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TMI Blog2018 (2) TMI 1767X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the DRP that the assessee had a business connection/PE in India. The Ground of appeal No. 1 raised by the assessee before us is dismissed. Aamount of income as attributable to its PE in India - Held that:- following the view taken by the coordinate bench of the Tribunal in the assesses own case for the preceding years, therefore, conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. We may herein observe that we are also persuaded to be in agreement with the view taken by the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 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 the 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. We thus in terms of our aforesaid observations allow the Ground of appeal No. 2 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 given a thoughtful consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved. We have deliberated on the issue under consideration and finding ourselves to be in agreement with the view taken in the aforesaid judicial pronouncements, are thus of the considered view that the ALP of the interest on the loans advanced by the assessee to its subsidiary company, viz. ADSIL was to be determined on LIBOR and not as per the Indian PLR rate so adopted by the A.O/TPO. We thus in the backdrop of our aforesaid observations direct the A.O/TPO to take ALP of the interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. We thus in terms of our aforesaid observations partly allow the Ground of appeal No. 5 raised by the assessee before us. Interest levied on the assessee under Sec. 234B deleted - I.T.A. No. 486/Mum/2016, I.T.A. No.4882/Mum/2015, I.T.A. No.7367/Mum/2010, I.T.A. No.2120/Mum/2014, I.T.A. No.7400/Mum/2012, I.T.A. No.1704/Mum/2015, I.T.A. No.8479/Mum/2011, I.T.A. No. 4780/Mum/2015 - - - Dated:- 16-2-2018 - SHRI G.S. PANNU, AM AND SHRI RAVISH SOOD, JM For the Appellant- Shri Nitesh Joshi, A.R For the Respondent- Shri V. Janardhanan, D.R ORDER PER RAVISH SOOD, JUDICIAL MEMBER The present set of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n operations as per Rule 10 of Income-tax Rules, 1962 as income of appellant has been upheld by Income-tax Appellate Tribunal ('ITAT') without appreciating that while deciding the issue on attribution of income, the ITAT has not relied on Rule 10. 2.6 The learned CIT(A) erred in not following the ITAT decision in the appellant's own case for earlier years and Delhi High Court judgment in the case of Galileo International Inc. (336 ITR 264) despite of no change in facts. 3. Reimbursement of expenses 3.1 the learned CIT(A) erred in holding that the expenses reimbursed by abacus Distribution Systems (India) Pvt. Ltd. ( ADSILL‟) amounting to ₹ 2,05,49,465/- are part of business income of the appellant and thereby taxing ₹ 20,54,946/- (i.e. 10% of ₹ 2,05149,465/-). 3.2 The learned CIT(A) erred in not appreciating that the expenses reimbursed by ADSIL were towards expenses incurred by the Sabre Asia Pacific Lte Ltd. Vs. DCIT-A.Y. 205-06 to 2011-12 ITA No. 4882/Mum/2015, ITA No. 7367/Mum/2010, ITA No. 8479/Mum/2011, ITA No.7400/Mum/2012,ITA No. 2120/Mum/2014, ITA No. 1704/Mum/2015 and ITA No.486/Mum/2016 Addl. CIT Vs. Sabre Asia Pacific Lte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ADSIL. 5.5 The learned CIT (A) erred by not considering the f act that if the appellant had charged interest instead of the loan being interest free there would be loss to revenue of India, considering the deductibility of the interest expense in the hands of the borrower (i.e. ADSIL) and low withholding tax in respect of interest due to the appellant. 5.6 Without prejudice to the above grounds, the learned CIT(A) erred in law by using Prime Lending Rate instead of LIBOR for determining the arm's length interest amount. 5.7 The learned CIT(A) erred in applying the rate of 40% on the interest income as against the rate prescribed in section l15A of the Act. 5.8 Without prejudice to the above, the learned CIT(A) erred in not appreciating that even if the interest income is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. marke ting service fees paid to ADSIL) is sufficient to absorb its income and accordingly there will be no loss to the revenue. 6. Levy of interest under section 234B 6.1 The learned CIT(A) er red in upholding the order of the A.O that interest of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e booking made by the travel agents. That for each of the booking made through the NMC‟s subscribers commission is paid by the assessee to the NMC. The assessee had licensed its wholly owned Indian subsidiary company, viz. Abacus Distribution System (India) Ltd. (for short ADSIL‟) as its NMC in India. 4. The assessee filed its return of income for the year under consideration, viz. A.Y 2005-06 on 30.10.2005, declaring total income of ₹ 3,95,453/-. During the course of the assessment proceedings it was submitted by the assessee that it had received total fees of ₹ 41,03,60,052/- (USD 95,05,676/- @ 43.17) in respect of its activity of providing airline reservations in India. The assessee further claimed to have paid an amount of ₹ 10,30,00,289/- to ADSIL by way of commission for the marketing services rendered by the said NMC. 5. The assessee on being called upon by the A.O to explain the reason for not offering the fees received from providing the airline reservations in India for tax, submitted that as it did not have any Permanent Establishment (for short PE‟) in India within the meaning of Article 5 of the Double taxation Avoidance Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not have a PE in India, relied on the orders of the coordinate benches of the Tribunal, viz. ITAT Delhi B‟ bench in the case of Galileo International Inc. Vs. DCIT (2009) 116 ITD 1 and Amadeus Global Travel Distribution S.A Vs. DCIT Anr. (2008) 113 TTJ 767. 