TMI Blog2019 (7) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... connection established in India and hence in terms of s. 9(1)(i) the income in respect of the booking which takes place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India. In view of this respectfully following the decision of the coordinate bench [ 2010 (10) TMI 1178 - ITAT DELHI] we also hold that assessee has a permanent establishment in India. Attribution of profit where in the current year the CIT(A) has upheld the attribution of the profit @75% whereas, in earlier years the tribunal has upheld the attribution @15% of the revenue as income arising in India. In view of this respectfully following the decision of the coordinate bench in assessee‟s own case for earlier years, we also reverse the order of the ld CIT(A) in upholding the attribution of profit @75% and direct the ld AO to attribute the income @15%. Accordingly, the appeals of the assessee as per Ground Nos. 2 to 5, 6, 11, 12, 13, 14 and 15 of the appeal are partly allowed. Non-granting of credit of TDS - AR submitted that the assessee should be granted the credit of the tax deduction at source - HELD THAT:- DR also agreed to the issue that if the certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from airlines, etc. relating to segments booked from India through the appellant‟s computer reservation system, not appreciating that no income accrued or arose to the appellant in India. 3. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding that computers, electronic hardware, and the connectivity provided by the appellant to the travel agents through SITA nodes located in India, collectively, constituted permanent establishment ( PE‟) of the appellant in India in terms of Article 5(1) of the Indo-Spain DTAA ( the Treaty‟) and the income arising to the appellant from the airlines, assessing officer in alleging that Amadeus India (P) Ltd. (AIPL) constituted dependent agent PE of the appellant in India and the income arising to the appellant from the airlines, etc., was attributable to the activities of the alleged etc. was attributable to the activities of the alleged PE in India. 4. That the CIT (A) erred on facts and in law in confirming the action of the Assessing Officer in alleging that Amadeus India P Ltd (AIPL) constituted dependent agent PE of the appellant in India and the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the assessing officer in disallowing deduction of Euro 4,167,000/- incurred by the appellant under the head Development Cost‟, while computing the income attributable to the alleged PE. 10. That the CIT (A) erred on facts and in law in not appreciating that the appellant was engaged in the business of providing CRS services and the expenses incurred in connection with product development function carried out outside India were required to be excluded while computing the income of the alleged PE of the appellant in India. 11. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in attributing 75% of the profits of the alleged PE of the appellant as income chargeable to tax in India. 12. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in not following the order of the Delhi Bench of the Tribunal in the appellant‟s case for the assessment years 1996-97 to 1998-99 and the order of the CIT(A) for assessment years 2003-04 to 2005-06, wherein the Tribunal had attributed 15% of the revenues relating to the bookings made from India as attributable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the PE of the non-resident was required to be taxed as business income on net basis under Article 7 of the Treaty. 16. That the CIT (A) erred on facts and in law in not directing the assessing officer to allow credit for tax deducted at source of ₹ 56,693,368/- claimed by the appellant. 3. Brief facts of case shows that the appellant is a company Incorporated in Spain and was engaged in the business of development and distribution of computer reservation systems (CRS). Assessee filed its return of income on 29/11/2006 declaring total income of Rs. Nil. Assessment was completed by the learned Assessing Officer u/s 143 (3) of the income tax act on 31/12/2008 computing the total income of the assessee at INR 9 28446114/ against the returned income of the assessee of Rs. Nil. 4. The appellant has entered into agreements with various Airlines [ Participating Carrier Agreement] by providing interconnectivity between the host computer of the individual Airline and the Amadeus CRS created by the appellant at Erding, Germany. Amadeus also provides connectivity to its CRS to the travel agents. The Agreement, inter alia, provides that the participating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity/access to the travel agents to the CRS host. Further, AIPL and ResBird also trains the travel agents regarding the use of the CRS system. The appellant pays AIPL and ResBird distribution fees for the aforesaid services rendered to the appellant, with reference to the segments booked in India by the travel agents through the CRS system as per the terms of the Distribution Agreement. The computers with the travel agents are standard third party compatible PCs. These PCs are not Amadeus proprietary. The PC is used to emulate a remotely located host terminal. The travel agent‟s PC is connected to the Amadeus mainframe computer located in Germany. The connectivity is provided by third party providers, using in India the DOT, MTNL or VSNL leased lines. The Amadeus mainframe is in turn connected to host computers of the various providers like Airlines, hotels, etc. around the world. The computers in the offices of the agents are not capable of processing/finalizing reservations it is the job of the Amadeus Data Center in Erding, Germany to ensure that the connectivity between the Amadeus Mainframe and the travel agents as the Amadeus Mainframe and the various providers worldwide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edus India on the above company. On verification of the invoices raised by Amedus India and accepted by the assessee, which were found to be pertaining to account of export data, software response of the year. On verification of the invoices and on being questioned to the assessee, assessee submitted that as per the distribution agreement, it is Amedus India private limited was providing distribution services which involved provision of hardware support in respect of the hardware provided to the travel agents, marketing support services and providing connectivity to the appellant‟s computerized reservation system by creation of segment in appellant‟s CRS system for identification of travel agents to enable the CRS to provide access to the specific portion of the database and the remuneration paid by the appellant by AMedus India private limited was for the aforesaid activities. Based on the information provided by the assessee the learned AO noted that Amedus India has charged the assessee for export of processed data/software. The assessee is also paying Amedus India for receipt of processed data/software. The assessee has not made any other payments to Amedus India an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent establishment of the assessee in terms of article 5 of double taxation avoidance agreement dated 21/4/95. He further stated that the invoice of the Amedus India private limited elaborately demonstrate that the charges was for export of data processing and not for computerized reservation system business of ticket booking. Accordingly he sustained the action of the learned assessing officer. He further upheld the attribution of profit @ 75 %. Thus, he upheld the existence of the permanent establishment and attribution of profit as determined by the learned assessing officer. 8. With respect to the royalty taxation of the above sum he did not give any finding. Thus aggrieved by the order of the learned CIT A assessee is in appeal before us. The learned authorised representative submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon‟ble Delhi High Court in assessee‟s own case for earlier years. Even otherwise he submitted a detailed written submission on the whole issue as under: Re: Ground of Appeal No. 2 to 4 - Permanent Establishment of Amadeus Given the background of the appellant, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make known to the travel agents the facility created by the appellant so that they use the facility for making bookings of seat for their traveler customers. The charges for the services of the appellant could be provided by the Airlines in any other form like a lump sum payment or fixed periodical charges outside India. The revenues still arise to the appellant outside India. The Airlines have evolved a clever fee structure, which makes it impliedly necessary for the appellant to reach the Airline customers that is the travel agents and canvass with them the use of appellant s CRS. It is, inter alia, for this purpose that the appellant engaged the services of AIPLand ResBird. It has to be noted that the main function of AIPL/ ResBird vis- -vis the appellant is to disseminate information amongst the travel agents in India about the Amadeus CRS, canvass with them the use of the system and assist them in using the CRS, without any charge whatsoever. It has to be noted that the activity of the appellant in India is restricted to the aforesaid. The aforesaid activities are of the nature of advertising and of supplying information. Such activity has a preparatory and auxili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the appellant is not carrying on any business in India and not earning any revenues in India, and is merely advertising and disseminating information about the Amadeus CRS, no business income liable to tax arises in India. Re: Agency PE The assessing officer, following the orders passed in the earlier years, held that AIPL is a dependent agent of the appellant and agency PE in terms of paragraph 5(4) of the DTAA, which is disputed for the reasons stated as under: As per paragraph 4 of Article 5 of DTAA between India and Spain, the so-called dependent agent may be deemed a permanent establishment if such agent has and habitually exercises authority to conclude contracts on behalf of the Spanish entity. It is to be appreciated that AIPL/ ResBirddoes not enter into any agreement with the travel agents on behalf of the appellant . In fact, the agreement has to be read along with the admitted understanding between AIPL/ ResBird, the appellant and the travel agents that no consideration will pass from the travel agents to AIPL/ ResBirdor for that matter to the appellant on account of the agreement. There is, therefore, no question of AIPL/ Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. They are appointed and known as distributors. It is not uncommon that a distributor carries out some functions and obligations similar to those of an agent. Improvement of the business of the appellant, assisting the appellant in formulating its marketing strategies and preventing the misuse of the product supplied to the end-users are all functions which are not extraneous to the distributorship. The business of the VAR is not controlled by the appellant except to the extent necessary to promote its own business. It is beyond dispute that the VAR does not negotiate or conclude contracts with the end-users on behalf of the appellant . As noticed earlier, the acceptance of the order placed by the end-user and procured by VAR is left to the discretion of the appellant. That authority is not delegated to VAR. Moreover, VAR is free to determine its own price while entering into the deal with the end-user on the acceptance of the order by the appellant. It is not possible to accept the contention that arriving at the price is an empty formality and always follows a set pattern. The VAR does not notify or render account to the appellant for the amount collected from the end-user. