TMI Blog2021 (6) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to the other contentions advanced by the ld. A.R in order to impress upon us that the ATC s cannot be held to be the DAPE of the assessee viz. IATA, Canada, we vacate the view taken by the A.O/DRP holding to the contrary. As we have held that the ATC s are not the DAPE of the assessee, therefore, the addition i.e 40% of the revenue generated from sale of distance learning material, attributed to them in their status as that of DAPE of the assessee corporation, viz. IATA, Canada, and assessed as the business income of the assessee in India under Article 7 of the India-Canada tax treaty cannot be sustained and is therefore vacated. Whether DRP had erred in concluding that the income received by the assessee on sale of distance learning courses is alternatively taxable as royalty, both under the Act and the India-Canada tax treaty? - The assessee pursuant to the request from the student s/ATC s despatches the course material i.e the learning kit in the form of books or CD s directly to the students or ATC s. Although, the course material providing knowledge, information and training about the aviation and travel and tourism industry in general is sold to the students/ATC s, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d observations we vacate the view taken by the lower authorities that the consideration received by the assessee from sale of DGR manuals was to be treated as royalty and brought to tax in its hands. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. Treating the application fees received by the assessee for DGR manuals/publications that was wrongly offered to tax as Collection of royalties from ATS , as royalty income under Article 12 of the India-Canada tax treaty - HELD THAT:- As the consideration received by the assessee on sale of DGR manuals cannot be held as royalty within the meaning of Article 12(3) of the India-Canada tax treaty. Accordingly, on the basis of the said observations, the amount received by the assessee as application fees for DGR manuals/publications (claimed to have been wrongly offered to tax as Collection of royalties from ATS ) cannot be treated as royalty in the hands of the assessee. But then, as the facts substantiating the said claim of the assessee are not there before us, we therefore restore the matter to the file of the A.O for necessary verification. In case the aforesaid claim of the assessee is found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the hands of the assessee is vacated.Ground of appeal No. 5 is allowed. Taxing certain receipts collection of membership fees, BSP link charges and fees for clearing house facility ( ICH facility ) as business profits under Article 7 of the India-Canada tax treaty - HELD THAT:- BSP Link charges were collected by the assessee for onward remittance to Accelya World SLU, Spain, without any mark-up, the same would thus not constitute income in the hands of the assessee. Accordingly, the DRP had directed the A.O to delete the addition of BSP charges in the hands of the assessee. In the backdrop of our aforesaid observations, we are of the considered view that collection of the BSP charges by the assessee from the airlines and agents for onward remittance to Accelya World SLU, Spain, without any mark-up, cannot be held to be its business income . But then, as the said aspect had not been looked into by the A.O/DRP, we therefore in all fairness restore the matter to the file of the A.O for the limited purpose of verifying the same. In case the claim of the assessee that the BSP Link charges were collected by it for onward remittance to Accelya World SLU, Spain, without any mark-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quire verification of records, we therefore restore the matter to the file of the A.O. The A.O is directed to verify the factual position, and in case the claim of the assessee is found to be in order, then the credit for the amount deposited by it by way of self-assessment tax be allowed to it. Interest u/s 234B and u/s 234C - HELD THAT:- A.O had erred in failing to appreciate that interest u/ss. 234B and 234C is not leviable in case of a foreign company and interests u/ss. 234B and 234C had wrongly been computed without taking into consideration the respective amounts of self-assessment tax deposited by the assessee, and also the amount of TDS. As the second limb on the basis of which the charging of interest u/ss. 234B and 234C has been assailed before us would require verification of records, we thus restore the matter to the file of the A.O for necessary verifications. At the same time, as the assessee has assailed the very validity of levy of interest u/ss. 234B and 234C of the Act, on the ground that the same are not leviable in the case of a foreign company, we thus in the absence of any contention advanced by the ld. A.R before us on the said count restore the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the above, erred in assuming that the entire revenues received by the Appellant from sale of distance learning courses in India is from ATCs, without appreciating the fact that the said revenues also include revenue directly received from students in India. d. Without prejudice to the above, even assuming (without admitting) that the Appellant has a dependent agent PE in India, erred in: i. Arbitrarily attributing 40% of the gross receipts of the Appellant on account of sale of distance learning courses as income attributable to the dependent agent PE in India; and ii. Arbitrarily and on an ad-hoc basis estimating the profits at 100% of the gross receipts attributed to the dependent agent PE of the Appellant on account of sale of distance learning courses. e. Without prejudice to the above, erred in holding that the entire