2020 (7) TMI 248 - AT - Income Tax

Business connection /permanent establishment in India - India-Singapore Double Taxation Avoidance Agreement DTAA - primary business of the assessee is to make airline reservations for and on behalf of the participating airlines by using the CRS - fees in respect of its activity of providing airline reservations in India - HELD THAT - Upheld the orders of the lower authorities and had concluded that the assessee was having business connection and PE in India. We find that though the assessee had raised a ground of appeal assailing the observations of the DRP that the assessee had a PE in India, but then, during the course of the hearing of the appeal no contention was advanced by the ld. A.R to support his aforesaid claim. We thus following the orders passed by the coordinate benches of the Tribunal in the assesses own case 2018 (2) TMI 1767 - ITAT MUMBAI uphold the order of the DRP that the assessee had a business connection/PE in India. 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal raised by the assessee before us. 10% of the expenses reimbursed by ADSIL to be held as the business income of the assessee - HELD THAT - As relying on own case 2018 (2) TMI 1767 - ITAT MUMBAI we herein direct that 10% of the aforesaid amount be brought to tax as the business income of the assessee. At the same time, the assessee would be entitled for claiming set off of the aforesaid amount against the commission payment made by it to its NMC viz. ADSIL. The Ground of appeal raised by the assessee is partly allowed in terms of our aforesaid observations. Transfer pricing adjustment - USD denominated interest free ECB loan that was advanced by the assessee to its wholly owned subsidiary company in India, viz. ADSIL - HELD THAT - We herein direct the A.O/TPO to take the ALP of the notional interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. Notional interest income on the loan (interest free) - alternative claim of the assessee that if the interest income (on interest free loan advanced to AE viz. ADSIL) was to be considered as part of its business income, there would not be any income chargeable to tax since the marketing fees paid by it to ADSIL would absorb the same - HELD THAT - Loan as advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are in agreement with the claim of the ld. A.R that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its NMC viz. ADSIL. The additional Ground of appeal raised by the assessee is thus disposed off in terms of our aforesaid observations. Short credit of tax deducted at source (TDS) - HELD THAT - A.R took us through the Form 26AS of the assessee company. In the backdrop of the aforesaid claim of the ld. A.R, we herein restore the issue to the file of the A.O with a direction to verify the factual position. In case the aforesaid claim of the assessee is found to be in order, then the A.O shall give credit for the short/deficit amount of TDS, involving no further loss of time. Ground of appeal allowed for statistical purposes. Interest on refund u/s 244A - claim of the ld. A.R that the A.O had erred in not computing the interest upto the date of actual grant of refund - HELD THAT - In the backdrop of the aforesaid grievance of the assessee, we herein restore the issue to the file of the A.O, who is herein directed to verify the veracity of the said claim of the assessee in terms of Sec. 244A.

Issues Involved:
1. Business connection/Permanent Establishment (PE) in India
2. Income attributable to PE
3. Reimbursement of expenses
4. Transfer pricing adjustment
5. Rate of surcharge and education cess
6. Short TDS credit
7. Initiation of penalty proceedings under section 271(1)(c)
8. Computation of interest on refund under section 244A

Issue-wise Detailed Analysis:

1. Business Connection/Permanent Establishment (PE) in India:
The assessee contested the DCIT's determination that it had a business connection and PE in India under the India-Singapore DTAA. The assessee argued that there was no contractual relationship between it and the customers, and the activities performed by its Indian subsidiary, ADSIL, did not constitute a PE. However, the Tribunal upheld the lower authorities' conclusion that the assessee had a PE in India, based on the consistent findings in the assessee's own case for previous years (A.Y 1999-2000 to A.Y 2014-15). The Tribunal dismissed the ground of appeal regarding the existence of a PE.

2. Income Attributable to PE:
The DCIT attributed ?9,37,18,332/- as income to the PE in India, calculated as 10% of the receipts from Indian operations. The Tribunal followed its earlier decisions, which held that 15% of the gross receipts from Indian bookings should be attributed to the PE. Furthermore, since the commission paid to ADSIL (25% of gross receipts) exceeded this income, no taxable income remained. The Tribunal allowed the assessee's appeal on this ground.

3. Reimbursement of Expenses:
The DCIT treated 10% of the reimbursement of expenses from ADSIL (?4,90,28,603/-) as the business income of the assessee. The Tribunal, referring to its earlier orders, directed that 10% of the reimbursed amount be taxed as business income but allowed the assessee to set off this amount against the commission paid to ADSIL. The appeal on this ground was partly allowed.

4. Transfer Pricing Adjustment:
The DCIT made a transfer pricing adjustment of ?88,62,569/- for an interest-free loan extended by the assessee to ADSIL, based on an arm's length interest rate of LIBOR plus 500 bps. The Tribunal directed the AO/TPO to determine the ALP of the interest on the loan as per LIBOR plus 2%, following its earlier decisions. The appeal on this ground was partly allowed.

5. Rate of Surcharge and Education Cess:
The assessee contested the rate of surcharge and education cess levied by the DCIT. The Tribunal noted that no specific contention was advanced and deemed the issue consequential to its other findings. The ground was left open and not adjudicated upon.

6. Short TDS Credit:
The assessee claimed a short credit of TDS of ?16,50,637/-. The Tribunal restored the issue to the AO for verification and directed that, if the claim was found valid, the AO should allow the credit. The ground was allowed for statistical purposes.

7. Initiation of Penalty Proceedings Under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings. The Tribunal found the challenge premature and dismissed the ground.

8. Computation of Interest on Refund Under Section 244A:
The assessee claimed that the interest on refund was not computed up to the date of actual grant of refund. The Tribunal restored the issue to the AO for verification and directed the AO to compute the interest as per Section 244A. The ground was allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the appeal, providing relief on several grounds while upholding the DCIT's findings on others. The order was pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962.

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