TMI Blog2020 (7) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... ts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal raised by the assessee before us. 10% of the expenses reimbursed by ADSIL to be held as the business income of the assessee - HELD THAT:- As relying on own case [ 2018 (2) TMI 1767 - ITAT MUMBAI] we herein direct that 10% of the aforesaid amount be brought to tax as the business income of the assessee. At the same time, the assessee would be entitled for claiming set off of the aforesaid amount against the commission payment made by it to its NMC viz. ADSIL. The Ground of appeal raised by the assessee is partly allowed in terms of our aforesaid observations. Transfer pricing adjustment - USD denominated interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed against the order passed by the A.O under Sec. 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (for short Act ) for A.Y 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us: The appellant objects to the order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [Act] dated 17 May, 2017 (passed by the Deputy Commissioner of Income-tax, (International Taxation) - 1(1)(1), Mumbai [DCIT] for the aforesaid assessment year on the following among other grounds: 1. The learned DCIT erred in assessing the total income of the appellant at ₹ 11,09,26,263/-. 1. Business connection / permanent establishment in India 2.1 The learned DCIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which all the messages are transmitted. 2.4 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 The learned DCIT/DRP erred in not following the ITAT decision in the appellant's own case for earlier years (i.e A.Y 1999-2000 to 2004-05), Hon ble Delhi High Court s judgment in the case of Galileo International Inc. (336 ITR 264) and decision of the Hon ble Delhi ITAT in case of Sabre Inc. (ITA No. 2311 to 231 7/Del/2008) despite no change in facts. 4. Reimbursement of expenses 4.1 The learned DCIT erred in holding that the reimbursement of expenses from STNIPL amounting to ₹ 4,90,28,603/- are part of business income of the appellant and thereby taxing ₹ 49,02,860/- (i.e. 10% of ₹ 4,90,28,603/-). 4.2 The learned DCIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by the appellant on airfare transaction charges, other expenses, and foreign travel and in the nature of pure reimbursement not having any element of income/service. 4.3 Without prejudice to the above, the learned DCIT/DRP erred in not following the decision of the Hon ble ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing consequential education cess of ₹ 13,54,295/ - on te tax and surcharge payable by the company. 7. Others 7.1 The ld. Learned DCIT has erred in granting short TDS credit of ₹ 16,50,637/- (i.e ₹ 5,74,13,003/- - ₹ 5,90,63,640/- as claimed in the revised return of income). 7.2 The ld. DCIT has erred in initiating penalty proceedings under section 271(1)(c) of the Act. 7.3 The learned DCIT erred in computing interest of ₹ 24,95,808/- granted under SEdc. 244A of the Act. 8 Each one of the above ground of appeal is without prejudice to the other. 9. The appellant reserved the right to amend, alter or add to the grounds of appeal. . Further, the assessee has also raised before us the following additional grounds of appeal: 1. Without prejudice to the other grounds of appeal, even if the alleged interest income on the external commercial borrowing [ECB] is considered as part of business income, there should not be any income chargeable to tax, since the expenditure paid by the appellant [i.e commission and marketing fees paid to Sabre Travel Network (India) Pvt. Ltd.] is sufficient to absorb its income and accordingly there will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng fees of ₹ 70,07,35,988/- should not be allowed to be set off against the income of ₹ 9,37,18,332/- attributable to the PE of the assessee, however, no plausible reason for not admitting the said additional ground of appeal has been advanced before us. Be that as it may, we find that it is a matter of fact borne from the records that the assessee had raised the claim as regards setting off of commission and marketing fees against the income attributable to its PE, both before the A.O as well as the DRP. Inadvertently, the assessee appears to have omitted to raise the said ground in its appeal filed before us. Apart from that, we find that the issue involved in the present appeal would not require any verification of any additional facts, and would require to be adjudicated on the basis of the facts borne from record. Also, we find that the aforesaid issue being in the nature of a recurring issue in the assessee s appeals for the preceding and the succeeding years before the Tribunal, had already been adjudicated upon in the said respective years. In the totality of the aforesaid facts, we are of the considered view that the additional ground of appeal raised by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablishment (for short PE ) in India within the meaning of