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TMI Blog2021 (10) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... the DRP ought to have held that no income had accrued or deemed to accrue or received or deemed to have received by the Appellant in India. 4. That on the facts & circumstances of the case and in law, the Assessing Officer and the DRP have erred in holding that the Appellant has business connection in India and as such is liable to tax in India as per the provisions of Act. 5. That on the facts and circumstances of the case and in law, both the Assessing Officer and the DRP have erred in holding that the Appellant has: * A fixed place PE in India under Article 5(1) of the DTAA; and * A dependent agent PE in India in the form of Interglobe Technology Quotient Private Limited ('ITQPL') under Article 5(5) of the DTAA. 5.1. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in holding that the Appellant has a PE in India based on inter- alia following allegations: * authority has been delegated to ITQPL to conclude contracts on Appellant's behalf * ITQPL is wholly dependent on Appellant for arranging the communication services from SITA in India * ITQPL is an exclusive distributor of India * Mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case and in law, the Ld. AO and the DRP has erred is not allowing the deduction of Apportionment of Technology service fees for US$ 8,460,978 and Vendor cost for US$ 164,832 merely by following the DRP directions for AY 2016-17 not providing any cogent reason for disallowing such expenses. 7.3. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in not allowing the deduction of amortization on all Intangible assets amounting to USS 12,293,433, on the basis of the DRP directions for AY 2016-17 (passed pursuant to Rule 13), wherein following reasoning was accorded by DRP for not allowing complete claim of depreciation. a) No amortization/depreciation on Goodwill and Trademark/tradename has been claimed in the UK corporate tax return of Appellant. b) No amount is debited as depreciation on Goodwill and Trademark/tradename in the global accounts therefore there is no base to determine the proportionate expenses to be allowed for the purpose of computing the profit of the alleged PE in India. c) No reasoning has been accorded by the DRP for disallowing amortization/depreciation on Vendo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP have erred in making factually incorrect allegations with respect to the various expenses and income. 12. That on the facts and in the circumstances of the case and in law, the authorities below have erred in charging interest under section 234B of the Act." 3. The Appellant is a company incorporated in The United Kingdom. The Appellant 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. 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 Appellant appoints distributors for marketing its CRS services. In India, the authorized distributor is Interglobe Technologies Quotient India Private Limited (ITQPL/ 'the distributor'). ITQPL is entitled to receive distribution fees from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016-17. 11. Basic structure of the business, risks, functionalities and assets remain unchanged after the above territorial reorganization and such fact has even been admitted, relied and emphasized by the assessing officer (Ld. AO) and Dispute resolution panel ('DRP') in their orders/ directions. 12. For AY 2017-18, the Appellant filed its original income tax return dated 26 October 2017, declaring Nil taxable income, and claiming a refund of INR 40,22,89,995 on account of excess TDS deducted and appearing in Form 26AS. Thereafter a revised income tax return was filed on 28 March 2019, wherein the claim of TDS and refund was revised to INR 40,55,24,740. 13. The case was selected for scrutiny assessment and subsequently during the course of assessment proceedings, the assessing officer (Ld. AO) required the Appellant to provide details of income and expenditure that may be reasonable allocated to its alleged Indian operations. It was submitted before the AO that Company does not have any business operations in India due to lack of a BC/PE in India. 14. Without prejudice to this fact, it was further submitted that even if it is assumed that Appellant has a BC/PE in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Here is it again emphasized that the Hon'ble Delhi High Court has categorically held that the assessee has a PE in India. It is a settled law that the determination of a PE is a mixed question of fact and law. Accordingly, the Hon'ble Delhi High Court has settled the issue against the predecessor entities of the assessee and in favour of revenue authorities. Largely, the present set of facts and circumstances are similar in nature. Hence, respectfully, following the decision of Hon'ble Delhi High Court it is held by the undersigned that assessee has a PE in India as a Fixed Place PE and an Agency PE." 18. However, on the issues covered in favour of the appellant by the Delhi High Court decisions i.e. overall taxability should be nil, was conveniently ignored by the Ld. AO holding that: * Major part of Appellant's activities is in India and therefore 75% of net profit should be attributed to India operations * Subscriber fees paid to Interglobe (ITQPL) is allowable only to the extent of 70% since such payment is in nature of commission and no TDS has been deducted before making such payment * All other expenses are not of operating nature and therefore not all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 established a PE within the meaning of paragraph 1 of Article 5 of Indo-Spain Treaty." "17.4 ................