2013 (8) TMI 138 - AT - Income Tax

DTAA between India and Singapore - assessee is a company resident of Singapore engaged in the business of Computerized Reservation System (CRS) - assessee received payment from its activity of providing airline reservations in India, which was not offered for taxation stating that it did not have any permanent establishment (PE) in India - AO estimated of the profit margin at 10% of the receipts attributable to Indian operations - Held that - Considering the assessee's own case for the earlier years ITAT has held that 15% of the receipts should be attributed as income accruing or arising in India and since 25% of the receipts were paid to ADSIL in India as marketing fees, there was no income chargeable to tax as relying on Galileo International Inc. v. DCIT 2007 (11) TMI 329 - ITAT DELHI-B as affirmed by Hon'ble Delhi High Court 2009 (2) TMI 497 - Delhi High Court . Refund by the Income-tax Department which included interest - Revenue taxed it at 20% as per section 115A as per Article 24 of Indo-Singapore DTAA wheres assessee claimed taxation of such interest @ 15% as per Article 11 of the DTAA - Held that - The burden is on the assessee to prove that the amount of income was remitted to or received in Singapore. This burden can be discharged by showing a credit in the bank account maintained by the assessee in Singapore. Production of a copy of pay in slip showing deposit of refund voucher in a bank a/c in Singapore which is eventually credited to the bank account, or even a certificate from a Bank in Singapore in this regard, are the instances of sufficient compliance of the requisite condition. A bald submission not backed by any supporting evidence to prove the fulfillment of the requisite condition, cannot be a good reason for drawing an inference in favour of the assessee. It is more so because there is an unambiguous command of Article 24 which casts obligation on the assessee to prove this fact positively. Thus the authorities below were justified in refusing the benefit of Article-11 of the DTAA by taxing the interest on I.T. refund @ 20% as per section 115A. Claim of reimbursement of expenses - Held that - As seen from the findings given by the CIT (A) on the first issue is viewed in the light of superseding order holding the attribution of income from Indian operations at 15% of the gross receipts, there remains no doubt that the marketing fees paid to ADSIL is still more than the income attributable to the business operations in India including the amount of ₹ 1.72 crore - ground raised by the assessee that the expenses reimbursed by the ADSIL amounting to ₹ 1.72 crores should be considered as reimbursement of expenses is liable to be and hereby dismissed. Against assessee.

Summary

Issues Involved:
1. Taxability of income under Section 9(1)(i) of the Income Tax Act vis-`a-vis relevant articles of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
2. Attribution of income.
3. Applicability of Article 24 of the DTAA vis-`a-vis interest income.
4. Claim of reimbursement of expenses.

Issue-Wise Detailed Analysis:

1. Taxability of Income under Section 9(1)(i) of the Income Tax Act vis-`a-vis Relevant Articles of the DTAA:
The assessee, a Singapore resident company, engaged in the business of Computerized Reservation System (CRS), did not offer Rs. 27.49 crores received from its activities in India for taxation, claiming no permanent establishment (PE) in India. The Assessing Officer (AO) found a PE in India through CRS and taxed the business profits on a presumptive basis at 10% of total receipts. The CIT (A) upheld this, attributing 10% of receipts to Indian operations, resulting in Rs. 2.74 crores as taxable income.

The Tribunal, referencing earlier years' decisions, held that 15% of gross receipts should be attributed to India, and since 25% of gross income was paid to ADSIL as marketing fees, no income was chargeable to tax in India. The Tribunal's decision was based on the precedent set in the case of Galileo International Inc. and affirmed by the Delhi High Court.

2. Attribution of Income:
The Tribunal reiterated that 15% of gross receipts should be considered as income arising in India. Given that 25% of gross receipts were paid to ADSIL as marketing fees, there was no taxable income in India. This conclusion was consistent with the Tribunal's earlier rulings and supported by the Delhi High Court's affirmation in a related case.

3. Applicability of Article 24 of the DTAA vis-`a-vis Interest Income:
The assessee received a refund, including Rs. 88,660 as interest, and offered it for taxation at 15% under Article 11 of the DTAA. The AO, invoking Article 24, taxed it at 20% under Section 115A of the Income Tax Act, as the assessee did not prove remittance to Singapore.

Article 11 of the DTAA allows interest arising in India and paid to a Singapore resident to be taxed at 15% if the beneficial owner is a Singapore resident. Article 24 limits this relief to income remitted to or received in Singapore. The Tribunal held that the assessee failed to prove remittance to Singapore, thus the interest income was correctly taxed at 20% per Section 115A.

4. Claim of Reimbursement of Expenses:
The assessee claimed Rs. 1.72 crores received from ADSIL as reimbursement for expenses. The AO treated these as 'fees for technical services' under Section 9(1)(vii) and included them in total income. The CIT (A) found that line and installation charges were not 'fees for technical services' but were not purely reimbursements either, as there was no evidence of actual expenditure incurred on ADSIL's behalf.

The Tribunal upheld the CIT (A)'s view, noting the absence of any agreement for reimbursement and the lack of evidence supporting the claim. The amount was deemed business income arising from operations in India, subject to the same tax treatment as other receipts.

Conclusion:
The Tribunal allowed the appeal in part, affirming that 15% of gross receipts should be attributed to Indian operations, with no taxable income due to marketing fees paid to ADSIL. Interest income was correctly taxed at 20% due to the failure to prove remittance to Singapore. The claim of reimbursement of expenses was dismissed, treating the amount as business income.