2024 (3) TMI 312 - AT - Income Tax

Accrual of income in India - Permanent Establishment in India - HELD THAT - As per the order of the Hon ble Supreme Court for A.Y. 2020-21 in assessee s own case 2023 (8) TMI 165 - SC ORDER , the assessee constitutes a fixed place PE under Article 5(1) of India-Spain Tax Treaty. Attribution of Profits Since, the assessee constituted PE in India, with regard to the attribution of profits derived from such PE, the ld. AR argued that the income derived from such PE was completely consumed by distribution and other expenses attributable and hence no income survives for taxation. The Hon ble High Court has held that 15% of the revenue earned by the appellant is taxable in India, hence, the AO is directed to examine the profits earned, determine the available profits and tax the amount after examining the P L account. Disallowance of Expenses - AO disallowed distribution fee expenses on the ground that as per the invoices raised by AIPL, the description of services is Export of Processed Data/ software and not Distribution fee and also disallowed development cost and marketing costs incurred for earning revenue from bookings made from India - It may be pertinent to note that similar expenditure has been allowed deduction since inception, i.e., assessment years 1996-97 to 2006-07 and in view of there being no change in facts or law, no disallowance is warranted in the present year, too. The aforesaid position has been upheld by the Tribunal in appellant s own case for assessment years 2007-08 to 2020-21. This issue has attained finality since revenue has accepted the said aforesaid findings of Tribunal. Respectfully following the earlier orders of the Tribunal, the addition is directed to be deleted. CRS Income-Royalty This issue is intra-polated on the issue of PE and attribution of profits as dealt above. Payment made to Altea System The Co-ordinate Bench of Tribunal in assessee s own case for the assessment years 2007-08 to 2020-21 held that payment received by the appellant from the airlines for the Altea system cannot be characterized as royalty either under the Act or under the Treaty. Respectfully following the earlier orders of the Tribunal, the addition is directed to be deleted. Interest u/s 234A In view of the extension of due date for filing of the return vide Circular No. 01/2022 dated 11.01.2022, no interest u/s 234A is leviable. Interest u/s 234B This issue stands covered by the orders of the Co-ordinate Bench of Tribunal for assessment years 2007-08 till 2019-20. The AO is directed to follow the same ratio.

Summary

Issues involved:
- Computation of income for the assessment year
- Invalid Document Identification Number (DIN) by the DRP Directions
- Permanent Establishment
- Attribution of Profits
- Disallowance of Expenses
- CRS Income - Royalty
- Altea System
- Charge of interest

Computation of income for the assessment year:
The appeal was filed against the order passed by the Assessing Officer for the assessment year. The assessing officer erred in computing the income of the appellant and alleging that specific information was not furnished, particularly the agreements with the airlines.

Invalid Document Identification Number (DIN) by the DRP Directions:
The DRP Directions were passed quoting an invalid DIN, which was deemed non-est and bad in law. The assessing officer erred in following these directions without appreciating the invalid DIN.

Permanent Establishment:
The DRP and assessing officer held the appellant liable to tax in India for receipts from airlines, alleging a Permanent Establishment (PE) in India. Various aspects were considered, including the appellant's operations and agreements with entities in India.

Attribution of Profits:
The issue of attributing profits to the PE was raised, arguing that the income derived was consumed by expenses, leaving no taxable income. Previous court decisions were cited to support the appellant's stance.

Disallowance of Expenses:
Expenses such as distribution fees, development costs, and marketing costs were disallowed by the assessing officer. The appellant argued that similar expenses were allowed in previous years and should not be disallowed in the current year.

CRS Income - Royalty:
The issue of royalty income received by the appellant was discussed in relation to the PE and attribution of profits. Various legal provisions and arguments were presented regarding the taxation of this income.

Altea System:
Payments received by the appellant for the use of the Altea system were considered taxable as royalty. However, previous tribunal decisions were cited to support the appellant's position that these payments should not be characterized as royalty.

Charge of interest:
Interest was levied under sections 234A and 234B of the Act. Arguments were made regarding the applicability of interest and previous tribunal decisions were referenced to support the appellant's case.

The Tribunal allowed the appeal of the assessee, pronouncing the order in the open court on the specified date.