TMI Blog2020 (2) TMI 1677X X X X Extracts X X X X X X X X Extracts X X X X ..... see had a business connection/PE in India. The Ground of appeal No. 2 raised by the assessee before us is dismissed. Amount of income that was attributable to the PE of the assessee in India - We herein conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 1999-2000 to A.Y 2004-05 [ 2009 (7) TMI 1341 - ITAT DELHI ] and A.Y 2005-06 to A.Y 2011-12 [ 2018 (2) TMI 1767 - ITAT MUMBAI] that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal No. 3 raised by the assessee. 10% of the expenses reimbursed by ADSIL were to be held as the business income of the assessee - HELD THAT:- As relying on assessee own case A.Y 2005-06 to A.Y 2011-12 [ 2018 (2) TMI 1767 - ITAT MUMBAI] we herein direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er by way of a consolidated order. We shall first take up the appeal of the assessee for A.Y 2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us: The appellant objects to the order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [Act] dated 25 November 2016 (received on 1 December 2016) passed by the Deputy Commissioner of Income-tax, (International Taxation) - 1(1)(1), Mumbai [DCIT] for the aforesaid assessment year on the following among other grounds: 1. The learned DCIT erred in assessing the total income of the appellant at Rs. 12,50,23,923. 1. Business connection /permanent establishment in India 2.1 The learned DCIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which all the messages are transmitted. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned DCIT/DRP erred in not following the ITAT decision in the appellant's own case for earlier years, Delhi High Court judgment in the case of Galileo International Inc. (336 ITR 264) and decision of the Delhi tribunal in case of Sabre Inc. (hA No. 2311 to 231 7/Del/2008) despite of no change in facts. 3. Reimbursement of expenses 4.1 The learned DCIT erred in holding that the reimbursement of expenses from STNIPL amounting to Rs. 3,51,92,700 are part of business income of the appellant and thereby taxing Rs. 35,19,270 (i.e. 10% of Rs. 3,51,92,700). 4.2 The learned DCIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by the appellant on airfare transaction charges, other expenses, and foreign travel and in the nature of pure reimbursement not having any element of income/service. 4.3 Without prejudice to the above, the learned DRP/DCIT erred in not following the decision of the ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Bombay High Court in appellants own case for levy of interest under Section 234B of the Act. 8. Levy of interest under Section 234C 8.1 The ld. DCIT erred in levying interest of Rs.3,62,137 under section 234C of the Act. 9. Each one of the above grounds of appeal is without prejudice to the other. 10. The appellant reserves the right to amend, alter or add to the grounds of appeal. 2. Briefly stated, the facts of the case are that the assessee is a company resident of Singapore engaged in the business of promotion, development, operation, marketing and maintenance of a Computerized Reservation System ( for short CRS ). The primary business of the assessee is to make airline reservations for and on behalf of the participating airlines by using the CRS. The participating airlines provide the necessary information which is displayed to the travel agents throughout the world so that they could guide their customers to make the necessary requests for booking of tickets through the CRS. The assessee licenses the right to market the CRS to a company in each of the Asia Pacific Countries, i.e a National Marketing Company (for short NMC ), which in tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations Aeronautiques (for short SITA ) network in all the cities from where it was transmitted via SITA network to Abacus host in USA; (iii). that on receiving the message the airlines computer would be consulted by the Abacus host for the latest position on seat availability and if a seat would be available the booking would be confirmed by the Abacus host computer and conveyed to the travel agent in India; (iv). the travel agent on receiving the message of confirmed booking from Abacus through the same communication channels which were used for its outgoing message, would receive the ticket image from the Abacus host which either would be printed by the printer in his office or issued manually to the customer. It was submitted by the assessee that it did not have a PE in India for the reason viz. (i). there was no contractual relationship between the assessee and the customer who makes the payment to the airline through the travel agent, as the revenue generated was of the airline and not of the assessee; (ii). the assessee had no PE in India in terms of Article 5(8) of the India-Singapore tax treaty; (iii). the fact that the Singapore entity controlled the company ADSIL would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting and billing, which thus proved that ADSIL was carrying on the activities of the assessee in India. The A.O further observed that the fact that the assessee had advanced interest free loans to ADSIL to boost its own business in India proved to the hilt that ADSIL was not an independent agent. The A.O further observed that the ITAT, Delhi in the case of M/s Galileo International Inc. Vs. DCIT (2009) 116 ITD 1 (Del) and Amadeus Global Travel Distribution Vs. DCIT (2008) 113 TTJ 767 (Del) had held that such activities through a Node and agent would constitute a PE under the DTAA. The A.O in the backdrop of his aforesaid deliberations concluded that the assessee had a PE in terms of Article 5 of the India-Singapore tax treaty. Accordingly, the A.O vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 07.03.2016 proposed to attribute income of Rs. 10,04,80,445/- to the assesses PE in India. 