TMI Blog2024 (2) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee from customers in India are attributable to the alleged PE of assessee in India HELD THAT:- We have no hesitation to hold that having regard to various clauses and recitals of the agreements of the participants in the case of Galileo [ 2007 (11) TMI 329 - ITAT DELHI-B] as the Tribunal has reached the finding of fixed place PE, the changed model in case of assessee dilutes all those reasons. No more computers of travel agents are found to be installed or configured under any agreement of the assessee with any of its participant global subscribers. Galileo through Interglobe was exercising complete control over the computers installed at the premises of the travel agents which may have been the case of the assessee also prior to 2005 when it was working through intermediary NMD. At presently after 2005 the agent codes access to Sabre CRS is through global subscribers and the agents themselves arrange for the communication link which was also earlier provided in case of Galileo by Interglobe. Thus, we are of the considered view that Ld. Tax Authorities below having failed to examine the Sabre s Participating Carrier Distribution and Service Agreement or Service Provider A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old there was no Agency PE, also. - Sh. G.S.Pannu, Hon ble Vice President And Sh. Anubhav Sharma, Judicial Member For the Assessee : Sh. Tarandeep Singh, Adv. For the Revenue : Sh. Vizay B. Vasanta, CIT-DR ORDER PER ANUBHAV SHARMA, JM: Assessee has come in appeal challenging the final assessment order dated 29.10.2015 in A.Y. 2012-13, dated 08.11.2016 in A.Y. 2013-14, dated 26.05.2017 in A.Y. 2014-15 dated 27.09.2018 in A.Y. 2015-16, dated 16.05.2019 in A.Y. 2016-17 respectively and Revenue has come in appeal against the final assessment order dated 29.10.2015 in A.Y. 2012-13 u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) coupled with challenging the DRP findings in observations. As the appeals are based on common set of facts and legal aspects, the appeal ITA No. 216/Del/2016, A.Y. 2012-13, is taken as the lead case and facts, wherever relevant to be reproduced, shall be from AY 2012-13 and findings shall apply pari materia to other AYs. 2. The brief facts of the case are that Sabre GLBL Inc. ( the assessee or Sabre ) (earlier known as Sabre GLBL Inc.) is a company incorporated in USA. The assessee is a tax resident of USA. The Prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015 for AY 2010-11 under Section 144C(1) / 143(3) of the Act by Deputy Commissioner of Income Tax, Circle 3(1)(2), International Taxation, New Delhi was served on the assessee proposing to assessee the total income at INR 28,941,670 holding that Sabre constitutes a permanent establishment (PE) in India and attributing total profits earned from booking fee originating from India to the PE. 4. Assessee went before DRP and filed Objections. The assessee had objected to the proposed adjustments on 4 counts which were dealt by DRP as follows; 4.1 First objections was challenging the allegation of assessee having (1) a fixed place Permanent Establishment ( PE ) under Article 5(1) of the Treaty; (2) and constitutes a Dependent Agent Permanent Establishment ( DAPE ) under Article 5(4) of the DTAA. Further that AO erred in proposing to hold that the assessee has a business connection in India under Section 9(1) of the Act. 4.2 In this context the primary objection of the assessee was that in proposing to hold so, the AO has erred in following the assessment order for earlier years without appreciating that facts of the assessee's case for the year under consideration are materially diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise of the other Contracting State, that enterprise shall be deemed to have a PE in the first-mentioned state subject to fulfillment of certain conditions specified therein. 7. The case of assessee was that Post Feb 2005, access to the Sabre CRS was no longer directly distributed to Indian travel agencies after the SITAR agreement was canceled. Instead, Sabre entered into subscriber agreements with travel agencies in countries outside India (referred to internally as Global Subscribers) who have locations in multiple countries which may also include India, who are allowed to access the Sabre CRS. These global subscriber agreements are generally entered into by the Sabre in the country in which the global subscriber has its headquarters. For example, Sabre has a global subscriber agreement with American Express ( AMEX ) in the US which allows the AMEX affiliates worldwide, including in India, to access the Sabre system. Sabre pays an incentive fee to the global subscribers for each booking their agents make in the system under an incentive based addendum to their global subscriber agreement. So, for example, Sabre may charge an airline a booking fee of $4.00 per booking and pay an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting part of the CRS system. The computer so installed cannot be shifted from one place to another even within the premises of the subcriber, 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 I of article 5 of Indo-Spain treaty. 10. In view of the above discussion, DRP did not find any error in the action of the AO and also upheld it in view of provisions of section 9 of the Act. 11. Taking third objection on attribution. It has been submitted on behalf of the assessee, before the panel, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case and in proposing to levy interest under Section 234A, 234B, 234C and 234D of the Act. 14. The DRP held these objections are premature and consequential. DRP, however, laid that the obligation to pay advance tax remained in view of the appellate findings for the prior periods. The assessee shall be liable for the same. However the AO may correct any computational errors in view of the attribution as per directions here above. 