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2024 (2) TMI 635 - AT - Income TaxAccrual of income in India - PE in India or not? - Agency PE - whether assessee has a business connection in India under Section 9(1) ? - Primary business activity of assessee in India which facilitates the booking of airline reservations for and on behalf of participating airlines and another set of services is relating to Hotel bookings instead of Airlines - case of assessee is that under the participating carrier distribution and service agreement, the assessee earns booking fees from various participating airlines when travel reservations are made using its CRS - as per A0 100 percent of profits from fee earned by the assessee from customers in India are attributable to the alleged PE of assessee in India HELD THAT - We have no hesitation to hold that having regard to various clauses and recitals of the agreements of the participants in the case of Galileo 2007 (11) TMI 329 - ITAT DELHI-B as the Tribunal has reached the finding of fixed place PE, the changed model in case of assessee dilutes all those reasons. No more computers of travel agents are found to be installed or configured under any agreement of the assessee with any of its participant global subscribers. Galileo through Interglobe was exercising complete control over the computers installed at the premises of the travel agents which may have been the case of the assessee also prior to 2005 when it was working through intermediary NMD. At presently after 2005 the agent codes access to Sabre CRS is through global subscribers and the agents themselves arrange for the communication link which was also earlier provided in case of Galileo by Interglobe. Thus, we are of the considered view that Ld. Tax Authorities below having failed to examine the Sabre s Participating Carrier Distribution and Service Agreement or Service Provider Agreement with entities like American Express Travel and thus have fallen in error to follow the earlier years orders in case of assessee which themselves were completely based on the factual matrix examined in case of Galileo. As rightly pointed by the Ld. AR that principles of Res judicata are not applicable in assessment and the burden is all the way is on the Revenue to establish the existence of a PE. In the case in hand the Ld. Tax authorities have utterly failed in discharging the burden. Not even by rebutting the case of assessee on the basis of changed model of business. Rather a very mundane approach was adopted by DRP by holding that gateway is business vehicle. No doubt about it but what is to be seen is if the same is functional by way of some auxiliary purposes of assessee being performed by alleged PE. Agency PE - As we have concluded that the business model post 2005 does not have an intermediary in the form of NMD and as in the case of Galileo International Inc. there was active intermediary, as Interglobe, so there is no question of existence of Agency PE. In case of Galileo International Inc. (supra), the terms of agreement provided that Galileo International had appointed Interglobe as a sole and exclusive distributor of Galileo International CRS Services for the Indian market and in those circumstances, the Tribunal had held that Interglobe was authorized to enter into contract with the subscribers in terms of authority generated under the distribution agreement. This authorization to bind Galileo gave an agent status to Interglobe. In the case in hand, there is no such intermediary. Further, there is no exclusiveness of the entities like American Express who have entered into global subscriber agreements. They are unrelated parties acting in their ordinary course of business with no exclusiveness to each other. Ld. DRP has appreciated this aspect by holding that the travel agents in India are not exclusive to the assessee while considering the question of fixed place PE but that somehow goes against the concept of Agency PE and for that reasons, nothing specific was held with regard to the Agency PE by DRP. This itself was sufficient to conclude that there was no entity which was habitually procuring contracts for the assessee or to bind the assessee for the contracts to be entered by that entity independently. Thus, we are inclined to hold there was no Agency PE, also.
Issues Involved:
1. Permanent Establishment (PE) in India. 2. Attribution of Profits to the PE. 3. Initiation of Penalty Proceedings under Section 271(1)(c). 4. Levy of Interest under Sections 234A, 234B, 234C, and 234D. Summary: 1. Permanent Establishment (PE) in India: The primary issue was whether the assessee, a US-based company, constituted a Permanent Establishment (PE) in India under Article 5 of the India-USA DTAA and Section 9(1) of the Income Tax Act. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) held that the assessee had both a fixed place PE and a Dependent Agent PE (DAPE) in India. The DRP relied on the Tribunal's decision in the case of Galileo International Inc., concluding that the assessee's CRS gateway constituted a fixed place of business in India. However, the Tribunal found that the business model had changed post-2005, with no direct distribution to Indian travel agencies and no provision of computers or communication links by the assessee. Hence, it was held that the assessee did not have a fixed place PE or a DAPE in India. 2. Attribution of Profits to the PE: The second issue concerned the attribution of profits to the alleged PE. The AO attributed 100% of the profits from fees earned in India to the PE. The DRP, following the Tribunal's earlier decisions, directed that only 15% of the revenues earned as booking fees generated in India should be attributed to the PE. The Tribunal upheld this attribution rate but noted that the changed business model post-2005 warranted a lower attribution percentage. However, since the PE was not established, the question of profit attribution became academic. 3. Initiation of Penalty Proceedings under Section 271(1)(c): The assessee objected to the AO's proposal to initiate penalty proceedings under Section 271(1)(c) for furnishing inaccurate particulars of income. The DRP held that these objections were premature and consequential, stating that the obligation to pay advance tax remained in view of the appellate findings for prior periods. The Tribunal did not find it necessary to delve into this issue further. 4. Levy of Interest under Sections 234A, 234B, 234C, and 234D: The assessee also contested the levy of interest under Sections 234A, 234B, 234C, and 234D. The DRP directed the AO to correct any computational errors in view of the attribution directions. The Tribunal, having decided the primary issue of PE in favor of the assessee, did not find it necessary to address this issue in detail. Conclusion: The Tribunal allowed the assessee's appeals, holding that the assessee did not have a PE in India and, consequently, the attribution of profits and related issues became academic. The Revenue's appeals were dismissed.
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