income received by the Appellant on account of sale of distance learning courses is alternatively taxable as royalty, both under the Act and the India - Canada tax treaty. Ground No. 3 - Sale of physical publications (ie, DGR manuals) Erred in taxing the income from sale of physical publications (ie, DGR manual) as 'roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;Accelya Spain) (categorized as 'Provision of E-Services) d. Erred in considering the incorrect amount of ₹ 2,81,04,800 as being the BSP Link charges collected by the Appellant for onward payment to Accelya Spain, instead of the correct amount of ₹ 2,29,29,020. e. Erred in not accepting the contentions of the Appellant that the BSF Link charges collected by the Appellant for onward payment to Accelya Spain are in the nature of reimbursement of expenses/ cost, without any mark up, and hence, in the absence of any income element in respect of such charges, the same cannot be taxed as 'business profits' under Article 7 of the India - Canada tax treaty. In relation to fees for ICH facility f. Erred in treating the Indian branch office of the Appellant as being the FE of the Appellant in India as per Article 5 of the India - Canada tax treaty, without appreciating the fact that the activity of provision of ICH facility is completely independent and separate from the BSP services provided by the Indian branch office and accordingly, taxing the said receipts as 'business profits' under Article 7 of the India - Canada tax treaty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty proceedings under Section 271(1)(c) of the Act, on the basis that the Appellant has concealed income and furnished inaccurate particulars of income. Each of the above grounds of appeal is without prejudice to and independent of one another. The Appellant craves leave to add, alter, amend, substitute or delete the any of the above grounds of appeal at or before the time of hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to decide this appeal according to law. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case. On the other hand, the revenue has challenged the impugned order on the following grounds of appeal before us : 1. Whether on the facts and circumstances of the case the Hon ble Dispute Resolution Panel (DRP) was justified in directing the A.O to restrict 40% of the entire revenue received by the assessee from the sale of the training materials as income attributable to the PE without appreciating the fact that the assessee does all the work related to sale of various distance learning courses in India. Through its PE in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e- Accredited Training Centers 151,207 76,67,707 Total 840,213 4,26,17,202 However, as noticed by the A.O the assessee had not offered its following receipts for tax: Sr. No. Revenue source Description Income (USD) 1. Sale of Distance learning materials Includes sale of distance learning kits (i.e, books/manuals or CDs), shipped from Canada to the customer or to the third party (non-IATA) regional partner training Centre 23,90,825 2. Provision of E-services (Billing and settlement functions) The amount received by IATA Canada represents the payments collected from airlines for onward remittance to the third party company for the use of the billing and settlement portal by the airlines 5,54,226 3. Provisions of E-Services. (Passenger Intelligence Services PAX-IS) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted taxability of the additional income arising from provision of consulting services, and also that arising from provision of e-services i.e Passenger Intelligence Services PAX-IS as Fees for Technical Services (FTS) and royalty, respectively. As regards its claim of non-taxability of the remaining streams of incomes, the assessee in the course of the assessment proceedings tried to impress upon the A.O that as the same were neither in the nature of royalty, FTS or business profits, they were thus not exigible to tax in India. But then, the A.O after deliberating on the contentions which were advanced by the assessee to drive home its claim of non-taxability of the remaining streams of income, was however, not persuaded to subscribe to the same. As per the draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 27.03.2015 the A.O proposed the following additions to the returned income of the assessee: C Addition of incomes not admitted by the assessee Relying on the Treaty: 1. Sale of distance learning materials Business income @40% 121,238,736 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the income of the assessee at ₹ 24,51,25,623/-. 6. Being aggrieved with the assessment order passed by the A.O u/s 143(3) r.w.s 144C(13), dated 30.12.2015, both the assessee and the revenue have carried the matter before us by way of the present cross-appeals. At the very outset of the hearing of the appeal the ld. Authorised representative (for short A.R ) for the assessee Shri. Porus Kaka, Senior Advocate, sought liberty for admission of certain documents as additional evidence . The ld. A.R took us through the assessee s letter dated 06.08.2018, as per which the documents filed before us as additional evidence comprised of viz. (i). copies of the extracts of DGR manuals sold by the assessee to its customers; (ii). copies of the extracts of the technical instructions published by the International Civil Aviation Organisation (available in the public domain); (iii). copy of an advertising insertion order and agreement; and (iv). copy of the sample advertisements displayed on the assessee s website. It was submitted by the ld. A.R that as the said documents would have a strong bearing on the adjudication of the Ground of appeal No. 3 and Ground of appeal No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop of his aforesaid contentions, it was submitted by the ld. A.R that the ATC s could not be held to be a DAPE of the assessee as per Article 5(5) of the India-Canada tax treaty. The ld. A.R further took us through Article 5(4) of the India-Canada tax treaty, and submitted, that the conditions therein contemplated were not satisfied for treating the ATC s as the DAPE of the assessee. In the backdrop of his aforesaid contentions, it was the claim of the ld. A.R that the A.O/DRP were in error in treating the ATC s as DAPE of the assessee, and resultantly, holding an amount of ₹ 4,84,95,494/- i.e 40% of the revenue generated from sale of distance learning material as the business income attributable to such DAPE, liable to tax in the hands of the assessee in India. 