By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Part C — International Tax Decisions
4 Golf in Dubai, LLC v. ADIT, In re
(2008) 306 ITR 374 (AAR)
Articles 5 & 7 of India-UAE DTAA
Dated : 13-10-2008
Issue :
Income of a foreign company from organising golf tournaments
on remote basis by hiring independent experienced local contractors is not
taxable in India.
Facts :
The applicant was a company registered in the UAE having its
registered office in Dubai. The applicant was an event organiser and had
affiliations with the European Professional Golf Association. It was engaged in
the business of promoting golf nationally as well as internationally by way of
organising golf tournaments in different countries.
The applicant organised two golf tournaments in India at
Eagleton in Bangalore and at Delhi Golf Club (‘DGC’) in Delhi. The applicant was
granted the right to use the premises to host the events at Bangalore and Delhi
against payment of a consideration. The tournaments were organised by hiring
independent third-party local contractors and service providers.
The applicant received sponsorship fees, management fees and
income from sale of merchandise at the venue and over the Internet.
The issues before the AAR were :
(1) Whether the applicant was having a Permanent
Establishment (‘PE’) in India in terms of Article 5 of India-UAE DTAA ?
(2) Whether Eagleton or DGC could be deemed to be agency PE
of the applicant in India, since the tournaments were held at grounds of each
of these clubs and/or they were providing assistance to the applicant in
organising the golf tournaments ?
(3) If PE is held to have triggered the extent to which
various streams of events-related receipts can be attributed for taxation in
India ?
(4) Lastly, could there be taxation even in absence of PE
trigger either as fees for technical services or otherwise ?
It was the claim of the applicant that there were no tax
implications in India on the following counts :
(a) ‘Fixed place of business’ for PE trigger connotes a
specific geographic location of the enterprise where activities at that
location must endure for more than a temporary period. Since the tournament
lasted only for six to seven days, the requirements of Article 5(1) of the
India-UAE DTAA were not satisfied for emergence of base Rule PE as the
requisite degree of permanence was lacking. The applicant’s business of
organising golf was neither carried on regularly, nor was there certainty that
it will be carried on regularly.
(b) The applicant relied on OECD Commentary to support that
the place of business for PE emergence must be fixed i.e., it must be
established at a distinct place with a certain degree of permanence. In the
present case, the mere access to the place was not sufficient to hold that the
‘place’ was ‘fixed’ and was at the ‘disposal of the applicant’.
(c) There was no service PE as the applicant’s employees or
other personnel had not stayed in India for furnishing services for the
threshold period of 9 months as prescribed in the treaty.
(d) There was no Agency PE as the various third party
vendors with whom the applicant had entered into arrangements for organising
the tournaments were independent contractors who acted in their ordinary
course of business operations.
(e) The sponsorship fees and the management fees were not
‘royalty’, as such fees were not received as consideration for the use of or
right to use any patent, secret formula or information concerning any
industrial or commercial experience. The India-UAE DTAA does not have any
specific Article dealing with FTS and hence there can be no taxation even
assuming receipts are held to be FTS.
The Revenue authorities contended that :
(a) The applicant had a PE in India as it had a ‘fixed
place of business’ at its disposal. Reliance was placed on OECD Commentary to
the effect that if an enterprise has a certain amount of space at its
disposal, which is used for the business activities, it is sufficient to
constitute a place of business even in absence of formal legal right to own
the place. The commentary by Klaus Vogel on Double Taxation Convention was
also referred to contend that regularly maintaining the same pitch in a market
place for weekly market would be enough to constitute a ‘fixed place of
business’.
(b) The service provider with whom the applicant had
entered into agreements, had provided the services for organising the events
and therefore could be regarded as agents of the applicant, thus constituting
an Agency PE for the applicant in India.
(c) The service PE threshold was crossed if the initial
visit of the Vice-Chairman of the applicant-company prior to the organisation
of events was taken into account.
Held :
The AAR ruled as follows :
(i) By organising and conducting golf tournaments at Delhi
and Bangalore for a week’s duration without repetition thereof, did not result
in the applicant carrying on business through a fixed place in India. The
essential ingredients of regularity, continuity and repetitiveness as conveyed
by the word ‘carried on’ were absent. Accordingly, no fixed place PE existed
for the applicant in India.
(ii) As regards the Agency PE, the AAR held that the
independent contractors or third-party vendors were acting in the ordinary
course of their business and were not devoted wholly or almost wholly on
behalf of the applicant in India. The activities of the third-party
contractors were not carried out wholly on behalf of the applicant. Hence,
there was no Agency PE of the applicant in India.
(iii) The service PE did not emerge in absence of ‘furnishing of services’ by a foreign enterprise. The concept of ‘furnishing of services’ is a bilateral concept which necessitates the existence of at least two parties i.e., a provider of services and a recipient of services. The presence of employees for enterprise’s own activities does not trigger service PE.
(iv) Though the event management fees received by the applicant could be brought to tax within the purview of FTS, in absence of specific provision in India-UAE DTAA dealing with FTS, the same could not be taxed. The management fees could not be brought to tax under the residual Article 22 dealing with ‘other income’.
