TMI Blog2020 (11) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Jurisdictional High Court in assessee's own case (based on the judgment in the case of DIT Vs. Galileo International Inc.. [ 2009 (2) TMI 497 - DELHI HIGH COURT] has held that the assessee constitutes an agency PE and as the matter pending before the Hon ble Supreme Court, the issue do not call for any interference from our side. The order of the ld. DRP is being upheld on this ground. Attribution of profits - As relying on own case since payment to the agent is already @33 %, no further addition is warranted in the case of the assessee. Disallowance of the distribution expenses - HELD THAT:- We have gone through the history of such expenditure and find that the addition is being made owing to confusion in the description of the services as export of processed data/software or distribution fee This expenditure has been allowed by the Co-ordinate Bench of the Tribunal from the assessment years 1996-97 to 2006-07. Since, the facts have not been disputed, in the absence of any material change, we hereby allow the claim of distribution expenses. CRS Income - Royalty OR Business income - AO has held that the income received by the assessee with respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so supra note that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement. Thus held that the interpretation advanced by the Revenue cannot be accepted. The question of law framed is accordingly answered against the Revenue. Charge of Interest u/s 234B - HELD THAT:- This issue squarely covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of DIT Vs GE Packaged Power Incorporation [ 2015 (1) TMI 1168 - DELHI HIGH COURT] The amendment brought into the Act by the Finance Act 2012 is applicable with effect from the fund of 2012 and is applicable from assessment year 2013 - 14 In view of this we direct the learned Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of the alleged PE in India. 6. That the assessing officer erred on facts and in law in alleging that Amadeus India (P) Ltd. (AIPL) constituted dependent agent permanent establishment (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 PE in India. 6.1 That the assessing officer erred on facts and in law in alleging that the appellant was not making any payment to AIPL towards the activities of marketing the appellant s CRS and providing the hardware support to the travel agent and therefore the distribution fee paid to AIPL was not at arm s length and consequently AIPL constituted dependent agent PE of the appellant. Without prejudice - Re: Attribution of Income 7. That the assessing officer erred on facts and in law in computing the profits attributable to the alleged PE of the appellant in India at ₹ 108,94,12,818/-. 8. That the assessing officer erred on facts and in law in not appreciating that even if it is assumed that AIPL or the computers, electronic hardware provided to the travel agents etc., constituted PE of the appellant in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , while computing the income attributable to the alleged PE. 12.1 That the assessing officer 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. Re: CRS income - Royalty 13. That the assessing officer erred on facts and in law in alternatively holding that booking fee of Euro 59,867,000 received by the appellant was taxable in India as royalty both under section 9 (1)(vi) of the Act and Article 13(3) of the Treaty. 14. That without prejudice, the assessing officer erred on facts and in not appreciating that the booking fee received from non- resident airlines was not sourced in India in terms of Article 13(6) of the Treaty and was not liable to tax in India as royalty . 14.1 That the assessing officer erred on facts and in law in holding that source of income of the alleged royalty income was located in India alleging that the most of the airlines from whom booking fees was received we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge of interest 21. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act. Re: Credit for tax deducted at source 23. That the assessing officer erred on facts and in law in not allowing credit for tax deducted at source by various airlines making payment to the appellant, amounting to ₹ 5,33,03,605 /-. 4. The issues have been clubbed and adjudicated together for all the years. Permanent Establishment: 5. The AO has computed the income of assessee as PE at ₹ 1,45,25,50,424/- in relation to the booking fee relatable to the segments booked from India through the CRS developed by the assessee. Then, the AO attributed 75 % of the income as income of the assessee as PE in India. 6. At the outset, it was brought to our notice by the ld. AR that the Hon ble High Court of Delhi in the assessee s own case for the assessment years 1996-97 to 2006 -07 has held that computers installed at the premises of the subscribers constitute a PE of the assessee in India in terms of Article 5(1) of Indo-Spain treaty. It was also held that since the Amadeus India is functionally dependent upon the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /D/2008, filed by the Department against the order dated 30.11 .2007 relating to AYs 1997-98 and 1998-99, categorically held that revenues of 15 % attributed by it to the PE were in relation to activity of the PE as a whole, i.e., considering the agency and as well as fixed place of business functions. 13. The Hon ble Delhi High Court following its decision in the case of DIT v. Galileo International 224 CTR 251, has affirmed the orders of the Tribunal passed for assessment years 1996 -97 to 2006 -07. 14. It was brought to our notice that the Assessing Officer had, in the assessment order for assessment year 2005-06, sought to distinguish the decision of the Tribunal in assessee s own case for assessment years 1996-97 to 1998-99 on similar grounds. However, the ld. CIT(A), vide order dated 25.02 .2010, allowed the appeal of the assessee holding that no more than 15% of the revenues generated from India could be attributed to the alleged PE of the assessee in India. The aforesaid order passed by the ld. CIT(A) for assessment year 2005 -06 has been confirmed by the ITAT, vide order dated 29 .10.2010 and the Hon ble High Court vide order dated 31.05 .2011 (Revenue appeal) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come as royalty was less than the tax worked out after attributing income to the alleged PE of the assessee. 