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2021 (10) TMI 1004 - AT - Income TaxIncome accrued in India - Business Connection and Permanent Establishment - Assessee is a company incorporated in The United Kingdom as providing electronic global distribution services in the 'rest of the world' territory (including the Indian region) for the travel industry, by utilizing a Computer Reservation System ('CRS'), which is an automated system which processes booking data - HELD THAT:- As relying on TRAVELPORT INTERNATIONAL OPERATIONS LTD. VERSUS ACIT, CIRCLE-3 (1) (1) , INTL. TAXATION, NEW DELHI [2021 (10) TMI 1023 - ITAT DELHI] the assessee has Business Connection and Permanent Establishment (PE) in India. Attribution to the PE in India - The correct attribution rate be taken at 15% of the gross booking fee for the years in appeal before us.As per the table above, Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment of tax as no further income is taxable in India. The AO may check the correctness of the figures before giving effect to this order. Allowability of distribution expenses - As duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their network of subscribers/travel agents and thus, an inseparable part of the business and thus it cannot be denied that the expenses have been incurred for the purpose of the business. It is also an accepted fact that there is only one business of the Company i.e., the CRS business. Therefore, all expenses incurred by Company including distribution expenses can only be related to such business. Thus, the AO's argument that distribution fees is not related to its business since its nomenclature in invoices is specified as 'data processing charges' instead of distribution fees lacks basic fallacy. As distribution commission has been made to resident of India and duly offered to tax. Hence, the provisions of Section 40(a)(ia) are not attracted in the instant case. Since, there is no change in the factual matrix and legal proposition, we hereby allow the claim of the assessee. Allowability of other expenses - AO disallowed entire amount (100%) claimed by the assessee on account of other expenses such as royalty, vendor cost, license fee owing to non-deduction of withholding tax - As the position of the profit/loss of the assessee is evident. After deduction of the distribution expenses and 15% booking fee, the assessee is left with no taxable profit. Considering the disallowance @ 30% u/s. 40(a)(ia) in accordance with the law laid down by the Hon'ble Delhi High court in case of CIT Vs. Herbalife International India (P.) Ltd.[2016 (5) TMI 697 - DELHI HIGH COURT] wherein the High Court struck down discriminating treatment of disallowance u/s. 40(a)(i) and Section 40(a)(ia) of the Act by relying on Article 26(3) of the DTAA between India and US, we hereby direct the AO to re-compute the net losses computing the disallowance on other expenses @ 30%.
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