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement with an independent entities viz., AIPL/ ResBird. AIPL/ ResBirdcontacted the travel agents and provided them access to the airlines inventory through the appellant s mainframe in Germany. This was done only to conclude the commitment of the appellant made outside India while entering into agreement with the airlines. AIPL by entering into subscription agreements with the travel agents was merely executing the last leg of the contact already concluded outside India. AIPL/ ResBirdhaving regard to the ratio laid down in the above case, cannot in such circumstances, be said to be concluding any contract for the appellant so as to be considered as a dependent agent having authority to conclude contract and, therefore, a PE of the appellant in India. In the past, a subscriber s agreement was entered into between AIPL/ ResBirdand the travel agents, where under computer hardware, etc. was provided to the travel agents, as an incentive, and certain obligations were cast on the travel agents regarding the use of such computers. However, under the present arrangement, the appellant neither provides computers to the travel agents, nor does it bear cost towards provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his person would be given a receipt by the assessee along with a computer-generated unique number which is referred to as MTCN (Money Transfer Control Number). The remitter would send the number to his relative in India who would take it to the assessee's representative/agent in India. Such representative/agent would access the mainframe computer of the assessee in USA, match the MTCN with the help of software and if the MTCN matches, the representative/agent would honour the transaction and pay the money to the claimant in India. For the aforesaid purpose the assessee had appointed agents in India. One of the issues before the Tribunal was whether the agent s premises-cum-software was PE of the assessee. It was argued on the behalf of Revenue that there is a fixed place of business in the form of various systems installed at the premises of various agents through which the business is carried on. The Tribunal, however, rejected the contention of the Revenue and observed as under: 26. The department has made out a case that the software, which affords access to the agents to the assessee's mainframe computers in USA for the purpose of finding out the matching of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the computer hardware at the travel agent s desk is an extension of the mainframe at Erding and at the Airlines offices. Technically, Airlines host computer mainframe is an independent facility which has been created to store data, process data and provide information about the availability or non-availability of a seat pursuant to a booking request an enquiry originating from a travel agent. Further, it may be pointed out that there is a certain time lag in making a request by the travel agent and its processing by the mainframe and the display of the information on the computer screen of the travel agent in India. Thus, for example where simultaneously two or more travel agents make a booking for a same sector and there is say only one seat available on such sector, a queue is certainly formed as only one travel agent will be able to get the booking depending upon who is first in the queue. Also, if the theory of the time and space collapsing and the mainframe of the appellant coalescing with the computers of the travel agent is accepted, it would have far reaching consequences in as much as the computer of any person in India accessing a web site (locate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard, reference is made to the decision of the Supreme Court in the case of Formula One World Championship Ltd. vs. CIT: 80 taxmann.com 347 (SC) wherein the Court after referring to the OECD Model Tax Convention, Commentaries by Professor Philip Baker and Professor Klaus Vogel, international tax jurisprudence observed that in terms of Article 5(1) of the India-UK Tax Treaty, a fixed place PE is constituted in India, if twin conditions are satisfied viz, (i) Existence of a fixed place of business at the disposal of the foreign enterprise in India; (ii) through which the business of the foreign enterprise is wholly or partly carried on. Further, the Delhi High court in the case of CIT vs. eFunds IT Solution and Ors.: 364 ITR 256 while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the India-US Tax Treaty held that for the purposes of existence of fixed place PE under Article 5(1), there must be a fixed place of business at the disposal of the enterprise. The subsidiary constitutes an independent legal entity for taxation purposes, and hence the relationship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Establishment' indicates that there should be some degree of permanency attached to the fixed place of business before the same can be construed as a PE of an enterprise. The word permanent does not imply for all times to come but merely indicates a place which is not temporary, interim, short-lived or transitory The Andhra Pradesh High Court in the case of CIT vs. Visakhapatnam Port Trust [(1983)144 ITR 146],on the matter of permanency, has observed as under: In our opinion, the words permanent establishment postulate the existence of substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country . Attention in this regard is invited to the following observations of the Special Bench of the Tribunal in the case of Motorola Ors. v. DIT: 95 ITD 269 (SB) (Del), wherein the Tribunal held that unless the office was at the disposal of the nonresident assessee, it could not be held to be constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se certain facilities occasionally, it cannot be said that the assessee had at its disposal, as a matter of right, certain space which could be characterized as a fixed place of business . A travel agency in Paris had made an office available to the German company from time to time, and the manager of the German company had a flat in Paris. The Administrative Court of Appeal of Paris held that the German Touristik Service [1998] 1 I.T.L.R. 857, travel agency did not have a PE in France (Societe France). As against this, the Brussels Court of Appeal has held that a German resident engaged in the transportation of vehicles had a PE in Belgium as he had an office 3 m by 6 m at his disposal on the premises of his principal supplier in Belgium, together with telephone and telex, where the German and his tour employees worked (KH v. Belgium [1995] 3 R.G.F. 100). The assessee's case is akin to that of the German travel agency in the first mentioned case and not to the German resident in the second mentioned case. Therefore, in the light of this discussion, it cannot be said that the assessee had a PE in India as envisaged in Article 5.1 of the DTAA. [Emphasis supplied] From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office in order to hold such office to be constituting PE of the non-resident appellant. The existence of an office, per se, would not constitute PE of the assessee in India. Kind attention, in this regard, is also invited to the recent decision of the Mumbai Bench of the Tribunal in the case of Delmas France v. ADIT: 144 TTJ 273, wherein the Tribunal, while referring to the decision of the Special Bench of the Tribunal in Motorola Inc. (supra), held that that the onus is on the Revenue todemonstrate that PE of the foreign enterprise exists in India. The relevant observations of the Tribunal are as under: ..As held by a coordinate bench of this Tribunal, in the case of Airlines Rotables Ltd Vs DDIT8, ―It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. that the onus is on the Revenue to demonstrate that a PE of the foreign enterprise exists in India . In the present case, i.e. in the case of DAPE in accordance with provisions of Indo French DTAA, the onus is even greater inasmuch the very foundation of DAPE rests on a negative finding with respect to the wholly dependent or almost wholly dependent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is in India. It is submitted that the source of income for the assessee is the airlines and not the traveler in India. For example, a traveler domiciled in UK, wanting to travel from UK to Sri Lanka may book a ticket from London to New Delhi and from New Delhi to Colombo. However, for effecting the said bookings, he may use the services of an Indian travel agent, who is hooked on to the appellant s CRS. In the aforesaid example, the bookings made from India would give rise to booking fee relating to Indian distribution activity, but the traveler may not be in India. It is, therefore, an incorrect assumption drawn by the assessing officer that the source of income for the assessee is the traveler in India. c) The assessing officer (on page 21 of the order) has further alleged that the transaction is initiated in India, the CRS is used in India and transaction is completed in India and, therefore, the source of income of the appellant is in India. It has not been appreciated that only certain instructions/commands are sent through the computers of the travel agents in India. The booking gets completed outside India in the Airline host system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avel agent is located in India. No doubt the genesis of the payment is the traveler but the traveler is the source of income for the travel agents or the airlines but not the source of income for the appellant. For the appellant, the source of income is the Airlines and no one else. It is like saying the source of salary paid to Government officers is the tax payer and not the Government. Information submitted by Amadeus India Pvt. Ltd. 1) The assessing officer has relied upon Form 3CEB submitted by Amadeus India to hold that no compensation for marketing support services was paid by the appellant to Amadeus India. Such report was never confronted to the appellant and therefore, no cognizance can be taken of the said report. 2) Similarly, the assessing officer has, on the basis of transfer pricing report submitted by Amadeus India, held that Amadeus India is a PE of the appellant in India. The said report, was never confronted to the appellant and, therefore, cannot be relied upon to draw an adverse inference against the appellant. 