TMI Blog2023 (10) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... years are same. We find that the Hon ble Supreme Court in its decision [ 2023 (5) TMI 227 - SUPREME COURT] has upheld the order(s) of the Hon ble Delhi High Court that 15% of the revenue earned by the assessee is taxable in India and that since the assessee pays 33% of the booking fees to the distributors, no income is attributable to tax in India. Accordingly, we deem it fit to remit this issue to the file of the Ld. AO to decide it afresh in light of the decision (supra) of the Hon ble Supreme Court. Disallowance of expenses incurred by the assessee while computing the income attributable to the PE - AO disallowed the expenditure of Euro 45,917,375/- claimed by the assessee under the head Distribution fee following the assessment order for AY 2007-08 - HELD THAT:- It is not in dispute that facts of the present case and business model of the assessee and its PE in India are identical to the earlier years. We find that Tribunal has consistently decided the impugned issue in favour of the assessee in series of its orders for AYs 2007-08 to 2019-20 against which Revenue has not preferred any appeal before the Higher Forum. It can very well be inferred that the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the CRS of the taxpayer. Levy of interest u/s 234A and 234B - HELD THAT:- As regards levy of interest under section 234A of the Act, we observe that the Tribunal in its decision [ 2022 (9) TMI 709 - ITAT DELHI] for AY 2017-18 to 2019-20 remitted the matter back to the file of Ld. AO for verification and decide the matter afresh in accordance with law. Thus we deem it fit and proper to restore this issue to the file of Ld. AO for verification as to the filing date of return viz-a viz the due date of filing of return for the year under consideration in the light of the CBDT Circular dated 30.12.2020. Levy of interest under section 234B - As in the absence of any liability for payment of advance tax since tax is deductible at source on the income of the assessee held liable to tax in India, the levy of interest under section 234B of the Act is not warranted. Further, in the present case the income has been received by the assessee after deduction of tax at source. Thus levy of interest under section 234B of the Act is not called for. - Shri G.S. Pannu, Hon ble President And Ms. Astha Chandra, Judicial Member For the Appellant : Sh. Neeraj Jain Shri Tavish Verm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of the alleged PE in India. 5.1 That the DRP/ assessing officer erred on facts and in law in alleging that the appellant was not making any payment to AIPL towards the activities of marketing the appellant's CRS and providing the hardware support to the travel agent and therefore, the distribution fee paid to AIPL was not at arm's length and consequently, AIPL constituted dependent agent PE of the appellant. 5.2 That the DRP/ assessing officer erred on facts and in law in alleging that the appellant exercised control over the subscribers/ travel agents through AIPL. 5.3 That the DRP/ assessing officer erred on 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 withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in law in disallowing expenditure of Euro 17,757,948/- incurred by the appellant under 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 13,459.711/- 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that payments received by the appellant from various airlines in relation to the alleged use of Altea system was taxable in India as 'royalty' both under section 9(1)(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 43.88 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 under section 234A and section 234B of the Act. 3. Briefly stated, assessee is a tax resident of Spain. The assessee along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to furnish its explanation on each issue:- (i) Whether the assessee has a PE in India? (ii) If so, how much profits are attributable to the PE? (iii) Whether the booking fee received by the assessee from CRS is in the nature of royalty income taxable in India? (iv) Whether the receipts from Altea Reservation System are in the nature of royalty/FTS taxable in India? 5. For AY 2020-21, the assessee filed its return of income on 10.01.2021 declaring nil income and claiming refund of Rs. 88,64,94,000/-. The assessee s case was selected for scrutiny and statutory notices along with detailed questionnaire were issued to the assessee from time to time electronically through ITBA in response to which the assessee filed reply/submissions electronically which were duly analysed by the Ld. AO. The Ld. Dispute Resolution Panel ( DRP ) vide its order dated 05.04.2023 upheld the findings of the Ld. AO in respect of all the four issues mentioned in para 4 above. Consequent to the directions of the Ld. DRP, the Ld. AO passed the final assessment order on 30.5.2023 under section 143(3) r.w.s. 144C(13) computing the total income of the assessee as under:- Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court has upheld the order(s) of the Delhi Tribunal. The Ld. AR