6. The A.O after deliberating on the contentions advanced by the assessee in order to impress upon him that it did not have any PE/business activities in India, was however not persuaded to accept the same. The A.O observed that the principal activities, viz. marketing, distribution, sales and revenue generation had taken place in India. The A.O after perusing the recitals in the distribution agreement executed between the assessee and ADSIL observed that it stood clearly revealed that ADSIL was carrying on the business activities of the assessee in India. The A.O was of the view that ADSIL was functioning as a controlled subsidiary of the assessee and was exclusively performing the marketing and distribution of CRS for the assessee. The A.O observed that the assessee carried out its activities of CRS through the Abacus Country Node located in India, which remained under the management and control of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as against those disclosed by it, furnished a reconciliation with the A.O. However, the A.O being of the view that the information furnished by the assessee did not explain the discrepancy as had emerged from the records, therefore, declined to accept the same. The A.O after taking the base gross receipts of ₹ 41,03,60,052/-(as earlier reported by the assessee) and the suppressed receipts of ₹ 2,07,56,221/- (supra), worked out the gross receipts of the assessee at ₹ 43,11,16,273/-. The A.O further observed that while for the assessee had in Form 3CEB reported payment of commission of ₹ 10,30,00,289/- to ADSIL during the year under consideration, but however, had thereafter vide its letter dated 19.11.2008 filed during the course of the assessment proceedings claimed the same at ₹ 9,49,62,089/- (USD 21,76,532/- @ 43.63). The assessee on being called upon by the A.O to put forth an explanation as regards the difference in the aforesaid amounts, submitted that the same was due to the timing difference adjustment which had emerged for the reason that the calendar year of accounting followed by the assessee was different as against that followed by ADSIL. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the aforesaid amounts received from ADSIL were in the nature of reimbursement of expenses, submitted that the same could safely be gathered from the fact that no services were provided to ADSIL. The assessee in order to fortify its aforesaid contention submitted that in the TPSR filed in Form 3CEB, the aforesaid amounts were shown as reimbursement of expenses and were not considered as an international transaction as the transactions were with the third parties. It was submitted by the assessee that the Transfer Pricing Officer (for short TPO‟) had accepted the claim of the assessee and had not characterized the aforesaid transactions as an international transaction in his order. However, the A.O being of the view that the assessee had failed to place on record the necessary documentary evidence which would substantiate its claim that the aforesaid receipts were in the nature of reimbursement of expenses, therefore, declined to accept the same and concluded that the amount of ₹ 2,05,49,465/- received by the assessee from ADSIL was in the nature of fee for technical services‟ within the meaning of Article 12 of the India-Singapore Tax Treaty. 9. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an addition of ₹ 1,30,38,944/- to the total income of the assessee. 11. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions of the assessee that as it had no business connection/Permanent Establishment in India, therefore, no income was liable to be brought to tax in India, however, did not find favour with the same. The CIT(A) being of the view that as the issue of PE in India was covered against the assessee by the orders passed by the coordinate benches of the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 and also by the order of his predecessor in the case of the assessee for A.Y 2004-05, thus observing that admittedly as the facts of the case for the year under consideration, viz. A.Y 2005-06 remained the same, therefore, followed the aforesaid orders and concluded that the assessee during the year under consideration had a PE in India within the meaning of Article 5(1) and 5(8) of the India-Singapore treaty. The CIT(A) to support his aforesaid finding observed that the issue of PE in India was also decided against the assessee by the Dispute Resolution Panel (for short DRP‟) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by the Tribunal in the assesses own case, but however, the revenue had carried the same in further appeal before the High Court, which was pending disposal. The CIT(A) noticed that for the reason that the appeal of the revenue was pending before the High Court, the DRP had decided the issue against the assessee in its case for A.Y 2010-11. The CIT(A) in the backdrop of the aforesaid facts followed the decision of the DRP and decided the issue against the assessee. However, the CIT(A) observing that the A.O had not considered the submissions of the assessee as regards the amount of the gross receipts/fees received from the airlines and commission paid to ADSIL, therefore, directed the A.O to determine the correct income of the assessee attributable to its India operations after considering the aforesaid submissions. 