Formula 1’s income taxable in India, declares Supreme Court

In a jolt to the Formula One World Championship (FOWC), the Supreme Court of India has upheld the decision of Delhi’s High Court to tax the income earned by the Formula One Management in staging the race in the country.

The Supreme Court declared that FOWC has a permanent establishment (PE), which is defined as a ‘fixed place of business which generally gives rise to income or value-added tax liability in a particular jurisdiction’.

Hence, the payment made by Jaiprakash Associates (Jaypee Group) towards FOWC is liable to tax according to the law, as a business income.

"We have held that FOWC has PE in India and income that is attributable in India will be taxed. The amount that is to be taxed is to be assessed by an assessing officer," a bench of Justices A K Sikri and Ashok Bhushan said in a report on Press Trust of India.

Upon this landmark ruling, the assessing officer will now assess the income to be taxed, the details of which are yet to be declared or announced.

The long-standing dispute was brought up in the Supreme Court after the FOWC challenged the High Court’s ruling, last year.

In November, the High Court had reversed the decision of Authority for Advance Ruling (AAR), which had stated that FOWC had no permanent place of business and was not undertaking any business activity and hence, it had no PE.

However, the Delhi High Court proved that FOWC had PE since the presence of taxpayer was within the defined area of the event. In addition, the payment made to FOWC was indeed business income for the company and not royalty, for the use of the logos and trademark for hosting the event.

The concerned parties had entered into a five-year agreement to stage the Indian Grand Prix at the Buddh International Circuit. The races were successfully hosted by the promoters from 2011 until 2013, but with the tax issues persisting, the race was dropped from the calendar for 2014 and has since not made a return.

With the case going against the FOWC after the Supreme Court ruling, it is unlikely for the event to return in the country anytime soon. However, with the new owners Liberty Media in the picture, it remains to be seen, how they handle the situation.

[Image courtesy: Buddh International Circuit]