6. The A.O further during the course of the assessment proceedings observed that the assessee had received certain payments from ADSIL aggregating to Rs. 3,51,92,700/-.The assessee submitted that the aforesaid amounts were in the nature of reimbursement of expenses viz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness connection/Permanent Establishment in India, therefore, no income was liable to be brought to tax in India, did not find favour with the same. Observing, that the issue of PE in India was covered against the assessee by the orders passed by the Tribunal in the assesse s own case for A.Y 1999-2000 to A.Y 2004-05, the DRP followed the aforesaid orders and concluded that the assessee during the year under consideration had a PE in India within the meaning of Article 5(1) and 5(8) of the India-Singapore treaty. 10. The DRP further adverting to the issue as to whether any income of the assessee was taxable in India for the reason that its marketing, distribution, sales and revenue generation activities had taken place in India and whether 10% of the overall revenues generated from its Indian operations was to be treated as the income of the assessee, observed, that once it was held that the assessee had a PE in India, the revenues generated from its India operations were liable to be taxed in India as per law. The DRP observed that the said issue was also decided by the coordinate benches of the Tribunal in the assesses own case in the earlier years and the estimation of 10% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the year under consideration were similar to those involved in the preceding year, the DRP rejected the aforesaid objection of the assessee. 13. On the basis of the order passed under Sec. 144C(5), dated 26.10.2016 by the DRP, the A.O vide his order passed u/s 143(3) r.w.s 144C(13), dated 25.11.2016 assessed the income of the assessee company at Rs. 12,50,23,923/-. 14. The assessee being aggrieved with the assessment framed by the A.O u/s 143(3) r.w.s 144C(13), dated 25.11.2016 has carried the matter in appeal before us. The ld. Authorized Representative (for short A.R ) for the assessee at the very outset of the hearing of the appeal submitted that the issues involved in the present appeal were squarely covered by the consolidated order of the Tribunal in the assesses own case for A.Y 2005-06 to A.Y 2011-12, dated 16.02.2018 r.w its order dated 16.10.2019 that was passed on recall. Ld. Departmental representative did not controvert the claim of the assessee that the issues involved in the present appeal were covered by the aforesaid orders of the Tribunal in the assesse s own case. Accordingly, in the backdrop of the aforesaid factual position we shall deliberate upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributable to India, therefore, no income remained in the hands of the assessee which could be brought to tax in India. We find that to the contrary the ld. D.R had submitted that now when the Transfer pricing provisions and the related rules had been notified with effect from 01.04.2002, vide the finance Act, 2001, therefore, the adoption of the adhoc ALP of 15% of the gross receipts as the income of the assessee attributable to its India operations could not be sustained. We find that the ld. D.R had submitted that for fair determination of the income of the assessee attributable to its PE in India, the ALP was required to be determined after carrying out a FAR analysis. The ld. D.R had submitted before us that as the reliance placed by the assessee on the judicial pronouncements wherein it was held that ALP at 15% of the gross receipts in respect of CRS operation would be justified pertained to the era of pre-TP regulations, therefore, the same could not be adopted as a yardstick and transposed as such for determining the income of the assessee attributable to its PE in India for the year under consideration, viz. A.Y 2005-06. The ld. D.R on the basis of his aforesaid contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the same. Before parting, we may herein observe that we are not persuaded to accept the contention of the ld. D.R that the adhoc adoption of 15% of the gross receipts of the assessee as its income attributable to India operations as observed by the Tribunal in the case of Galileo International Inc. Vs. DCIT (2009)116 ITD 1 (Del) for A.Ys 1995-96 to 1998-99, which thereafter had been approved by the High Court of Delhi in CIT Vs. Galileo International Inc. (2011) (336 ITR 264)(Del) would not be applicable to the case of the assessee for the year under consideration, viz. A.Y 2005-06, for the reason that the adjudication in the aforesaid cases was in respect of the years falling within the sweep of the era of pre-Transfer pricing provisions, which alongwith the related rules were notified in India with effect from 01.04.2002, vide the Finance Act, 2001. We are of the considered view that not only the ld. D.R by raising the aforesaid contention had tried to build up a new case before us which is not permissible in the eyes of law, but rather, while raising the aforesaid contention had also lost sight of the fact that the aforesaid view as regards adoption of 15% of the gross receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee before us. As the facts and the issue involved in the present appeal of the assessee before us remains the same, therefore, we