3) The assessing officer has also relied on letters, dated 8.12.08 and 16.12.08, written by Amadeus India to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer has also not appreciated that the appellant is being assessed since the assessment year 1996-97 and has always cooperated andfiled the details/information called for by the assessing officer/appellate authorities in the earlier years and it has never been alleged that the appellant has been evasive in his replies or has not filed details/information. It has also not been appreciated that the appellant is a tax resident of Spain and has no office or place of business in India and cannot be expected to provide every information/detail in a short-span of time and cannot be put to enormous compliance burden. No cognizance can be taken of the adverse inference drawn by the assessing officer on the basis of the aforesaid evidence collected by the assessing officer under section 133(6) from AIPL and other entities which was never confronted to the appellant and the information/details alleged to have not been filed and the impugned assessment order framed in violation of the principles of natural justice, is bad in law and liable to be set aside. Re: Ground of Appeal Nos. 6, 11, 12, 13, 14 - Attribution of profits Without prejudice to the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by the appellant to AIPL and ResBird by way of distribution fee, viz., 30% of the net turnover (i.e. without considering other expenses like communication charges, advertisement and promotion, etc.) is much more than the revenues that could be attributed to the activity performed by AIPL and ResBird, considering AIPL to be a PE of the appellant. Therefore, the issue of any further income being taxed in the hands of the alleged PE of the appellant does not arise. It may be pertinent to point out that the Delhi Bench of the Tribunal in the case of the appellant for the assessment years 1996-97 to 1998-99, after considering the extent of activities in India and abroad, the assets employed and risks assumed, held 15% of the revenues relating to the bookings made from India as attributable to the appellant s PE in India. Since, the distribution fee paid in those years 33% (approx) of the booking fee per segment, i.e, more than twice the revenue attributed to the alleged PE, no income was held to be liable to tax India in the Tribunal. The assessing officer has grossly erred in not following the order of the Delhi Bench of Tribunal in the appellant s case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence in facts sought to be made by the assessing officer in assessment year 2005-06, which has been followed in the impugned assessment, is based on conjecture, surmises and assumptions without appreciating the real nature of the activity carried out by the appellant in India. It is further respectfully submitted, that the assessing officer had, in the assessment order for assessment year 2005-06, sought to distinguish the decision of the Tribunal in appellant s own case for assessment year 1996-97 to 1998-99 on similar grounds. However, the CIT(A), vide order dated 25.02.2010, allowed the appeal of the appellant holding that no more than 15% of the revenues generated from India could be attributed to the alleged PE of the appellant in India and since the payment to the agent in India exceeded those revenues, no further income of the appellant could be brought to tax in India. The aforesaid order passed by the CIT(A) for assessment year 2005-06 has been confirmed by the ITAT, vide order dated 29.10.2010 and the High Court vide order dated 31.05.2011 (Revenue appeal) and 13.08.2013 (Assessee appeal). It has not been appreciated that AIPL continued to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply and further attribution of income can be made in the hands of the PE of the non-resident in India. It is respectfully submitted, that the aforesaid decision has no application to the facts of the present case, since (a) we understand the distribution fee paid by the appellant to AIPL has been held in AIPL s case to be at arm s length, (b) the appellant s activities are wholly channeled through AIPL and very recently through ResBird in India and no other entity is involved, and (c) the appellant s claim is not entirely based on Circular No. 23 of 1969. It may be pertinent to point out that the Tribunal in appellant s case for AY 1997-98 1998-99 interpreted the provisions of law independently after taking into account similar contention of the Revenue. Without prejudice to the aforesaid, even if the basis of computation followed by the Tribunal in the appellant s own case is to be ignored for some reason, then too, only a small part of such profits could, if at all, be attributed to the alleged PE of the appellant in India can be brought to tax in India as substantial and substantive part of the appellant s activities are carried outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... British Indian sales which aggregated to ₹ 57,07,431 was shown at ₹ 5,70,743 and after deduction of the proportionate expenses relating to sales in British India and sundry charges was put down at the net figure of ₹ 4,58,026 which was shown as the British Indian income. It was, thus contended that the income arising in British India in the year of account did not exceed its income arising without British India and that therefore the assessee was non-resident in British India. This calculation of profits, at the rate of 10 per cent on British Indian sales did not make any allocation between manufacturing profits and merchanting profits and all the profits arising out of British Indian sales were shown in one lump sum. It was held on the aforesaid facts, that the income received in British India could not be said to wholly arise in British India and that there should be allocation of income between the various business operations of the assessee demarcating the income arising in the taxable territories in the particular year from the income arising without the taxable territories in that year. The Madras High Court in the case of Annamalais Timb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution of income reads as under: 4. In paragraph 1 of Article 7 of the said Agreement, it has been provided that profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. It, therefore, recognizes two tax identities of an enterprise. The said paragraph makes it clear that the profits of the enterprise may be taxed in the other State only so much of the same which is attributable to that permanent establishment. 5. Paragraph 2 of Article 7 is as follows :- Subject to the provisions of paragraph (3), where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it appears to us, if an enterprise does not have a tax identity in India in the form of a permanent establishment, it has no obligation to either submit any tax return with, or pay any tax to India. The question still remains, whether it was right on the part of the Taxing Authority to assess income-tax liability of the appellant as was assessed in the instant case. In other words, can it be said that the Agreement permitted the Indian Taxing Authority to arbitrarily fix a part of the revenue to the permanent establishment of the appellant in India? As aforesaid, appellant held out that a part of the revenue was received by it for doing certain work in India. It did not contend that even those works were done by or through its Project Office at Mumbai. On the other hand, there is not even a finding that 25 per cent of the gross revenue of the appellant was attributable to the business carried out by the Project Office of the appellant. One has to read Article 5 of the Agreement in order to understand what a permanent establishment is, in terms whereof ―permanent establishment means a fixed place of business through which business of an enterprise is wholly or partly carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusions are arrived at: A. xxx xxx xxx F. In our considered opinion, the correct approach to arrive at the profits attributable to the PE should be as under: Step 1: Compute Global operating Income percentage of the customer care business as per annual report/10K of the company. Step 2: This percentage should be applied to the end-customer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at is the Operating Income from Indian operations. Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India Step 4: The profit attributable to the PE should be estimated on residual profits as determined under Step 3 above. The attribution of India profit shall be worked out as under, mentioned after the table: 11.18. In the computation based on the above approach for the assessment year 2006-07, the profits attributable to India comes as under: Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viable and appropriate. 11.22. As the methods for calculating the attribution profit as adopted by TPO and CIT(A) are not reliable. Ld. Counsel has further demonstrated that if both the methods are harmoniously applied, this leads to a situation where no further attribution to the assessee s income can be made. Thus a harmonious intermixed rationalization of TPO and CIT(A) method results into no further attribution of profits to Indian PE. 11.23. In this backdrop we are reminded of two case laws decided by Hon ble Supreme Court which have dealt with attribution of the profits to the Indian PEs: (i) Anglo French Textile Company Ltd. vs CIT 23 ITR 101 (SC), in which 10% attribution has been held to be reasonable. (ii) Hukum Chand Mills Ltd. vs. CIT 103 ITR 548 (SC), in which 15% attribution has been held to be reasonable. 