14. The assessee during the course of the hearing of the appeal in order to fortify its contention that the amount of ₹ 2,05,49,465/- received from ADSIL was in the nature of reimbursement of expenses, furnished additional evidence under Rule 46A of the Income tax Rules, 1962, with the CIT(A). The CIT(A) after perusing the objections of the A.O to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the arm‟s length rate of interest in respect of the interest free loan given by the assessee to its AE, viz. ADSIL, the LIBOR rate prevailing as on 31.03.2005 should have been considered and not the Indian PLR. However, the CIT(A) was not persuaded to be in agreement with the aforesaid claim of the assessee. The CIT(A) being of the view that as the aforesaid issue had been adjudicated by the DRP-IV, Mumbai, against the assessee in A.Y 2010-11 and the facts of the case for the year under consideration were similar to those involved in AY 2010-11, therefore, followed the principle of consistency and dismissed the aforesaid contention of the assessee. 17. That both the assessee and the revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. That as common issues are involved in the aforementioned appeals, therefore, the same are taken up and disposed of together. The ld. Authorized Representative (for short A.R‟) for the assessee at the very outset of the hearing of the appeal submitted that the issue as to whether the assessee has a PE in India and to what extent the income of the assessee would attributable to the same had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Test which was a part of the Transfer pricing provisions. The ld. D.R in order to impress upon us that the ALP in respect of the transactions between the assessee and its PE could be arrived at only after carrying out a FAR analysis, submitted that as the Transfer pricing provisions and the related rules were introduced in India only with effect from 01.04.2002, vide the Finance Act, 2001, therefore, the same could not have been invoked by the Tribunal and the Hon‟ble High Court of Delhi while disposing of the appeals for A.Ys 1995-96 to 1998-99 in the case of Galileo International Inc. (supra). It was thus the contention of the ld. D.R that attribution of 15% of the gross receipts to the CRS operations carried out in India in the case of Galileo International Inc. (supra) by the Tribunal and the Hon‟ble High Court, being distinguishable in the backdrop of the aforesaid facts, thus, could not be transposed and read as a guideline for adjudicating the case of the assessee for the year under consideration, viz. A.Y 2005-06. It was submitted by the ld. D.R that the principle of consistency as was heavily relied upon by the ld. A.R was absolutely misconceived and not app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion that 15% of the revenue was attributable to the CRS operations carried out in India, submitted that the same had been deliberated upon and accepted by the coordinate benches of the Tribunal and by the Hon‟ble High Court of Delhi in the following cases:- Sr. No. Name Citation Assessment Years 1. Galileo Netherland BV 367 ITR 319 (Delhi HC) 2003-04 to 2006-07 2. Galileo International Inc. 180 taxman 357 (Delhi HC) 1995-96 to 1998-99 3. Amadeus Global Travel Distribution 3 taxmann.com 777 (Delhi) 2003-04 to 2005-06 4. Amadeus Global Travel Distribution S.A 11 taxmann.com 153 (Delhi) 1996-97 to 1998-99 5. Sabre Inc. 2009 taxmann.com 1020 (Delhi) 1999-00 to 2005-06 That it was submitted by the ld. A.R that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the PE from the CRS activities. The ld. A.R submitted that in view of the order passed by the CIT(A), 10% of the reimbursement of the expenses be regarded as the income of the assessee that would be entitled for set off against the commission payment made to ADSIL. It was submitted by the ld. A.R that the Tribunal in the assesses own case for A.Y 2004-05 had accepted the aforesaid contention. The ld. A.R taking support of the aforesaid facts submitted that as the amount paid to ADSIL during the year under consideration was more than the income attributable to its business operations (including the income from reimbursement of expenses being 10% of ₹ 2,05,49,465/-), therefore, the net results from India operations in the hands of the assessee resulted in a loss. Per contra, the ld. D.R submitted that the CIT(A) had adjudicated the aforesaid issue by following the order of his predecessor passed in the case of the assessee for A.Y 2004-05 and held that the expense were to be considered as business income in the hands of the Indian PE. The ld. D.R submitted that both the assessee and the department being aggrieved with the order of the CIT(A) on the issue under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment could have been made in its hands, but thereafter, submitted that he was not pressing the said