respectfully follow the aforesaid view of the tribunal. Accordingly, we herein conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 1999-2000 to A.Y 2004-05 and A.Y 2005-06 to A.Y 2011-12, that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal No. 3 raised by the assessee before us. 17. We shall now take up the claim of the ld. A.R that the DRP/A.O had erred in holding that 10% of the expenses reimbursed by ADSIL amounting to Rs. 3,51,92,700/- were to be held as the business income of the assessee. On a perusal of the order passed in the assesse s own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arb of filing of additional evidence before the first appellate authority. We thus finding no infirmity in the aforesaid observations of the CIT(A), therefore, uphold the declining of the admission of the additional evidence by him. We however find substantial force in the contention of the ld. A.R that now when the CIT(A) in line with the orders of the A.O and DRP in the case of the assessee for the subsequent years had observed that 10% of the aforesaid amount was to be brought to tax as the business income of the assessee, therefore, the same would be entitled for set off against the commission payment made by the assessee to its NMC, viz. ADSIL. The ld. A.R had submitted before us that if the amount of Rs.20,54,947/- was taken as the business income of the assessee, still there would be no income chargeable to tax in the hands of the assessee, because the amount of marketing fees paid by the assessee to ADSIL of Rs.10,30,00,287/-would absorb the said income element. We have given a thoughtful consideration to the contention advanced by the ld. A.R that 10% of the reimbursement amount as claimed by the assessee which had been characterized by the CIT(A) as the business income wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly strengthen the said company which was the National marketing company for the assessee in India, as the same would had facilitated garnering of more customers for the assessee in the India Market, therefore, the said advancing of interest free loan which was prompted by business prudence and commercial reasons, thus not liable to be subjected to a transfer pricing adjustment. We are unable to persuade ourselves to accept the aforesaid contention of the ld. A.R. We are of the considered view that as the advancing of the aforesaid loan by the assessee to ADSIL was an international transaction, therefore, the transfer pricing provisions stood invoked. We may herein observe that the ld. A.R had not drawn our attention to any judicial pronouncement which would go to support his aforesaid view. We find that though the ld. A.R had assailed the transfer pricing adjustment in respect of the aforesaid transaction for the reason that as the assessee had not charged any specified price, therefore, no transfer pricing adjustment in respect of the aforesaid transaction was permissible, but however, he had during the course of hearing of the appeal sbmitted that he was not pressing the said co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was looked into by the Hon ble High Court of Bombay in the case of CIT-1 Vs. M/s VFS Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.01.2017), wherein the High Court dealing with the contention of the revenue that the Tribunal was not justified in directing the A.O/TPO to determine the ALP interest by considering the LIBOR plus 2%, as against the rates of the Indian Market, had observed that the view of the Tribunal as regards determination of the ALP interest at LIBOR plus 2% appeared to be in conformity with the earlier judgment of the High Court in the case of CIT-2 Vs. Tata Autocomp Systems Ltd. (ITA No. 1320/Mum/2012, dated 03.02.2015). We are of the considered view that the Hon ble High Court of Bombay while disposing of the appeal filed by the revenue in the case of CIT-1 Vs. M/s V.F.S Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.07.2017) was not persuaded to be in agreement with the contention of the revenue that the Tribunal had erred in directing the A.O/TPO to determine the ALP interest by considering the LIBOR plus 2% and not the rates of the Indian Market. We further find that a coordinate bench of the Tribunal, ITAT, Pune Bench B , Pune, had i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid observations partly allow the Ground of appeal No. 5 raised by the assessee before us. As the facts and the issue involved in the present appeal of the assessee in context of the TP adjustment as regards the ALP of the notional interest on the loans (interest free) granted by the assessee to its AE viz. ADSIL remains the same as was therein involved in the aforesaid preceding years in the assesse s own case for A.Y 2005-06 to A.Y 20-11-12, therefore, we respectfully follow the same. Accordingly, in conformity with the aforesaid view of the Tribunal, we herein direct the A.O/TPO to take the ALP of the notional interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. 