Golf in Dubai not liable to tax on sponsorship income: AAR

AIT News Network
13th October 2008

NEW DELHI. Authority for Advance Rulings(Income-Tax) vide a significant ruling AIT-2008-362-AAR has ruled that Golf in DUBAI could not be deemed to have a Permanent Establishment in India in terms of Article 5 of the DTAA(Double Tax Avoidance Agreement), entered between the Government of Republic of India and the Government of United Arab Emirates and income from sponsorship income and a nominal management fee from Indian as well as foreign sponsors and income from sale of merchandise at the venue and over the internet is not liable to tax.

  The applicant, Golf In Dubai, LLC (in short GID), is a company registered in United Arab Emirates (in short UAE), having its registered office in Dubai. The applicant states that it is engaged in the business of promoting Golf nationally as well as internationally by way of organizing Golf tournaments in different countries.  The applicant’s role is that of an event organizer who earns income by way of organizing such events. The applicant has reportedly got affiliations with the European Professional Golf Association (in short EPGA) by virtue of which many of the tournaments organized by GID are recognized as “European Tour events”, being extremely prestigious events with the participation of the top ranking international Golf players.

  In keeping with the aforesaid objective of promoting Golf tournaments worldwide, the applicant organized two Golf tournaments in India.  The first one known as EMAAR-MGF LADIES MASTERS, 2007 was organized in Bangalore at Eagleton, the Golf Resort (in short Eagleton) from 3rd December, 2007 to 8th Dec.,2007. The second tournament, known as EMAAR-MGF INDIAN MASTERS, was organised on the Golf course of the Delhi Golf Club (in short DGC) in February 2008 i.e. from 4th February 2008 to 10th February 2008.

  For organizing the tournaments at Delhi, the applicant had entered into formal Venue Agreement dated 30 January, 2008 with DGC and had agreed to pay DGC a fee of US $ 80,000 in consideration of granting of the right to use the premises (of DGC) to host the event which was sponsored by EMAAR-MGF, an Indian company along with OMEGA and CNN as co-sponsors. The applicant entered into a formal agreement with EMAAR-MGF also for three years from 2007 presumably with an eye on such future Golf tournaments. No formal venue agreement seems to have been entered into with Eagleton, which is reportedly a division of M/s Chandeshwari Build Tech Pvt. Ltd., an Indian company incorporated on 29th June, 1994.  In pursuance of the oral agreement, GID paid US $15,000 as venue charges fees for obtaining the right to use the Eagleton. Incidentally, no ticket income was generated from both these tournaments, as entry was free.

  Since GID did not have, as stated, any Permanent Establishment in India, these tournaments were organized on ‘remote basis’ i.e. by hiring independent third party local contractors and suppliers, having local expertise and experience.  In fact, GID entered into a formal agreement with one consultant company of Kolkata, namely Par Golf Tours & Accessories Pvt. Ltd. (in short ParGolf) which had requisite experience of organizing such events in the past.  GID made total payments (after withholding tax) to ParGolf who provided the services in relation to organizing the events.  As stated in the application, GID proposes to continue organizing such events in future also so that India is publicized as a venue for international Golf tournaments.

  In the wake of organizing both these tournaments as referred to above, the applicant has received the following income from the Indian sponsors: -

(i) Sponsorship fee, which essentially represents reimbursement expenses on prize money, accommodation for players, Golf course fee, catering, advertisements and publicity expenses etc. and

(ii) The management fee, which represents the actual fee for organizing the tournament.

(iii) Income from sale of merchandise at the venue and over the internet.

Questions before the Authority:

Q 1. Whether Golf in DUBAI (“GID / the Applicant”) could be deemed to have a Permanent Establishment (“PE”) in India in terms of Article 5 of the Double Tax Avoidance Agreement, entered between the Government of Republic of India and the Government of United Arab Emirates (“India-UAE DTAA”)?

Q 2. Whether  Eagleton The Golf Resort, Bangalore and/or the Delhi Golf Club could be deemed to be an agency PE of GID in India since the tournaments were held at grounds of each of these clubs and/or for providing ancillary assistance to GID in organizing the Golf tournaments?

Q 3. If the answer to any of the queries above is in affirmative, whether any or all of the following income generated by GID from the Golf tournament held in Delhi and Bangalore would be liable to tax in India in terms of Article 7 of the India-UAE DTAA?

(i) sponsorship income and a nominal management fee from Indian as well as foreign sponsors and;

(ii) income from sale of merchandise at the venue and over the internet;

Q 4. In the event that GID does not have a PE in India, would any of the income arising to GID under any of the above heads be taxable in India under any other provision of the India-UAE DTAA?

T H E   R U L I N G:

Que.No.1 That on the facts and circumstances of the case the applicant does not have a PE in India in terms of Article 5 of the Treaty.

Que.No.2 In view of ruling on Que. No.1 above, this question requires no ruling.

Que.No.3 In view of ruling on Que.No.1 above, the receipts earned by the applicant in India are not liable to tax in terms of Article 7 of the Treaty.

Que.No.4 That on the facts and circumstances of the case the income of the applicant is not taxable under any other provision of the Treaty.

(Click here for full text of Ruling AIT-2008-362-AAR)

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