contention. The ld. A.R submitted that even if a TP adjustment was permissible, the ALP interest rate could not have exceeded the LIBOR being the rate of interest applicable to USD. The ld. A.R in support of his contention, relied on the following judicial pronouncements:- CIT Vs. VFS Global Services Pvt. Ltd. (ITA No. 336 of 2015 dated 19 July 2017) (Bom HC) CIT Vs. Cotton Naturals (I) Pvt. Ltd. (ITA No. 233/2014 dated 27 March 2015) (Del HC) Firestar Intl Pvt. Ltd. Vs. Assist. CIT (ITA No. 488/Mum/2015 dated 31 May 2015 for AY 2010-11) Tooltech Global Eng. Pvt. Ltd. Vs. DCIT ITA No. 273/PN/2014 vide order dated 28.08.2014. It was submitted by the ld. A.R that the revenue in support of its contention that the rate of interest for determination of ALP should be the rate charged in the country where the loan is received or consumed had relied on the order of a coordinate bench of the Tribunal on the case of Geodesic (79 taxmann.com 215), which had followed the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Tata Autocomp Systems Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to ADSIL. Per contra, the ld. D.R in support of his contention relied on the judgment of the Hon‟ble High Court of Bombay in the case of Autocomp System Ltd. (supra). It was submitted by the ld. D.R that the observations of the High Court that the ALP of the interest in the case of loans advanced to associate enterprises were to be determined on the basis of rate of interest being charged in the country where the loan is received/consumed, thus, negated both of the claims of the assessee, viz. (i) that the interest on loan is not an international transaction; and (ii) that even if it is considered as an international transaction, then LIBOR was to be adopted for making the transfer pricing adjustment. The ld. D.R taking support of his aforesaid contentions averred that as in the case of the present assessee the loan had been consumed in India, therefore, the Indian PLR has to be considered as ALP. The ld.D.R submitted that the reliance placed by the assessee on the judgment of the Hon‟ble High Court of Bombay in the case of V.V.F. Global Services ltd. (supra) wherein the LIBOR rate was upheld as ALP rate was distinguishable on facts, as unlike the case of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round of appeal No. 1 raised by the assessee before us is dismissed. 22. We now advert to the contention of the assessee in respect of the amount of income that was attributable to its PE in India. We find that the ld. A.R had submitted that as held by the coordinate benches of the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05, 15% of the gross receipts pertaining to India bookings were to be taken as the income attributable to the India operations of the assessee. The ld. A.R had further averred that as the assessee had paid a commission of 25% of the gross receipts pertaining to India bookings to its NMC, viz. ADSIL, which was higher than the income attributable to India, therefore, no income remained in the hands of the assessee which could be brought to tax in India. We find that to the contrary the ld. D.R had submitted that now when the Transfer pricing provisions and the related rules had been notified with effect from 01.04.2002, vide the finance Act, 2001, therefore, the adoption of the adhoc ALP of 15% of the gross receipts as the income of the assessee attributable to its India operations could not be sustained. We find that the ld. D.R had submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 20.05.2011. We further find that the Tribunal while disposing of the appeal of the assessee for A.Y 2004-05 in ITA No. 1045/Mum/2008, dated 31.05.2013 had again followed its aforementioned orders. We are of the considered view that as the facts of the case had not witnessed any change as against those which were involved in the case of the assessee for the aforementioned earlier years, therefore, following the principle of consistency as had been emphasized by the Hon ble Supreme Court in the case of Radhsoami Satsang Vs. CIT (193 ITR 321) (SC) and Godrej Boyce Manufacture Co. Ltd. Vs. DCIT (2017) (394 ITR 449) (SC), finding no reason to take a different view, follow the same. Before parting, we may herein observe that we are not persuaded to accept the contention of the ld. D.R that the adhoc adoption of 15% of the gross receipts of the assessee as its income attributable to India operations as observed by the Tribunal in the case of Galileo International Inc. Vs. DCIT (2009)116 ITD 1 (Del) for A.Ys 1995-96 to 1998-99, which thereafter had been approved by the High Court of Delhi in CIT Vs. Galileo International Inc. (2011) (336 ITR 264)(Del) would not be applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. We may herein observe that we are also persuaded to be in agreement with the view taken by the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 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 the 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. We thus in terms of our aforesaid observations allow the Ground of appeal No. 2 raised by the assessee before us. 23. We now advert to the contention of the ld. A.R that the CIT(A) had erred in holding that 10% of the expenses reimbursed by ADSIL amounting to ₹ 2,05,49,465/- were to be held as the business income of the assessee. We find that the assessee had submitted before