FORMULA ONE WORLD CHAMPIONSHIP LTD.,UNITED KINDGOM vs. DCIT, INTERNATIONAL TAXATION, NOIDA

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA No.248/Del/2018 Assessment Year: 2012-13 And ITA No.249/Del/2018 Assessment Year: 2013-14 And ITA No.250/Del/2018 Assessment Year: 2014-15

Formula One World Vs. DCIT, Championship Ltd., United International Taxation, Kingdom, Noida N 2 ST Jame’s Market, London SW1Y4AH, UK PAN :AABCF8009Q (Appellant) (Respondent)

Appellant by Sh. Percy Pardiwalla, Sr. Advocate Sh. Nirmal Sarda, CA Respondent by Sh. Gangadhar Panda, CIT(DR) Date of hearing 27.10.2022 Date of pronouncement 26.12.2022

ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the same assessee arise out of final

assessment orders passed by the Assessing Officer under section

143(3) read with section 144C(13) of the Income-tax Act, 1961 (for

short ‘the Act’) pertaining to assessment years 2012-13, 2013-14

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

and 2014-15, in pursuance to directions of learned Dispute

Resolution Panel (DRP).

are as under:

entity incorporated in United Kingdom (UK) and a tax resident of

UK. Therefore, the assessee is eligible to claim benefit under India

– UK Double Taxation Avoidance Agreement (DTAA). The assessee

is the commercial rights holder of Formula One World

Championship. The assessee is exclusively entitled to award event

promoters with the right to host, stage and promote Grand Prix

on various Circuits worldwide and in that capacity entered into a

Race Promotion Contract (RPC) with Jaypee Sports International

Ltd. [now merged with Jaiprakash Associates Limited (JAL)] 2 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

granting right to host the Indian Grand Prix. As a consequence of

granting the Indian Grand Prix right to JAL, the assessee earned

RPC fee. To ascertain the nature and character of RPC fee and its

taxability in India, the assessee filed an application before the

Authority of Advance Ruling (in short ‘AAR’) under section 254Q

of the Act. Simultaneously, JAL also filed an application with the

AAR seeking determination on its obligation to deduct tax at

source. In its Ruling dated 17th August, 2016, the AAR held that

the RPC fee received by the assessee is in the nature of royalty in

terms of Article 13 of India – UK DTAA. Further, it was held that

the assessee had no fixed place Permanent Establishment (PE) or

agency PE in India. Further, the AAR held that JAL was obliged to

deduct tax at source while paying RPC fee to the assessee. The

Ruling was challenged both by the assessee and JAL before the

Hon’ble Delhi High Court. Though, the Hon’ble Delhi High Court

reversed the decision of the AAR concerning nature of payment as

royalty as well as existence of agency PE, however, the Hon’ble

High Court held that the assessee had a fixed place PE in India

and JAL was bound to make deduction of tax at source under

section 195 of the Act on the RPC paid to the assessee. Though,

the assessee challenged the decision of the Hon’ble Delhi High 3 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

Court before the Hon’ble Supreme Court, however, the Hon’ble

Supreme Court upheld the judgment of the Hon’ble Delhi High

Court, both on the issue of existence of fixed place PE and liability

of JAL to deduct tax at source under section 195 of the Act on the

RPC fee paid to the assessee. In the meanwhile, the Assessing

Officer framed a draft assessment orders bringing to tax the profit

taxable in India by dividing global operating profit by number of

races conducted during the year. Against the draft assessment

order proposed by the Assessing Officer, the assessee raised

objections before learned DRP. In pursuance to the directions of

learned DRP, the Assessing Officer passed the final assessment

orders, impugned in the present appeals.

Officer did not grant credit for TDS by JAL, though, the TDS

amounts were reflected in Form 26AS of the assessee. In the final

assessment orders the Assessing Officer held that the

consideration received by the assessee with the Indian Grand Prix

represented its profit with 56% of the said profit being

attributable to the PE in India.

appearing for the assessee submitted that as per the notices of 4 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

demand issued by the Assessing Officer in pursuance to the final

assessment orders the assessee had deposited tax in all these

years. He submitted, pursuant to the decision of the Hon’ble

Delhi High Court, JAL deposited the TDS amount in respect of

RPC fees paid in all the assessment years under dispute which

are in addition to the taxes already paid by the assessee on such

income. Thus, he submitted, as per the statutory principle laid

down under section 205 of the Act as well as settled legal

principle, taxes cannot be recovered twice on same item of

income. He submitted, though, the assessee filed rectification

applications before the Assessing Officer, they were dismissed

after repeated follow up action by the assessee on the following

grounds:

• FOWC did not claim tax credit at the time of filing the return of income/ during the assessment proceedings; • tax credit claimed by FOWC does not fall within the parameters of section 190 of the Act (as there was no tax deducted at source or advance tax payment against FOWC's income); • the amount paid by JAL pursuant to WHT proceedings belongs to JAL considering no taxes were actually deducted from the payments to FOWC; • the income equivalent to the TDS has also not been offered to tax by FOWC. FOWC would be allowed the tax credit in a case where FOWC's income would have been assessed inclusive of TDS and the amounts would have been paid after deduction of tax from gross receipts; • demand deposited by JAL pursuant to TDS proceedings is in the nature of interest and penalty. Accordingly, JAL was not deductor of tax in this case (as no tax was actually deducted at source) but a depositor of penal demand. Hence, credit for deposit by JAL cannot be granted to FOWC; and 5 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

• JAL may seek refund of the same TDS amount in future. 5. Learned counsel for the assessee submitted, as per the

provisions of section 199 of the Act read with Rule 37BA of the

Rules, taxes deposited by JAL under section 201 read with

section 195 of the Act should be regarded as tax deducted at

source deposit of which was made by JAL, to the account of

assessee. Hence, credit for the said TDS should be allowed to the

assessee against the final tax liability. In this context, he also

relied upon CBDT instruction no. 275/29/2014-IT-(B), dated 1st

June, 2015. He submitted, the fact that JAL has deducted tax at

source on the RPC fee is well documented and demonstrated from

Form 26AS in the name of assessee.

the time of actual payment/credit to the assessee JAL had not

deducted tax at source. Therefore, the assessee cannot be granted

credit for TDS deposited by JAL, subsequently, after the decision

of the Hon’ble Delhi High Court. He submitted, there is every

possibility that JAL may claim refund of the TDS deposited for the

very same amount, in which case, there will be loss to the

revenue as refund may be granted both to the assessee and JAL.

He submitted, since, JAL has deposited the TDS amount without

6 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

actually deducting tax at source on the payment made. The

deposit made is penal in nature and JAL cannot be considered as

deductor. He submitted, in the return of income filed for the

impugned assessment year, the assessee has not claimed credit

for the TDS amount. Therefore the Assessing Officer had no

occasion to grant credit for such TDS. He submitted, JAL has not

issued Form 16A to assessee. Further, he submitted, the assessee

cannot be granted TDS credit as the TDS amount did not form

part of assessee’s income.

payment/credit of RPC fee, both the assessee and JAL had a bona

fide belief that the payment made was not in the nature of royalty

but in the nature of business income. Being of the view that

business income is not taxable in India JAL decided not to

withhold taxes at the time of actual payment to the assessee. The

position adopted by the assessee and JAL was reversed by the

Hon’ble Delhi High Court in 2016, by holding that the assessee

had a PE in India. Thus, as a result of the decision of the Hon’ble

Delhi High Court, JAL was subjected to proceeding under section

201 read with section 195 of the Act by treating JAL as an

assessee in default and in pursuance to such proceeding the JAL 7 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

deposited the TDS amount in Government account. Therefore,

non-deduction of tax at source at the time of actual payment

cannot be a reason to deny refund when tax has actually been

paid. As regards the apprehension of the learned Departmental

Representative that, both assessee and JAL may claim refund,

learned Counsel submitted, JAL has suo motu provided Form 16A

to the assessee acknowledging that it has withheld taxes on

behalf of the assessee. He further submitted that JAL has not

filed any appeal seeking refund of the TDS amount deposited. By

way of a further clarification, he submitted, JAL had deposited an

amount of Rs.75 crores pursuant to withholding tax proceeding

and after the final assessment orders were passed in case of the

assessee, the withholding tax liability of JAL was reduced to

Rs.55 crores. He submitted, since, JAL had deposited 75 crores it

claimed the excess amount paid of Rs. 19 crores as refund, which

is over and above the 55 crores demand raised in the final

assessment orders passed in case of the assessee. He submitted,

55 crores demand includes Rs.35.68 crores, tax component and

Rs.20 crores towards interest on delay in payment. Because of

that TDS credit of Rs.35.68 crores appears in assessee’s name,

both in Form 26AS and Form 16A. Thus, he submitted, the 8 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

assessee is entitled to TDS credit of Rs.35.68. He submitted, the

taxes deposited by JAL cannot be considered to be penal in

nature as it is withholding of tax under section 195 read with

section 201 of the Act. He submitted, JAL has also issued Form

16A in favour of the assessee, which have been submitted before

the Assessing Officer. Thus, he submitted, only because TDS

credit does not form part of finally assessed income of the

assessee it should not result in denial of refund to the assessee,

since, the assessee has already discharged the tax liability.