11.24. These cases decided by the Apex Court though are old, but they still hold the field as they have not been tinkered with. In our considered view, the adoption of higher figure of 15% as held by Hon ble Supreme Court in the Hukum Chand Mills Ltd. (supra), for attribution of assessee s Indian PE operations w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... host and to the Airline s inventory base. Once a travel agent subscribes to the CRS, a personnel from AIPL s staff, creates a specific segment for the travel agent in the CRS from where the ticket booking from travel agency will be initiated on the Amadeus s CRS. This includes information like Agency name, location address and access permissions forthat location. AIPL also creates user name and passwords per terminal/segment created by it. Further, a lot of times, travel agents are not able to price the fare correctly leading to data discrepancy in the PNR for fare discrepancy related to airline fare/taxes/commission and hence the booking does not get concluded on the CRS. The fares and support department of AIPL ensures that the travel agent's PNR is correct as per the fare filed by the Airline with the regulatory authorities and what is visible on the CRS. The aforesaid services are integral to the marketing of CRS and providing connectivity to the travel agents, for which AIPL has been engaged. The appellant remunerates AIPL under the Distribution Agreement and even though the payments are described as export of data processed/software , the said payments include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment for the assessment year 2005-06, himself held that the said expenditure had been incurred for the purposes of business carried on by the appellant in India. The fact that AIPL has claimed deduction under section 80HHE of the Act in relation to the distribution fee paid by the appellant is no ground for disallowing the said payment in the hands of the appellant. The assessing officer, in the preceding years, has not appreciated that had the appellant not made payment of distribution fee, the revenue from booking fee, subjected to tax would not have arisen in the first place, since there would have not been any connectivity provided to the travel agent and consequently, no bookings made by them. Even if the aforesaid expenses are considered as towards data processing, the same has to be considered for deduction while computing the income attributable to the alleged PE. It would, thus, be apparent that the aforesaid expenditure having been incurred wholly and exclusively for the purposes of the business of the appellant, is allowable deduction irrespective of the nomenclature used on the invoice. It may be pertinent to note that similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f segments booked from India. It cannot be said that the aforesaid expenses have not been incurred in connection with the Indian PE/Indian customers merely because the products developed are not India specific. Since the travel agents in India use the products, which are developed on a continuous basis, the introduction of new features results in generation of higher revenues due to larger number of segments being booked through the use of the appellant s CRS vis- -vis competitor s CRS in India as well. The aforesaid expenses, it will be appreciated, have a nexus with the earning of fee from bookings, made from India and the same are allowable deduction. Re: Ground of Appeal No. 15 - CRS income Royalty Alternatively, the assessing officer has held that consideration of Euro 4,90,13,000 is taxable in India as royalty both under section 9(1)(vi) of the Act and Article 13 of the Indo-Spain DTAA (―the Treaty ) by holding hold that the booking fee received by the appellant from various airlines is payment for use of process and scientific equipment and therefore, taxable as royalty under section 9(1)(vi) of the Act. In this regard, our submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term ―royalty has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information. Some judicial decisions have interpreted this definition in a manner which has raised doubts as to whether consideration for use of computer software is royalty or not; whether the right, property or information has to be used directly by the payer or is to be located in India or control or possession of it has to be with the payer. Similarly, doubts have been raised regarding the meaning of the term process. Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:- (i) To amend section 9(1)(vi ) to clarify that the consideration for use or right to use of computer software is royaltyby clarifying that transfer of all or any rights in respect of any right , property or information as mentioned in Explanation 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or xxxxxxxxx, (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. Explanation 1 . Explanation 3:- For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued thereunder being in force, then, the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force As the appellant, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with whom India does not have a DTAA. Further, reference is made to the decision of the Mumbai High Court in the case of CIT vs. Siemens Aktiongesellschaft: 310 ITR 320, wherein it was held that by an unilateral amendment it is not possible for one nation to tax income which otherwise was not subject to tax under the relevant Tax Treaty. Further, the Delhi High Court in the case of DIT vs. Nokia Network OY: ITA No. 359 of 2005, after considering the retrospective amendment to section 9(1)(vi) of the Act by Finance Act, 2012, observed that by virtue of such amendment, there was no change in the Tax Treaty and following the decision in the case of DIT vs. Ericsson A.B: 246 CTR 422, held that payment for a copyrighted article does not constitute royalty under Indo-Finland Treaty. Relevant extracts of the ruling are as under: He, thus submitted that the question of copyrighted article or actual copyright does not arise in the context of software both in the DTAA and in the IT Act since the right to use simpliciter of a software program itself is a part of the copyright in the software irrespective of whether or not a further right to make copies is gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, incorporated in the expression ―laws in force in Canada as employed by the Agreement. To read this section otherwise would be to feed the argument of the Appellant, which in my view is without foundation in laws, that subs (2) authorises Canada or Germany to unilaterally amend the Tax Treaty from time to time as their domestic needs may dictate. The above decision has been relied on by the Mumbai High Court in the case of CIT vs. Siemens Aktiongesellschaft (supra). The assessing officer held that the payment made by the Airlines to the appellant constitute royalty since the same involves use of or right to use a computer software or use of process and/or equipment. In the present case, the payment by the various Airlines to the appellant under agreement with the airlines, is for facilitating display of airlines information on the computer screen of the travel agents to enable them to obtain airlines information and make reservations. It is a static display used to communicate to the travel agents certain information pertaining to the participating airlines including but not limited to instructions for pricing support, marketing information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght rights) will represent a royalty where the consideration is for granting of rights to use the program in a manner that would, without such license, constitute and infringement of copyright. Examples of such arrangements include licenses to reproduce and distribute to the public software incorporating the copyrighted program, or to modify and publicly display the program. In these circumstances, the payments are for the right to use the copyright in the program (i.e., to exploit the rights that would otherwise be the sole prerogative of the copyright holder). It would be noted that where a software payment is properly to be regarded as a royalty there may be difficulties in applying the copyright provisions of the Article to software payments since paragraph 2 requires that software be classified as a literary, artistic or scientific work. None of these categories seems entirely apt. The copyright laws of many countries deal with this problem by specifically classifying software as a literary or scientific work. For other countries treatment as a scientific work might be the most realistic approach. Countries for which it is not possible to attach software to any of these catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arrangements in which the transferee obtains right to make multiple copies of the program for operation only within its own business. Such arrangements are commonly referred to as ―site licenses , ―enterprise Licenses , or ―network licenses . Although these arrangements permit the making of multiple copies of the program, such rights are generally limited to those necessary for the purpose of enabling the operation of the program on the licensee s computers or network, and reproduction for any other purpose is not permitted under the license. Payments under such arrangements will in most cases be dealt with as business profits in accordance with Article 7. (emphasis supplied) As per the OECD Model Commentary to Article 12, not all transfers of copyright rights generate royalties; distinction is made between the transfer of partial rights and the transfer of the full copyright rights. Where under a transaction, rights acquired in relation to the copyright are limited to enable the user only to operate the program, such transaction would be dealt as a commercial income in accordance with Article 7 (Business Profits). It has also been clarifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: PROVIDED that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.] Explanation: For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation. In view of the above, it emerges that in terms of the definition of royalty under Article 13 of the Treaty, unless any of the rights mentioned in section 14 of the Copyright Act, 1957 are transferred, it cannot be said that there is a transfer of all or any rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case,the assessee, an international software marketing and development company of an international group, had claimed that amount received by it under license agreement for allowing use of software was not taxable as royalty. The Delhi High Court upheld the order of the Tribunal that amount received by the assessee under the license agreement for allowing the use of the software would not be royalty under the DTAA since what was transferred was neither the copyright in the software nor the use of the copyright in the software, but what was transferred was the right to use the copyrighted material or article which was distinguishable from the rights in a copyright. Accordingly, payments received by the assessee in this regard would be taxable as business income. 97. