TMI Blog2021 (2) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... peals bearing the identical facts of the taxpayer s case in which it is held that the assessee constitutes an agency PE - Decided against assessee Attribution of 75% of the income earned in India to the PE after adding development cost, distribution fees, etc. - HELD THAT:- As decided in own case [ 2020 (11) TMI 206 - ITAT DELHI] we are of the considered view that since there is no change in the business model and facts of the cases at hand and the extent nature of the activities of the PE in India and abroad, and the assets employed and risk assumed is same as in the earlier years, distribution fee paid in those years @ 33% approximately of the booking fee per segment, no further addition can be made during the year under assessment. Disallowance of expenditure claimed to have incurred by the taxpayer under the head distribution fee while computing the income attributed to the taxpayer s PE in India - HELD THAT:- Following the order passed by the coordinate Bench of the Tribunal in taxpayer s own case vide order [ 2020 ( 11) TMI 206 - ITAT DELHI] we are of the considered view that the AO has erred in treating the export of processed data/software as distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised in the inter-connected appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. Appellant, Amadeus IT Group SA (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 04.01.2017, 24.11.2017, Nil 27.06.2019 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C(13) of the Income-tax Act, 1961 (for short the Act ) qua the assessment years 2013-14, 2014-15, 2015-16 2016-17 respectively on the identical grounds, except the difference of additions/disallowances, inter alia that :- 1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at ₹ 416,18,80,875/- as against Nil income returned by the appellant. 2. That the assessing officer erred on facts and in law in alleging that the appellant avoided furnishing specific information called for in the assessment, particularly the various agreements with the airlines. Re: CRS income - Permanent establishment 3. That the Dispute Resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts on behalf of the foreign enterprise. 6. That the DRP/ assessing officer erred on facts and in law in holding that the offices of AIPL constitute PE of the appellant in India without even specifying under which paragraph of Article 5 of the Treaty do such offices of Amadeus constitute PE of the appellant. Re: Attribution of Income Without prejudice 7. That the DRP/assessing officer erred on facts and in law in computing the profits attributable to the alleged PE of the appellant in India at ₹ 311,87,23,875/-. 8. That the DRP/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 India, the income derived from such PE was completely consumed by distribution and other expenses attributable thereto and that no income survives for taxation. 9. That the DRP/assessing officer erred on facts and in law 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, wherein the Tribunal had attributed 15% of the revenues relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating cost', while computing the income attributable to the alleged PE, on the ground that the appellant has not been able to establish that the aforesaid expenditure has been incurred specifically for the Indian distribution activity and the justification of incurring such expenditure. 13.1 That the DRP/ assessing officer erred on facts and in law in holding that allocation of cost, particularly marketing costs, on the basis of number of bookings generated will always result in over allocation of cost to a fully grown up market like India and consequently, erred in not accepting the cost allocation method adopted by the appellant. 13.2 That the DRP/ assessing officer erred on facts and in law in not appreciating that the aforesaid costs have a direct nexus with the booking fees received from bookings made from India and, therefore, the same were required to be taken into consideration while computing the income attributable to the alleged PE. 13.3 That the DRP/ assessing officer erred on facts and in law in, alternatively, disallowing the aforesaid expenses by invoking provisions of section 40(a)(i) of the Act. 13.4 That the DRP/ assessing officer erred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India in terms of Article 13(6) of the Treaty, therefore, were not liable to tax in India as 'royalty'. 20. Further without prejudice, the DRP/assessing officer erred on facts and in law in holding on adhoc basis a sum of Euro 15 million as the income of the appellate liable to tax in India as royalty for the alleged use of Altea System by British Airways. Re: Charge of interest 21. That the DRP/assessing officer erred on facts and in law in levying interest under section 234B and 234D and withdrawing interest under section 244A of the Act. 3. Since all the appeals are having identical grounds, for the sake of brevity, we are taking brief facts of ITA No.2007/Del/2017 for AY 2013-14 to decide the issues in controversy in all the aforesaid appeals. