9911796707
TMI Blog2014 (8) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... re reconsideration. The impugned order of the Tribunal mistakenly understands and interprets the order passed by the High Court in the case of Amadeus IT Group and, therefore, incorrectly observes that the ratio or formula applied in earlier years cannot be applied in respect of Assessment Years 2003-04 to 2004-07. It is submitted that similar reasoning by the Tribunal was rejected by the High Court in Amadeus IT Group. Submission of the Revenue is that in view of globalisation, the earlier formula or profit attribution ratio should not be applied and the Tribunal was justified in remitting the question of profits attributable to the Assessing Officer. 2. We begin with a caveat that a limited issue and question arises for consideration in these appeals and we are not required and are not pronouncing any opinion and finding on whether the appellant-assessee had a Permanent Establishment (PE) in India and other related issues. The only question and issue raised in these appeals relates to profit attribution to Indian operations on the assumption that the appellant-assessee had a PE in India. 3. By order dated 14th December, 2012, the following substantial questions of law were admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Private Limited under an agreement. The said distributor negotiated and entered into contracts with various travel agents in India who wished to be connected to the appellant-assessee's CRS and provided connectivity to them. The appellant-assessee did not physically carry any operations in India and did not engage or have employees in India. In order to enable the travel agents in India to connect to the CRS, the appellant assessee has entered into an agreement with Societe Internationale de Telecommunications Aeronautiques (SITA), an independent and a separate entity. SITA provided nodes in India which SITA owned and the travel agents through these nodes remained connected and established communication link with CRS. As per the agreement with SITA, the appellant-assessee had to pay costs for connectivity charges from its data centre in USA to the nodes, which as noticed were owned by SITA in India. SITA did not own communication lines in India and, therefore, had procured them from local telephone companies for different circuits. 7. Travel agents were paid/remunerated by the airlines for the bookings on tickets issued using the appellant assessee's data base, CRS. The appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd such travel agents, numerous as they are, transact on thousands of occasions on everyday basis. The node of SITA is also located in India which enables the travel agent to access the CRS of the assessee. The servers of the assessee, however, are located in the USA. Similarly, the agency PE created through the distributor is responsible for all the major activities leading to profits to the assessee. The contracts with the travel agents are contracted in India on a regular basis and the distributor has such authority and also procures orders for the assessee on a regular server corporate office and set up a relocated in, are attributable to its set up in the USA. In the light of the above, it is held that three fourth profits generated from India operations are attributable to its permanent establishment in India. The figure of 75% is an estimate adopted on the basis of the examination of the extent of activities carried out in India and the USA." 10. Commissioner of Income Tax (Appeals) observed that the appellant-assessee had business connection in India and in terms of Section 9(1)(i) of the Act, as income from bookings made from India and income was earned from such operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or on behalf of the revenue-respondent to assail the finding of the Tribunal in the supplementary statement of case. The question is as to what proportion of the profit of the sale in categories (a), (b) (c) & (d) arose or accrued in British India is essentially one of the fact depending upon the circumstances of the case. In the absence of some statutory or other fixed formula any finding on the question or proportion involves some element of guess work. The endeavour can only be a approximate and there cannot be in the very nature of things be great precision and exactness in the matter. As long as the proportion fixed by the Tribunal is based upon the relevant material it should not be disturbed. We, therefore, are of opinion that no question of law arises in these matters which needs any further determination by this court." 17. In the other case of Amadius IT Group similar controversy has arisen and Ld. AR had relied upon the ITAT order in the case of M/s Galileo International (the assessee in the present case) in I.T.A. No.,108/Del/ dated 21.11.2008. However, the Hon'ble Tribunal had rejected the claim of the assessee and had referred back the matter to the file of As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in the alternative the Assessing Officer can calculate net profits attributable to India operations by calculating proportionate net profits of the company with respect to bookings from India viz-a-viz total bookings. With these directions, we remit the matter back to the file of the Assessing Officer for fresh consideration by adopting a reasonable and commercial test for estimation of business attributable to India and net taxable income which could have been said to have accrued to appellant due to bookings from India. To determine the profits attributable to Indian operations, Assessing Officer may verify the global accounts of the assessee." 