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be distinguished from the grant of rights in a copyright. Consideration for the latter was to be treated royalty; whereas consideration for the former could only be treated as business profits, not taxable in India in the hands of the non-resident in the absence of a permanent establishment of such non-resident in India. The Court held that the consideration paid for software purchase was not royalty since the purchaser has not been given any of the seven rights under Section 14 (a) (i) to (vii) of the Copyright Act, 1957 and, therefore what is transferred is not a copyright but actually a copyrighted article. Further, since the purchaser cannot commercially exploit the software, therefore a copyright is not transferred. In the case of Alcatel Lucent Canada v. CIT: 372 ITR 476 (Delhi), the assessee a French company was engaged in the manufacture, trade and supply equipments and services for GSM Cellular Radio Telephones Systems. The assessee had supplied hardware and software to various entities in India. Software licenced by the assessee embodied the process which was required to control and manage the specific set of activities involved in the business use of its cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of the Indo-Japan DTAA. The Authority, after elaborately discussing the concept of ―copyright generally and explaining its scope and meaning specifically with reference to the provisions of the Indian Copyright Act, 1957, held that in order to bring a particular consideration within the definition of the term royalty under the Act or the DTAA, it was necessary that the copyright is actually transferred. Mere transfer of the end product embodying such copyright would not suffice. The Authority explained that copyright, in essence, is a negative right and restricts others from doing certain acts to the exclusive ownership of the copyright holder, the emphasis being on the word exclusive . The Authority also highlighted the fact that ownership in copyright is different from ownership of the physical material or the product in which the copyright work may happen to be computed. It is only in a case where the copyright itself is made available to the other person, could it be said that there was a transfer of right to use the copyright . However, where the product which embodies the copyright is sold or transferred the same would not amount to transfer of a cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of copying, recording, transcribing software coupled with the restriction on modifying the software, creating derivative versions, reverse assembling, compiling and engineering or distributing it to other parties or making it available for any use, directly or indirectly, by another are almost the same as in Dassault Systems K.K. s case (supra). There is also a specific provision in both the Agreements that Intellectual Property Rights would always remain with the owner of the product or the licensor. Such restrictions placed on the user of software and the fact that the licensee/customer had no right to interfere with source code and that the licensed product cannot be commercially exploited by the licensee/customer are inconsistent with the inference that the rights in respect of copyright or the right to use the copyright of the computer programme have been conveyed to the customer. Further, there is nothing in the Agreement to suggest that the underlying technical knowledge in developing the software has been transferred. Notwithstanding the grant of authority to use the licence (on non-exclusive and non-transferable basis), the copyright imbedded in the software remains w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdware as well as software and the Revenue authorities were not justified in bifurcating the transactions as one of supply of hardware and other of software and treating the software as part of royalty (in terms of the treaty as well as the Act). The software was customer specific and could not be reused or duplicated. The distinction between the payment made for copyrighted right and copyrighted article as made in the OECD commentary on Article 12, was appreciated by the Tribunal. The assessee acquired a Copyrighted article and not Copyright of the rights, i.e, there was no acquisition of rights in the Copyrighted program which could be exploited commercially. The Tribunal, therefore, concluded that the payment for the aforesaid software was not liable to tax in India and the assessee was not required to deduct tax at source under section 195 of the Act in respect of the aforesaid payment. In the case of Motorola Inc. vs. DCIT: 95 ITD 269 (SB) (Del) the assessee was the leading supplier of telecommunication equipments comprising of both hardware and software. They had entered into supply agreements with cellular operators in India for supply of hardwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e absence of transfer of copyright therein, would not constitute royalty: DIT vs. Nokia Network OY: ITA No. 359 of 2005 CIT v. Dynamic Vertical Software India P. Ltd.: 332 ITR 222 (Del) Convergys Customer Management Group Inc. v. ADIT: 26 ITR(T) 443 (Delhi - Trib.) ADIT (IT) v. First Advantage (P.) Ltd.: ITA No.3031 3032/Mum/2010 (Mum) ADIT(IT) v. Baan Global BV: 49 ITR(T) 73 (Mum) Factset Research: 317 ITR 169 (AAR) DDIT vs. Solid Works: (2012) 51 SOT 34 (Mum) Kansai Nerolac Paints Ltd.: 134 TTJ 342 (ITAT Mum) DDIT v. Alcatel USA International: 43 SOT 31 (Mum) (URO) DDIT vs Reliance Industries Ltd.: (2011) 43 SOT 506 (ITAT Mum) Novel Inc. v DDIT [2011] 16 taxmann.com 186 (Mum.) ADIT vs TII Team Telecom International Private Limited (2011) 140 TTJ (Mum) 649 ADIT vs Siemens Aktiongesellschaft [2012] 19 ITR (Trib) 336 (Mum) WNS North America Inc. vs ADIT (2012) 152 TTJ (Mum) 145 Channel Guide India Ltd. vs ACIT (2012) 153 TTJ (Mum) 432 Allianz SE vs ADIT ITA No. 1569/Pune/ 2008 Daimler Chrysler Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol over the equipment. We do not think that such distinction has any legal basis. In the case of RashtriyaIspat Nigam Ltd., what fell for consideration was the expression transfer of right to use any goods occurring in a sales-tax enactment. Obviously, where there is a transfer, all the possessory rights including control over the goods delivered will pass on to the transferee. It was in that context, emphasis was laid on 'control'. The Supreme Court affirmed the conclusion of the High Court that the effective control of machinery even while the machinery was in use of the contractor remained with RIN Ltd. which lent the machinery. The distincti0n between physical use of machinery (which was with the contractor) and control of the machinery was highlighted. The ratio of that decision cannot be pressed into service to conclude that the right of usage of equipment does not carry with it the right of control and direction whereas the phrase 'right to use' implies the existence of such control. Even in a case where the customer is authorized to use the equipment of which he is put in possession, it cannot be said that such right is bereft of the element of control. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsion to some purpose . Another meaning given is Make use of (a thing), especially for a particular end or purpose; utilize, turn to account... cause (an implement, instrument etc.) to work especially for a particular purpose; manipulate, operate . The various shades of meanings given in the decided cases in America are referred to in Words and Phrases, Permanent Edition Vol. 43A. Some of them are quoted below: The word 'use' means to make use of; convert to one's service; to avail oneself of; to employ . (Miller v. Franklin County) The word 'use' means the purpose served, a purpose, object or end for useful or advantageous nature . (Brown v. Kennedy) 'Use' means to employ for any purpose, to employ for attainment of some purpose or end, to convert to one's service or to put to one's use or benefit. (Beach v. Liningston) 'Use', as a noun, is synonymous with benefit and employment and as a verb has meaning to employ for any purpose, to employ for attainment of some purpose or end, to avail one's self, to convert to one's service or to put to one's use or benefit. (Esfeld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trol of the same in order to utilize the service or facility? Does the appellant deal with any BT equipment for adapting it to its use? Unless the answer is 'yes', the payment made by the appellant to BTA cannot be brought within the royalty clause (iva). In our view, the answer cannot be in the affirmative. Assuming that circuit is equipment, it cannot be said that the appellant uses that equipment in any real sense. By availing of the facility provided by BTA through its network/circuits, there is no usage of equipment by the appellant except in a very loose sense such as using a road bridge or a telephone connection. The user of BT's equipment as such would not have figured in the minds of parties. As stated earlier, the expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its own network. What is contemplated by the word 'use' in clause (iva) is that the customer comes face to face with the equipment, operates it or controls its functioning in some manner, but, if it does nothing to or with the equipment (in this case, it is circuit, according to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider, it does not admit of any doubt that the customer does not use the network or equipment of the service provider. But, where the service provider, for the purpose of affording the facility, has provided special infrastructure/network such as a dedicated circuit (as in the instant case), controversies may arise as to the nature of payment received by the service provider because it may not stand on the same footing as standard facility. However, even where an earmarked circuit is provided for offering the facility, unless there is material to establish that the circuit/equipment could be accessed and put to use by the customer by means of positive acts, it does not fall under the category of 'royalty' in clause (iva) of Explanation 2. (emphasis supplied) Kind attention is further invited to the decision of the Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT: 251 ITR 53. In that case, the Court, in the context of section 9(1)(vii) of the Act dealing with fees for technical services , held that rendering of a service which involves use of technical/sophisticated equipment would not ipso facto lead to the conclusion that the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services from the provider of the internet service, and such subscriberregarded as being obliged to deduct tax at source on the payment made to the internet service provider . .. .. Technical service referred in section 9(1)(vii) contemplates rendering of a service to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. [Emphasis supplied] It is further submitted that the reliance placed upon by the assessing officer on the decision of the Delhi Bench of the Tribunal is entirely misplaced. Reference in this regard made to the recent decision of the Authority for Advance Rulings in the case of Dassault Systems KK [AAR 821/2009] wherein the Authority negated the contention of the Revenue that the consideration paid to the owner of the software license by the software distributors/end user (licencees) was for the use of process in the software. The Authority held that since the essence of the transaction was not to make the use of process available to the end user or the reseller but limited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the present case. The nature of operations involved therein is different and not comparable to the software product with which we are concerned. We do not think that the right of using the process involved in the software has been conveyed to the end-user in the instant case. Usage of process contained in the software or acquisition of rights in that process is not the real nature and substance of the transaction. The process contemplated by the definition clause is broadly referable to know-how. The scope of preceding expression formula too belongs to the same genus. By making use of or having access to the computer programs embedded in the software, it cannot be said that the customer is using the process that has gone into the end-product or that he acquired any rights in relation to the process as such. Nor can it be said that following the series of instructions so as to be able to effectively make use of the programs contained in the software amounts to the use of process or acquisition of any rights in relation thereto. The Revenue s