2025 (1) TMI 1279 - AT - Income Tax

Income taxable in India or not - income from the provision of distance learning courses - AR submitted that the Authorised Training Centres (ATC) have been wrongly considered as agents of the assessee without appreciating the fact that the activities of the ATCs i.e. registration and training of students was carried out by them in their ordinary course of business in an independent capacity - relationship between the assessee viz. IATA Canada and the ATCs was on principal to principal basis and there was no element of agency between them - HELD THAT - Respectfully following coordinate bench case in assessee s own case for AY 2012-13 2021 (6) TMI 2 - ITAT MUMBAI we hold that addition made towards provision of distance learning courses by treating the ATCs as DAPE of the assessee is not sustainable and the AO is directed to delete the addition made in this regard. Joining annual fees collected towards IATA clearing house facility (ICH facility) and data processing charges - AR argued that the joining annual fee toward ICH facility is not taxable on the principle of mutualy - HELD THAT - We notice that addition is made on the similar grounds that the principle of mutuality is not applicable for the charges for provision of Data Processing. AO/DRP have relied on their own order of AY 2012-13 in this regard. On perusal of nature of charges we are of the view that Data Processing charges are received towards services to airlines and agents using iiNet and weblink and therefore are similar to ICH facility fees. As already held that the ICH facility fees is not taxable in India for the reason that the principle of mutuality is applicable as has been held by the Co-ordinate Bench in assessee s own case for AY 2012-13. Therefore applying the same ratio we hold that the data processing charges which are similar in nature cannot also be taxed as income in India as attributable to Indian branches.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the income from the provision of distance learning courses is taxable in India.
Whether the revenue from the sale of physical publications is taxable as royalty in India.
Whether the income from the provision of advertising space is taxable as royalty in India.
Whether the income from database access facilities constitutes royalty taxable in India.
Whether survey charges received are taxable as business profits in India.
Whether joining and annual fees collected towards IATA clearing house facility and data processing charges are taxable in India, considering the principle of mutuality.
Whether the initiation of reassessment proceedings was valid.
Issues related to non-grant of credit for self-assessment tax, short grant of TDS credit, and interest under section 234A.
Initiation of penalty proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Provision of Distance Learning Courses

The Court examined whether the Authorized Training Centres (ATCs) could be considered as Dependent Agent Permanent Establishments (DAPE) of the assessee under the India-Canada DTAA. The Court noted that the ATCs were independent entities and were not devoted wholly or almost wholly to the assessee's business. The transactions between the assessee and ATCs were conducted at arm's length. The Court concluded that the ATCs could not be treated as DAPE, and thus the income from distance learning courses was not taxable in India.
Precedent: The Court relied on the decision in the assessee's own case for AY 2012-13, where similar issues were adjudicated.

Sale of Physical Publications

The issue was whether the revenue from the sale of DGR manuals should be treated as royalty. The Court held that the sale was a simplicitor sale of copyrighted articles without transferring any copyright to the customers. Therefore, it could not be characterized as royalty under Article 12(3) of the India-Canada tax treaty.
Precedent: The Court followed the decision in the assessee's case for AY 2012-13 and the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT.

Provision of Advertising Space

The Court considered whether income from providing advertising space on the assessee's website and publications was taxable as royalty. It was concluded that the provision of advertising space did not grant any rights to use, display, or exploit the assessee's brand or logo. Thus, it was not royalty under Article 12(3) of the India-Canada tax treaty.
Precedent: The Court referred to the decision in the assessee's case for AY 2012-13, and the ITAT Mumbai's decision in Yahoo India (P) Ltd. vs. DCIT.

Database Access Facility

The Court examined whether the fees for database access constituted royalty. It was determined that the database access involved providing publicly available information, and the access did not involve the transfer of copyright. Hence, it was not taxable as royalty.
Precedent: The Court applied the principles from the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT.

Survey Charges

The Court analyzed whether survey charges received from Air India were taxable as business profits. It was held that the third-party service provider, Mind-set SA, was an independent entity and not a DAPE of the assessee. The services were provided outside India, and thus, the income was not taxable in India.
Precedent: The Court relied on the principles established in the assessee's case for AY 2012-13 regarding DAPE.

Joining & Annual Fees for IATA Clearing House Facility and Data Processing Charges

The Court considered whether these fees were taxable, applying the principle of mutuality. It was concluded that the assessee was a mutual concern, and the fees were not taxable in India. The principle of mutuality was upheld, as the contributions were used for the common benefit of the members.
Precedent: The Court referred to the DRP's findings for AY 2014-15 and the Co-ordinate Bench's decision in the assessee's case for AY 2012-13.

3. SIGNIFICANT HOLDINGS

The Court upheld the principle of mutuality for the IATA clearing house facility and data processing charges, holding that these were not taxable in India.
The Court reaffirmed that the sale of DGR manuals and database access fees did not constitute royalty under the India-Canada tax treaty.
The Court confirmed that the provision of advertising space did not result in taxable royalty income.
The Court held that the survey charges received from Air India were not taxable as business profits in India.
The Court concluded that the ATCs were not DAPE, and thus, the income from distance learning courses was not taxable in India.
The Court directed the AO to verify and allow credit for self-assessment tax and TDS as per the documentary evidence provided by the assessee.
The appeals for AY 2016-17 and AY 2014-15 were allowed, and the appeal for AY 2011-12 was partly allowed.