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : The taxpayer, a tax resident of Spain along with its affiliated companies, has developed a fully automatic computer information system, which enables display and dissemination of information supplied by various Airlines, which in turn facilitates, inter alia, reservations, communications, ticketing and related functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the total income of the taxpayer at ₹ 416,18,80,875/- and the profit attributable to PE is taxed at normal rate and the income from royalty is taxed @ 10% as per the provisions of Article 13 of India-Spain DTAA. 5. The taxpayer carried the matter before the ld. DRP by way of filing the objections who have dismissed the same. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. 7. At the very outset, ld. AR for the taxpayer contended that the grounds raised in the present appeals are covered in taxpayer s own case vide order dated 26.10.2020 passed in AYs 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 2012-13 in ITA Nos.4906/Del/2010, 5150/Del/2011, 60/Del/2013, 1824/Del/2014, 1204/Del/2015 1626/Del/2016 respectively . 8. Ld. DR for the Revenue, on the other hand, has relied on the order passed by the AO/DRP and has failed to point out any distinguishing facts of the instant appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l./2018, 7970/Del./2018 7047/Del./2019 for Assessment Years 2013-14, 2014-15, 2015-16 2016-17 respectively are decided against the assessee. GROUNDS NO.7, 8, 9 10 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 15. Undisputedly, the taxpayer or the computers, electronic hardware provided to the travel agents etc. constituted PE of the taxpayer in India and the income derived from such PE is taxable in India. AO by following its earlier years order attributed 75% of the income earned in India to the PE after adding development cost, distribution fees, etc.. Ld. DRP has also confirmed the findings returned by the AO. 16. However, it is brought to our notice by the ld. AR for the taxpayer that this issue has already been decided in favour of the taxpayer by the coordinate Bench of the Tribunal for AYs 1996-97 to 2006-07 and held 15% of the revenue relating to bookings made from India being attributable to the taxpayer s PE in India after considering the nature and extent of activities in India and abroad and assets employed risk assumed. Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 24.04.2009, in MA Nos. 212 to 213/D/2008, filed by the Department against the order dated 30.11.2007 relating to AYs 1997-98 and 1998-99, categorically held that revenue s 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. The Assessing Officer has disallowed the claim of the assessee on account of the distribution expenses. The ld. DRP upheld the addition on the grounds that no documents have been filed in support of the distribution activity. 17. 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 18. 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. 24. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer s own case vide order (supra), we are of the considered view that the AO has erred in treating the export of processed data/software as distribution fee and has also erred in disallowing development cost and marketing cost incurred for earning revenue from booking made from India. All these expenditure have been allowed by the coordinate Bench of the Tribunal in earlier years. So, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. The system comprising of equipments is used by the subscribers to book tickets and the same is source of income for the assessee . The AO held that the income of the assessee is taxable as royalty also as 'use of process'. 21. The ld. DRP confirmed the order of the Assessing Officer. 22. In the assessment framed for assessment year 2006-07, the Assessing Officer had substantively brought to tax, the booking fee as business income and protectively held the same to royalty since in that year the tax worked out in treating the income 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 sub mitted herein above, the appellant uses sophisticated technology/software in the course of providing a service/facility but the appellant does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 (supra) by holding that Altea system cannot be characterized as royalty either under the Act or under the Treaty by returning following findings :- 27. It was canvassed before us, the ARS system is installed at the Airports and is accessed only by the Airlines and no t by the agents of the assessee. It was argued that the system was available only to British Airways for the purpose of accepting payment and travelled documentation only at the Airport counters. It was argued that the payment made by British Airways to the assessee in relation to the ARS is for services rendered by the Amadeus and not for use of any process. It was argued that since the inventory hosting takes place outside India and payment is made by non-resident Airlines to another non-resident outside India, in terms of Article 13(6) of the treaty, the payments deemed to have been not sourced in India. We find that the revenue has brought out information which proclaim that the assessee with British Airways developed Altea Reservation System for distribution through British Airways Sales Outlets, the products namely Altea Inventory for Global Inventory Management and Altea Departure Control for passeng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent may be estimated on the basis of an apportionment of the total profits of the enterprise to its various parts, provided, however, that the result shall be in accordance with the principles contained in this Article. 