contention on this score therefore fails . [Emphasis supplied] In the present case, too, as submitted hereinabove, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the source of income of the appellant is in India. It has not been appreciated that only certain instructions/commands are sent through the computers of the travel agents in India. The booking gets completed outside India in the Airline host system and the only the result thereof is communicated back to the travel agent. Paragraph (6) of Article 13 of the Treaty provides the source rule regarding royalties. It states that royalties shall be deemed to arise in the Contracting State when the payer is a resident of that State. Subject to other considerations, therefore, if the receipts of the appellant under consideration are treated as of the nature of royalties, the booking fee paid by non-resident airlines cannot be deemed to arise in India. However, the said paragraph (6) further provides that if the payer has in a Contracting State a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred and such royalties are borne by such permanent establishment or fixed base, then, such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated, irrespe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty does not arise in India is in the affirmative, my answer to question No. 1 would become redundant. Accordingly, while I find substantial merit in the arguments canvassed by the appellant that the payment for live feed rights does not constitute Royalty, I do not consider it necessary to decide on this issue. This is because I am in full agreement with the contention of the appellant that even if one assumed that the payment was in the nature of Royalty, such a Royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty. I concur with the opinion of Mr. Phillip Baker on the subject and hold that unless there is a direct nexus with the activities of the PE and the incurring of the said expenditure, the Royalty cannot be said to arise in India. Since there is no such nexus in this case, I hold that the payment to GCC cannot be said to arise in India with the meaning of Article 12(7) of the Treaty. Aggrieved by the order of CIT(A), the Revenue filed an appeal before the Tribunal. The Tribunal, while dismissing the appeal of the Revenue held that the mere existence of a PE in India cannot lead to a conclusion that royalties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee's case. In the case of Stanley Keith Kinnett vs CIT 278 ITR 155 and cit vs Elitos S.P.A and Others 280 ITR 495 in which it has been held that when the burden of payment is not borne by PE or fixed base , trade or business located in India, the amount is not taxable in India. Further on going through Schedule-XV, we find that SET Satellite Singapore has not recovered any amount from the Indian PE, In the Royalty to arise in India as envisaged under Article 12(7) of the Treaty, the condition which reads as follows:- Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority, a statutory body or a resident of t. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid action of the assessing officer is not sustainable. Without prejudice, it is respectfully submitted that after having held the appellant to have permanent establishment in India, even if the booking fees received by the appellant from the airlines is held to in the nature of royalty , the assessing officer could tax such income only as business income as per the mandate of section 44DA of the Act and Article 13(5) of the Treaty. Reliance in this regard is placed on the following decisions: Article 13(5) of the Treaty provides as under: 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Once an assessee has a PE in the contracting state of which he is not resident, then paragraphs 1 and 2 of the said Article do not apply. 11. Thus, for the reasons different than those, mentioned by the tribunal we hold that Article 12 of the DTAA is not applicable. Sequitor is Article 7 of the DTAA is applicable. Interpretation and provisions of Article 7 have been examined while answering question No.3. Question Nos. 1 and 2 are accordingly answered. 12. Article 7 deals with business profits and will apply, once it is held that Article 12 is not applicable. Paragraph 3 of Article 7 is the edifice which is to be examined to answer the substantial question No.3 mentioned above. A careful examination of the said paragraph shows that to determine the profits of a PE, the assessee is to be allowed deductions in accordance with and subject to limitations of the law relating to tax in the contracting State, i.e., in the present case Income Tax Act in India. It further stipulates that expenses incurred for the purpose of the business of a PE would include executive and general administrative expenses so incurred regardless whether they have incurred in any contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repeated for the sake of brevity, it is respectfully reiterated that a major part of the CRS activities are performed outside India and, thus, at best, only 10% of the booking fee can be brought to tax in India as royalty . Even otherwise, it is submitted that the Revenue has to come to a firm conclusion whether the booking fee received by the appellant is taxable as income of the PE or as royalty. The flip-flop attitude adopted by the assessing officer clearly demonstrates that he was not sure about the nature of income and its taxability in India.The assessment order, in our respectful submission, it vitiated for the above reason too. Re: Ground of Appeal No. 16 Non grant of TDS The AO be directed to grant credit of TDS of ₹ 5,66,93,368 Re: Ground of Appeal No: 17 -No interest chargeable under section 234B of the Act At the outset it is submitted that the revenues receivable by the applicant non-resident company are subject to deduction of tax at source. Accordingly, the question of payment of advance tax and consequent levy of interest under section 234B of the Act for shortfall in payment of advance tax does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch tax was to be deducted by the employer. In the case of the assesee, it is the business income and not the salary income and, moreover, the employees of the assessee-company were looking after the accounts of the payers i.e. BGEPIL. She further submitted that even while raising the bill, the assessee used to mention the amount of the TDS and thus, the rate of TDS was determined by the assessee and not by the payers i.e. BGEPIL. In support of her contention, she has relied upon the decisions of Hon ble Delhi High Court in the case of DIT vs. Jacobs Civil Incorporated/Mitsubishi Corporation, 235 CTR 123 (Delhi) and in the case of DIT vs., Alacatel Lucent USA, Inc., 264 CTR 240 (Delhi). After considering the arguments of both the sides and perusing the decisions of Hon ble Uttarakhand High Court and Delhi High Court, we are unable to agree with the contention of Ld. CIT-DR (Intl. Tax). The Hon ble Jurisdictional High Court in the case of DIT vs. Maersk Co. Ltd., 334 ITR 79, held as under: 17. Thus, from a combined reading of sections 190, 191, 192, 198, 200, 201, 203 and 204 of the Act, it is clear that as soon as tax is deducted at source by the person responsible to mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n he would be liable to pay interest u/s 201(1A) if he fails to deduct the tax at source. Therefore, in our opinion, the decision of Hon ble Jurisdictional High Court in the case of Maersk Co. Ltd. (supra) would be squarely applicable to the case of the assessee. Though the decision of Delhi High Court in the case of Alcatel Lucent USA. Inc. (supra) relied upon by the Ld. CIT-DR, supports the case of the Revenue under certain circumstances, however, when there is a decision of Hon ble Jurisdictional High Court, the ITAT is bound by the decision of Hon ble Jurisdictional High Court in preference to any other High Courts. We, therefore, respectfully following the above decision of Hon ble Jurisdictional High Court, hold that the assessee was not liable to pay interest u/s 234B of the Act. Accordingly, the same is deleted. Reliance is further placed on decision of the Delhi High Court in the case of DIT v. GE Packaged Power Inc.: 373 ITR 65, wherein the High Court held that no interest under section 234B of the Act can be levied on the assessee-payee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct the tax at source before makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom India, was subject to deduction of tax at source on the said payments. It may be pointed out that the Finance Act, 2012, w.e.f. 1.4.2012 added proviso below section 209(1)(d) of the Act to the following effect: Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax. The said proviso is applicable from assessment year 2013-14 and is, therefore, prospective in operation. The insertion of the proviso cannot be construed to have retrospective effect so to expose a non-resident company to levy of interest under section 234B of the Act for assessment years prior to assessment year 2013-14, where tax was deductible at source on the income payable to the non-resident, if such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Hon'ble Tribunal, after considering the provisions in the Income Tax Act and the judicial pronouncements in paragraph 17.1 of the order, had held that there is a direct business connection established in India and hence in terms of s.9 (l)(i) the income in respect of the bookings which take place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India (paragraph 17.2 of the order). The Hon'ble Tribunal has briefly summarized the facts in this paragraph and the Revenue strongly urges the Hon'ble Tribunal to confirm the order of the lower authorities in on this issue for AY 2006-07 for the reasons that all the facts available and considered by the Hon'ble Tribunal in those years not only continue to remain present in this year but the assessee's business presence in India has increased substantially as noted in the assessment order and briefly stated in this note. The issue of PE based on new facts brought on record is discussed in paragraph 8 of the assessment order (page 32 to 37 of the order). 4. The Hon'ble Tribunal in paragraph 23.1 of the said order (page 310 of the PB) had held that the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the activities carried out on a year to year basis may decrease or increase and consequently taxable income will vary accordingly. 6. The Ld AR during the course of the present hearing submitted that the Hon'ble Delhi High Court has dismissed the appeals filed by the assessee. Copy of this Order is available on pages 348 to 350 of the PB for AY 2009-10. With regard to the assessee's appeals whether it is running permanent establishment in India or not, the Hon'ble Court observed that, ' We find that all the Authorities below, caking into consideration various facts, have arrived at the finding of fact that the assessee is having permanent establishment in India. This being a finding of fact, no question of law arises. These appeals are accordingly dismissed'. It appears with regard to the Department's appeals the Hon'ble Court noted that, The issue raised in these appeals is covered by the judgment in the case of Director of Income Tax Vs. Galileo international Inc. And following that decision, appeals were dismissed. 