Formula One World Championship Ltd (FOWC) has moved the Delhi High Court seeking the vacation of its stay order that restrained it from encashing standby letters of credit (SBLCs) for $51.35 million
Formula One World Championship Ltd (FOWC) has moved the Delhi High Court seeking the vacation of its stay order that restrained it from encashing standby letters of credit (SBLCs) for $51.35 million, a part of the consideration paid by Jaiprakash Associates (JAL) for getting exclusive distribution rights to host the Formula 1 Grand Prix of India between 2011 and 2013.
The HC on October 7 had restrained FOWC from invoking SBLCs after the income tax department (international taxation) sought so.
FOWC’s application is likely coming up for hearing on Tuesday along with two other cross-petitions filed by the department and JAL. JAL has challenged the Authority for Advance Ruling’s findings that held that the consideration of $121 million paid by it to FOWC for exclusive distribution rights to host the events for three consecutive years is royalty in nature, and is thus chargeable to tax. Further, the AAR in August had held that JAL was liable to deduct tax at source (TDS) on payment of such consideration to FOWC.
The revenue has challenged a part of the AAR findings that rejected its contention that the race promotion contract (RPC) and the artwork agreement between the two companies were sham transactions and devices to evade taxes.
Out of the $121-million fee payable by JAL, around $51.35 million still remains outstanding, according to FOWC.
FOWC has told the court that since provisional attachment orders have come to an end after dismissal of the department’s review petition in the Bombay HC, the Delhi HC is liable to vacate its stay granted in relation to draw-down of the SBLCs.
According to it, the SBLCs are due to expire on December 1 and any further renewals are likely to cause difficulty since the banks may not be willing to do so due to the risk of litigation. “FOWC shall suffer grave and irreparable financial loss and hardship by continuing to be deprived of the sums due to it under SBLCs, which will be at risk of being lost forever, for reasons of automatic expiry on that date,” FOWC said in its application filed through counsel Anuradha Dutt.
It further said that the obligation for bearing the tax, if any, lies with JAL, which is within the jurisdiction of tax authorities. Dutt, further in its application, stated that JAL, during a hearing before the Bombay HC on October 5, had offered to secure FOWC for the full value of the SBLCs by placing an unencumbered prime commercial immovable property worth R250 crore to cover any tax liability on the RPC and further the department had indicated willingness to consider such offer.