2021 (2) TMI 358 - AT - Income Tax

Income accrued in India - PE in India - as per revenue computers installed at the premises of the subscribers constitute a PE of the taxpayer in India in terms of Article 5(1) of India Spain Tax Treaty - case of the Revenue that that computers provided to the travel agent through which sales are constituted amounts to Fixed Place PE of the taxpayer in India under Article 5 (1) of the India-Spain Tax Treaty and likewise held the taxpayer to be dependent agency PE in terms of Para 5(4) of the Indian Spain Tax Treaty - HELD THAT - AR for the taxpayer fairly conceded that this issue has been decided by Hon ble High Court against the taxpayer in its own case for AYs 1996-97 to 2006-07 and held that computers installed at the premises of the subscriber constitute a PE of the assessee in India in terms of Article 5 (1) of Indo-Spain Treaty. It is also held that since the Amadeus India is functionally dependent upon the assessee, it also constitute an agency PE in India in terms of Article 5 (iv) of the Indo-Spain Treaty. Aforesaid appeals bearing the identical facts of the taxpayer s case in which it is held that the assessee constitutes an agency PE - Decided against assessee Attribution of 75% of the income earned in India to the PE after adding development cost, distribution fees, etc. - HELD THAT - As decided in own case 2020 (11) TMI 206 - ITAT DELHI we are of the considered view that since there is no change in the business model and facts of the cases at hand and the extent nature of the activities of the PE in India and abroad, and the assets employed and risk assumed is same as in the earlier years, distribution fee paid in those years @ 33% approximately of the booking fee per segment, no further addition can be made during the year under assessment. Disallowance of expenditure claimed to have incurred by the taxpayer under the head distribution fee while computing the income attributed to the taxpayer s PE in India - HELD THAT - Following the order passed by the coordinate Bench of the Tribunal in taxpayer s own case vide order 2020 ( 11) TMI 206 - ITAT DELHI we are of the considered view that the AO has erred in treating the export of processed data/software as distribution fee and has also erred in disallowing development cost and marketing cost incurred for earning revenue from booking made from India. All these expenditure have been allowed by the coordinate Bench of the Tribunal in earlier years. So, the claim of the taxpayer raised allowed. Characterization of income - Booking fee received by the taxpayer is to be taxed as business income and not under the head royalty . Ad hoc basis taxed the amount of Euro 50 million as royalty in respect of Altea system, inventory management and hosting system development - HELD THAT - 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. Levy of interest u/s 234B - HELD THAT - Provisions contained below section 209(1)(d) of the Act introduced by Finance Act, 2012 w.e.f 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 2021 (2) TMI 265 - ITAT DELHI .

Issues Involved:
1. Computation of Income
2. Permanent Establishment (PE) and Dependent Agent PE
3. Attribution of Income
4. Disallowance of Expenditure
5. Taxation of Booking Fee as Royalty
6. Taxation of Altea System as Royalty
7. Levy of Interest under Sections 234B and 234D

Detailed Analysis:

1. Computation of Income:
The primary issue was whether the computation of the appellant's income by the Assessing Officer (AO) at ?416,18,80,875/- was correct. The AO alleged that the appellant avoided furnishing specific information, particularly various agreements with airlines.

2. Permanent Establishment (PE) and Dependent Agent PE:
The DRP and AO held that the taxpayer had a Fixed Place PE and a Dependent Agent PE in India under Article 5 of the Indo-Spain DTAA. This was based on the presence of computers, electronic hardware/software, and connectivity provided to travel agents in India, as well as the activities of Amadeus India (P) Ltd. (AIPL). The taxpayer conceded that this issue had been decided against them by the Hon’ble High Court for earlier assessment years, confirming the presence of a PE in India.

3. Attribution of Income:
The AO attributed 75% of the income earned in India to the PE, which was confirmed by the DRP. However, the Tribunal noted that this issue had been previously decided in favor of the taxpayer, attributing only 15% of the revenue relating to bookings made from India to the taxpayer's PE. This decision was based on the nature and extent of activities in India and abroad, assets employed, and risks assumed. The Tribunal followed this precedent, determining that no further addition was warranted.

4. Disallowance of Expenditure:
The AO disallowed various expenditures, including distribution fees, development costs, and marketing costs, while computing the income attributable to the taxpayer's PE in India. The Tribunal found that these expenditures had been allowed in earlier years and that the AO had erred in treating the "export of processed data/software" as distribution fees. The Tribunal allowed the taxpayer's claim for these expenditures.

5. Taxation of Booking Fee as Royalty:
The AO alternatively held that the booking fee received by the taxpayer was taxable as royalty under section 9(1)(vi) of the Act and Article 13(3) of the Treaty. The Tribunal, following its earlier decisions, held that the booking fee received by the taxpayer was to be taxed as business income and not as royalty.

6. Taxation of Altea System as Royalty:
The AO and DRP taxed the amount received from British Airways for the use of the Altea system as royalty. The Tribunal, following its earlier decisions, held that the payment received for the Altea system could not be characterized as royalty under the Act or the Treaty. The system was installed at airports and accessed only by airlines, not by the taxpayer's agents.

7. Levy of Interest under Sections 234B and 234D:
The AO levied interest under section 234B of the Act. The Tribunal noted that since the taxpayer's income was subject to tax deduction at source, the levy of interest under section 234B was not warranted. The Tribunal followed the precedent set in BG International Ltd. vs. DCIT, concluding that the interest under section 234B would not apply when no addition sustains.

Conclusion:
The Tribunal partly allowed the appeals, confirming the presence of a PE in India but favoring the taxpayer on issues related to the attribution of income, disallowance of expenditures, and characterization of booking fees and Altea system payments as business income rather than royalty. The levy of interest under section 234B was also set aside.

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