2010 (8) TMI 1002 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee had a business connection/permanent establishment (PE) in India.
2. Attribution of income to the PE and its taxability in India.
3. Reopening of assessments for the assessment years 2001-02 and 2002-03.

Summary:

1. Business Connection/Permanent Establishment (PE):
The primary issue was whether the assessee, a Singapore-incorporated company engaged in airline reservations through a computerized reservation system (CRS), had a business connection or PE in India. The assessee licensed marketing rights to Abacus Distribution System (India) Ltd. (ADSIL), its wholly-owned subsidiary in India. The Assessing Officer (AO) held that the assessee had a PE in India through ADSIL, as ADSIL provided computer hardware and software to travel agents and executed contracts on behalf of the assessee. The CIT(A) confirmed this, stating that ADSIL was a wholly dependent agent of the assessee, constituting a PE under Article 5(8) of the Tax Avoidance Treaty between India and Singapore.

2. Attribution of Income to PE:
The assessee argued that even if it had a PE in India, only a small portion of income could be attributed to it. The AO estimated the income at 10% of the receipts. The CIT(A) upheld this, noting the lack of global profit and loss accounts and the interdependence between the assessee and ADSIL. The assessee cited the case of Galileo International Inc., where the Tribunal held that only 15% of revenue could be attributed to operations in India, and since the payment to ADSIL was 25% of receipts, no further income could be taxed in India. The Tribunal agreed, stating that the facts were identical and followed the decision in Galileo International Inc., attributing only 15% of gross receipts to operations in India, resulting in no taxable income as the payment to ADSIL exceeded this percentage.

3. Reopening of Assessments:
For the assessment years 2001-02 and 2002-03, the assessee challenged the reopening of assessments. However, since the appeals were decided in favor of the assessee on merit, the Tribunal did not address the issue of reopening.

Conclusion:
The Tribunal allowed the appeals, holding that only 15% of gross receipts could be attributed to operations in India, and since the assessee had already incurred expenditure at 25% of gross receipts on payments to ADSIL, there was no income taxable in India. The issue of reopening assessments was not addressed due to the favorable decision on merits.