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2015 (5) TMI 681 - AT - Income TaxDenial of benefit of Article 8 of India-USA Double Taxation Avoidance Agreement - Held that:- Arrangement of “pool” requires several persons coming together to contribute and combine their resources for a large business and then share the resources amongst them. However in the present case the arrangement was only bilateral arrangements and not several persons have come together. Nothing was brought on record to indicate that the common funds and resources were brought together in a pool which is shared by members of the pool. However, the assessee has only entered into code sharing arrangement, it is also not a case that assessee and third party both are contributing the air craft in a pool which are shared by both. However in the instant case third party is contributing its aircraft and the assessee is only using the resources of third party by booking seats in the aircraft. Thus the arrangement does not meet principle of pool arrangement.In view of the above, we can conclude that income derived by the assessee by booking of seat/space under code sharing agreement cannot be said to be income derived from operation of aircraft/ship in international traffic through owned/leased/chartered aircraft/ship. Furthermore the code sharing agreement cannot be held as space/slot charter in absence of inextricate linkage of both legs of journeys. In the result, the receipts to the extent of code sharing arrangement cannot be said to be profits derived from operation in international traffic under Article 8-(1) read with Article 8-(2). The decision in the case of MISC Berhard (2014 (7) TMI 686 - ITAT MUMBAI) is distinguishable on facts, therefore, cannot be applied to the present case.In the result, the action of the A.O. for denial of benefit under Article 8 of DTAA is confirmed. Enhancement of Global Profitability rate - Held that:- From the record we find that the assessee has shown profitability rate at loss of 3.57%. However, while applying Rule 10, the A.O. enhanced the global profitability rate by disallowing the other expenditure claimed by the assessee in its global accounts which did not have any implication on the profitability from Indian operations. Thus the A.O. estimated the profit on pro rata basis @ 2.52% after excluding the expenditure not related to Indian operation. Article 7(2) of DTAA provides that such profits should be computed which the PE might be expected to make if it were a distinct and separate enterprise, then any expenditure which is required for the AE’s global business point of view as a whole cannot be allowed as deduction unless its utility is proved to be relevant to PE’s activity in India by assuming the PE were a distinct and separate entity. Thus while computing the profits attributable to India, only such expenses which are specific to India can be considered. We find that the assessee has not given any details of such expenditure before the A.O. or DRP to prove any part of such expenditure was attributable to PE in India. The assessee is directed to furnish such details of expenditure. In the interest of justice, we restore this ground back to the file of A.O. for determining the profit attributable to PE. Charging of interest u/s 234B - Held that:- There is no dispute to the proposition that once the income is subject to TDS, it was responsibility of the deductor, there is no liability of interest u/s 234B of the Act for failure to pay advance tax. In the instant case, we found that the assessee was collecting money from its customers on booking of tickets under code sharing arrangement. Nothing was brought on record by the assessee to substantiate its claim that such receipts were subject to TDS. In the interest of justice, this ground is also restored back to the file of A.O. with a direction not to charge interest u/s 234B of the Act if he found that the income of the assessee was subject to TDS. - Appeal decided partly in favour of assesse.
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