TMI Blog2021 (10) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue : Sh. Umesh Takyar, Sr. DR ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order dated 30.01.2021 passed by the AO u/s 143(3) r.w.s. 1440(13) of the Income Tax Act, 1961. 2. Following grounds have been raised by the assessee: 1. That on the facts and circumstances of the case and in law, the Assessing Officer has erred in completing the assessment at the total income of INR 213,13,12,965 as against 'NIL' income declared. 2. That the Assessing Officer and the Dispute Resolution Panel ( DRP ) ought to have held that the Appellant has no income chargeable to tax in India either under the Act or under the provisions of the Double Taxation Avoidance Agreement between India and the United Kingdom ( DTAA ). 3. That the Assessing Officer and 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant's taxable income to alleged Indian permanent establishment ('PE') as per India-UK Treaty, have erred in not allowing deductions for India related expenses. 7.1. That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP has erred in not allowing deduction of distribution fees amounting to USD 69,512,742 paid to the distributors, despite same being allowed to the Appellant's predecessor for A Y 2015-16. 7.1.1. That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP has erred in allowing only 70% of distribution expenses under Section 40(a)(ia) of the Act by alleging that: - Distribution fees is in nature of commission; and - Since taxes are not deducted on such payments, expenses should be disallowed under Section 40a(ia) of the Act 7.2. That on the facts 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld by the Hon'ble Delhi High Court in case of the Appellant's predecessor itself; The Appellant has business connection in India and is receiving income from the sources in India; The payments made by the Appellant to ITQPL are in the nature of commission The payments made by the Appellant to ITQPL are in the nature of data processing fees Major part of the activities of the Appellant resulting to the income are attributable to its activities in India; Only activities carried on by the Appellant outside India correspond to the services provided by IBM; The tickets are being booked in India; The Appellant is having assets in India; The Appellant is having its sales team in India; The Appellant is providing training to its distributors 11. That on the facts and in the circumstances of the case and in law, the Ld. AO and the 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 incorporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptance that the booking is completed and the Appellant earns its booking fee from the Airline. The MCS then displays the acceptance of the offer by the Airline Server, which is communicated to the Travel Agent's computer screen. History of Appellant and its predecessor entities i.e. GII and TGDSBV 9. The CRS was earlier owned and managed by Galileo International Inc. (GII), which operated worldwide. Thereafter, in year 2002, the territory of operations of GII was split into two part: T-1 (USA and Canada) and T-2 (Rest of the world). The responsibility of carrying out business in T-2 territory was given to the TGDSBV. TGDSBV was a Netherland based entity and carried on such CRS business till 31 December 2015. 10. With effect from 01 January 2016, the CRS business of TGDSBV was assumed by the Appellant and accordingly was assessed in India for the first time as a new entity in AY 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the Ld. AO that the Hon'ble Delhi High Court and Hon'ble Delhi ITAT in those decisions held that correct attribution rate is 15% of gross booking fees and once deduction of subscriber fees/expenses is granted, no taxability remains in India. 17. The AO in conclusion held that the assessee has PE in India has a BC and PE in India. The relevant extract from the final assessment order for AY 2017-18 is re-produced as under: (Para 7.1 on page 44 and 9.1 on page 46 of the paperbook-l) 7.1 In past assessments of M/s Galileo and/or Travelport Global Distribution System BV, it has been consistently held that the assessee has a Permanent establishment in India in the form of fixed place of business PE and agency PE. It has also been held that assessee's income was chargeable to tax in India under Section 5(2) of the Income-tax Act as it had business connection in India as per Section 9(1)(i) of the said Act and a PE in India and that the revenue accruing to the respondent in respect of bookings made in India should be treated as income accruing or assessed in India and chargeable under Section 5(2) read with Section 9(1)(i) of the Act. This finding has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021 assessing the income at INR 213,13,12,965, along with a notice of demand u/s 156 of the Act computing a tax demand of INR 75,40,62,610. Ground No. 4 and 5 are related to Appellant's Business Connection PBO and Permanent Establishment ( PE ) in India 22. Ground No.4 and 5 are covered against the Appellant by the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of Appellant's predecessor entity i.e. GII and TGDSBV. 23. In the first batch of 4 years i.e. from AY 1995-96 to 1998-99 in case of GII, the Hon'ble Delhi ITAT vide its dated 30 Nov. 2007 (19 SOT 257 (DELHI) held that GII has a fixed place PE and Agency PE in form of the Interglobe in India. (Page 194 to 251 of Paperbook Part 1.) The relevant extracts from this order are re-produced as under: 17.1 In the present case it is seen that the CRS, which is the source of revenue is partially existent in the machines namely various computers installed at the premises of the subscribers. In some cases, the appellant itself has placed those computers and in all the cases the connectivity in the form of nodes leased from SITA are installed by the appellant through its agent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute business proper and not merely in the nature of internal operations. Such contracts are habitually exercised and there is nothing on record to suggest that such authority was cancelled at any point of time. We, therefore, hold that Interglobe is dependent agent of the appellant who has habitually exercised the authority to conclude contracts on behalf of the appellant. To that extent the appellant has a PE in India. Since we have held that Interglobe is a dependent agent of appellant in India, we need not discuss para (5) of Article 5 of the treaty regarding independent agent form of PE. 24. The Hon'ble Delhi High Court vide its order dated 25 Feb 2009 (ITA No. 1048 to 1055/2008 and ITA Nos. 17408/2008, 17437/2008, 17409/2008, 17438/2008, 17473-74/2008, 17469-70/2008, 17410/2008, 17439/2008 and 17471/2008 ) in case of GII for such first batch of 4 years from AY 1995-96 to AY 1998-99 held the issue of PE/BC as academic as overall taxability of GII was held to be Nil. The relevant extracts from this order are re-produced as under: These appeals were listed along with the appeals filed by Revenue against the same judgment. The appeals filed by Revenue have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by assessee in these appeals have become academic and are therefore dismissed. It is submitted that this judgement of Hon'ble High Court of Delhi in respect of assessee's appeal is also dated 25.02.2009 in ITA Nos 17408, 17409, 17437, 17438, 17473-74, 17469-70, 17410, 17439 and 17471- 72/2008. He submitted a copy of both these judgements of on'ble Delhi High Court rendered in the assessee's appeals as well as revenue's appeals. Ld. DR also agreed that these issues are covered as per these judgements. 27. Hon'ble Delhi High Court in its order dated 25th September 2012 (ITA No. 1148 to 1151/2011 and ITA No. 466 to 472/2012) in case of GII for such second batch of 4 years from AY 1999-00 to AY 2002-03 relied on the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of GII for first batch of 4 years and held that since factual matrix is same, the earlier decision of Hon'ble Delhi High Court in case of 25.02.2009 is squarely applicable i.e. issue of PE/BC is academic. 28. Against the Hon'ble Delhi High Court order for AY 1999-00 to 2002- 03, both the Income-tax department and Appellant's predecessor entity i.e. GII ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o alleged PE of the Appellant in India' 33. 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 be taxed in India. It was held as under: 9. .....In the present case, we find t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 request is further forwarded. Interglobe is also responsible for establishing connectivity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to the agent in India exceeds such apportioned revenue, no further income is taxable in India 9. We find that all is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made by the respondent to the Interglobe has been allowed as expenses while computing total Income of the respondent. After arriving at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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