15. Accordingly DRP issued directions to the AO to complete the assessment and consequently AO passed the final assessment order against which the Revenue and assessee both are in appeals. 15.1 The grounds raised by assessee in appeal ITA no. 216/Del./2016 for A.Y. 2012-13 ; 1. That on facts and in law the AO erred in assessing the total income of the appellant at Rs. 1,40,27,290/- as against a returned total income of Rs. Nil. 2. That on facts and in law the AO/ DRP erred in holding / upholding that the appellant has a : (a) Permanent Establishment in India in accordance with Article 5 of the India-USA Double Taxation Avoidance Agreement. (b) Business Connection in India in accordance with section 9 of the Income Tax Act. 2.1 That on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in law, the DRP has erred in placing reliance on the decision of the Hon'ble ITAT in assessee's own case for AYS 1997-98 to 2005-06 in attributing only 15% of total Booking fees to the Indian PE, when the assessee itself has acquiesced in the taxation of the entire receipts originating from India as income for the AYS 2006-07 to 2011-12. (v) The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. 16. Heard and perused the record. The ground no. 1 as raised is general and the ground no. 2 which is sub ground is the foundation of remaining grounds. Therefore, we proceed to first determine ground no. 2 with sub ground as follows. 17. Ld. AR has primarily reasserted the submissions which were raised before the AO or DRP. His stress was on the assertion that there was change in the manner of operations in India as compared to earlier years. He had submitted that in the earlier years i.e. prior to 2005 the computers and peripherals were at the cost of NMD but subsequently, the NMD was no more in the picture and the assessee then entered into the subscriber agreements with travel agencies in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, which affords access to the agents to the assessee s mainframe, computers in USA for the purpose of finding out the matching of the MTCN numbers, has been installed in the premises of the agents and hence taken together with the premises constitutes the PE. The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business. The software is the property of the assessee and it has not parted with its copyright therein in favour of the agents. The agents have only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the purpose from the premises of the agents cannot in our opinion lead to the decision that the premises-cum-software will be the PE of the assessee in India. Under article 5.2(j) and installation may amount to a PE provided it is used for the exploration of natural resources. Therefore, even if the software is to be considered as an installation, since it is not used for exploration or exploitation of natural resources it cannot per se be treated as a PE . 18. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the agent is not independent. Reliance for this was placed on Western Union s case (supra). 20. As with regard to the query raised as to why assessee had not challenged the holding of PE in relevant AYs after 2005, it was submitted that first thing is there is no res-judicata in income tax proceedings. So if the assessee has accepted assessment orders for AY 2008-09, 2009-10 2011-12 findings of which are identical to the impugned order of assessment will not act as a res judicata for challenging similar findings of the AO in the year under consideration. Further, vide a letter dated 09-08-2023 (filed during the course of hearing on 10-08- 2023), assessee had duly narrated the facts and circumstances wherein though aggrieved, in order to buy peace and avoid protracted litigation on account of low financial impact, it did not file appeals against assessment orders for AYs 2009- 09, 2009-10 and 2011-12 before CIT(A). 20.1 Here itself, we are inclined to observe that there is force in the aforesaid submissions of Ld. AR, that for quite valid reasons the assessee had not challenged the assessment orders for AY 2008-09, 2009-10 2011-12. Even otherwise, Assessee is best judge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999-2000 and 2004- 5 to hold that there was a fixed place PE of assessee in India and an agency PE of assessee in India. In order to determine this question we first need to go through the history of litigation of assessee. In A.Y. 1997-98 to 2005-06 vide ITA no. 2311 to 2317/Del/2018 and ITA no. 2493 to 2499/Del/2018 following decision of Hon ble Delhi High Court in case of M/s. Galileo International reported in 336 ITR 264 (Del) fixed place PE and Agency PE were found to be in existence. The copy of this order is available in paper book II at page no. 120 to 131 show that the Co-ordinate bench following the judgment of Hon ble Delhi High Court in the case of Galileo International Corporation order dated 25.02.2009 considered the facts of the case of assessee identical and accordingly holding that there was fixed place PE and Agency PE followed the order of Hon ble High Court in term of attribution of profit also. Subsequently, by order dated 10.07.2009 for A.Y. 1999-2000 and 2005-06 following the order passed for A.Y. 1997-98 the appeals were allowed. 