2021 (3) TMI 208 - AT - Income Tax

Attribution of 15% Revenue to the PE in India - invocation of Rule 27 for challenging the decision of the CIT (A) - Doctrine of Merger - assessee moved applications u/r 11 and u/r 27 of the ITAT Rules, raising an additional plea, which was never taken in the first round of litigation, challenging the jurisdiction of the Assessing Officer claiming that the assessments for Assessment Years 2007-08, 2008-09 and 2009-10 are barred by limitation and further, assessment for Assessment Year 2010-11 is also barred by limitation on the ground that provisions of section 144C of the Act do not apply - DR vehemently stated that the order of the Tribunal is merged with the order of the Hon ble Delhi High Court and therefore, on Doctrine of Merger, these applications should not be allowed - HELD THAT - Submissions of the ld. DR are not acceptable for the simple reason that the issues which have been considered and decided get merged with the findings of the superior court but the issues which have neither been considered or have been decided by inferior court cannot merge with the orders of the superior court. In our considered view, the logic underlying the Doctrine of Merger is that there cannot be more than one decree or operative orders governing the same subject matter at a given point of time. Once the superior court has disposed of the list before it either way - it is the decree or order of the superior court which is final and binding. In the present case, the point of jurisdiction was never raised before the lower authorities and accordingly, the same never formed the subject matter of appeal before the Hon'ble High Court and hence the doctrine of Merger will not be applicable in the case in hand. Therefore, in our view, the distinction sought by the ld. DR in the decision of the Hon'ble High Court of Gujarat in the case of P.V. Doshi 1977 (8) TMI 29 - GUJARAT HIGH COURT does not hold any water. DR has heavily relied upon the decision of the Hon'ble High Court of Delhi in the case of Sanjay Sawhney 2020 (5) TMI 441 - DELHI HIGH COURT which is more in favour of the assessee than to the Revenue. Assessment for A.Ys 2007-08, 2008-09 and 2009-10 as barred by limitation - AO has framed draft assessment order when the provisions were not there in the statute. Therefore, the period of limitation, as prescribed u/s 153 of the Act were applicable and, therefore, the date of final assessment order makes the assessment barred by limitation. Attribution of 15% Revenue to the PE in India - Since major part of the business activities were carried out outside of India and only limited activities were attributable to India and finding parity in the facts with those of Galileo International Inc 2014 (8) TMI 902 - DELHI HIGH COURT we are of the considered view that 15% of the revenue is enough to attribute towards the activities done in India. On identical facts, the Tribunal in the case of SABRE Inc. 2009 (6) TMI 1021 - ITAT DELHI has held that the said company had a PE in India but only 15 per cent of revenue accruing to assessee in respect of bookings made in India should be treated as income accrued or assessed in India. Facts considered in the case of Amadeus Global Travel Distribution SA 2007 (11) TMI 330 - ITAT DELHI-B are identical to the facts of the present appeal in as much as in the present appeal also, Travelport LP owned and maintained a CRS and had the same distribution and revenue earning model. Hence, a similar attribution of 15% of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India is also warranted in the case at hand. Since no guidelines are available as to how much should income be reasonably attributable to India, the same has to be determined on the basis of the facts of the case and judicial precedents. On finding parity in the facts of the case in hand with the facts of the judicial precedents discussed hereinabove, we are of the considered view that the ld. CIT(A) rightly attributed 15% of the Revenue and therefore, we do not find any error or infirmity in the findings of the ld. CIT(A).

Summary

Issues Involved:
1. Attribution of Revenue to Permanent Establishment (PE) in India.
2. Jurisdiction and Limitation of Assessment Orders.
3. Validity of Applications under Rule 11 and Rule 27 of ITAT Rules.

Detailed Analysis:

1. Attribution of Revenue to Permanent Establishment (PE) in India:

The primary issue in the appeals was the attribution of 15% of the revenue to the PE in India. The assessee, a tax resident of the USA, provided information, reservations, transaction processing, and related services through a Computerized Reservation System (CRS) located outside India. The CRS was marketed and distributed in India by an independent third-party company, Calleo Distribution Technologies Pvt. Ltd. The Assessing Officer (AO) held that the entire revenue of the assessee from India was taxable in India after allowing deductions for commissions paid to Calleo. The CIT(A) and the Tribunal both agreed that the facts were similar to the case of Galileo International Inc., where 15% of the revenue generated from bookings made in India was attributed to the PE in India. The High Court remanded the matter back to the Tribunal to render specific findings on this attribution.

The Tribunal found that the major functions, such as collecting the database of airlines, processing schedules, timings, pricing, and availability, were carried out outside India. The activities in India were limited to generating requests and receiving end-results. The Tribunal concluded that 15% of the revenue was reasonably attributable to the operations carried out in India, following the precedents set in the cases of Galileo International Inc., SABRE Inc., and Amadeus Global Travel Distribution S.A.

2. Jurisdiction and Limitation of Assessment Orders:

The assessee challenged the jurisdiction of the AO, claiming that the assessments for A.Ys 2007-08, 2008-09, and 2009-10 were barred by limitation, and the assessment for A.Y. 2010-11 was also barred by limitation on the ground that the provisions of section 144C of the Act did not apply. The Tribunal allowed the application under Rule 11, noting that the relevant facts were available on record. The Tribunal held that the provisions of section 144C, inserted w.e.f. 01.04.2009, applied prospectively from A.Y. 2011-12. Since the AO framed draft assessment orders when the provisions were not in the statute, the final assessment orders were barred by limitation as per section 153 of the Act.

3. Validity of Applications under Rule 11 and Rule 27 of ITAT Rules:

The assessee moved applications under Rule 11 and Rule 27 of the ITAT Rules. The Tribunal allowed the application under Rule 11, following the judgment of the Gauhati High Court in Assam Company India Ltd. vs. CIT, which allowed raising additional pleas before the Tribunal even if the respondent had not appealed. The Tribunal also allowed the application under Rule 27, drawing support from the decision in DCIT v. Jubliant Enpro (P.) Ltd., which permitted a respondent to challenge aspects of an issue not decided by the first appellate authority.

The Department argued that the doctrine of merger applied, and the Tribunal could not entertain new grounds after the High Court's remand. However, the Tribunal held that the doctrine of merger did not apply to issues not considered or decided by the lower authorities. The Tribunal relied on the decision of the Gujarat High Court in P.V. Doshi vs. CIT, which held that jurisdictional defects could be raised at any stage.

Conclusion:

The Tribunal dismissed the Revenue's appeals for A.Y. 2006-07 on merits, confirming the attribution of 15% of the revenue to the PE in India. The appeals for A.Ys 2007-08 to 2010-11 were dismissed as barred by limitation. The applications under Rule 11 and Rule 27 were allowed, enabling the assessee to raise jurisdictional issues and support the order on grounds decided against it.