9911796707
TMI Blog2021 (10) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... AY Appeal No. (against final order) Appeal No. (against rectified order) 2007-08 5601/Del/2010 - 2008-09 426/Del/2012 3032/Del/2016 2009-10 357/Del/2013 3033/Del/2016 2010-11 746/Del/2014 3034/Del/2016 2011-12 2101/Del/201 - 2012-13 6162/Del/2015 CO 1/Del/2021 - 2014-15 6515/Del/2017 - 2. The Assessee is a company incorporated in The United Kingdom. The Assessee provides electronic global distribution services in the 'rest of the world' territory (including the Indian region) for the travel industry, by utilizing a Computer Reservation System ('CRS'), which is an automated system which processes booking data. 3. The CRS is an automated system, which process booking data and other data to provide the following functions: a) The ability to display flight schedule and seat availability b) The ability to display and/or quote airline fare c) The ability to make airline seat reservation d) The ability to issue airline tickets, etc. 4. The Assessee appoints distributors for marketing its CRS services. In India, the authorized distributor is Interglobe Technologies Quotient India Private Limited (ITQPL/'the distributor' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty statement for AY 2007-08 to AY 2012-13 and AY 2014-15 (Amounts in USD) Description 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2014-15 Booking Fees (A) 55,029,465 70,035,529 66,511,669 75,676,788 79,826,594 77,519,539 67,339,472 Less: Subscriber / Distribution fees or Commission 37,136,627 47,658,043 45,981,980 51,036,204 58,011,833 56,922,872 49,691,247 Less: IBM Service fee 1,845,674 2,908,608 3,180,261 2,801,139 2,871,024 7,745,3141 6,311,271 India Specific Profitability statement for AY 2007-08 to AY 2012-13 and AY 2014-15 (Amounts in USD) Description A.Y. 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2014-15 Less: Core licence 3,249,999 2,906,229 2,591,673 2,919,311 3,122,012 Less: Royalty fees 12,030,725 14,818,090 19,810,463 20,061,605 21,579,830 15,593,965 14,965,612 Less : Vendor costs 618,260 41 1,486 117,901 112,575 86,719 119,71.8 145,258 Total expenses (B) 54,881,285 68,702,456 71,682,279 76,930,834 85,671,418 80,381,869 71,113,388 (Loss) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an perform the function of reservation and ticketing is a part and parcel of the entire CRS. The computers so installed require further approval from appellant/Interglobe who allows the use of such computers for reservation and ticketing. Without the authority of appellant such computers are not capable of performing the reservation and ticketing part of the CRS system. The computer so installed cannot be shifted from one place to another even within the premises of the subscriber, leave apart the shifting of such computer from one person to another. Thus, the appellant exercises complete control over the computers installed at the premises of the subscribers. In view of our discussion in the immediately preceding paragraph, this amounts to a fixed place of business for carrying on the business of the enterprise in India. But for the supply of computers, the configuration of computers and connectivity which are provided by the appellant either directly or through its agent Interglobe will amount to operating part of its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in today's date in WP(C) No. 851/2008. In view of this dismissal of those appeals of the Revenue, learned counsel for appellant submits that the question raised in these appeals have become academic and are therefore, dismissed." 25. Against the Hon'ble Delhi High Court order for AY 1995-96 to AY 1998-99, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP No. 6511 to 6518/2010. The Hon'ble Supreme Court vide its order dated 22 November 2019 dismissed (as withdrawn) SLP Nos. 6512 to 6515/2010 and 6517 to 6518/2010 pertaining to AY 1995-96, 1996-97 and AY 1998-99 on account of low tax effect, in consonance with circular No. 17 of 2019, leaving the question of laws open. For remaining SLPs, the matter is pending for adjudication before the Hon'ble Supreme Court. 26. In the second batch of 4 years i.e. from AY 1999-00 to 2002-03 in case of GII, the Hon'ble Delhi ITAT vide its order dated 17th March 2011 (ITA No. 2971-2974/Del/2010) (Page 281 to 284 of Paperbook Part 1), held as under: "4. Regarding various grounds raised by the assessee in the cross objections rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt of India vide SLP Nos. 2956 of 2014, 2242 of 2013, 7222 of 2013, 2241 of 2013. These SLPs are pending adjudication by Hon'ble Supreme Court. 29. In the third batch of 4 years i.e. from AY 2003-04 to AY 2006-07 in case Galileo Netherland BV (GNBV) (now known as Travelport Global Distribution System BV) (TGDSBV) (Predecessor of the Appellant and Successor of GII), the Delhi ITAT vide its order dated 29th June 2012 (ITA No. 1306 to 1309/Del/2012), dismissed the cross objections raised by GNBV on PE/BC ground. It was held that: "21. Now coming to the cross objections filed by the assessee in all these years four years. The Ld. AR did not argue the cross objections and therefore these cross objections are treated as not pressed. Therefore, the assessee's cross objections in all four years are dismissed" 30. The Hon'ble Delhi High Court in its order dated 25th August 2014 (ITA No. 654/2012, 656/2012, 659/2012 & 661/2012) in case of Galileo Netherlands B.V (GNBV) (Successor of GII and Predecessor of the Appellant) for third batch of years i.e. AY 2003-04 to AY 2006-07 refrained from forming any opinion on GNBV's PE/BC in India. Relevant extract of this order is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. The adjudication of this issue taken from ITA No. 163/Del/2021 dated 27.09.20201(sic) in the assessee's own case which is as under: "Ground No. 6 is covered in favour of the Appellant by virtue of the application of the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of Appellant and its predecessor entities i.e. GII and TGDSBV. The Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Appellant's own/predecessor's case i.e. GII and GNBV, have held that attribution rate to the alleged India PE is 15% of gross booking fees and since Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment as no further income is taxable in India. 