2016 (12) TMI 1900 - HC - Income Tax

Income taxable in India - attributed 15% of the assessee s income to India by Tribunal - applicability of the Galileo rule - Assessee, a Delaware, USA based limited partnership concern and a tax resident of the USA, provides online airline booking services - HELD THAT - A reference was made to the observations of the ITAT recording that the parties were in broad agreement as to the applicability of the Galileo rule, both with respect to the PE question as well as the rule of attribution. In the present case, the AO had based his conclusions and determined the income based upon figures furnished by the assessee, as is apparent from a plain reading of the order. In the circumstances, the ITAT, in our opinion, ought not to have disturbed that order, without a finding. This Court has also in its order 2017 (1) TMI 1160 - DELHI HIGH COURT between the same parties. Accordingly, the present appeal is disposed off with a direction to the ITAT to render specific findings on the questions urged after hearing both the parties.

Summary

Issues involved:
1. Condonation of delay in filing appeal.
2. Determination of taxable income and Permanent Establishment (PE) under Double Taxation Avoidance Agreement (DTAA) between India and USA.
3. Attribution of income to India operations.
4. Application of previous judgments in determining income attribution.
5. Challenge to ITAT's order and adherence to previous case law.

Detailed Analysis:
1. The judgment begins with addressing applications seeking condonation of delay in filing the appeal. The delay of 22 days is condoned, and the appeals are taken on record after considering the reasons provided in the applications.

2. The case involves the determination of taxable income and the existence of a Permanent Establishment (PE) under the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The Tribunal attributed a percentage of the assessee's income to India based on the revenue generated in India. The taxable income was calculated in USD and then converted to Indian Rupees for two separate appeals, resulting in different taxable income figures.

3. The main issue revolves around the attribution of income to the assessee's India operations. The Tribunal attributed 15% of the income to India based on previous judgments, including the Galileo rule. The Revenue challenges this attribution, arguing that specific details of the revenue from India were available, and 15% attribution was not justified.

4. The Senior Advocate for the assessee justifies the 15% attribution by referencing previous judgments, including Director of Income Tax Vs. Galileo International Inc. and Galileo Nederland BV Vs. Assistant Director of Income-tax. The ITAT's decision to follow the Galileo rule is supported by the assessee, emphasizing the broad agreement on its applicability.

5. The Revenue's appeal focuses on contesting the ITAT's order and the mechanical adherence to the Galileo rule for income attribution. The Court notes that the ITAT should not have disturbed the Assessment Officer's order without proper findings. A similar conclusion was recorded in a previous order involving the same parties, directing the ITAT to provide specific findings after hearing both parties.

In conclusion, the judgment addresses various issues related to the attribution of income to India operations, the application of previous case law, and the challenge to the ITAT's order. It emphasizes the importance of providing specific findings and considerations in determining taxable income and Permanent Establishment under the DTAA.