Article 5 of the Double taxation Avoidance Agreement (DTAA) between India and Singapore, therefore, the income, if any, accruing or arising in India or deemed to accrue or arise in India could not be brought to tax in India. The assessee submitted before the A.O that there was no contractual or business relationship between the assessee and the customer who made the payment to the airlines through the travel agent which resulted to generation of revenue in the hands of the airlines and not that of the assessee. The assessee in order to fortify its aforesaid contention elaborated before the A.O the sequence of events involved in its business, viz. (i). the travel agents for raising of a query or requesting for a booking used the equipment owned and provided by ADSIL; (ii). the message was transmitted through the MTNL lines to Societe Internationale Telecommunications Aeronautiques (for short SITA ) network in all the cities from where it was transmitted via SITA network to Abacus host in USA; (iii). that on receiving the message the airlines computer would be consulted by the Abacus host for the latest position on seat avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the management and control of the assessee. The A.O in the backdrop of his aforesaid observations concluded that the assessee had a fixed place of business in India which served as a distribution point for its services in India. The A.O further observed that as ADSIL was securing business for the assessee by entering into subscription agreements with the travel agents and as the said activity was habitually, wholly and exclusively performed by ADSIL for the assessee, therefore, it could safely be concluded that ADSIL constituted an Agency PE of the assessee in terms of Article 8(c) and 9 of the India-Singapore DTAA. The A.O fortified his aforesaid conviction by taking support of the fact that the inquiries made from Air India Ltd revealed that ADSIL which did not have any agreement with the airlines provided services and assistance to Air India to resolve problems relating to connectivity reservation system, accounting and billing, which thus proved that ADSIL was carrying on the activities of the assessee in India. The A.O further observed that the fact that the assessee had advanced interest free loans to ADSIL to boost its own business in India proved to the hilt that ADSIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 860/- as the business income of the assessee for the year under consideration. 7. In the course of the assessment proceedings the case was referred to the Transfer Pricing Officer (for short TPO ) for determining the ALP of the international transactions of the assessee. Observing, that the assessee had advanced interest free loan to its AE viz. ADSIL, the TPO vide his order passed under Sec. 92CA(3) suggested a Transfer Pricing adjustment of ₹ 88,62,569/- by determining the arms length interest @ 5.687% in respect of the aforesaid loan (interest free) as per LIBOR 6 months plus 500bps for loan having maturity period exceeding 5 years . 8. On the basis of his aforesaid deliberations the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 20.12.2016 proposed to assess the income of the assessee company at ₹ 11,09,26,263/-. 9. Aggrieved, the assessee filed objections with the Dispute Resolution Panel-2, Mumbai (for short DRP ). The DRP after deliberating on the contention of the assessee that as it had no business connection/Permanent Establishment in India, therefore, no income was liable to be brought to tax in India, did not find favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at though the issue under consideration was decided in favour of the assessee by the Tribunal in the assessee s own case for A.Y 1999-2000 to A.Y 2004-05 but the revenue had carried the same in further appeal before the High Court and was pending disposal. In order to protect the interest of the revenue and to keep the matter alive the DRP upheld the view taken by the A.O and rejected the aforesaid objection of the assessee. 12. The DRP further deliberated on the transfer pricing adjustment of ₹ 88,62,569/- carried out by the A.O/TPO by determining the arms length interest @ 5.687% on the loan (interest free) that was provided by the assessee to its AE viz. ADSIL i.e by using LIBOR 6 months plus 500 bps for loan having maturity period exceeding 5 years during F.Y 2013-14. Observing, that the interest free loan given by the assessee to its AE viz. ADDSIL was covered by the provisions of Sec. 92B of the Act, the DRP was of the view that the AE by receiving an interest free loan from the assessee had derived a benefit which was rightly ascertained by the TPO at ₹ 88,62,569/- on the basis of LIBOR 6 months plus 500 bps for loan having a maturity period exceeding 5 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. We find that though the assessee had raised a ground of appeal assailing the observations of the DRP that the assessee had a PE in India, but then, during the course of the hearing of the appeal no contention was advanced by the ld. A.R to support his aforesaid claim. We thus following the orders passed by the coordinate benches of the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05; A.Ys 2005-06 to 2011-12 AND that for A.Y 2012-13 and A.Y 2014-15, dated 18.02.2020 uphold the order of the DRP that the assessee had a business connection/PE in India. The Ground of appeal No. 2 raised by the assessee is dismissed. 