TMI Blog2022 (9) TMI 709X X X X Extracts X X X X X X X X Extracts X X X X ..... s are hereby confirmed. Computing the profit attribution to the PE of the assessee in India - By following the orders passed by the coordinate Bench of the Tribunal in earlier years and the Judgment of the jurisdiction High Court [ 2011 (5) TMI 1114 - DELHI HIGH COURT] , 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 approximately of the booking fee per segment, no further addition can be made during the year under assessment. Disallowance of expenditure under the head of Development fees and under the heads of Central Operating cost while computing the income attributed to the tax payers PE in India - HELD THAT:- The very same issue has also been decided in favour of the taxpayer by the Tribunal [ 2020 (11) TMI 206 - ITAT DELHI] for AYs 2007-08 to 2012-13. It is also not in dispute that facts of the present case and business model of the taxpayer and its PE in India are identical to the earlier years. As gone through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the TDS claimed by the assessee - On hearing both the sides we deem it fit to restore the said issue to the file of the A.O with a direction to grant credit of the TDS in accordance with law after verifying the materials available on record. - I.T.A. No. 2/DEL/2021 And I.T.A. No. 1465/DEL/2022 And I.T.A. No. 1466/DEL/2022 - - - Dated:- 13-9-2022 - Shri Shamim Yahya, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Assessee : Shri Neeraj Jain; Shri Anshul Sachhar, Shri Tavish Verma, Advocates; For the Department : Ms. Sapna Bhatia, [CIT] D.R.; ORDER PER YOGESH KUMAR U.S., JM These three appeals are filed by the assessee against the final Assessment Order passed by the Assistant Commissioner of Income Tax Circle INT-TAX 1(1)(1) Delhi, under Section 143(3) r.w.s.144(C)13 of the Act for assessment years2017-18, 2018-19 and 2019-20 respectively. 2. The assessee has raised the following common grounds of appeal (except for the amounts):- 1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs.661,28,11,902/- as against Nil income returned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law in holding that AIPL constituted PE of the appellant under Article 5(4) of the Treaty on the ground that AIPL was carrying out negotiations with the subscribers/ travel agents without appreciating that in terms of the said Article, PE is constituted only when such enterprise has and habitually exercises authority to conclude contracts 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 such offices of Amadeus constitute PE of the appellant. Re: Attribution of Income Withoutprejudice 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 Rs. 448,41,17,951/-. 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 distri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head Development fees , while computing the income attributable to the alleged PE, following the assessment order for assessment year 2007-08. 13. That the DRP/ assessing officer erred on facts and in law in disallowing expenditure of Euro 105,48,000/- incurred by the appellant under the heads Marketing cost and Central operating 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s royalty both under section 9(l)(vi) of the Act and Article 13(3) of the Treaty. 19. That without prejudice, the DRP/ assessing officer erred on facts and in law in not appreciating that the payments received from various airlines in relation to the Altea System were not sourced in 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 30.7403 million as the income of the appellant liable to tax in India as royalty for the alleged use of Altea system by various airlines, without affording an opportunity of being heard to the appellant, in gross violation of the principles of natural justice. Re: Charge of interest 21. That the DRP/ assessing officer erred on facts and in law in levying interest of Rs. 94,71,87,472 under section 234B of the Act. Re: TPS credit 22. That the DRP/ assessing officer erred on facts and in not granting the TDS credit to the appellant as claimed by it in its return of income. The appellant craves leave to add to, alter, amend or vary the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) (between India Spain) and taxed the same at 10%. The gross booking revenue in respect of bookings arising from India comes to ERUO 154,855,000/- (Rs.1072,33,37,098/-) and tax has been computed at Rs.107,2333710/- AO also computed the amount of EURO 27.3734 million which is held to be the receipt of the taxpayer on account of use of the Altea system for its operation in India which comes to Rs.212,86,93,951/- and same is taxed as royalty @ 10% as per Article 13(2)(ii) of the DTAA between India Spain amounting to Rs.212,86,93,951/-. AO also levied the interest under section 234B and charging of interest levied u/s 234A, 234C and 234D is mandatory and consequential. AO accordingly assessed the total income of the taxpayer at Rs.661,28,11,902/- 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. Aggrieved by the final assessment order dated 03-11-2020, the Assessee has preferred the present Appeal on the grounds mentioned above. 6. The Ld. Counsel for the assessee submitted that the issue is involved in the present appeal are recurring in nature. The Co-ordinate Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istency, the additions made by the AO/DRP in the present Appeals are hereby confirmed and grounds No.3, 4, 5 6 of I.T.A. No. 2/DEL/2021(A.Y 2017-18),I.T.A. No. 1465/DEL/2022 (A.Y 2018-19) and I.T.A. No. 1466/DEL/2022(A.Y 2019-20)respectively are decided against the assessee. GROUND Nos. 7 TO 10 OF. I.T.A. No. 2/DEL/2021(A.Y 2017-18) I.T.A. No. 1465/DEL/2022 (A.Y 2018-19) I.T.A. No. 1466/DEL/2022 (A.Y 2019-20) 13. The Ground No. 7 to 10 are regarding computing the profit attribution to the PE of the assessee in India at Rs. 448,41,17,951/-(the amount referees only to ITA No. 2/DEL/2021 (A.Y 2017-18 ) and for other Appeals amount differs) 14. 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. 15. