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2009 (7) TMI 1341 - AT - Income TaxIncome accrued or assessed in India - Business Connection in India u/s 9(1)(i) - HELD THAT - There is no disparity on facts or in the activity carried out by the assessee in the years under consideration then in assessment year 1997-98. The ITAT has considered all these issues in assessment years 1997-98 1998-99 wherein it was held that income was chargeable to tax u/s 5(2) of the Act as assessee had business connection in India as per section 9(1)(i) of the Act. However with regard to the quantification of income accrued to the assessee with the business connection in India it has been held by the ITAT that 15% of the revenue accrued to the assessee in respect of the booking made in India that should be treated as income accrued or assessed in India. Respectfully following the order of the ITAT in earlier two assessment years we allow the appeals of the assessee and held that no income would be chargeable to tax in India and consequently the appeals of the revenue are dismissed. In the result all the appeals of the assessee are allowed and the appeals of the revenue are dismissed.
Issues Involved:
1. Business Connection in India under Section 9(1)(i) of the Income-tax Act, 1961. 2. Permanent Establishment (PE) in India under Article 5 of the India-US Double Tax Avoidance Agreement (DTAA). 3. Attribution of Profits to PE in India. 4. Allowability of Expenses and Head Office Expenditure under Section 44C. 5. Chargeability of Interest under Section 234B. Issue-wise Detailed Analysis: 1. Business Connection in India under Section 9(1)(i) of the Income-tax Act, 1961: The learned CIT(A) held that the appellant had a business connection in India under Section 9(1)(i) of the Income-tax Act, 1961. This was based on the activities carried out by the appellant in India, which were similar to those in the assessment years 1997-98 and 1998-99. The ITAT had previously ruled that income was chargeable to tax under Section 5(2) of the Act as the assessee had a business connection in India, as per Section 9(1)(i) of the Act. 2. Permanent Establishment (PE) in India under Article 5 of the India-US DTAA: The CIT(A) also held that the appellant had a Permanent Establishment (PE) in India under Article 5 of the India-US Double Tax Avoidance Agreement (DTAA). This included a fixed place PE in terms of computer, software, printer, network, and telecommunication equipment installed at the premises of subscribers in India. Additionally, the 'National Marketing Division' of Air India and Indian Airlines was considered a dependent agent of the appellant in India. The ITAT had previously upheld this view, citing Circular No. 23 of 1969 and the Supreme Court judgment in the case of DIT (International Taxation) v. Morgan Stanley & Co. 3. Attribution of Profits to PE in India: The CIT(A) concluded that 25% of the profit earned by the appellant from CRS business in India was attributable to the business activities carried out by the PEs in India. However, the appellant argued that it paid arm's length remuneration, being 60% of the India-generated booking fees, to the National Marketing Division, thus no further profits should be attributed to the appellant in India. The ITAT, in earlier years, had determined that 15% of the revenue accrued to the assessee in respect of bookings made in India should be treated as income accrued or assessed in India. The High Court upheld this approach, noting that the Tribunal had focused on the relevant consideration of how much out of the revenue would be attributable to "profits." 4. Allowability of Expenses and Head Office Expenditure under Section 44C: The appellant contended that the CIT(A) erred in either not allowing or restricting the allowability of legitimate business expenses incurred outside India related to India-generated booking fees. The CIT(A) also restricted the allowability of deduction for allocable head office expenditure as per Section 44C of the Act. The ITAT had previously noted that the assessee paid 60% on the receipts to its agent, which was far in excess of the required percentage, and thus no income would be chargeable to tax in India. 5. Chargeability of Interest under Section 234B: The CIT(A) upheld the chargeability of interest under Section 234B of the Act. The appellant argued against this, but the ITAT's previous rulings did not specifically address this issue in detail. Conclusion: Respectfully following the order of the ITAT in earlier assessment years, the appeals of the assessee were allowed, holding that no income would be chargeable to tax in India. Consequently, the appeals of the revenue were dismissed. All the appeals of the assessee were allowed, and the appeals of the revenue were dismissed.
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