8. Per contra, the ld. Departmental representative (for short D.R ) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the ATC s operated as agents of the assessee viz. IATA, Canada, and habitually enrolled students on its behalf and provided training to the students in the courses mandated by the assessee, therefore, the A.O/DRP holding the ATC s as the DAPE of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horization fee, and branch fee. Insofar such ATC fees is concerned, the same had undisputedly been offered to tax by the assessee as royalty . For the provision of the distance learning courses the assessee would receive enrolment fees from the students/ATC s, which would be paid for the course material/training kit fees, shipping fees, exam fees (conducted by a third party in India), and fees for issuance of certificates on successful completion of the courses. In a case where the student would approach the ATC for the distance learning courses of the assessee, the concerned ATC would procure the study material for the said course from the assessee and provide the same to the student who would thereafter make the payment for the same to the ATC. The aforesaid transaction between the ATC s and the students was on an independent basis and the assessee was not a privy to the said arrangement. Also, we find that the ATC would procure the course material as per the number of the students registered with them, and hence, did not maintain a stock of the course material on behalf of the assessee at any time. 10. We have perused the records to which our attention was drawn by the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration from conducting training programs is concerned, we find that the same was a miniscule amount of ₹ 0.39 crores as against the total revenue of ₹ 377.12 crores generated by the said entity during the year under consideration. Insofar the courses provided by Thomas Cook are concerned, we find that the same as per the screen shot, Page 68 of APB were classified under three heads i.e (i). Under Graduate Courses, viz. Certificate Course in Domestic Tour Management; (ii). Post Graduate Courses, viz. MBA Tourism (Pondichery University), Travel Professional Program A Post Graduation Diploma in Travel Tourism Management with MBA Tourism (Pondichery University), Travel Professional Program A Post Graduate Diploma in Travel Tourism Management, Certificate Course in World Tour Management, PGDM in International Tourism Business equivalent to MBA (IITTM); and (iii). IATA Courses, viz. IATA Foundation Course, IATA Consultant Course, Corporate Training, and Tourism Board Training. Accordingly, in the backdrop of our aforesaid observations it can safely be concluded that the aforesaid ATC s could not be held to be exclusively into providing of courses designed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee was disguised in the form of sale of materials. On a perusal of the observations of the DRP, we find, that except for its generalised observation that the distance learning courses of the assessee constituted the backbone of such training and the overall operations of the ATC s, there is no whisper or reference to any such material or facts which could irrefutably prove that the activities of the ATC s were devoted wholly or almost wholly on behalf of the assessee viz. IATA, Canada. Rather, the facts brought to our notice as regards the multiple educational programs offered by the ATC s viz. Srinivassa Sinai Dempo College of Commerce and Economics, Kuoni Academy and Thomas Cook, gives a clear picture that the said ATC s were not exclusively into providing of courses designed by the assessee, but were providing a host of other self-designed/third party courses. Further, the factum as regards the miniscule revenue generated by the aforesaid ATC viz. Thomas Cook India Pvt. Ltd. from conducting training programs, as in comparison to its other streams of revenue generation clearly militates against the observation of the DRP that the distance learning courses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gent, shall not be deemed to have a PE in the other Contracting state, subject to the condition that such agent of an independent status is acting in the ordinary course of its business. But then, if the activities of such agent are devoted wholly or almost wholly on behalf of that enterprise, AND the transactions between the agent and the enterprise are not made under arm s length conditions, it shall not be considered an agent of an independent status within the meaning of Article 5(5) of the India-Canada tax treaty. Now, in the case before us, as observed at length hereinabove, the activities of the ATC s in India cannot be held to be devoted wholly or almost wholly on behalf of the assessee viz. IATA, Canada. Independent of that, it is not even the case of the revenue that the transactions between the assessee viz. IATA, Canada and ATC s are not made under arm s length conditions. As observed by us hereinabove, as per Article 5(5) of the