25. In High Court as Revenue went in appeal, the two appeals were disposed of in terms of the decision of Hon ble Delhi High in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Global Travel Agents like Amm/ Travel agents. 28. Now when we take the case of M/s. Galileo International Inc. it comes up that the Tribunal in its order dated 30.11.2007 had extensively reproduced various clauses and recitals from the Participating Carrier Agreement or PCA entered into by Galileo International Inc. with various participants. The Tribunal has taken into consideration and reproduced various clauses and recitals of the distribution agreement between Galileo international Inc. with Interglobe Enterprises Pvt. Ltd. (Interglobe) an unrelated company to market and distribute CRS services to the travel agent in India. Pertinent to mention is that Galileo International appointed Interglobe as the sole and exclusive distributor of Glileo international CRS Services in the market region and it was agreed Interglobe shall establish the Indian NDC with the name Galileo India. Further Interglobe had undertaken to Galileo International that it will accept Air India and Indian airlines as participant, associate or shareholder Indian NDC. 28.1 It will be beneficial to reproduce certain clauses of the distribution agreement between Galileo International with Interglobe from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusive of freight and duty (duty to be initially paid by Interglobe and reimbursed by Galileo International) and that all costs incurred after delivery including but not limited to installation, testing, maintenance and post customs warehousing shall be the responsibility of Interglobe. Galileo International will retain title to all computer hardware supplied to Interglobe as contemplated in this Clause 6.5. 28.2 Then the Tribunal in the case of Galileo International reproduced and considered various clauses and recitals of the subscriber agreement which Interglobe had entered into with various travel agent to provide the travel agents with access code, equipment, communications link and support services. It will be again relevant to reproduce some of the clauses of this subscriber agreement which was taken into consideration by the Tribunal in the case of Galileo International. Interglobe in turn enters into Subscriber Agreements with various TAs to provide the TAs with access codes, equipment, communications link and support services. The TAs may chose to obtain access to the Appellant's CRS through the access code provided by the Interglobe or they may chose to independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judicial pronouncements, we may appreciate the facts and deal with the issue. The appellant has developed a fully automatic reservation and distribution system known as Galieleo system with ability to perform comprehensive information, communication, reservation, ticketing, distribution and related functions on a worldwide basis. Through this Galileo system, the appellant provides service to various participants i.e. Airlines and hotels etc. whereby the subscribers who are enrolled through the efforts of NMC can perform the functions of reservations and ticketing etc. Thus the Galieleo system or the CRS is capable not only processing the information of various Airlines for display at one place but also enables the subscribers to book tickets in a way which is a seamless system originating from the desk of the subscriber's computer which may or may not be provided by the appellant but which in all cases are configured and connected to such an extent that such computers can initiate or generate a request for reservation and also receive the information in this regard so as to enable the subscriber to book the Airlines seat or hotel room. The request which originated from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Distribution Agreement, the assessee specifically authorises Interglobe (Galileo India) to conclude agreements with the Travel agents in India in accordance with the model Subscriber Agreement which forms an annexure to the said Agreement. 4) Assessee lays down targets and closely supervise and reviews the performance of Galileo India on day today basis in accordance with the Annual Plan and the service manual prescribed by it as per Clause 14 of Distribution Agreement. 5) Assessee allots access code to the travel agents for using the CRS. 6) The assessee's business comprises of: a) Maintenance and running of CRS; b) Providing computer modem and software to the travel agents in India so that they can use the CRS for making the bookings which generate charge on the airlines; c) Assessee hires from SITA and maintains and operates telecommunication network in India so that travel agents could make the bookings. All these activities are integral part of the core business carried on by the assessee and these are not auxiliary or preparatory in nature. The contention of Shri Vyas regarding reliance on the decision in the case of Fisher v. Bells (supra) in this case is misplaced. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving and booking a ticket. Thus it cannot be considered as solely for the purpose of advertisingn of such CRS system. Similarly it is not in the nature of 'preparatory or auxiliary' character. It is difficult to distinguish between the activities which are 'preparatory or auxiliary' character and those which are not. The decisive criteria is whether or not the activity of the fixed place of business in itself forms an essential and significant part of the activity of the enterprise as a whole. Since part of the function is operated in India which directly contributes to the earning of revenue, the activities as narrated above carried out in India is in no way of 'preparatory or auxiliary' character. Thus the exception provided in Paragraph 3 of Article 5 will not apply and hence as stated above, the assessee shall be deemed to have a permanent establishment in India. 