2004 (11) TMI 290 - AT - Income Tax

Summary

Issues:
1. Ownership of Central Reservation System (CRS) by the assessee.
2. Taxability of income earned through the use of AXESS CRS.
3. Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and Japan.
4. Assessment of income as royalty.
5. Accrual of income to the assessee in India.
6. Misrepresentation of facts and non-cooperative attitude of the assessee.

Ownership of Central Reservation System (CRS) by the assessee:
The Department contended that the assessee owned the AXESS system of reservation based on certain clauses in agreements with Indian Airlines. However, the CIT(A) concluded that the CRS did not belong to the assessee from 1st April, 1994, as it was assigned to its subsidiary. The CIT(A) found no evasion of tax and noted that payments were received by the assessee on behalf of AXESS through IATA clearing house.

Taxability of income earned through the use of AXESS CRS:
The AO assessed the income earned by the assessee through the use of AXESS CRS as taxable in India, considering payments received as royalty. The AO inferred that payments received by the assessee were covered under the term "royalty." However, the CIT(A) found that no income accrued to the assessee in India, leading to the deletion of the addition.

Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and Japan:
The assessee relied on the DTAA between India and Japan to explain that income from AXESS was not taxable in India. The AO, however, did not accept this explanation and proceeded to tax the income. The CIT(A) found that no income accrued to the assessee in India, aligning with the DTAA provisions.

Assessment of income as royalty:
The AO assessed the income received by the assessee as royalty for the use of software by other airlines. However, the ITAT held that no income was taxable in the hands of the assessee, thereby making the assessment of income as royalty irrelevant.

Accrual of income to the assessee in India:
The ITAT clarified that since the AXESS system was assigned to the subsidiary company from 1st April, 1994, no income arising from the use of the system could accrue to the assessee. The ITAT emphasized that no income could be assessed in the hands of the assessee, thereby upholding the CIT(A)'s decision to delete the addition.

Misrepresentation of facts and non-cooperative attitude of the assessee:
The ITAT addressed the communication gap and misunderstanding between the assessee and the AO, clarifying that there was no misrepresentation or non-cooperative attitude on the part of the assessee. The ITAT highlighted that the assignment of the AXESS system to the subsidiary company was legitimate and that no income was taxable in the hands of the assessee in India.

In conclusion, the ITAT dismissed the Department's appeal, affirming that no income was assessable in the hands of the assessee in India.