India-Canada tax treaty an enterprise carrying on business in the other contracting state through a broker, general commission agent or any other agent of an independent status, or merely maintaining in that other State a stock of goods with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not made under arm s length conditions, the ATC s which are independent organizations acting in the ordinary course of its business cannot be divested of their status as that of an independent agent under Article 5(5) of the India-Canada tax treaty is supported by the order of the ITAT, Mumbai in the case of Delmas France S.A Vs. ACIT (International taxation) (2013) 141 ITD 67 (Mum) . In the said case the Tribunal on the basis of a conjoint reading of Article 5(5) and Article 5(6) of India-France tax treaty, had observed as under: 9. Let us now deal with the scope of dependent agent permanent establishment (DAPE) as set out in Article 5(5) and Article 5(6) of the Indo French DTAA. Article 5(5) provides the situations in which business being carried on through a dependent agent results in creation of PE in the source state. The provisions of Article 5(6) are, however, slightly at variance with standard tax treaty provisions, and need to be analysed in some detail. The significant feature of Article 5(6) of Indo French DTAA, which is somewhat unique in the sense that this provision is in clear deviation from the standard UN and OECD Model conventions, is that even when an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in arm s length conditions, has not been examined by the Assessing Officer, the matter should be restored to the file of the Assessing Officer for specific adjudication on the transactions between principal and agent having been done in arm s length conditions. We are unable to see any merits in this plea. 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 agent i.e. if it is shown that the transactions between the agent and the enterprise were not made under at arm s length conditions . Unless this negative finding is on record, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a PE can be inferred merely because the assessee has made a particular claim, which is rejected anyway. The onus of establishing that there is a PE, as we have noted earlier in the discussions, is on the revenue authorities and there is no room for inferences being drawn up in this respect merely because the assessee has made a particular claim. Similarly, reference to agent s authority to conclude contracts, as has been made by the DRP, is not decisive test either because even when agent has the authority to conclude contracts, it is still to be established that the agent is not an independent agent. That exercise is not even conducted in this case. The Assessing Officer s reliance on OECD Commentary, therefore, is of no avail either. In view of these discussions, as also bearing in mind entirety of the case, we set aside and vacate the Assessing Officer s findings with regard to existence of assessee s PE in India. We may, at the cost of repetition, clarify that these conclusions are arrived at in the light of the factual position that there are no findings by the Assessing Officer, or the Dispute Resolution Panel, to the effect that the transactions between the agent and the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it carries on business in that other Contracting State through broker, general commission agent or any other agent of an independent status, provided that such persons are acting in ordinary course of their business. Then comes the provision, whether activities of an agent who may be an agent of independent status but devoted wholly or almost wholly to that enterprise, but he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's length conditions. 10) In the present case, what was essentially brought to the notice of the Tribunal was that this is an important aspect relating to the transactions, but they have not been examined in the manner indicated by us above by the Assessing Officer, therefore the matter should be restored to file of the Assessing Officer for specific adjudication of the transactions between the Assessee and the agent. The Tribunal did not accept this. Not because of any broad legal principle, but there being no finding of this nature on record at all. If the Assessing Officer or the DRP failed to render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat neither any such finding was given by the A.O or by the Dispute Resolution Panel, nor in the course of the proceedings before the Tribunal any material was brought on record which could at least prima facie demonstrate, or even indicate, that the transactions between the principal and agent were not under arm s length conditions, the Tribunal concluded that it was to be held that the assessee did not have any PE in India. We may herein observe, that the Tribunal taking cognizance of the fact that there was nothing on record to even remotely suggest a prima facie case that the transactions between the foreign enterprise and the agent were not at arm s length, had thus, declined to remand the matter and allow a fresh inning to the A.O for making roving and fishing enquiries on the aspect of transactions not having been done in arm s length conditions. On further appeal, the Hon ble High Court approved the view taken by the Tribunal. In the case before us also neither the lower authorities had established that the transactions between the assessee viz. IATA, Canada and the ATC s were not done under arm s length condition, nor any material was placed on our record by the ld. D.R to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial knowledge, information and skill acquired from experience provided to the students on enrolment in ATC s, the receipts were thus taxable as royalty both under the Act and the India-Canada tax treaty. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the DRP. Before proceeding any further, it would be relevant to cull out the definition of royalty as contemplated in Article 12(3) of the India-Canada tax treaty, which reads as under: 12(3). The term royalties as used in this Article means: (a) payment of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film paper or other means or reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ula or process etc. It is purely and simply a case of pooling of resources by way of an Affiliate Agreement wherein the respective roles and responsibilities have been assigned and the arrangement being of the nature of pooling of resources where fee sharing of the two parties have been set out this is not a case where any payment is being made to eCornell by the assessee for any kind of service as it is purely a case of apportioning of fees attributable to eCornell as per the Affiliate Agreement being remitted to eCornell and the portion of the fees collected for providing enrollment infrastructure in order to access the study material by the students is retained by the assessee as its share. As such on facts the present case does not partake the nature of royalty as contemplated under Clause 3(a) of Article 12 of the Indo-US DTAA. Accordingly, not finding favour with the alternative observation of the DRP that the consideration received by the assessee for providing course material to the students/ATC s was liable to be assessed as royalty, we vacate the same. The Ground of appeal No. 2 raised by the assessee is allowed in terms of our aforesaid observations. As we have h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transportation of dangerous goods. The DGR manuals contained information pertaining to classification, packaging, marking, labelling and documenting shipping of dangerous goods. As such, the DGR manuals were essentially instructive and user friendly reference manual in order to facilitate safe shipping and transport of dangerous goods around the world by air, based on the instructions on dangerous goods developed by ICAO. The DGR manuals were purchased by the customers by placing orders on the website of the assessee. The assessee after receiving the orders would despatch the manual directly to the customers. At this stage, we may herein observe that the assessee had also inadvertently classified the application fees received by it for DGR manuals/publications, as Collection of royalties from Accredited Training Schools , and had offered the same to tax as royalty. However, on learning about its said mistake, the assessee had in the course of the assessment proceedings sought refund of the taxes paid on the aforesaid amount which was wrongly projected by it as royalty. In order to buttress his aforesaid claim the ld. A.R in the course of hearing of the appeal had drawn our attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Any industrial, commercial, or scientific equipment. We find substance in the claim of the assessee that the consideration received on sale of DGR manuals could not be characterised as royalty within the meaning of Article 12(3) of the India-Canada tax treaty, for the following reasons: The publications were outright sales to the customers, and no use or right to use any copyright in relation to the publication was granted to the customer; The customers did not get vested with any right to reproduce/sell the content of the publication in any form or media; The customers also did not get any right to use the patent, trademark, design or model, plan, secret formula or process of IATA Canada on supply of such physical publications; The information provided in the publications was merely a user-friendly and comprehensive compilation of data available in the public domain and hence, the same cannot tantamount to imparting of any information concerning the technical, industrial, commercial or scientific experience; The assessee by compiling the instructions for safe transport of dangerous goods as laid down by ICAO did not share its experience, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived by the assessee cannot be attributed to the use or the right to use the copyright itself, and thus, on the said count also cannot be brought within the realm of the definition of royalty as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is fortified by the judgment of the Hon ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 220 Taxman 273 (Del) . In the backdrop of our aforesaid observations we vacate the view taken by the lower authorities that the consideration received by the assessee from sale of DGR manuals was to be treated as royalty and brought to tax in its hands. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. 17. We shall now advert to the claim of the ld. A.R that the A.O/DRP had erred in treating the application fees received by the assessee for DGR manuals/publications that was wrongly offered to tax as Collection of royalties from ATS , as royalty income under Article 12 of the India-Canada tax treaty. It is the claim of the assessee that the amounts which were received by it as application fees for DGR manuals/publications were inadvertently offered by it in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to be taxed as royalty in its hands. 