need not pay for the right to use the intellectual property under
which the goods are sold; he merely pays for obtaining the exclusive commercial right to
sell the goods he buys from the manufacturer for enabling onward sale.
68.    Para 10.1 of OECD commentary on Article 12 of the Model Convention states
that payments solely made in consideration for obtaining the exclusive distribution rights
of a product or service in a given territory are not royalty, since the resident distributor
does not pay for the right to use the trade name or trade mark under which the products
are sold but merely obtains the exclusive right to sell in his state of residence the product
that he is agreeing to buy from the manufacturer; such payments will be characterized as
business income.
69.    It is relevant here to consider the conditions in the RPC and the ALA, which
FOWC entered into with Jaypee. Under recital B to the RPC, FOWC clearly has the
exclusive right to exploit the commercial rights in the championship and to award Jaypee
the right to host, stage and promote F1 Grand Prix events. Clause 17, states that FOWC
would through reasonable endeavors ensure that at least sixteen cars participate in the
Event. Clause 18 forbids Jaypee from making any audio or visual image of the event;




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likewise there are restrictions in clause 19 of the RPC. Clause 23.2 permits FOWC to
make incidental use of I.P. rights solely for the limited purpose of facilitating Jaypee to
promote the event. Under the RPC Jaypee remains liable to pay the full contractual
amount in the year of termination and in the subsequent year, the right to use trademarks,
logos and IP Rights ceases instantly, the moment termination takes place. This is a strong
pointer to the fact that the amounts payable by Jaypee to FOWC under the RPC are really
for the privilege of hosting and staging the championship race and not for the IP rights,
which in any event, could be utilized by it only to promote the race and for no other
purpose.
70.    Clauses 23.3 and 23.4 of the RPC are to be read in conjunction with the ALA. The
ALA does not confer any additional rights, neither was a license nor any form of right to
use the trademark given to Jaypee by FOWC which resulted in royalty payment within
the meaning of Article 13 of the DTAA.
71.    The judgment in Director of Income Tax v. Ericsson A.B. [2012] 343 ITR 470
(Del), held that a lump-sum payment which is not based on or connected with the extent
of the user of the IP rights would not constitute "royalties" within the meaning of the
DTAA. In the present case, the payments made under the RPC were separate lump-sum
amounts in respect of the three separate race events held in each of the three (3) years
2011 to 2013. It is not a payment, which is based on either the number of tickets sold or
the total amount of revenue earned by Jaypee in each of the said years or indeed on any
other measure. In the present case, the lump sum payable to FOWC by Jaypee would
likewise, not constitute royalties. Importantly, recital (B) of the ALA specifically stated
that FOWC wished to grant a license to Jaypee permitting only the incidental use of
certain IP rights and artwork "solely for the limited purpose of facilitating the hosting,
staging and promotion of the event". The definition of "permitted use" in clause 1.1 of the
ALA states that it means only the incidental use of the licensed marks and materials "for
the purpose of hosting, staging or promoting the event, but for the avoidance of doubt, not
to include use for any merchandising or other products or services whatsoever, whether
distributed free of charge or for sale". Clauses 2.2 and 6.2 of the ALA provide that the
ALA will continue only until the RPC terminates or expires; Clause 2.3 of the ALA