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned 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 relating to existence of business connections in India and accrual and arising of Income in India and the deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dication 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 reproduced as under: (Please refer Para 2 on Page 313 of Paperbook Part 1) "2. We begin with a caveat th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the process in India. The major functions like collecting the database of various airlines and hotels, which have entered into PCA with the appellant takes place outside India. The computer at Denver in USA processes various data like schedule of flights, timings, pricing, the availability, connection, meal preference, special facility, etc. and that too on the basis of neutral display real time on line takes place outside India. The computers at the desk of travel agent in India are merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. Such function requires huge investment and huge capacity, which is not available to the computers installed at the desk of subscriber in India.The major part of the work or to say a lion's share of such activity, are processed at the host computer in Denver in USA. The activities in India are only minuscule portion. The appellant's computer in Germany is also responsible for all other functions like keeping data of the booking made worldwide and also keeping track of all the airlines/hotels worldwide that have entered into PCA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by Interglobe to the appellant, it is being paid remuneration in terms of distribution agreement. Broadly the assessee receives three 'Euros' as fees per 'net booking', i.e., gross booking minus cancellation. The assessee passed one dollar to Interglobe for each net booking processed through Galileo system by subscriber. Thus, in respect of the activities carried out in India and considering the income accruing in India, remuneration paid to the Indian agents consumes the entire income accruing or arising in India..................." (Para 18 on Page 251 of Paperbook Part 1) "18..............................While dealing with the question as to what is such part of income as is reasonably attributable to the operations carried out in India, we have held that only 15 per cent of the revenue generated from the bookings made within India is taxable In India. The same proportion has to be adopted here while computing profit attributable to the PE. We have also held that since the payment to the agent in India is more than what is the income attributable to the PE in India, it extinguish the assessment as no further income is taxable in India. It is to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation if the tribunal has consciously come to the conclusion that no income accrues in India and in respect of which elaborate reasons are given, if the applicant do not agree with the reasoning, it cannot be said that any mistake has crept in the order of the Tribunal which is rectifiable under section 254(2) of the Act. We therefore decline to interfere". 36. The Hon'ble Delhi High Court in case of Galileo International Inc (GII) (Predecessor of the Appellant) in the first batch of 4 years- AY 1995- 96 to 1998-99 upheld the decision of Hon'ble Delhi ITAT for these years, vide its order dated 25th Feb 2009 (ITA No. 851 to 856 of 2008, 859 to 860 of 2008), it was held as under: "The Tribunal thereafter discussed the principle which is to be followed in apportioning the Income-tax accruing in India and the Income accruing outside India. The Tribunal found that only a part of CRS order operates and functions in India. The extent of working in India is only to the extent of channelizing the request and receiving the result of the process in India and the major functioning and collecting the data base of various airlines and hostels which have entered into PCA with the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her charged to tax in India. To same effect is the judgment of the Supreme Court in Morgan Stanley & Co. Inc.'s case (supra)" (Please refer last Para on Page 276 of Paperbook Part 1) "We, therefore, are of the opinion that no question of law arises in these matters which needs any further determination by this Court. These appeals are accordingly dismissed in limine." 37. 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. 38. AY 2017-18, PE attribution at 15% of gross revenue less the expenses (as already allowed by the Ld. AO and Ld. DRP), as per the decision of the Hon'ble Delhi ITAT Benches and Hon'ble Delhi High Court, reduces the taxable income to Nil and thus, no income is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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