19. Assailing the aforesaid view so taken by the lower authorities, the assessee has carried the matter in appeal before us. We have heard at length the authorised representatives for both the parties in context of the issue under consideration, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them to drive home their respective contentions. In our considered view, the providing of advertising space by the assessee to its customers, either on its website or publications/manuals, did not result to vesting of any right to use, display, exploit or modification of the assessee s brand or logo, in any manner. As such, the consideration received by the assessee from provision of advertisement space in its publications /manuals or website would not fall within the realm of the definition of royalty as provided in Article 12(3) of the India-Canada tax treaty. In sum and substance, as no use or right to use any copyright, patent, trademark, design or model, plan was granted to the customers by the assessee in the course of providing of advertising spa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s India (P) Ltd. (supra), we are of the view that the payment made by assessee to Yahoo Holdings (Hong Kong) Ltd. for the services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal was not in the nature of royalty but the same was in the nature of business profit and in the absence of any PE of Yahoo Holdings (Hong Kong) Ltd. in India, it was not chargeable to tax in India. As observed by us hereinabove, in the case of the present assessee before us also the consideration received by the assessee from the customers was for providing advertisement space in its publications/manuals or websites, without vesting of any right to use, display, exploit or modify the assessee s brand or logo in any manner. As such, we are of the considered view that the consideration received by the assessee for a simplicitor providing of advertisement space to the customers in its publications/manuals or website cannot be held as royalty . Our aforesaid view is supported by the order of the ITAT, Kolkata in the case of ITO Vs. Right Florists Pvt. Ltd. (2013) 143 ITD 445 (Kol) . In the said case, it was observed by the Tribunal that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ATA, Canada raised invoices directly on the airlines and IATA India branch, wherein they in turn raised invoices on the agents without any mark up. In the backdrop of the aforesaid facts, it was submitted before the lower authorities that the assessee viz. IATA, Canada had merely acted as a facilitator/intermediary in relation to the invoices raised and the payments collected from the agents and the airlines in relation to the BSP Link charges. As such, it was the claim of the assessee that in the absence of any income element in the recovery of the BSP charges from the airlines and agents (through IATA India branch), the same could not have been brought to tax in the hands of the assessee. In sum and substance, it was the claim of the assessee before the lower authorities that as the collection of the BSP charges by the assessee viz. IATA, Canada from airlines and agents (through IATA India branch) for onward remittance to Accelya World SLU, Spain, without any mark-up, was in the nature of a reimbursement, thus, in the absence of any income element the same could not have been brought to tax as the business income of the assessee under Article 7 of the India-Canada tax treaty. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lya World SLU, Spain, without any mark-up, the same would thus not constitute income in the hands of the assessee. Accordingly, the DRP had directed the A.O to delete the addition of BSP charges in the hands of the assessee. In the backdrop of our aforesaid observations, we are of the considered view that collection of the BSP charges by the assessee from the airlines and agents for onward remittance to Accelya World SLU, Spain, without any mark-up, cannot be held to be its business income . But then, as the said aspect had not been looked into by the A.O/DRP, we therefore in all fairness restore the matter to the file of the A.O for the limited purpose of verifying the same. In case the claim of the assessee that the BSP Link charges were collected by it for onward remittance to Accelya World SLU, Spain, without any mark-up, is found to be in order, then the addition made by the A.O to the said extent shall stand deleted. The Grounds of appeal No.6(d e) raised by the assessee are allowed for statistical purposes. (B). IATA CLEARING HOUSE FACILITY (ICH FACILITY) : (i). The assessee viz. IATA, Canada, provided the ICH facility to the air transport industry across th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he lower authorities that the fees pertaining to ICH facility could not be assessed as business income of the assessee under Article 7 of the India-Canada tax treaty. In sum and substance, it was the claim of the assessee that as its Indian PE viz. IATA India branch which as per the approval of RBI was not permitted to undertake any activity apart from the BSP services had no role in providing of the ICH services which were provided outside India, therefore, the fees therein received by the assessee could not be attributed to the said PE. However, the A.O/DRP did not find favour with the aforesaid claim of the assessee. Observing, that the assessee had not demonstrated that the activities pertaining to ICH facility were being conducted by the assessee, viz. IATA, Canada directly from outside India, the DRP concurred with the view taken by the A.O that the fees pertaining to ICH facility was liable to be assessed as the business income of the assessee under Article 7 of the India-Canada tax treaty. (ii). We have given a thoughtful consideration to the contentions advanced by the authorised representatives for both the parties in context of the aforesaid issue under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved, that as the PE of the assessee company had nothing to do with the offshore services rendered by the assessee company, a resident of Japan, in connection with a turnkey project executed in India, therefore, consideration received by the