16. We shall now advert to the issue as regards the amount of income that was attributable to the PE of the assessee in India. As regards the said issue the Tribunal while disposing off the appeals of the assessee for A.Y 2005-06 to A.Y 2011-12 had vide its consolidated order dated 16.02.2018 observed as under: We find that the ld. A.R had submitted that as held by the coordinate benches of the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 15% of the gross receipts pertaining to India bookings were to be taken as the income a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned cases had also observed that as the assessee had incurred expenditure @ 25% of gross receipts on account of payment of commission to its NMC in India, viz. ADSIL, therefore, there remained no income in the hands of the assessee which could be brought to tax in India. We find that such observations were recorded by the Tribunal while disposing of the appeals of the assessee for A.Y 1999-2000 (ITA No. 3903/Mum/2006), A.Y 2001-02 (ITA No.4789/Mum/2007) and A.Y 2002-03 (ITA No. 4790/Mum/2007) vide its consolidate order dated 20.08.2010. We find that the aforesaid orders had thereafter been followed by the Tribunal while disposing of the appeal of the assessee for A.Y 2000-01 (ITA No. 346/Mum/2007) and A.Y 2003-04 (ITA No. 1756/Mum/2007), vide its order dated 20.05.2011. We further find that the Tribunal while disposing of the appeal of the assessee for A.Y 2004-05 in ITA No. 1045/Mum/2008, dated 31.05.2013 had again followed its aforementioned orders. We are of the considered view that as the facts of the case had not witnessed any change as against those which were involved in the case of the assessee for the aforementioned earlier years, therefore, following the principle o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R analysis, therefore, no purpose would be served by restoring the matter to the file of the A.O. We may at this stage also observe that in the case of Galileo Nederland BV (2014) 367 ITR 319 (Del), wherein similar facts were involved, the High Court following its order passed in the earlier years in the case of the assessee, had in the backdrop of the Principle of consistency reversed the order of the Tribunal which had set aside the matter to the file of the A.O for fresh determination of the income attributable to the CSR operations carried out by the assessee in India. We thus in the terms of our aforesaid observations and following the view taken by the coordinate bench of the Tribunal in the assesses own case for the preceding years, therefore, conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. We may herein observe that we are also persuaded to be in agreement with the view taken by the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 that as the commission paid by the assessee to its NMC, viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t booking) 4,100,034/- Other expenses (courier charges, travel related expenses, marketing and consulting fees, fees for back office accounting packages, etc. 3,992,027/- Total 20,549,465/- We find that as the assessee had failed to substantiate its claim that the amount received from ADSIL was in the nature of reimbursement of expenses, therefore, the A.O had treated the same as Fees for technical services as per Article 12 of the India Singapore DTAA. We find that on appeal the assessee had furnished with the CIT(A) additional evidence under Rule 46A of the Income Tax Rule, 1963, in its attempt to fortify its claim that the aforesaid receipts were in the nature of reimbursement of expenses by ADSIL. However, the CIT(A) being of the view that the assessee despite being afforded sufficient opportunity by the A.O had failed to substantiate its aforesaid contention and place on record the aforementioned documentary evidence, therefore, it could not be permitted to furnish the same by way of additional evidence before him. We have deliberated on the facts and are persuaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, we herein direct that 10% of the aforesaid amount of ₹ 4,90,28,603/- be brought to tax as the business income of the assessee. At the same time, the assessee would be entitled for claiming set off of the aforesaid amount against the commission payment made by it to its NMC viz. ADSIL. The Ground of appeal No. 4 raised by the assessee is partly allowed in terms of our aforesaid observations. 