23. The Delhi Tribunal in assessee s own case for the assessment year 2006-07 has held that booking fee received by the assessee is taxable as business income and not under the head royalty. For the sake of ready reference and brevity, the relevant portion of the order of the ITAT in ITA No. 1494/Del/2011 is reproduced below: In the present case, too, as submitted hereinabove, the appellant uses sophisticated technology/software in the course of providing a service/facility but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use to the participating airlines. Further, no payment is made by the subscribers, viz., the travel agents to the appellant, unlike the aforesaid case. In that view of the matter, the booking fee received by the appellant from the participating airlines does not answer the description of royalty and, thus, is not chargeable to tax in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is essentially an inventory hosting and management system developed by the assessee which some airlines outsourced to Amadeus, with British Airways as a launch customer. The payment for the ARS is made by the British Airways for the use of the system for the business in India at the Indian Airport is an undisputable fact. While the contention of the assessee is that the software was not available outside the Indian Airport or to any of the agents of the assessee in India, the revenue contended that the ARS also provides key operational services to British Airways like accepting payment and issuance of travel documents and manage customer checking. It was also submitted by the assessee that the arguments taken up with regard to CRS activity as royalty may also be considered while dealing with ARS issue. 28. The Article 7 reads as under: ARTICLE 7 BUSINESS PROFITS 1. The profits of an enterprise of one of the States shall be taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise, or any of its other offices. 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner 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 base. In such case, the provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer in that State itself, a political sub- division, a local authority or a resident of that State. 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the definitions of royalty across both DTAAs and sub clause (iii) to Explanation 2 to 9(1)(vi). Article 12(3), Indo Thai Double Tax Avoidance Agreement: 3. The term royalties as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. (emphasis supplied) Article 12(4), Indo Netherlands Double Tax Avoidance Agreement 4. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the presence of comma 98 F 240 (1899) 103 ITR 189 208 ITR 291 supra note 46 231 ITR 573 AIR 1996 SC 569 AIR 1979 SC 564 AIR 1929 Privy Council 69 AIR 1952 SC 369 AIR 1929 PC 38 AIR 1979 SC 564 after manufactures for sale and sells and the absence of any comma after stocks was indicative of the fact stocks was to be read along with for sale and not in a manner so as to be divorced from it, an interpretation which would have been sound had there been a comma after the word stocks . It was therefore held that only stocking for the purpose of sale would amount to an offence but not mere stocking. 57. However, the question, which then arises, is as follows. How is the court to decide whether a provision is carefully punctuated or not? The test- to decide whether a statute is carefully (read consciously) punctuated or not- would be to see what the consequence would be had the section been punctuated otherwise. Would there be any substantial difference in the import of the section if it were not punctuated the way it actually is? While this may not be conclusive evidence of a carefully punctuated provision, the repercussions go a long way to signify intent. If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2 ; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred supra note to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific (ICS) equipment in the definition of royalties, the characterization of the payment will depend to a large extent on the relevant contractual arrangements. Whilst the relevant contracts often refer to the lease of a transponder, in most cases the customer does not acquire the physical possession of the transponder but simply its transmission capacity: the satellite is operated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act.... ***** ********** ***** 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820 -822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] at pages 156-157 . (c) N. V. Philips Vs. Commissioner of Income Tax [172 ITR 521 ] at pages 527 538-539 . 59. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the interest u/s 234B of the Income Tax Act. The claim o the lerned authorized representative is that no intere u/s 234B of the Income Tax Act was chargeable since the entire payment received by the assessee from India was subject to deduction of tax at source on the above payment. The learned departmental representative payment objected to the same and submitted that charge of interest u/s 234 B of the Act is not dependent on the deductibility of the tax by the payer. We have carefully considered the rival contention and perused the orders of the lower authorities the issue squarely covered in favour of the assessee by the decision of the Hon ble Delhi High Court in the case of DIT Vs GE Packaged Power Incorporation 373 ITR 65 The amendment brought into the Act by the Finance Act 2012 is applicable with effect from the fund of 2012 and is applicable from assessment year 2013 - 14 In view of this we direct the learned Assessing Officer to not to charge interest u/s 234 B of the Income Tax Act for the above reasons. 34. In the absence of any material change in the facts and circumstances of the case, we hereby concur with the ratio of the Co-ordinate Bench of ITAT. TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X
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