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prohibits Jaypee from using any of the licensed marks, or as part of the name of the
circuit, any corporate name, any domain name, website address or other URL
identification or equivalent used in association with Jaypee. Jaypee thus has no IP rights
whatsoever independently of the staging and hosting of the event. The undertakings given
by Jaypee, set out in Clauses 3.1(e) and 3.6 of the ALA too reinforce this conclusion.
These are strong indications that the parties did not intend, through the RPC and the ALA,
to license the trademark. Thus, it does not amount to royalty under the DTAA. The court
is in agreement with FOWCs position on the definition of "royalty" as set out in the
second Explanation to Section 9(1)(vi) of the Act; it is significantly broader than the
definition of "royalties" set out in Article 13(3) of the India-UK DTAA. The definition in
the Act specifically covers and includes lump-sum payments, whereas Article 13(3) of the
DTAA only refers to payments.
72.    The impugned order neither contains any discussion nor finding whatsoever on
this crucial issue even though it goes to the root of the entire case. The entire tenor of the
agreement- even the main purpose of the RPC, is not for the grant of trademark rights or
privilege or license to use. The payments made to it under the RPC are not "royalty"
either under the Act or the DTAA, they most certainly are not for the use of trademarks or
IP rights, but rather for the grant of the privilege of staging, hosting and promoting the
Event at the promoter's racing circuit in Noida(NCR). FOWC under the RPC, made
available to Jaypee all of the elements which constitute the event. In particular, this
includes nominating (to FIA) the promoter's event for inclusion in the official F1 racing
calendar; after such inclusion the F1 racing teams with their F1 cars and drivers were
bound to participate in Jaypee's event held at the Promoter's racing circuit, strictly in
conformity with the requirements of the F1 Sporting and Technical Regulations and the
FIA Sporting Code. Therefore, the grant of F1 rights by the FOWC to Jaypee is merely
incidental to the hosting and staging of the event by it, and this is clear from the fact that
the use of rights by Jaypee has been strictly confined and limited to use only for the
promotion of the event, and for no other purpose and in no other manner whatsoever.
73.    In Sheraton International Inc (supra), this court upheld the findings of the ITAT,
which had concluded that when the main work of the foreign collaborator was to render




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services in relation to advertisement, publicity and sales promotion, its incidental use of
the trademark did not amount to receipt of royalty by it:
       "As regards the payments received on account of SCI and FFP the
       Tribunal noted that since the job undertaken by the assessee company was
       in the nature of ,,integrated business arrangement, whereby services
       were rendered to its client-hotels in relation to advertisements, publicity
       and sales promotion of hotel business worldwide to further their mutual
       interest all services including the use of trademark and other services
       enumerated in the Article including the programmes, in issue, such as SCI
       and FFP were incidental to the said business arrangement between the
       assessee and its client- hotels. It concluded by holding that these
       programmes were not independent or separate from the main job
       undertaken by the assessee and since, the entire amount towards the
       service had been held by the Tribunal as business income, the
       contributions received by the assessee towards the said programmes i.e.,
       SCI and FFP were also in the nature of business income. It thus rejected
       the contention of the Revenue that these contributions were in the nature
       of included services under Article 12 (4) (a) of the DTAA (see paragraph
       114).

       13.     In view of the aforesaid findings of the Tribunal that the main
       service rendered by the assessee to its client-hotels was advertisement,
       publicity and sales promotion keeping in mind their mutual interest and, in
       that context, the use of trademark, trade name or the stylized "S" or other
       enumerated services referred to in the agreement with the assessee were
       incidental to the said main service, it rightly concluded, in our view, that
       the payments received were neither in the nature of royalty under Section
       9(1)(vi) read with explanation 2 or in the nature of fee for technical
       services under Section 9(1)(vii) read with explanation 2 or taxable under
       Article 12 of the DTAA. The payments received were thus, rightly held by
       the Tribunal, to be in the nature of business income. And since the
       assessee admittedly does not have a permanent establishment under the
       Article 7 of the DTAA ,,business income received by the assessee cannot
       be brought to tax in India. The findings of the Tribunal on this account
       cannot be faulted. The Tribunal pointedly observed that there was no
       evidence brought on record by the Revenue to enable them to hold that the
       agreement was a colourable device, in particular, that the payments
       received were for use of trade mark, brand name and stylized mark "S".
       We agree with reasoning adopted by the Tribunal."