12. Appellant-assessee is right in his submission that the Tribunal has misread the order dated 24th January, 2011 passed by the High Court in Amdeus IT Group SA case for the Assessment Years 2001-02 and 2002-03. Tribunal for the assessment years 2001-02 and 2002-03, relying on their earlier order dated 27th April, 2009 in the case of Amadeus Global Travel Distribution, Spain relating to Assessment Years 2001-02 and 2002-03 had issued similar directions but the High Court in appeal had specifically and clearly rejected the reasoning. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure cannot be apportioned summarily. In view thereof, we are inclined to set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our observations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observations after giving the assessee an opportunity of being heard." 13. What is clearly noticeable is that the reasoning recorded above finds replication and repetition in the impugned order passed by the Tribunal in the present appeals. Tribunal in the two orders has highlighted that looking at globalisation, share of Indian travellers in terms of bookings should have increased considerably and, therefore, the issue to attribution of profits required a fresh decision by the Assessing Officer. However, the aforesaid reasoning was not accepted by the Delhi High Court when the Amadeus IT Group SA filed appeals being ITA Nos. 1040/2009 and 1041/2009 and it was held as under:- "The only issue raised in these appeals which are filed by the same assessee but for the different assessment years is as to whether the assessee is running permanent establishment in India or not. We find that all the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has been followed by the Delhi High Court in Assessment Years 1999-2000 to 2002-03 in order dated 25th September, 2012. Thus, the 15% formula, which was applied for Assessment Years 1995-96 to 1998-99 has been followed upto Assessment Year 2002-03. The impugned order in the present case, as noticed, is dated 29th June, 2012. Appeals for the Assessment Years 1999-2000 to 2002-03 were decided by the Delhi High Court on 25th September, 2012, i.e., after pronouncement of the order dated 29th June, 2012. 16. The appellant-assessee has placed on record copy of orders dated 28th April, 2011 in the case of Amadeus Global Travel Distributors, SA in ITA No. 689/2011, wherein appeal filed by the Revenue was dismissed in view of the order dated 24th January, 2011 in the case of the present assessee. Similar appeals for Assessment Years 2004-05 and 2005-06 being ITA Nos. 795/2011 and 797/2011 in the case of Amadeus IT Group SA were dismissed by the High Court vide order dated 31st May, 2011. 17. The appellant-assessee has also placed on record orders passed by the Delhi High Court in the case of Sabre Inc., USA, another non-resident company engaged in identical business. Their proportionat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause of increase in bookings from India. It was submitted that the estimate of 15% was made ten years back, therefore, cannot be considered to be appropriate. The Tribunal has observed that estimation of profits would be ideally based upon number of bookings originating from India in comparison with the bookings in a particular year and on consideration of global accounts. It is not possible to agree with the said submission for several reasons. Firstly, this is not the basis of the assessment made by the Assessing Officer. In fact, the Assessing Officer had mentioned in the assessment orders that the facts and circumstances of the case remain the same. Foundation and basis should have been first made in the assessment order. Secondly, the Tribunal in the earlier appeal in the case of Galileo International Inc. (2008) 19 SOT 257 (Delhi) relating to Assessment Years 1995-96 to 1998-99 had undertaken the FAR Analysis and in respect of functions of the appellant-assessee observed:- "9. ...Thus in a given case if all the operations are not carried out in India, the income has to be apportioned between the income accruing in India and income accruing outside India. In the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and connectivity being provided in India, the income would not have generated. Thus the initial cause of generation of income is in India also. On the basis of above facts we can reasonably attribute 15% of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under Section 5(2) read with Section 9(1)(i) of the Act." 22. It was this reasoning, which was approved by the Delhi High Court in ITA Nos. 851/2008 & etc., Director of Income Tax versus Galileo International Corporation, decided on 25th February, 2009 along with other ITAs, rejecting the submission of the Revenue that the Tribunal had erred in attributing only 15% of the said income as attributed to Indian operations. High Court also rejected the submission that the Tribunal's finding was erroneous as Double Taxation Avoidance Agreement with USA advanced attribution of profits and not revenue, observing that the Tribunal had applied principles of attribution of profits and not revenue. It was specifically held that the Tribunal had undertaken the exercise to assess what would be attributable to operations in India and thereafter found that only a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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