34. The ITAT in the case of Galileo International Inc (GII) (Predecessor of the Appellant) in the first batch of 4 years- AY 1995-96 to 1998-99 vide its order dated 30 Nov. 2007 (19 SOT 257 (DELHI) on the basis a Function, assets and risk (FAR) analysis, held that only 15% of the revenue could be attributed to India which got completely exhausted by the commission paid to the Indian distributor/ITQPL, resulting in no income remaining to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to note that but for the presence of the assessee in India and the configuration and connectivity being provided in India, the income would not have generated. Thus the initial cause of generation of income is in India also. On the basis of above facts we can reasonably attribute 15 per cent of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under section 5(2) read with section 9(1)(i) of the Act." (Para 10 on Page 224 of Paperbook Part 1) "10. Next question to be decided is if it is found that the income accruing in India is consumed by the payment made to the agents in India, whether any income still is left to be taxed in India. The activities of the appellant in India are entirely routed through the efforts of NMC namely Interglobe India (P.) Ltd. (Interglobe). Interglobe is responsible for monitoring the activities of the subscribers enrolled in India. The request originated from the computers at the desk of travel agent is once again routed through the facility of processing such information at Interglobe. If Interglobe finds that the subscriber accessing the CRS is authorized to do so, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on i.e. whether attribution is on sales or the net profits. The revenue authorities contended that the attribution should be on the net profits and not Sales - This contention of the revenue authorities was rejected by the Hon'ble ITAT vide its MA order dated 21 November 2008 (MA No. 108/Del/2008, 311 to 318/Del/2008 and 220 to 223/Del/2008), in case of GII in the first batch of 4 years- AY 1995-96 to 1998-99, wherein it was held that for computation of income of an Indian PE, first step is to attribute the revenues to India and then allow deduction of India related expenses from such attributed revenue. The relevant extract of order is re-produced as under: "5. The next contention of applicant is that instead of estimating or apportioning income or profits the Tribunal has attributed the revenue. In our opinion this is not a mistake apparent from record. For computation of any income, the first point is to apportion the revenue from the operations carried out in India. Unless the revenues are attributed, the income which is a second step cannot be attributed. However, after apportioning revenue, since it was found that out of the apportioned revenue, the remuneration payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t computer in Denver in USA and the activities in India are only minuscule portion. Taking into consideration all these factors the Tribunal was of the opinion that one could reasonably attribute 15 per cent of the "revenue" accruing to the respondent in respect of bookings made in India as major expenses in that behalf is incurred in activities carried out in US.........." (Please refer Para on Page 272 of Paperbook Part 1) "Thus, the approach adopted by the Tribunal was to first arrive at the figure relating to the revenue generated in India and abroad. It concluded that out of the revenue accrued to the respondent in respect of these bookings 15 per cent thereof should be attributed to India, keeping in view a very minor portion of the activity being carried out here" (Please refer Para on Page 273 of Paperbook Part 1) "After formulating the aforesaid question, the Tribunal answered the same holding that since the revenue attributable in respect of the booking made in India is only 0.45 Euro (15 per cent of Euro 3) and commission paid to Interglobe was Euro 1, there was no income which was taxable in India." "The Tribunal in this behalf has noted that the entire payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, Travelport International Operations Ltd., the Assessing Officer and Ld. DRP allowed deduction of distribution expenses (70%) from attributed revenue. 23. For AY 2012-13 (one of years in captioned matter), both ld. DRP and the Assessing Officer has allowed 100% distribution expenses by relying on Hon'ble Delhi High Court's decision in case of Company/its predecessor company for AY 1995-96 to AY 2006-07. The relevant extract is as under: "The Panel taking note of the above Jurisdictional High Court Order in the 'a' own case is of the firm view that any departure from the stated stand of the Hon'ble High Court of Delhi shall tantamount to judicial indiscipline and breach of doctrine of binding precedent and consistency. Respectfully following the verdict of the Hon 'Me Court, the Panel is pleased to concede the grounds of appeal pressed by 'a'. " 24. For AY 2015-16, the ld. DRP in its direction in Company's own case accepted that distribution expenses are integral expenses for CRS companies like Company and therefore a deduction should be allowed of such expenses. The relevant extract of DRP directions is enumerated as under: "3.5. ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been disputed in the absence of any material change, we hereby allow the claim of distribution expenses." 28. It is also on record that the distribution commission has been made to resident of India and duly offered to tax. Hence, the provisions of Section 40(a)(ia) are not attracted in the instant case. Since, there is no change in the factual matrix and legal proposition, we hereby allow the claim of the assessee. Allowability of other expenses: 29. The following table depicts the position of negative profits computed post allowance of booking fee and distribution expenses: Particulars AY 2007-08 AY 2008-09 AY 2009-10 AY 2010-11 AY 2011-12 AY 2012-13 AY 2014-15 Booking fee (USD) 55,029,465 70,035,529 66,511,669 75,676,788 79,826,594 77,519,539 67,339,472 15% of booking fee 8,254,420 10,505,329 9,976,750 11,351,518 11,973,989 11,627,931 10,100,921 Less: Distribution expenses (USD) 37,136,627 47,658,043 45,981,980 51,036,204 58,011,833 56,922,872 49,691,247 Net Loss Position (USD) (28,882,207) (37,152,714) (36,005,230) (39,684,686) (46,037,844) (45,294,941) (39,590,326) 30. The AO disallowed entire amount (100%) claimed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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