There is no doubt that the main object of the RPC and the relevant provisions of the ALA
was not the permission to use the trademarks, but granting and designating Jaypee as the
promoter of the event and laying out the rights of the parties, particularly FOWC as




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regards the event, the spaces to be made available to it exclusively, the sole and exclusive
rights over all event related activities, the right to exploit them commercially, etc. The use
of the mark on the tickets sold by Jaypee was only incidental. The AARs findings that
the use of the mark and intellectual property rights benefited Jaypee, which paid for them,
is entirely erroneous. Jaypees permitted use, as it were, was for a limited duration and of
an extremely restricted manner; this is contained in the definition of "permitted use" in
the ALA:
       "Permitted use means incidental use of the Licensed Marks solely as part
       of the Artwork and the Licensed Materials in accordance with the Design
       Guidelines and strictly as approved by FOWC, for the purpose of hosting,
       staging and promoting the Event but, for the avoidance of doubt, not to
       include use for any merchandising or other products or service
       whatsoever, whether distributed free of charge or for sale."

As event promoter and host Jaypee had to publicize the F1 Grand Prix Championship.
Therefore, it was bound to use the F1 marks, logos and devices; however, it was not
authorized to use the marks on any merchandise or service offered by it. This condition,
in the opinion of the court, places the matter beyond the pale of controversy; the use of
the trademarks were purely incidental. The conclusion of the AAR is therefore, incorrect.
The answer to the question is that the amounts paid to FOWC by Jaypee were not
"royalty" within the meaning of Article 13 of the DTAA, as they were business income
and could not be brought to tax under the head of "royalty".
Question No. 4: Whether the AAR erred in its interpretation of Section 195 in Jaypee's
application

74.    Section 195 of the Income Tax Act reads as follows:

       "195. Other sums
       (1) Any person responsible for paying to a non- resident, not being a
       company, or to a foreign company, any interest (not being interest on
       securities) or any other sum chargeable under the provisions of this Act
       (not being income chargeable under the head" Salaries"3 ]) shall, at the
       time of credit of such income to the account of the payee or at the time of
       payment thereof in cash or by the issue of a cheque or draft or by any
       other mode, whichever is earlier, deduct income- tax thereon at the rates
       in force:
       Provided that in the case of interest payable by the Government or a




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       public sector bank within the meaning of clause (23D) of section 10 or a
       public financial institution within the meaning of that clause, deduction of
       tax shall be made only at the time of payment thereof in cash or by the
       issue of a cheque or draft or by any other mode.
       Explanation.- For the purposes of this section, where any interest or other
       sum as aforesaid is credited to any account, whether called" Interest
       Payable Account" or" Suspense Account" or by any other name, in the
       books of account of the person liable to pay such income, such crediting
       shall be deemed to be credit of such income to the account of the payee
       and the provisions of this section shall apply accordingly.
       (2) Where the person responsible for paying any such sum chargeable
       under this Act (other than interest on securities, and salary) to a non-
       resident considers that the whole of such sum would not be income
       chargeable in the case of the recipient, he may make an application 1 to
       the 2 Assessing] Officer to determine, 3 by general or special order], the
       appropriate proportion of such sum so chargeable, and upon such
       determination, tax shall be deducted under sub- section (1) only on that
       proportion of the sum which is so chargeable:
       (3) Subject to rules made under sub- section (5), any person entitled to
       receive any interest or other sum on which income- tax has to be deducted
       under sub- section (1) may make an application in the prescribed form to
       the Assessing Officer for the grant of a certificate authorising him to
       receive such interest or other sum without deduction of tax under that
       subsection, and where any such certificate is granted, every person
       responsible for paying such interest or other sum to the person to whom
       such certificate is granted shall, so long as the certificate is in force, make
       payment of such interest or other sum without deducting tax thereon under
       sub- section (1)."
75.    The issue of payment to non-residents and the obligation to deduct tax u/s 195 of
the Act on such payments vis-à-vis taxability of remittances has been deliberated upon by
the Supreme Court in GE India Technology Centre (P) Ltd Vs. CIT & Anr, [2010] 327
ITR 456 (SC).The Court held that the payer is bound to deduct tax at source only if the
sum paid is assessable to tax in India and that Section 195 also covers composite
payments which have an element of income embedded or incorporated in them. The
Court clarified that though there is an obligation to deduct tax in respect of such
composite payment but the obligation is limited to the appropriate portion of income
which is chargeable under the head and in case of such payments which include amounts
on which no tax is payable, recourse is to be made u/s 195(2) of the Act and in the
absence of such action, tax is to be deducted on the entire composite payment. The




