Thursday, April 27, 2017

SC upholds HC’s ruling on Formula One Championship; Budh International Circuit treated as PE


a) Formula One World Championship Limited (FOWC) granted Jaypee Sports International Ltd. (Jaypee) right to host, stage and promote F-1 Grand Prix of India event for a consideration of US$ 40 millions.

b) Authority for Advance Ruling (AAR) held that consideration paid to FOWC wasn’t taxable in India as FOWC did not have any PE in India. However, High Court of Delhi reversed the findings of AAR and treated Buddh International Circuit as PE for FOWC. 

The issue before the Supreme Court was as under:

Whether FOWC was having any 'Permanent Establishment' (PE) in India in terms of Article 5 of DTAA?

The Supreme Court held as under:

1) As per Article 5 of the DTAA, the PE has to be a fixed place of business ‘through’ which business of an enterprise is wholly or partly carried on.

2) During the event and as well as two weeks prior to it and a week succeeding it, FOWC had full access through its personnel to the Buddh International Circuit.

3) Such access or right to access was not permanent but was for a period up to six weeks at a time during the F-1 Championship season. Further, as the tenure of contract was for five years, it meant that such an access for the period in question was of repetitive nature.

4) Since FOWC carried on business in India through a fixed place of business, namely, the Buddh International Circuit, It couldn’t be denied that Buddh International Circuit was not a PE for FOWC. - [2017] 80 347 (SC)

Debtor can’t raise dispute on existence of debt to avoid initiation of insolvency process by creditor

Disputes raised by Debtor in reply to demand notice from operational creditor were not sustainable as corporate debtor didn’t raise any objection for disputing existence of debt against operational creditor before issuance of statutory notice under section 8 of the Insolvency and Bankruptcy Code, 2016.

Merely mentioning dispute in reply to the notice u/s 8 will not amount to dispute being in existence. Therefore, petition for initiation of Corporate Insolvency Resolution process by Operational Creditor was to be admitted - [2017] 80 320 (NCLT - Mum.)

Payment for Usage of Marks/Logos - Whether Royalty?

How crucial marks/logos/designs (collectively hereinafter referred to as "marks") are for an enterprise is a well acknowledged fact. In the current dynamic business scenario an entity's identity and existence are dependent on how well it is able to establish itself in the minds of the people. To achieve this objective, organisations constantly undertake extensive advertisements and promotional activities. With businesses being carried on across the borders, multinationals join hands to increase their global presence.

Taxation in India, being based on "source based taxation" principles, revenue authorities perceive every cross border transaction with suspicion and attempt to levy tax on the premise that the source (accrual) of a payment is based in India. Accordingly, revenue has always regarded the payment for use of marks as Royalty, both in terms of section 9 of the Income-tax Act, 1961 (hereinafter referred to as "Act") and under the provisions of the Double Taxation Avoidance Agreement ('DTAA').

In this article, an endeavour has been made to touch upon the sensitive issue of taxability of consideration received by the foreign companies with respect to use of their marks in India.

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Sale proceeds of land appurtenant to residential house is entitled to section 54 relief: ITAT

The issue before the Tribunal was as under:

Whether sale proceeds of land appurtenant to the building areentitled to deduction under section 54?

Tribunal held in favour of assessee as under

1) The land sold by the assessee was forming part of the residence and all the property was duly assessed to house-tax and was self-occupied by the occupants, viz., the assessee and his family members. Under section 54, the legislature has used the expression "being buildings or lands appurtenant thereto and being a residential house’.

2) The Karnataka High Court had examined these expressions while construing the provision of section 54in the case of C.N. Anantharam v. Asstt. CIT [2015] 55 282/230 Taxman 34 (Kar.)and had held that the deduction under section 54 is available even if the land, which is appurtenant to the residential house is sold. It is not necessary that the whole of the residential house should be sold because the legislature
has used the words "or" which is distinctive in nature.

3) In the instant case, it was not the case of Assessing Officer (AO) and CIT(A) that the land was not appurtenant to the residential house. Here assessee had sold only the land appurtenant to the house and not residential house which, according to the Karnataka High Court, was not a requirement under the law and exemption under section 54 was also available to the land which was appurtenant to the house.

4) The sale deed itself showed that the land was part of residential house. Therefore, the exemption claimed under Sec. 54 had to be allowed to assessee. - [2017] 80 223 (Delhi - Trib.)

Salary deduction for not serving during notice period couldn’t be taxed: ITAT

Facts :

a) Assessee declared salary income after deducting amount for not serving during notice period with two of his employers.

b) During the course of reassessment proceedings, Assessing Officer (AO) added the salary amount deducted by the employers for not serving during notice period to the income of assessee.

c) On appeal, CIT(A) upheld order of AO that no such deduction is available under Section 16 of the Act and the salary income is taxable on due basis or on paid basis. Aggrieved-assessee filed the instant appeal before Tribunal.

Tribunal held in favour of assessee as under:-

1) Employers had made deduction from the salary which was paid to the assessee during the year under consideration because of leaving the services as per agreement made between the assessee and the respective employer.

2) This was a case of recovery of the salary which was already made to the assessee for which Section 16 of the Act couldn’t be referred to.

3) Assessee had actually received the salary from his previous employers after deducting the notice period amount as per the job agreement with them.

4) Therefore, salary received by the assessee could only be taxed in the hands of assessee. - [2017] 80 297 (Ahmedabad - Trib.)