further submitted that recently the Hon ble Supreme Court vide order dated 19.04.2023 has decided the issue of attribution of profit to the alleged PE of the assessee in India upholding the order of the Delhi High Court confirming that 15% of the revenue earned by the assessee is taxable in India. Since the issue on attribution has attained finality, the ground of existence of PE of the assessee in India has become academic in nature. The Ld. DR conceded to the submissions of the Ld. AR. 9. We have considered the submissions of the parties and perused the records. We find that the impugned issue is squarely covered in favour of the Revenue by series of Tribunal s order from AYs 1996-97 to 2019-20 in assessee s own case which has been affirmed by the Hon ble Delhi High Court. We have also perused the order of the Hon ble Supreme Court dated 19.4.2023 in Civil Appeal Nos. 6511-6518/2010 (placed at pages 346-363 of Paper Book-I). The Hon ble Supreme Court in para 21 of its decision (supra) has held as under:- 21. Therefore, we are of the view that the impugned order(s) of the High Court do not call for inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributors, no income is attributable to tax in India. The relevant observations and findings of the Hon ble Supreme Court in its decision (supra) are reproduced below: 6. There is no dispute on fact that the respondents earn an amount of USD 3/EURO 3 according as the case may be, per booking made in India. It is also not in dispute that out of the said earning, of USD 3/EURO 3, the respondents pay various amounts to the Indian entities, which range from USD/EURO 1 to USD/EURO 1.8. In other words, the amount paid by the respondents to their Indian entities, range from 33.33% to about 60% of their total earning. 7. The respective Assessing Officers in the original proceedings came to the conclusion that the entire income earned out of India by the respondents is taxable. This was on the basis that the income was earned through the hardware installed by the respondents in the premises of the travel agents and that therefore the total income of USD/EURO 3 is taxable. 8. The orders of assessment so passed, were upheld by the respective Commissioners of Income Tax (Appeals) by independent orders. 9. Appeals were filed by the respondents before the Tribunal and the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation 1-For the purposes of this clause- (a) in the case of a business other than the business having business connection in India on account of significant economic presence of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. 18. Under Explanation 1(a). what is reasonably attributable to the operations carried out in India alone can be taken to be the income of the business deemed to arise or accrue in India. What portion of the income can be reasonably attributed to the operations carried out in India is obviously a question of fact. On this question of fact, the Tribunal has taken into account relevant factors. 19. However, learned Additional Solicitor General referred to Article 7 of the 'Convention between the Government of the United States of America and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - incurred for earning revenue from bookings made from India. The Ld. DRP upheld the order of the Ld. AO. Aggrieved, the assessee is in appeal before the Tribunal challenging the aforesaid disallowance of expenses by the Ld. AO/ DRP. 16. The Ld. AR submitted that similar expenditure has been allowed since inception i.e. AYs 1996-97 to 2006-07 and in view of there being no change in facts or law, no disallowance is warranted in the present year too. He submitted that the aforesaid position has been recently upheld by the Tribunal in assessee s own case for AYs 20017-18 to 2019-20. He further submitted that the Revenue has accepted the said decision of the Delhi Tribunal and did not challenge the same before the Delhi High Court. (pages 365-367 of the Paper Book-II referred). The Ld. DR conceded with the submissions of the Ld. AR. 17. We have considered the submissions of the parties and perused the records. It is not in dispute that facts of the present case and business model of the assessee and its PE in India are identical to the earlier years. We find that Tribunal has consistently decided the impugned issue in favour of the assessee in series of its orders for AYs 2007-08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. Ground No. 15, 16 and 17 relates to taxability in India of booking fee amounting to Euro 102,026,836/- received by the assessee as royalty both under section 9(i)(vi) of the Act as well as under Article 13(3) of the India- Spain DTAA. The Ld. AO, on an alternate basis, held that booking fee received by the assessee is taxable as royalty both under section 9(1)(vi) of the Act and Article 13 of the India-Spain DTAA on the ground that the 'booking fee' received by the assessee from various airlines is payment for use of process and scientific equipment. The Ld. DRP upheld the order of the Ld. AO. 20. The Ld. AR argued that in terms of section 44DA of the Act and Article 13(5) of the India-Spain DTAA payment in the nature of royalty which is effectively connected with the PE of the non-resident is required to be taxed as business income. Such income is required to be computed on net basis, i.e., considering the expenses incurred to earn the income. The said income cannot be brought to tax in India on gross basis. He relied on the decision of the Hon ble Delhi High Court in the case of DIT vs. Rio Tinto Technical Services 340 ITR 507 (Del.). He also referred to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te BV Ors. Accordingly, this question also does not arise for our consideration, as it also stands covered by the aforesaid decision of the court. 