The Formula One World Championship Limited (FOWC) will now be liable to pay taxes in India, even though no races have taken place in India for the last three years. The Court ruled that since the FOWC has a permanent establishment in India, their income is taxable.
A permanent establishment (PE) is a fixed place of business, which generally gives rise to income or value-added tax liability in a particular jurisdiction. A Supreme Court bench consisting justices AK Sikri and Ashok Bhushan said, "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." According to the Court, the Buddh International Circuit (BIC) is the fixed place of business for F1 here in India and this legally binds them to pay their dues. Though the exact amount to be paid is not known yet, the tax levied will by 40 percent, along with interest that will be charged in addition to the tax.
Jaypee Group (owner of BIC) organised these F1 races from 2011 to 2013 before the Indian Grand Prix ran into tax troubles with the state government. Contracts concerning the partnership between FOWC and Jaypee Group were thereby dissolved. Payments made by the Jaypee Group to FOWC for the use of logos and symbols will also be treated as business income and not royalties, as they were used for hosting the event and not for intellectual property purpose.
This landmark decision has definitely changed the scenario for F1 racing in India and it is highly improbable that the massive event will ever be held on Indian soil again.