3. (a) In determining the profits of a permanent establishment, there shall be allowed as deductions, expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. Provided that where the law of the State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that State shall notify the competent authority of the other State of the terms of the corresponding paragraph in the Conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services the tax so charged shall not exceed : (i) in the case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment, 10 per cent of the gross amount of the royalties; (ii) in the case of fees for technical services and other royalties, 20 percent of the gross amount of fees for technical services or royalties. 3. 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 cinematographic films or films or tapes used for radio or television broadcasting, any patent, trademark, 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. 4. The term fees for technical services as used in t his Article means payments of any kind to any person other than payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 7 and keeping in view the fact that the computer terminals are at Airport terminals and since the amounts have been received for utilization of ARS which is predominantly a reservation system, the same may be treated as income from royalty . We upheld the action of the AO to this extent. 31. During the arguments, the ld. AR raised a point regarding the taxability of royalty income in the hands of the assessee as per DTAA. He argued that in the absence of corresponding change in the DTAA with regard to interpretation of royalty in the domestic law. He relied on the ratio law laid down by the Hon'ble Jurisdictional High Court in the case of Director of Income Tax vs New Skies Satellite Bv vide order dated 8 February, 2016. The ld. DR argued that the provisions of DTAA would have primacy over the domestic provisions. 32. The operative part of the said judgment is as under: 54. Neither can an Act of Parliament supply or alter the boundaries of the definition under Article 12 of the DTAAs by supplying redundancy to any part of it. This becomes especially important in the context of Explanation 6, which states that whether the 'process' is secret o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation, where the placement of commas is notorious for diametrically opposite implications. However in the realm of statutory interpretation, courts are circumspect in allowing punctuation to dictate the meaning of provisions. Judge Caldwell once famously said The words control the punctuation marks, and not the punctuation marks the words. Holmes v. Pheonix Insurance Co. 47. It has been held in CGT v. Budur and Hindustan Const v. CIT that while punctuation may assist in arriving at the correct construction, yet it cannot control the clear meaning of a statutory provision. It is but, a minor element in the construction of a statute, Hindustan Const50. 56. The courts have however created an exception to the general rule that punctuation is not to be looked at to ascertain meaning. That exception operates wherever a statute is carefully punctuated. Only then should weight undoubtedly be given to punctuation; CIT v. Loyal Textile51; Sama Alana Abdulla vs. State of Gujarat52; Mohd Shabbir vs. State of Maharashtra53; Lewis Pugh Evans Pugh vs. Ashutosh Sen54; Ashwini Kumar Ghose v. Arbinda Bose55; Pope Alliance Corporation v. Spanish Rive r Pulp and Paper Mills Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. There is sufficient evidence for us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia Satellite58 takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. 74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DTAA) entered into by India are based. Article 12 of the said model DTAA contains a definition of royalty which is in all material respects virtually the same as the definition of royalty contained in clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment. Similar considerations apply to payments made to lease or purchase the capacity of cables for the transmission of electrical power or communities (e.g. through a contract granting an indefeasible right of use of such capacity) or pipelines (e.g. for the transportation of gas or oil). 75. Much reliance was placed upon the commentary written by Klaus Vo gel on Double Taxation Conventions (3 rd Edition)'. It is recorded therein: 'The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event the entire direction and control over the satellite, such as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience , etc., on the one hand and use of it by the licensor himself, e.g., within the framework of an advisory activity. Within the range from services', viz. outright transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to persuade this Court to hold that such amendments are applicable to the DTAAs. 60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty in Asia Satellite, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose 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. 61. For the above reasons, it is held that the interpretation advanced by the Revenue cannot be accepted. The question of law framed is accordingly answered aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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