The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that penalty can’t be invoked under Income Tax Act without relevant documents which substantiate business activities.
The appellant GSA (Gestions Sportives Automobiles) is a company engaged in providing services of qualified motor racing drivers to teams participating in the Federation Internationale de’1 Automobile (FIA) Formula One 2011 Championship.
The assessing officer stated that the assessee refused various notice orders for Assessing Year 2012-13. Further contended that the assessee is liable to tax @40 % in relating to business with Indian Grand Prix where the material on record indicates the existence of Permanent Establishment (PE) of the assessee in terms of Article 5 of India Switzerland Double Taxation Avoidance Agreement (Indo-Switzerland DTAA).
The respondent agreed that the assessee cannot be said to have a PE in India. It was observed that the assessee did not have any agent or representative in India who was involved in negotiating and entering into contracts for and on behalf of the assessee in India. Further viewed that the contract between Formula One World Championship and JSIL is a contract between two independent parties and the assessee is not a party to the contract. The respondent contended that Article 17 applies to the assessee instead of Article 7 of the Tax Treaty.
The appellant contended that there was another identical situation in the assessee’s case, where the AAR has held that such receipts were not taxable in India and pleaded to remit back to the file of AO to consider the issue afresh in the light of the above AAR rulings.
Shri Narendra Kumar Choudhry, Judicial Member, and Shri Shamim Yahya, Accountant Member observed that the order of the AO passed according to the DRP order didn’t raise any question as to the actual duration of the driver’s arrival in India and departurerelated to the event. The Tribunal found it crucial to answer the above with relevant documents and directed to remit the file to the AO to examine the issue.
The Tribunal while allowing the appeal granted an opportunity to give the submissions before the AO. Shri Jay Savla appeared on behalf of the appellant and Ms Meenakshi Singh appeared on behalf of the respondent.
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