7. Copy of the decision in the case of Galileo International Inc is available at pages 245-249 of the PB. The que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and permanent establishment were held against -e assessee. Regarding attribution of profit to the PE, the Hon'ble Tribunal, as per paragraph 7, has set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our reservations 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. It is not out of place to state that the Hon'ble Tribunal set aside the issue taking into account the order of the Hon'ble Tribunal for AY 1996-97 to 1998-99. Accordingly, the claim of the Ld AR that the method of attribution of profits as given in the order of the Hon'ble Tribunal for AY 1996-97 to 98-99 directly apply is against the law and has not been accepted by the Tribunal for AY 2001-02 and 2002-03. The Hon'ble Delhi High Court vide judgment in I.T.A. No.1040 of 2009 dated 24.1.2011 did not interfere in the matter and therefore the order of Hon'ble Tribunal is final. Assessment Years 2003-04 to 2005-06 10. Pages 381 to 390 of the PB contains the order of the Hon'ble Tribunal dated 29.10.2010 in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween India and Spain (page 231 of the PB) depends on the activities carried by the assessee through the PE and also direct activities of the assessee. The income deemed to accrue or arise in India depends on the operations carried out by the assessee in India. Therefore, attribution of profits depends on the facts and circumstances in each year. Each year is a separate unit of assessment and income tax proceedings are applicable from year to year depending upon facts of each year and the principle of res judicata do not apply to income tax proceedings and therefore the facts in the case of the assessee for AY 1996-96 being the start of the business of the assessee cannot be relied for the year under appeal. Attribution of profits needs to be based on the facts and circumstances for the relevant year. 15. The claim of Ld AR that there is no change in activities in comparison to the year corresponding to assessment years 1996-97 to 1998-99 is baseless and facts are contrary and speak for itself. During the year there has been significant increase in the business of the assessee in India in comparison to the years 1995-96 to 1997-98 earlier decided by the Hon'ble Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (Page 4 of the assessment order). Amadeus India has set up key Amadeus value services in India that consists of toll free numbers for help desk, 24 hours help desk in three cities (Page 4 of the assessment order). There was no hotel reservation service in India. Indian Hotels reservation System, a unique Amadeus reservation service for hotels in the two and three star range. These hotels are widely used in India for the junior and midlevel staff of corporations and by many business travelers for their leisure requirements (Page 4 of the assessment order) Agreement with Cox and kings, an international travel agent in India provides various products andi services by Amadeus India which were not provided in earlier years (Page 4 and 5 of the assessment order). No bookings for car and hotel segments Booking for car and hotel segment added (Page 5 of the assessment order). This indicates that Amadeus has PCA in India with regard to cars and hotels also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent of generating request and receiving end result of the process in India. The major functions like collecting the database of various airlines and hotels which have entered into PCA with the appellant take place outside India. The activities in India are only miniscule po rtion. The appellant s computer in Germany is also responsible for all other functions like keeping data of booking made worldwide and also keeping track of all the airlines/ hotels worldwide who have entered into PCA (Paragraph 18 of the Order on pages 298 and 299 of the PB) Various domestic airlines (Indian) are now using the Amadeus system not only for international travel but domestic travel. So all the elements travelers, ticket agent, airlines are in India. Therefore, situation has changed and activities outside India are only miniscule portion. Amadeus marketing will pay to Amadeus India a distribution fee US 0.84 cents for each net segment processed through the Amadeus system by a subscriber located in Amadeus India territory (Appendix A TO distribution agreement on page 280 of the PB) Compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pages 3-11, has elaborately referred to the facts available in the order for AY 2005-06, to explain the change in facts in assessment year 2006-07 as compared to preceding assessment year 2005-06. The assessing officer, in the impugned order, relied on these facts to argue that there was change in scale of the operations carried out by the appellant. In our respectful submission, the order of the assessing officer for the assessment year 2005-06 (placed at Pages 447-483 of the PB), wherein, for the first time, the department had put forth its submissions regarding change in facts of the case, was examined by the Commissioner (Appeals) in detail. Reference in this regard may be made to the consolidated order for AY 2003-04 to 2005- 06, dated 25.02.2010, placed at Pages 314-338 @ Pg 331/337/338 of the PB, wherein the Commissioner (Appeals) observed as under: 6. Determination I have carefully considered the appellant‟s submissions, the points raised by the AO in the assessment orders for the years under consideration, judicial precedents relied upon by the appellant and the IT AT Delhi‟s order in the appellant‟s own case for the AYs 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 06 to contend that the facts being different, the ITAT‟s decision in AY 1996-97 to 1998-99 has been wrongly applied by the IT AT while adjudicating the issue of attribution of income to the PE. The MA filed by the department in MA No. 285 to 287/Del/2014 has been dismissed by the ITAT vide order dated 28.06.2016 In light of the above, it is respectfully submitted, that the issue of change in facts from assessment year 2005-06 onwards, pointed out by the assessing officer, has been examined by the Appellate authorities in that year while arriving at the conclusion that 15% attribution is reasonable, which has been affirmed by the Hon‟ble High Court of Delhi in appellant‟s own case. In the assessment year under consideration, the assessing officer has substantially relied on his own findings for the preceding assessment year to hold that the revenues to the extent of 75% should be attributed to appellant‟s Indian operations. Since, on similar facts, the Hon‟ble High Court has confirmed attribution of 15% of revenues to the alleged PE in assessment year 2005-06, in our humble submission, the said order is required to be followed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on the peculiar facts of that year. Looking at the globalization, the share of Indian travelers in term of bookings has increased considerably besides the extent of assessee ‟s expenses is not known; it has been informed that such 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 the assessing officer to consider our observations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observation after giving the assessee an opportunity of being heard. It is not in dispute that as per the judgment of this Court in the case of Director of Income tax vs. Galileo International Inc: 224 CTR 251, the income to the extent of 15% of the revenues in India is to be charged to tax. This income is subject to the deduction of expenditure. We clarify that it is that expenditure which the Tribunal has referred to and not the issue of 15% of the charseable tax. With the aforesaid clarification, these appeals are disposed of. The penultimate paragraph of the High Court order, it is respectfully submitted, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otally silent about the decision of the Hon'ble Tribunal for AYs 2001-02 and 2002- Reply: In this regard, it is respectfully submitted as under: (i) As submitted above, the decision of Hon‟ble Tribunal for AY 2001-02 and 2002-03, as modifed by the Delhi High Court, does not have any bearing insofar as the percentage of revenues attributable to the alleged PE of the appellant in India is concerned. (ii) Though it is factually correct that in the Tribunal‟s order for AYs 2003-04 to 2005-06, dated 29.10.2010, the Tribunal has not discussed the findings for AY 2001-02 and 2002-03, however, for the following reasons, this fact does not warrant deviation from the findings for those years: (a) The Revenue, in the course of proceedings before the Tribunal for assessment years 2002-03 to 2005-06, was not prevented from filing the Tribunal‟s order for the preceding year. In any case MA was filed by the Department against the IT AT order for AY 2005-06 to contend that the facts being different has already been dismissed by the ITAT. (b) There is no averment in assessment order for assessment years 2003-04 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of M/s Galileo Netherlands BV for Assessment Years 2003-04 to 2006-07 13. The Hon'ble ITAT Delhi Bench has passed an order in the case of Galileo Netherlands BV for AY 2003-04 to 2006-07 on 29.06.2012 deciding similar issues. The appeal was filed by the Revenue and the assessee hadfiled cross-objections. A copy of this order is being filed. The Hon'ble Tribunal had dismissed the Cross Objections of the assessee in regard to the confirmation of the existence of PE and non-adjudication on deductions for certain India related expenses by following the earlier orders. In regard to the Revenue appeal concerning the attribution of profits the matter has been remitted back to the file of the Assessing Officer for fresh consideration by adopting a reasonable and commercial test for estimation of business profits attributable to India and net taxable income which could have been said to have accrued to the appellant due to bookings from India (Reference paragraph 19 of the Order). Reply: In this regard, it is respectfully submitted as under: The Delhi Bench of the Tribunal in the aforesaid case of Galileo, set aside the matter of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement does not change the basic business model or the range of services provided by the Indian distributor, only the manner of computation of fee payable to the distributor has changed. As these were initial years of business, there were not many agreements with subscribers. Total numbers of subscribers as on 31.3.2005 were 4,600 (page 4 of assessment order), The source of revenue/ income for the appellant is the Airlines. The subscribers are not the source of revenue for the appellant. The revenue per booking received by the appellant does not change due to the increase in the number of bookings due to more number of subscribers. The nature and scope of services to