19. At the same time, we may herein observe that as the Tribunal while disposing off the appeals of the assessee for A.Y 2005-06 to A.Y 2011-12, vide its order dated 16.02.2018 had inadvertently omitted to adjudicate upon the alternative claim of the assessee that if the interest income (on interest free loan advanced to AE viz. ADSIL) was to be considered as part of its business income, there would not be any income chargeable to tax since the marketing fees paid by it to AD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 30,28,11,359/- 2009-10 (-) Rs. 35,28,72,303/- 2010-11 (-) Rs. 31,14,09,914/- 2011-12 (-) Rs. 39,70,52,993/- 8. We have given a thoughtful consideration to the aforesaid claim of the ld. A.R, and are persuaded to accept his claim. In our considered view, the notional interest income on the interest free loan advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are in agreement with the claim of the ld. A.R, that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its AE viz. ADSIL. In fact, the said claim of the assessee had been accepted by the Tribunal in context of addition of 10% of reimbursement of expenses, vide its order dated 16.02.2018. Accordingly, we allow the claim of the assessee that the notional interest income would be entitled to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. The assessee had further assailed before us the levy of interest under Sec. 234B of Rs.40,15,804/- and interest under Sec. 234C of Rs. 3,62,137/-. It was submitted by the ld. A.R that the Hon ble High Court of Bombay in the assesses own case for A.Y 2003-04, viz. the Director of Income tax (International taxation) Vs. M/s Abacus International Pte. Ltd. (ITA (L) No. 2424/Mum/2010, dated 01.07.2011), by relying on its earlier order in the case of Director of Income Tax (International taxation) Vs. N.G.C Network Asia CCC (2009) 313 ITR 187 (Bom), had concluded that the Tribunal had rightly deleted the interest levied on the assessee under Sec. 234B of the Act. We thus in terms of the aforesaid observations of the Hon ble High Court direct the A.O to delete the interest levied on the assessee under Sec. 234B and Sec. 234C. The Grounds of appeal No. 7 8 raised by the assessee are allowed. 22. The Grounds of appeal No. 1, 9 10 being general are dismissed as not pressed. 23. The appeal of the assessee is allowed in terms of our aforesaid observations. ITA No. 7379/Mum/2018 A.Y. 2014-15 24. We shall now advert to the appeal of the assessee for A.Y 2014-15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perations of Rs. 1,49,45,49,185 and treating a sum of Rs, 14,94,54,918 (10% of Rs. 1,49,45,49,185) as the taxable income of the appellant. 3.3 The learned DCIT erred in not deducting the commission and marketing service fees aggregating to Rs. 1,07,60,87,838 paid to STN in the attribution of income. 3.4 The learned Dispute Resolution Panel [DRP] erred in observing that the estimation of 10% of overall revenues from Indian operations as per Rule 10 of Income-tax Rules, 1962 as income of appellant has been upheld by the Hon ble Income-tax Appellate Tribunal [ITAT] without appreciating that while deciding the issue on attribution of income, the Hon ble ITAT has not relied on Rule 10. 3.5 The learned DCIT/DRP erred in observing that if any deduction of commission and marketing service fees paid to STN can be claimed by the appellant, it can only be claimed against the revenue of Rs.1,49,45,49,185 from Indian operations and not against the income estimated by the DCIT at l0% of total revenue. 3.6 The learned DCIT/DRP erred in not following the Hon'ble ITAT's decision in the appellant's own case for earlier years (i.e. AYs 1999-00 to 2011-12), Hon'ble Delhi Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned DCIT/DRP erred in disregarding the commercial expediency of the interest free loan and instead imputed notional interest thereon. 5.5 The learned DCIT/DRP erred in not appreciating/ considering that in respect of the adjustment of Rs. 94,68,460 to the total income of the appellant representing alleged arm's length interest on the interest-free loan granted by the appellant to STN, no corresponding deduction is allowed to STN in its tax return or assessments, and accordingly amounts to double taxation of the same income. 5.6 The learned DCIT erred in not considering the fact that if the appellant had charged interest instead of the loan being interest free there would be loss to the revenue of India, considering the deductibility of the interest expense in the hands of the borrower (i.e. STN) and low withholding tax in respect of interest due to the appellant and would not in line with the intent of the law as prescribed under section 92(3) of the Act. 5.7 Without prejudice to the above, the learned DCIT erred in not allowing corresponding deduction of the interest free loan granted by the appellant in the hands of STN. 5.8 The learned DCIT/DRP erred in not foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP vide its order passed u/s 144C(5), dated 12.09.2018 upheld the aforesaid additions proposed by the A.O/TPO. 28. On the basis of the order passed under Sec. 144C(5), dated 12.09.2018 by the DRP, the A.O vide his order passed u/s 143(3) r.w.s 144C(13), dated 26.10.2016 assessed the income of the assessee company at Rs. 16,37,62,989/-. 29. The assessee being aggrieved with the assessment framed by the A.O u/s 143(3) r.w.s 144C(13), dated 26.10.2016 has carried the matter in appeal before us. 30. It was submitted by the ld. A.R that the facts and the issues involved in the present appeal of the assessee for A.Y 2014-15 in ITA No. 7379/Mum/2018 remained the same as were there before us in the aforesaid appeal of the assessee for A.Y 2012-13 in ITA No. 664/Mum/2017. The aforesaid claim of the counsel for the assessee was not controverted by the ld. D.R. We have perused the orders of the lower authorities and find ourselves to be in agreement with the aforesaid claim of the ld. A.R. As the facts and the issues involved in the present appeal of the assessee for A.Y 2014-15 in ITA No. 7379/Mum/2018 remains the same as were there before us in its aforesaid appeal for A.Y 2012-13 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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