2022 (2) TMI 1058 - AT - Income Tax

Income accrued in India - Business Connection and Permanent Establishment presence of BC/ PE of the assessee in India - HELD THAT - The Hon ble Delhi ITAT vide its order in assessee s own case 2021 (10) TMI 1023 - ITAT DELHI held that the assessee has a BC/ PE in India. In arriving at this conclusion, the coordinate bench followed the decisions of Hon ble Delhi High Court and Hon ble Delhi ITAT in case of assessee s predecessor entities i.e. TGDSBV and Galileo International Inc. ( GII ). - Decided against assessee. Attribution of 75% of the India related gross profit instead of 15% of revenue to the alleged PE of the assessee in India - HELD THAT - As decided in assessee s own case 2021 (10) TMI 1023 - ITAT DELHI the correct attribution to PE of the assessee in India is 15% of the gross booking fees. Also see 2021 (10) TMI 1004 - ITAT DELHI Allowability of 100% of distribution expenses - HELD THAT - This ground is covered in favour of the assessee in the case of assessee s predecessor entity i.e. TGDSBV for AY 2007-08 to 2012-13 and AY 2014-15, wherein the coordinate bench of ITAT 2021 (10) TMI 1004 - ITAT DELHI Allowed 100% deduction of distribution fees in the hands of the assessee. Allowability of other expenses like apportionment of technology service fees, vendor cost, amortization expenses and finance cost - HELD THAT - The coordinate bench of ITAT vide its order 2021 (10) TMI 1004 - ITAT DELHI in the case of assessee s predecessor entity, TGDSBV for AY 2007-08 to 2012-13 and AY 2014-15 has allowed 70% deduction of all other expenses in the hands of TGDSBV relying on non-discrimination clause. Allowability of head office expenses under section 44C - assessee submitted that as per section 44C of the Act, a non resident assessee shall be allowed claim of head office expenditure incurred, notwithstanding the provisions of section 28 to section 44C of the Act - Also submitted that the Ld. AO and the Hon ble DRP have suo moto allowed the deduction of head office expenditure in AY 2016-17, however the amount of such expenditure is computed incorrectly - HELD THAT - In view of the above submissions of the assessee, we remit this issue to the file of the Ld. AO for allowing the correct claim of the head office expenditure to the assessee in the light of the details/information/ documents already on record and which he may require the assessee to furnish before him.

Issues Involved:
1. Completion of assessment at a higher total income.
2. Taxability of income under the Income Tax Act and DTAA.
3. Accrual of income in India.
4. Business connection and tax liability in India.
5. Permanent Establishment (PE) in India.
6. Attribution of income to PE.
7. Deduction of distribution fees and other expenses.
8. Allowance of head office expenses.
9. Incorrect allegations by the Assessing Officer.
10. Charging of interest under section 234B.
11. Deduction of education cess.

Detailed Analysis:

1. Completion of Assessment at Higher Total Income:
The assessee contested the assessment at a total income of INR 47,90,64,320 against NIL income declared. The Tribunal noted that the underlying facts and business model for AY 2016-17 were consistent with previous years and thus did not delve deeply into factual details.

2. Taxability of Income under the Income Tax Act and DTAA:
The assessee argued that it had no income chargeable to tax in India under the Act or the DTAA between India and the UK. The Tribunal referenced previous ITAT decisions that established the taxability of similar entities under the DTAA provisions.

3. Accrual of Income in India:
The assessee claimed no income had accrued or was deemed to accrue in India. The Tribunal upheld the findings of the Assessing Officer and DRP, which concluded that income had indeed accrued in India.

4. Business Connection and Tax Liability in India:
The Tribunal affirmed the presence of a business connection in India, following precedents set by the Delhi High Court and ITAT in the cases of the assessee’s predecessor entities.

5. Permanent Establishment (PE) in India:
The Tribunal agreed with the DRP and AO that the assessee had a fixed place PE and a dependent agent PE in India. This was based on the provision of software, access to CRS by carriers from India, and provision of connectivity through communication lines.

6. Attribution of Income to PE:
The Tribunal reduced the attribution of income to the PE from 75% to 15% of the gross booking fees, following the ITAT’s previous decisions. It was established that Indian-related expenses exceeded the attributed gross booking fees, resulting in no taxable income in India.

7. Deduction of Distribution Fees and Other Expenses:
The Tribunal allowed 100% deduction of distribution fees, consistent with previous rulings for the assessee’s predecessor. For other expenses like technology service fees, vendor costs, and amortization, the Tribunal allowed 70% deduction based on the non-discrimination clause and previous ITAT decisions.

8. Allowance of Head Office Expenses:
The Tribunal remitted the issue of head office expenses back to the AO for correct computation, instructing the AO to allow the correct claim based on the details on record.

9. Incorrect Allegations by the Assessing Officer:
The Tribunal did not find merit in the assessee’s claims of incorrect allegations by the AO and upheld the findings of the AO and DRP.

10. Charging of Interest under Section 234B:
The Tribunal did not specifically address the issue of interest under section 234B, indicating it as general and consequential.

11. Deduction of Education Cess:
The additional ground relating to the deduction of education cess was not pressed by the assessee and thus was not adjudicated by the Tribunal.

Conclusion:
The Tribunal partly allowed the appeal, affirming the presence of a PE and business connection in India, reducing the attribution of income to 15%, and allowing deductions for distribution fees and other expenses. The issue of head office expenses was remitted for correct computation. The appeal was decided following established precedents and judicial pronouncements.

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