Finally, he submitted, if the TDS credit is treated as income of the

assessee, since, it was not deducted from the payments made, it

has to be treated at par with RPC fee and taxed in the same ratio

as the RPC fee.

materials on record. It is evident from the facts on record, while

making credit/actual payment of RPC fee to the assessee, JAL

had not deducted any amount of tax at source in terms of section

195 of the Act. This is, probably by entertaining a view that RPC

fee is not taxable in India. However, on an application filed by the

assessee before the AAR, a Ruling was delivered holding that RPC

fee is in the nature of royalty in terms of Article 13 of India – UK 9 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

Tax Treaty. Thus, AAR held that JAL was obliged to deduct tax at

source on the RPC fee paid to the assessee. Being aggrieved with

the AAR Ruling, both the assessee and JAL filed Writ Application

before the Hon’ble Delhi High Court. In their judgment, the

Hon’ble Delhi High Court overruled the decision of AAR by

holding that RPC fee is not in the nature of royalty. However, the

Hon’ble High Court held that the assessee had a fixed placed PE

in India; hence, the RPC fee is taxable in India. Thus, the Hon’ble

High Court held that the JAL was bound to make appropriate

deduction under section 195 of the Act from the RPC fee paid to

the assessee. Admittedly, by the time, the decision of the Hon’ble

Delhi High Court came, which ultimately got confirmed by

Hon’ble Supreme Court, JAL has paid the RPC fee to the assessee

without withholding tax under section 195 of the Act. Thus, it is a

fact on record that the RPC fee received by the assessee was the

full amount without suffering any withholding of tax at source.

This is the reason, why the assessee did not claim credit for TDS

in return of income. Subsequently, as a consequence of the

judgment of the Hon’ble Delhi High Court, proceedings under

section 201 of the Act was initiated against JAL on account of

failure to deduct tax at source under section 195 of the Act and 10 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

basis demand raised under section 201(1) and 201(1A) of the Act,

JAL deposited the amount of tax which should have been

withheld under section 195 of the Act while paying RPC fee to the

assessee. Of course, it is a fact on record that TDS credit of

Rs.35.68 crores appears in favour of assessee in Form 26AS.

Subsequently, JAL has also issued TDS certificates in Form 16A

in favour of the assessee in respect of TDS deposits. However, it is

a fact on record that the TDS credit claimed by the assessee is not

a part of the income offered to tax in the returns of income. The

TDS credit claimed by the assessee is over and above the actual

RPC fee paid to the assessee by JAL. Thus, essentially the TDS

credit now claimed by the assessee is in the nature of an

additional income over and above the RPC fee the assessee was

entitled to receive under the contract. Thus, it is an additional

item of income which has not suffered tax at the hands of the

assessee. Therefore, the issue arising for consideration is, what is

the nature of such income at the hands of the assessee. In this

regard, we accept the submission of learned counsel for the

assessee that the TDS credit partakes the character of original

income, i.e., the RPC fee and has to be taxed in the same manner

in which the Assessing Officer taxed the RPC fee. 11 | P a g e

ITA Nos.248, 249 & 250/Del/2018 AYs: 2012-13, 2013-14 & 2014-15

factually verify the actual amount of TDS credit by matching

figures in Form 26AS and TDS certificates issued in Form 16A

and thereafter treat the TDS credit as income of the assessee

partaking the character of RPC fee and tax it in the same manner

in which RPC fee was brought to tax in the final assessment

order. At this stage, we make it clear that the mandate given to

the Assessing Officer in this order is only for taxation of the TDS

credit and no other item of income. Needless to mention, before

deciding the issue, the Assessing Officer must provide a

reasonable opportunity of being heard to the assessee.

Order pronounced in the open court on 26th December, 2022

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 26th December, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

12 | P a g e