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Supreme Court held as under:-


       "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.
       The entire basis of the Department's contention is based on administrative
       convenience in support of its interpretation. According to the Department,
       huge seepage of revenue can take place if persons making payments to
       non-residents are free to deduct TAS or not to deduct TAS. It is the case of
       the Department that section 195 (2), as interpreted by the High Court,
       would plug the loophole as the said interpretation requires the payer to
       make a declaration before the Income tax Officer (TDS) of payments made
       to non-residents. In other words, according to the Department, section
       195 (2) is a provision by which the payer is required to inform the
       Department of the remittances he makes to non-residents by which the
       Department is able to keep track of the remittances being made to non-
       residents outside India. We find no merit in these contentions. As stated
       hereinabove, section 195 (2) uses the expression "sum chargeable under
       the provisions of the Act." We need to give weightage to those words.
       Further, section 195 uses the word "payer" and not the word "assessee".
       The payer is not an assessee. The payer becomes an assessee-in-default
       only when he fails to fulfill the statutory obligation under section 195(1).
       If the payment does not contain the element of income the payer cannot be
       made liable. He cannot be declared to be an assessee-in-default. The
       abovementioned contention of the Department is based on an
       apprehension which is ill-founded. The payer is also an assessee under the
       ordinary provisions of the Income-tax Act. When the payer remits an
       amount to a non-resident out of India he claims deduction or allowances
       under the Income- tax Act for the said sum as an "expenditure". Under
       section 40 (a)(i), inserted, vide Finance Act, 1988, with effect from April
       1, 1989, payment in respect of royalty, fees for technical services or other
       sums chargeable under the Income-tax Act would not get the benefit of
       deduction if the assessee fails to deduct TAS in respect of payments
       outside India which are chargeable under the Income-tax Act. This
       provision ensures effective compliance with section 195 of the Income-tax
       Act relating to tax deduction at source in respect of payments outside
       India in respect of royalties, fees or other sums chargeable under the
       Income-tax Act. In a given case where the payer is an assessee he will
       definitely claim deduction under the Income-tax Act for such remittance
       and on inquiry if the Assessing Officer finds that the sums remitted outside
       India come within the definition of royalty or fees for technical service or
       other sums chargeable under the Income- tax Act then it would be open to
       the Assessing Officer to disallow such claim for deduction. Similarly, vide
       the Finance Act 2008, with effect from April 1, 2008, sub-section (6) has




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       been inserted in section 195 which requires the payer to furnish
       information relating to payment of any sum in such form and manner as
       may be prescribed by the Board. This provision is brought into force only
       from April 1, 2008. It will not apply for the period with which we are
       concerned in these cases before us. Therefore, in our view, there are
       adequate safeguards in the Act which would prevent revenue leakage.
       Applicability of the judgment in the case of Transmission Corporation
       (supra)


