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2010 (10) TMI 1178 - AT - Income TaxIncome accruing/arising in India - Attribution of income accruing or arising whether directly or indirectly through or from any business connection in India - PE in India or not? - CIT(A) attributing only 15% of the revenue as income accruing/arising in India within the meaning of Section 9(1) of the Act and Article 7 of the Indo-Spain DTAA - HELD THAT - As it relates to the attribution of income arising to assessee in India the issue is covered by the order of Tribunal in the case of Amadeas Global Travel Distribution S.A. 2007 (11) TMI 330 - ITAT DELHI-B held that majority of the functions are performed outside India. Even the majority of the assets i.e. host computer which is having very large capacity which processes information of all the participants is situated outside India. The risk in this regard entirely rests with the appellant and that is in Spain outside India. However it is equally important to note that but for the presence of the assessee in India and the configuration and connectivity 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 u/s. 5(2) r/w s.9(1)(i). Therefore we found that the appeals of the department are covered by the aforementioned observations of the Tribunal. Respectfully following the same we found no merit in departmental appeals and they are dismissed. CIT(A) has correctly held that assessee has PE in India and his findings in this regard are in accordance with the aforementioned order - We dismiss the cross-objections filed by the assessee.
Issues Involved:
1. Attribution of income arising in India under Section 9(1) of the Income Tax Act and Article 7 of the Indo-Spain DTAA. 2. Equating taxable income with gross profits and subsequent deduction of expenses. 3. Allowability of payment to agents as expenses while computing income. 4. Attribution of income to the fixed place permanent establishment (PE) of the assessee in India. 5. Applicability of Circular 23 of 1969. 6. Interpretation of the judgment in DIT (Intl. Taxation) vs. Morgan Stanley and Company Inc. 7. Tax liability in India for receipts from airlines and other service providers. 8. Existence of a 'permanent establishment' (PE) in India under the Indo-Spain DTAA. 9. Nature of activities conducted in India as auxiliary and preparatory. 10. Dependent agent permanent establishment (PE) status of Amadeus India (P.) Ltd. 11. Disallowance of development cost while computing income attributable to the alleged PE. Detailed Analysis: 1. Attribution of Income Arising in India: The Revenue contended that the CIT(A) erred in attributing only 15% of the revenue as income arising in India under Section 9(1) of the Act and Article 7 of the Indo-Spain DTAA. The Tribunal upheld the CIT(A)'s decision, referencing the earlier ITAT decision in the case of Amadeus Global Travel Distribution S.A. v. Dy. CIT, which determined that 15% of the revenue from bookings made in India is reasonably attributable to operations carried out in India. 2. Equating Taxable Income with Gross Profits: The Revenue argued that the CIT(A) incorrectly equated 15% of taxable income with gross profits and then reduced it by deducting expenses paid to the agent, leading to an artificial computation of loss. The Tribunal found no merit in this argument, adhering to the earlier ITAT decision which had already addressed this issue. 3. Allowability of Payment to Agents as Expenses: The Revenue raised concerns about the CIT(A)'s approach in allowing the deduction of payments to agents against 15% of the revenue, causing a mismatch of receipts and expenses. The Tribunal dismissed this concern, aligning with the previous ITAT decision which had considered these factors. 4. Attribution of Income to Fixed Place PE: The Revenue claimed that the CIT(A) failed to attribute any income to the fixed place PE of the assessee in India. The Tribunal found that the CIT(A)'s findings were consistent with the previous ITAT ruling, which had already determined the appropriate attribution of income. 5. Applicability of Circular 23 of 1969: The Revenue argued that the CIT(A) incorrectly applied Circular 23 of 1969. The Tribunal upheld the CIT(A)'s decision, noting that the earlier ITAT decision had already considered the applicability of this circular. 6. Interpretation of Morgan Stanley Judgment: The Revenue contended that the CIT(A) misinterpreted the Supreme Court's judgment in DIT (Intl. Taxation) vs. Morgan Stanley and Company Inc. The Tribunal found no merit in this argument, maintaining that the earlier ITAT decision had appropriately interpreted the judgment. 7. Tax Liability for Receipts from Airlines and Service Providers: The assessee argued that the CIT(A) erred in holding the appellant liable to tax in India for receipts from airlines and other service providers. The Tribunal dismissed this argument, referencing the earlier ITAT decision which had already addressed the issue. 8. Existence of a 'Permanent Establishment' (PE) in India: The assessee contended that the CIT(A) erred in holding that the appellant had a PE in India under the Indo-Spain DTAA. The Tribunal upheld the CIT(A)'s decision, aligning with the earlier ITAT ruling which had determined the existence of a PE based on the activities conducted in India. 9. Nature of Activities Conducted in India: The assessee argued that its activities in India were of an auxiliary and preparatory character, and thus, it should not be considered to have a PE in India. The Tribunal dismissed this argument, referencing the earlier ITAT decision which had found the activities to be significant enough to constitute a PE. 10. Dependent Agent PE Status of Amadeus India (P.) Ltd.: The assessee contended that Amadeus India (P.) Ltd. should not be considered a dependent agent PE. The Tribunal upheld the CIT(A)'s decision, consistent with the earlier ITAT ruling which had determined the dependent agent PE status. 11. Disallowance of Development Cost: The assessee argued that the CIT(A) erred in not deleting the disallowance of development cost while computing income attributable to the alleged PE. The Tribunal found no merit in this argument, adhering to the earlier ITAT decision which had addressed this issue. Conclusion: The Tribunal dismissed both the appeals filed by the Revenue and the cross-objections filed by the assessee, upholding the CIT(A)'s decisions and aligning with the earlier ITAT ruling in the case of Amadeus Global Travel Distribution S.A. v. Dy. CIT. The Tribunal found that all issues raised were covered by the previous ITAT decision, which had comprehensively addressed the attribution of income, existence of PE, and related matters.
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