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , vide order dated 16.11.2016 passed for assessment years 1999-00 and 2000-01, following the order for the assessment years 1996-97 to 1998- 99, held that 15% of the revenues earned by Amadeus from its activities in India shall be attributable to the PE. It is also pertinent to point out that the ITAT, vide 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 appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 21. By following the principle of consistency, we follow the order passed by the coordinate Bench of the Tribunal in Assessee s own case vide order (supra), The Grounds No. 11, 12, 13 14 of I.T.A. No. 2/DEL/2021(A.Y 2017-18), I.T.A. No. 1465/DEL/2022 A.Y 2018-19) and I.T.A. No. 1466/DEL/2022 (A.Y 2019-20)respectively are allowed. GROUND NOS. 15 to 17 OF I.T.A. No. 2/DEL/2021(A.Y 2017-18 I.T.A. No. 1465/DEL/2022 A.Y 2018-19 I.T.A. No. 1466/DEL/2022 (A.Y 2019-20) 22. Ground No. 15 to 17 are in respect of holding the booking fee of Euro 15,48,55,000/- received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. 23. The Delhi Tribunal in assessee's own case for the assessment year 2006-07 has held that booking fee received by ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 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 divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use to the participating airlines. Further, no payment is made by the subscribers, viz., the travel agents to the appellant, unlike the aforesaid case. In that view of the matter, the booking fee received by the appellant from the participating airlines does not answer the description of 'royalty' and, thus, is not chargeable to tax in India. 24. Since, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 passenger checking and flight departure management. The British Airways uses ARS on its website and for revenue management system. We also heard the argument of the assessee that the ARS has no relation to the PE of the assessee in India. The source of revenue received by the assessee in connection with ARS is not situated in India. We find that ARS is essentially an inventory hosting and management system developed by the assessee which some airlines outsourced to Amadeus, with British Airways as a launch customer. The payment for the ARS is made by the British Airways for the use of the system for the business in India at the Indian Airport is an undisputable fact. While the contention of the assessee is that the softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State or requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eans 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 this Article means payments of any kind to any person other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent Personal Services), in consideration for the services of a technical or consultancy nature, including the provision of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees f or technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn 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 ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 becomes especially important in the context of Explanation 6, which states that whether the 'process' is secret or not is immaterial, the income from the use of such process is taxable, nonetheless. Explanation 6 precipitated from confusion on the question of whether it was vital that the process used must be secret or not. This confusion was brought about by a difference in the punctuation of the definitions in the DTAAs and the domestic definition. For greater clarity and to illustrate this difference, we reproduce the definitions of royalty across both DTAAs and sub clause (iii) to Explanation 2 to 9(1)(vi). Article 12(3), Indo T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect 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 Ltd.56. An illustration of the aid derived from punctuation may be furnished from the case of Mohd. Shabbir v. State of Maharashtra where Section 27 of the Drugs and Cosmetics Act, 1940 came up for construction. By this section whoever manufactures for sale, sells, stocks or exhibits for sale or distributes a drug without a license is liable for punishment. In holding that mere stocking shall not amount to an offence under the section, the Supreme Court pointed out the presence of comma 98 F 240 (1899) 103 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Organization 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 clause (iii) of Explanation 2 to Section 9(1) (vi) of the Act. This fact is also not in dispute. The learned counsel for the appellant had relied upon the commentary issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under: '9.1 Satellite operators and their customers (including broadcasting and telecommunication enterprises) frequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (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 the asset involved (right, etc.) to the payer of the royalty. The other, just as clear- cut extreme is the exercise by the payee of activities in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer.' 77. The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 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 against the Revenue. The appeals fail and are dismissed, without any order as to costs. 32. In view of the law laid down, the revenue is here by directed not to tax the royalty in accordance with the judgment of the Hon'ble High Court. 31. Following the order passed by the coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 94,71,87,472/-, Rs.1,00,81,92,800/- and Rs. 80,57,22,360/- respectively for failing to pay the advance tax. 35. The Ld. Counsel for the assessee submitted that in the absence of any liability for payment of advance tax since the tax is deductable at source on the income of the assessee held liable to tax in India, the levy of interest u/s 234B of the Act is not warranted. The ld. Counsel for the assessee has drawn our attention to the assessee s own case for AY 2013-14 to 2016-17 in ITA No. 2007/Del/2017 and connected appeals, wherein it is held as under:- 32. AO/ DRP levied the interest u/s 234B of the Act. 33. Ld. AR for the taxpayer contended that in the absences of any liability for payment of advance tax since tax is deductible at source on the income of the taxpayer held liable to tax in India, the levy of interest u/s 234B is not warranted. 34. Provisions contained below Section 209(1)(d) of the act introduced by Finance Act, 2012 w.e.f 01/04/2012 would apply only in a sidcution where persons responsible for tax has paid or credited such income without deduction of tax. In the instant case, since the income has been received by the taxpayer after deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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