       10.     In Transmission Corporation's case [1999] 239 ITR 587 (SC) a
       non-resident had entered into a composite contract with the resident party
       making the payments. The said composite contract not only comprised
       supply of plant, machinery and equipment in India, but also comprised the
       installation and commissioning of the same in India. It was admitted that
       the erection and commissioning of plant and machinery in India gave rise
       to income taxable in India. It was, therefore, clear even to the payer that
       payments required to be made by him to the non-resident included an
       element of income, which was exigible to tax in India. The only issue
       raised in that case was whether TDS was applicable only to pure income
       payments and not to composite payments which had an element of income
       embedded or incorporated in them. The controversy before us in this batch
       of cases is, therefore, quite different. In Transmission Corporation case
       [1999] 239 ITR 587 (SC) it was held that TAS was liable to be deducted
       by the payer on the gross amount if such payment included in it an amount
       which was exigible to tax in India. It was held that if the payer wanted to
       deduct TAS not on the gross amount but on the lesser amount, on the
       footing that only a portion of the payment made represented "income
       chargeable to tax in India", then it was necessary for him to make an
       application under section 195 (2) of the Act to the Income-tax Officer
       (TDS) and obtain his permission for deducting TAS at lesser amount.
       Thus, it was held by this court that if the payer had a doubt as to the
       amount to be deducted as TAS he could approach the Income-tax Officer
       (TDS) to compute the amount which was liable to be deducted at source.
       In our view, section 195 (2) is based on the "principle of proportionality".
       The said subsection gets attracted only in cases where the payment made
       is a composite payment in which a certain proportion of payment has an
       element of "income" chargeable to tax in India. It is in this context that the
       Supreme Court stated, "If no such application is filed, income-tax on such
       sum is to be deducted and it is the statutory obligation of the person
       responsible for paying such `sum' to deduct tax thereon before making
       payment. He has to discharge the obligation to TDS". If one reads the
       observation of the Supreme Court, the words "such sum" clearly indicate
       that the observation refers to a case of composite payment where the
       payer has a doubt regarding the inclusion of an amount in such payment




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       which is exigible to tax in India. In our view, the above observations of
       this court in Transmission Corporation case [1999] 239 ITR 587 (SC)
       which are put in italics have been completely, with respect, misunderstood
       by the Karnataka High Court to mean that it is not open for the payer to
       contend that if the amount paid by him to the non-resident is not at all
       "chargeable to tax in India", then no TAS is required to be deducted from
       such payment. This interpretation of the High Court completely loses sight
       of the plain words of section 195 (2) which in clear terms lay down that
       tax at source is deductible only from "sums chargeable" under the
       provisions of the Income- tax Act, i.e., chargeable under Sections 4, 5 and
       9 of the Income-tax Act."


76.    As is evident, the object of the provision is to clarify what proportion of the
payment made by the payer is liable to tax deduction. In the present case, Jaypee, no
doubt, supported FOWCs argument that payments made to the latter were not by way of
royalties; at the same time, because of the doubt entertained, it sought clarification
through the application to the AAR. Having regard to the conclusions reached by us that
FOWC carried on business in India through a PE, at the circuit, it is held that payments
made to FOWC, under the RPC were business income and accordingly chargeable to tax,
according to the rates applicable in India at that time.

77.    For the foregoing reasons, it is held that on the question of existence of FOWCs
PE, in India, the answer is in the affirmative; a PE, within the meaning of Article 5 (1) of
the DTAA existed, through which it conducted business and derived income, that is
taxable in India. The findings of AAR are hereby set aside on this aspect. As regards
dependent PE, the answer is in the affirmative; no dependent PE existed, through which
FOWC carried on its business. As to royalt y, in view of the findings rendered, the AARs
decision is reversed and set aside. On the issue of Section 195, Jaypee is bound to make
appropriate deductions from the amounts payable to FOWC under provisions of the
Income Tax Act.

78.    The writ petitions of Jaypee and FOWC are partly allowed on the question of
royalty and Section 195; the writ petition of the revenue is allowed partly on the issue of




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FOWCs PE under Article 5 (1). No costs. The order shall be given dasti under signatures
of court master, to the parties.



                                                             S. RAVINDRA BHAT
                                                                       (JUDGE)


                                                                  NAJMI WAZIRI
                                                                       (JUDGE)
NOVEMBER 30, 2016




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