Delhi HC sets aside AAR decision on Jaypee-Formula One royalty issue
New Delhi: The Delhi high court on Wednesday ruled that a payment by Jaiprakash Associates Ltd for the use of Formula One World Championship (FOWC) logos and symbols to promote the Grand Prix couldn’t be considered royalty and be taxed as such.
Setting aside a decision of the Authority of Advance Ruling (AAR) on this issue, a bench comprising justices Ravindra Bhat and Najmi Waziri said the use of the trademarks was ‘purely incidental’ and as event organizer and host of the F1 Grand Prix Championship, Jaypee was “bound to use the F1 marks, logos and devices”.
FOWC and Jaypee had approached the AAR to know if the payment received by FOWC outside India from Jaypee could be considered royalty or not in terms of the double taxation avoidance agreement between the UK and Indian governments. Another question for consideration was whether FOWC had a permanent establishment for its business in India. The AAR found that the payment was royalty and accordingly taxable and that FOWC did not have a permanent establishment in India.
The court ruled that FOWC had a permanent establishment in India for conducting its business and set aside the finding of the AAR on the issue.
The lawyer for FOWC, Anuradha Dutt, said the judgment was being studied to decide the course of action on the issue of permanent establishment.
An email sent to Jaiprakash Associates remained unanswered.
The court’s ruling on permanent establishment will be significant and serve as a precedent, according to Amit Singhania, tax partner at Shardul Amarchand Mangaldas & Co, a law firm.
“This judgement is significant as it makes important findings on the permanent establishment particularly on interpretation of contractual terms between the parties. Therefore, it again signifies the importance that contractual documentation may (in addition to physical occupation of fixed place in India) have in concluding the presence of permanent establishment in India,” he said. “Further, the judgment also clarifies whether a payment can be termed as royalty for usage of trademark for incidental purposes,” he added.
Gireesh Chandra Prasad contributed to this story.