be provided by Indian distributor has not changed and so also his contribution in the revepue per booking arising to the appellant. In fact, the revenue per booking may decrease with more subscribers, as airlines are often given volume discounts. Therefore, increase in number ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal to be attributable to the business connection of the appellant in India in assessment year 1996-97. B. Letter of Amadeus India obtained by the assessing officer in impugned assessment proceedings. Vide letter dated 08.12.2008, the assessing officer raised various queries to Amadeus India, which have been reproduced by the assessing officer on Pg 16-17 of his order, which makes reference to the monthly invoice issued to the appellant which bears the description of ―charges for export of processed data/software . Amadeus India in response, vide letter dated 16.12.2008 (reproduced at Pg 17 of the assessment order), confirmed that the distribution fee was received for all the services rendered to the appellant as per the Distribution Agreement and that the nature of services in this regard have not undergone any change as compared to the earlier years. Amadeus India has also confirmed that the invoice value and the underlying computation are based on the number of segments in accordance with the Distribution Agreement. The travel agents systems are connected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e system. Agreement with Cox and Kings, an international travel agent in India provides various products and services by Amadeus India which were not provided in earlier years (Page 4 and 5 of the assessment order). Cox and Kings is one of the additional subscribers which have been added to the list of subscribers over a period of time. The subscribers with whom the Amadeus India contracts have changed from time to time and it is practically impossible as well as illogical to presume that Amadeus India would have contracted with the same set of subscribers from the year 1996 to 2005. No bookings for car and hotel segments Booking for car and hotel segment added (Page 5 of the assessment order). This indicates that Amadeus has PCA in India with regard to cars and hotels also. As submitted above, the car and hotel segment are additional content added to the existing GDS in the same way that new airline content is constantly added to the existing GDS, and Amadeus India performs no services aimed at adding such content to the sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inters (page 8 of the assessment order). Total assets in India increased to EUR 12,508,073 (Page 21 of the order). Providing satellite ticket printers is simply a use of newer technology to support the existing businesses effectively. The use of emulation software has changed the use of CRS (Page 21 of the order). The CRS technology keeps improving/ evolving and new products/features are added from time to time pursuant to the development activity carried out by the appellant outside India. This has nothing got to do with the distribution activity carried on in India by the Indian distributor. The new technology/features developed by the appellant enables the Indian distributor to attract more subscribers and the increase in revenue in booking revenue is primarily attributable to such activities carried outside India. Approximately 60% of all incoming flights to India are made by Amadeus System user airlines. Firstly, it is requested that the Ld. CIR DR/ assessing authorities may k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, situation has changed and activities outside India are ONLY MINISCULE PORTION. Same as above. Further, it is to be appreciated that substantial efforts/ investment is made and expenditure is incurred by the appellant outside India on an ongoing basis to develop new products, adding new international airline content to the CRS, improving the existing CRS, upgrading the huge and sophisticated infrastructure so as to be ahead of competition and in order to make its CRS appeal more to the subscribers. The marketing/ distribution activity carried out in India by the Indian distributor is neither sophisticated nor cerebral and does not require intellectual involvement of the level/kind exercised at appellant s end abroad. In fact, attribution of 15% of revenues to the marketing activities in India is more than adequate compensation for such services. Major portion of the revenue is in fact to be attributed to the technical activities carried out outside India by the appellant, as the contribution to the increase in revenues of such activities is much more substantial. Amadeus marketin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords the changes and the facts, that the Tribunal and thereafter the High Court held 15% as reasonable attribution, after following the orders of the preceding years. (ii) Regarding reliance on the Hon ble Tribunal s order for AY 2001-02 and 2002-03, we rely on our submissions in point 3 above. Submissions: In so far as the activity of booking of tickets by travel agents in India using CRS owned by the appellant is concerned, there is no change in the business model in the year under consideration as compared to earlier years. The role of the travel agents located in India in respect of booking of tickets using CRS system, as in earlier years, is limited to initiating a request for booking, which is processed in the appellant s main frame located at Erding, Germany and finally generating the ticket for a confirmed reservation. The computers at the desk of the travel agents in India are configured only for the aforesaid limited purpose, viz., to display information on the screen of computers of travel agents, generating request for booking, and printing confirmed ticket. The computers installed at the premises of travel agents are not equipped or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under the Indian Income Tax Act and Article 12 of the treaty. The ld CIT(A) held that as he has already held that assessee has a permanent establishment in India therefore, he did not decide the issue of alternative taxation of royalty. The ground No. 5 relates to the alternative ground of taxation. Ground number 6, 11, 12, 13 and 14 relates to the attribution of profits to the permanent establishment of the assessee. The ld CIT(A) held that as he has already held that assessee has a permanent establishment in India therefore, he did not decide the issue of alternative taxation of royalty. 13. Now the above issue is already been decided by the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 in ITA No. 2424, 2425, 2426/Del/2010 as per order dated 29/10/2010 wherein, the whole issue is considered as under:- 7. We have heard both the parties on this issue. So as it relates to the attribution of income arising to assessee in India, the issue is covered by para 18 of the aforementioned order of the Tribunal dated 30.11.2007. The said para is reproduced below:- 18. The next question therefore, arises is whether having held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attribution one has to look into the factors like functions performed, assets used and risk undertaken. On the basis of such analysis of functions performed, assets used and risk shared in two different countries, the income can be attributed. In the present case, we have found that majority of the functions are performed outside India. Even the majority of the assets i.e. host computer which is having very large capacity which processes information of all the participants is situated outside India. The risk in this regard entirely rests with the appellant and that is in Spain, outside India. However, it is equally important to note that but for the presence of the assessee in India and the configuration 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 per cent of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under s. 5(2) r/w s.9(1)(i) of the Act. 8. Therefore, after hearing both the parties, we found that the appeals of the department ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on but is a definition which also includes some of the activities to be termed as business connection. We shall, therefore, revert to some of the judicial pronouncements in this regard. Hon'ble Supreme Court in the case of CIT vs. R.D. Agarwal Co. (supra) held thus: The expression business connection undoubtedly means something more than business. A business connection in s. 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicated an element of continuity between the business of the nonresident and the activity in the taxable territories, a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms. It may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d distribution system known as Amadeus system with ability to perform comprehensive information, communication, reservation, ticketing distribution and related functions on a worldwide basis. Through this Amadeus system, the appellant provides service to various participants i.e. airlines and hotels, etc. whereby the subscribers who are enrolled through the efforts of NMC can perform the functions of reservations and ticketing etc. Thus the Amadeus system or the CRS is capable of not only processing the information of various airlines for display at one seamless system originating from the desk of the subscriber's computer which may or may not be provided by the appellant but which in all cases is configured and connected to such an extent that such computers can initiate or generate a request for reservation and also receive the information in this regard so as to enable the subscriber to book the airlines seat or hotel room. The request which originated from the subscriber's computer ended at the subscriber's computer and on the basis of information made available to the subscriber, reservations were also possible. It is to be noted that all the subscribers in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result, the appeals filed by the department as well as crossobjections of the assessee both are dismissed. 14. Aggrieved with the above order the revenue filed miscellaneous application on 21.02.2014 which was further revised on 03.03.2014. On this miscellaneous application the coordinate bench passed an order and dismissed the applications of the revenue. 15. The matter reached the Hon‟ble Delhi High Court in assessee‟s own case which was dismissed holding that the issues raised in this appeal has arisen in the assessment orders in the case of the assessee and such appeals have already been disposed off in ITA No. 900-905/2008 and 689/2011 dismissing the appeal. In view of this it is apparent that the order of the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 squarely covers the points raised by the revenue. 16. Further, the appellant also challenged the order of the coordinate bench for AY 2003-04 to 2005-06 before the Hon‟ble Delhi High Court which was also dismissed as it was delayed. In view of this the issues are squarely covered by the decision of the Hon‟ble jurisdictional High Court in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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