assessee company for rendition of such services could not be brought to tax in India. Referring to Article 7 of the DTAA, it was observed by the Hon ble Apex Court that the same limits the tax on business profits to that arising from the operations of the PE. It was observed by the Hon ble Court, that as in the case before them the entire services were rendered outside India, and had nothing to do with the PE, therefore, nothing could be attributed to the PE and thus brought to tax in India. Apart from that, it was observed by the Hon ble Apex Court that in case of composite transactions which have some operations in one territory and some in others, the principle of apportionment has to be essentially applied in order to determine the taxability of various operations. In the backdrop of the aforesaid settled position of law, the amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role play ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt annual membership fees. Also, the assessee receives joining and annual membership fees from its various strategic partners. That pursuant to obtaining the membership of the assesse corporation, viz. IATA, Canada, the members obtain certain benefits, viz. IATA operational safety audit; security and facilitation; product distribution; physical publications; training activities; attending annual general meetings and world air transport summit etc. However, a member in order to avail any of the aforesaid services has to pay a separate fees for the same. Apart from that, upon payment of the membership fees to the assessee, viz. IATA, Canada, the member airlines and the strategic partners get information about the various services provided by the assessee corporation. (ii). In the backdrop of its claim that the assessee corporation was regulated by the principle of mutuality, it was submitted by the assessee that the aforesaid receipts were not exigible to tax. However, the A.O/DRP being of the view that the assessee corporation failed to cumulatively satisfy the requisite conditions to invoke the principle of mutuality, viz. (i). complete identity of contributors and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also the fact that RBI had never conducted any enquiry into the affairs of the assessee, declined to accept the said claim of the assessee. As regards the claim of the assessee that though IATA-India branch constituted a PE of the assessee in India as per Article 5(2)(b) of the India-Canada tax treaty, but then, as the collection of the membership dues by the assessee, viz. IATA, Canada was carried out directly outside India, therefore, the same could not have been attributed to the IATA-India branch, we find was rejected by the DRP, for the reason, that the assessee had not demonstrated that the activities pertaining to collection of the membership dues were being carried out by the assessee, viz. IATA, Canada, outside India. We are in agreement with the claim of the assessee that amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in those transactions. In a case where the transactions had taken place outside India, the same cannot be attributed to the PE, because the PE had no role to play in such transactions. As such, only the portion of profits which are attributable to the PE in India are ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forded a reasonable opportunity of being heard during the course of the set aside proceedings and shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Accordingly, the matter is restored to the file of the A.O for fresh adjudication in terms of our aforesaid observations. The Ground of appeal No. 6(a) to 6(c) are allowed for statistical purposes. 21. As we have restored the issues as regards assessing of the aforesaid receipts, viz. (i). BSP link charges; (ii). fess for ICH facility; and (iii). collection of membership dues to the file of the A.O for fresh adjudication in terms of our aforesaid observations, therefore, the scaling down of the revenue attributable to the PE, viz. IATA-India branch that was proposed vide the draft assessment order by the A.O at 90%(of the gross receipts), to 40% (of gross receipts) pursuant to the directions of the DRP, are also resultantly restored to the file of the A.O. The Ground of appeal No. 2 of the revenue is allowed for statistical purposes. 22. We shall now advert to the claim of the assessee that the A.O had erred in allowing short credit for self-assessment taxes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B and 234C had wrongly been computed without taking into consideration the respective amounts of self-assessment tax deposited by the assessee, and also the amount of TDS. As the second limb on the basis of which the charging of interest u/ss. 234B and 234C has been assailed before us would require verification of records, we thus restore the matter to the file of the A.O for necessary verifications. At the same time, as the assessee has assailed the very validity of levy of interest u/ss. 234B and 234C of the Act, on the ground that the same are not leviable in the case of a foreign company, we thus in the absence of any contention advanced by the ld. A.R before us on the said count restore the matter to the file of the A.O. The assessee shall remain at a liberty to substantiate its claim as regards nonlevy of interest u/ss. 234B and 234C before the A.O. The Ground of appeal No. 10 raised by the assessee is allowed for statistical purposes. 26. The assessee has assailed the initiation of penalty proceedings u/s 271(1)(c) of the Act. As the same does not arises from the impugned order, and in fact is premature, therefore, the Ground of appeal No. 11 is dismissed as infruct ..... X X X X Extracts X X X X X X X X Extracts X X X X
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