28.6 The Tribunal next examined the question of existence of dependent agent PE and made following observations in para 17.3 and 17.4 ; 17.3 The next question arises is whether the assessee has a PE in India in the form of a dependent agent. It is commonly accepted principle that an enterprise s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs is earned on solely for the appellant. Though Interglobe might be carrying on any other activities, like a full fledge travel agency business, yet in respect of activity relating to installing CRS system of appellant at Subscribers Computers Provide connectivity, configuring the computers to enable it to access CRS, train the subscribers etc. is only and only for the appellant. Such type of activities are not carried on for any other person. Hence, the appellant and Interglobe are interdependent in this regard. The business of Interglobe is to provide data processing and software development services together with relative distribution of Galileo System' to the subscribers in India. Interglobe has also an authority to enter into agreements with the subscribers. Interglobe installs the computers, configures the computers for accessing the CRS and also provides connectivity through SITA notes. Thus functionally as well as financially it is dependent entirely on the appellant. It can therefore, be said that Integlobe is a dependent agent of the appellant. 17.4 The next question to be decided is whether Interglobe is habitually exercising an authority to conclude contracts on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lain reading of Treaty, there is no such provision that the contract to be habitually concluded should contribute to the revenue. In our opinion, what is relevant is that such contract shall have a nexus with the business operations as such and not merely contracts for hiring employees, premises etc. What is taxable in the contracting state is the income accruing to such enterprise and the activities are carried on either through the PE namely fixed place or through a dependent agent. The dependent agent is not Ho be considered as PE unless he has authority to conclude contract on behalf of such enterprise. The authority to conclude contracts must be in respect of contracts relating to operations, which constitute the business proper of the enterprise. The appellant in the present case in order to enhance its business operations has appointed Interglobe as its agent who promote the 'Galileo System' in India. Interglobe m its turn has appointed various subscribers for use of 'Galileo System'. Though the revenue flows only from participants who have entered into PCA with the appellant, yet the revenue could not have been generated but for the subscribers using the Gal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International had PE in India and other related issues. 29. Thus, based upon the aforesaid facts arising out of various agreements entered between various participants in the case of Galileo when the case of assessee after 2005 is examined there is substantial difference in the operations as compared to earlier years. The access to Sabre CRS was no longer directly distributed to Indian Travel Agencies after the SITAR agreement was cancelled. nstead, Sabre entered into subscriber agreement with travel agencies in countries outside India referred as Global Subscribers with whom Global subscriber agreement were entered. These global subscribers have locations in multiple countries including India and they were allowed to access the Sabre CRS. These Global Subscriber agreement were entered into Sabre in the country in which the global subscriber has its head quarters. 29.1 Assessee has provided a copy of one of such agreements with American Express available at page no. 76 116 of the paper book Volume II. As we compare the recitals of this agreement with one which has been taken into consideration and reproduced in the case of Galileo incorporation by the Tribunal. There is apparent di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee being performed by alleged PE. 32. Now with regard to the alleged Agency PE, as we have concluded that the business model post 2005 does not have an intermediary in the form of NMD and as in the case of Galileo International Inc. (supra) there was active intermediary, as Interglobe, so there is no question of existence of Agency PE. In case of Galileo International Inc. (supra), the terms of agreement provided that Galileo International had appointed Interglobe as a sole and exclusive distributor of Galileo International CRS Services for the Indian market and in those circumstances, the Tribunal had held that Interglobe was authorized to enter into contract with the subscribers in terms of authority generated under the distribution agreement. This authorization to bind Galileo gave an agent status to Interglobe. In the case in hand, there is no such intermediary. Further, there is no exclusiveness of the entities like American Express who have entered into global subscriber agreements. They are unrelated parties acting in their ordinary course of business with no exclusiveness to each other. Ld. DRP has appreciated this aspect by holding that the travel agents in India are not e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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