18. We shall now advert to the contention of the ld. A.R that the A.O/DRP had erred in upholding the transfer pricing adjustment in respect of USD denominated interest free ECB loan that was advanced by the assessee to its wholly owned subsidiary company in India, viz. ADSIL. As is discernible from the orders of the lower authorities, the DRP had upheld the proposed Transfer pricing adjustment of ₹ 88,62,569/- as regards the ALP of the interest free advance that was granted by the assessee to its AE viz. ADSIL. On a perusal of the order passed in the assesse s own case for the preceding years viz. A.Y 2005-06 to A.Y 2011-12, we find that the Tribunal had in context of the aforesaid issue under consideration observed as under: We find that the interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tata Autocomp Systems Ltd. (supra) and find that the Hon ble High Court had as a matter of fact dismissed the appeal of the revenue, for the reason that as the Tribunal while passing the impugned order in the case of Tata Autocomp Systems Ltd. Vs. ACIT (2012) (21 taxmann.com 6) (Mum) had followed the view taken by the coordinate benches of the Tribunal in the case of V.V.F Ltd. Vs. Dy. CIT (ITA No. 673/Mum/2006) and Dy. CIT Vs. Tech Mahindra Ltd. (2011) 12 taxmann.ocm 132 (Mum), however, neither of the said orders were further assailed by the revenue. Thus, the High Court taking cognizance of the fact that the revenue had accepted the decision of the Tribunal in the case of V.V.F. Ltd. (supra) and Tech Mahindra Ltd. (supra), therefore, it would not be permitted on the part of the revenue to take a different view, as against the one which had been allowed to attain finality. We find that it was on the basis of the aforesaid observations that the Hon ble High Court had declined to entertain the appeal filed by the revenue. We thus are of the considered view that the contention of the ld. D.R that the Hon ble High Court had observed that the ALP in respect of interest on the loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the loan has to be repaid. The Hon ble High Court had disagreed with the view that the interest rates were to be computed on the basis of interest payable on the currency or legal tender of the place or the country of residence of either party. It was further observed by the High Court that the currency in which the loan is to be repaid normally determined the rate of interest. The aforesaid judgment of the Hon ble High Court of Delhi in the case of M/s Cotton Naturals (I) Pvt. Ltd. (supra) had thereafter been followed by a coordinate bench of the Tribunal in the case of M/s Firestar International Pvt. Ltd. Vs. ACIT, Mumbai (ITA No. 488/Mum/2015, dated 31.07.2015). The Tribunal by taking support of the aforesaid judgment of the High Court of Delhi had concluded that the application of the State Bank of India PLR of 11.75% for determining the ALP of the interest on loan advanced in USD by the assessee to its AE, could not be approved. We have deliberated on the issue under consideration and finding ourselves to be in agreement with the view taken in the aforesaid judicial pronouncements, are thus of the considered view that the ALP of the interest on the loans advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ginal appellate proceedings before the Tribunal had filed charts in support of its claim that if the interest income alongwith 10% of the reimbursement of expenses was to be considered as part of the assesse s business income, there would not be any income chargeable to tax, since the expenditure incurred by the assessee i.e marketing service fees that was paid to its AE viz. ADSIL would be sufficient to absorb its income. Similar charts had once again been filed by the ld. A.R in the course of the present proceedings before us. As is discernible from the aforesaid details filed by the assessee, it is claimed, that if ALP of interest on loans advanced to its AE viz. ADSIL is worked out at LIBOR + 200 points, and 10% of the reimbursement of expenses is treated as its income, then there would be a Loss in the hands of the assessee for all the aforesaid years, as under: A.Y Loss 2005-06 (-) ₹ 3,66,91,140/- 2006-07 (-) ₹ 20,18,38,117/- 2007-08 (-) ₹ 18,19,34,123/- 2008-09 (-) S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rendered as academic in nature is accordingly not being adjudicated upon and is left open. As such, following the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 2005-06 to A.Y 2011-12 in the assesse s own case, we herein conclude that the notional interest income on the loan (interest free) that was advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are in agreement with the claim of the ld. A.R that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its NMC viz. ADSIL. The additional Ground of appeal raised by the assessee is thus disposed off in terms of our aforesaid observations. 20. The assessee had assailed before us the rate of surcharge and education cess levied by the A.O. As no contention as regards the same had been advanced before us and it is even otherwise also consequential to our aforesaid adjudication, therefore, the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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