10. Given this position, we are of the view that none of the questions of law, as proposed, arise for our consideration. 22. Respectfully following the decision(s) of the Hon ble Delhi High Court (supra), we hereby allow ground No. 15 to 17 of the assessee. Ground No. 18 to 20: Altea system 23. The assessee has also challenged the finding of the Ld. AO that he has on an ad hoc and arbitrary basis brought to tax payments received from various airlines in relation to the use of Altea System as royalty both under section 9(1)(vi) of the Act and Article 13(3) of the India-Spain DTAA on the ground that the payment received by the assessee is for use of process and scientific equipment. The Ld. AO observed that Altea system is not merely an inventory management and hosting system as claimed by the assessee but provides key operational services to various airlines like accepting payment and issuance of travel documents, performing credit card validation, maintaining data security, manage customer check ins, etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the decisions placed before us. We may refer to the recent decision of the Coordinate Bench of the Delhi Tribunal in ITA No.2/Del/2021 for AY 2017-18, ITA No. 1465/Del/2022 for AY 2018-19 and ITA No. 1466/ Del/2022 for AY 2019-20 wherein the Tribunal following the order(s) of the Coordinate Bench for earlier AYs held as under: 31. Following the order passed by the coordinate bench of the Tribunal in AYS 2007-08 to 2012-13, we are of the considered view that payment received by the taxpayer from British Airways in relation to alleged use of 'Altea system' cannot be characterized as 'royalty' either under the Act or under the Indo- Spain Treaty because Altea system was installed at the airport and was accessed only by the airlines and not by the Amadeus's agents viz. Resbird, Amadeus India and that during the year, the said system was available to British Airways for the aforesaid purpose and that too only at the airport counter and the said software was not available outside the Indian airport or to any of the agents of the taxpayer since the agents were booking the tickets only through the CRS of the taxpayer. Consequently, grounds No. 18, 19 20 of I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of the A.O for fresh consideration in accordance with law. Thus, we allow the Assessee s Ground No. 21 in ITA No. 1466/Del/2022 and 1465/Del/2022 are allowed for statistical purpose. 29. Following the decision (supra) of the Coordinate Bench of Delhi Tribunal, we deem it fit and proper to restore this issue to the file of Ld. AO for verification as to the filing date of return viz-a viz the due date of filing of return for the year under consideration in the light of the CBDT Circular (supra) and decide it afresh in accordance with law. 30. So far as levy of interest under section 234B of the Act is concerned, the Ld. AR submitted that this issue is squarely covered by the decision of the Delhi Tribunal in assessee s own case for the AYs 2013-14 to 2019-20 which now stands affirmed by the Hon ble Delhi High Court as well. He brought to our notice the relevant finding / observation of the Tribunal in its decision(s) (supra) and submitted that in the absence of any liability for payment of advance tax since tax is deductible at source on the income of the assessee held liable to tax in India, the levy of interest under section 234B of the Act is not warranted. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce tax is deductible at source of 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 wef 01.04.2012 would apply only in a situation 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 deduction of tax at source, the proviso is not applicable as has been held by the coordinate Bench of the Tribunal in BG International Ltd. vs DCIT in ITA No.31/DDN/2020 order dated 31.12.2020, Even otherwise, when no addition sustains section 234B would not apply. So, ground no.21 of ITA Nos.2007/Del/2017, 3494/Del/2018 7970/Del/2018 7047/Del/2019 for Assessment Years 2013-14, AY 2014 15, AY 2015-16 AY 2016-17 respectively is determined in favour of the taxpayer. 10. Given this position, we are of the view that none of the questions of law, as proposed, arise for our consideration. 33. Respectfully following the decision of the Delhi Tribunal which is affirmed by the Hon ble Delhi High Court, we hold that levy of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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