the A.O that ADSIL had reimbursed the following expenses which were incurred by the assessee on its behalf:- Service charges (payments to SITA and SABRE for the travel agent‟s accesses to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be no income chargeable to tax in the hands of the assessee, because the amount of marketing fees paid by the assessee to ADSIL of ₹ 10,30,00,287/-would absorb the said income element. We have given a thoughtful consideration to the contention advanced by the ld. A.R that 10% of the reimbursement amount as claimed by the assessee which had been characterized by the CIT(A) as the business income would justifiably be entitled for set off against the commission payment made by the assessee to ADSIL, merits acceptance. However, we may herein observe that as the quantification of the gross receipts and commission paid to ADSIL had been restored by the CIT(A) to A.O, therefore, the commission paid by the assessee to its NMC, viz. ADSIL would be that as determined by the A.O. The Ground of appeal No. 3 raised by the assessee is allowed in terms of our aforesaid observations. 24. We now advert to the appeal of the revenue wherein the order of the CIT(A) had been assailed before us on the ground that he had erred in vacating the observations of the A.O that the aforesaid amount of ₹ 2,05,49,465/- was liable to be brought to tax as Fees for technical services‟ in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as treated by the revenue as an international transaction whose arms length interest was worked out by applying the Indian PLR of 10.50%. The ld. A.R had submitted before us that as the aforesaid amount was advanced by the assessee to its WOS, viz. ADSIL with a view to financially strengthen the said company which was the National marketing company for the assessee in India, as the same would had facilitated garnering of more customers for the assessee in the India Market, therefore, the said advancing of interest free loan which was prompted by business prudence and commercial reasons, thus not liable to be subjected to a transfer pricing adjustment. We are unable to persuade ourselves to accept the aforesaid contention of the ld. A.R. We are of the considered view that as the advancing of the aforesaid loan by the assessee to ADSIL was an international transaction, therefore, the transfer pricing provisions stood invoked. We may herein observe that the ld. A.R had not drawn our attention to any judicial pronouncement which would go to support his aforesaid view. We find that though the ld. A.R had assailed the transfer pricing adjustment in respect of the aforesaid transaction fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined on the basis of rate of interest being charged in the country where the loans is received/consumed is absolutely misconceived. We are rather persuaded to be in agreement with the contention of the ld. A.R that the issue as regards the determination of the ALP in respect of interest on loan advanced to AE was looked into by the Hon‟ble High Court of Bombay in the case of CIT-1 Vs. M/s VFS Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.01.2017), wherein the High Court dealing with the contention of the revenue that the Tribunal was not justified in directing the A.O/TPO to determine the ALP interest by considering the LIBOR plus 2%, as against the rates of the Indian Market, had observed that the view of the Tribunal as regards determination of the ALP interest at LIBOR plus 2% appeared to be in conformity with the earlier judgment of the High Court in the case of CIT-2 Vs. Tata Autocomp Systems Ltd. (ITA No. 1320/Mum/2012, dated 03.02.2015). We are of the considered view that the Hon‟ble High Court of Bombay while disposing of the appeal filed by the revenue in the case of CIT-1 Vs. M/s V.F.S Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to its subsidiary company, viz. ADSIL was to be determined on LIBOR and not as per the Indian PLR rate so adopted by the A.O/TPO. We thus in the backdrop of our aforesaid observations direct the A.O/TPO to take ALP of the interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. We thus in terms of our aforesaid observations partly allow the Ground of appeal No. 5 raised by the assessee before us. 27. The assessee had further assailed before us the levy of interest under Sec. 234B of ₹ 76,83,037/- by the A.O, which thereafter had been affirmed by the CIT(A). It was submitted by the ld. A.R that the Hon‟ble High Court of Bombay in the assesses own case for A.Y 2003- 04, viz. the Director of Income tax (International taxation) Vs. M/s Abacus International Pte. Ltd. (ITA (L) No. 2424/Mum/2010, dated 01.07.2011), relying on its earlier judgment in the case of Director of Income Tax (International taxation) Vs. N.G.C Network Asia CCC (2009) 313 ITR 187 (Bom), had concluded that the Tribunal had rightly deleted the interest levied on the assessee under Sec. 234B of the Act. We thus in terms of the aforesaid observations of the HonR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DSIL constitutes agency PE in terms of Article 8(c) and 9 of India-Singapore DTAA. 2.7 The learned DDIT erred in observing that ADSIL is dependent on the appellant for its financial existence and is performing only activities for the appellant and that ADSIL is not an independent agent. 3. Income attributable to PE 3.1 The learned DDIT erred in treat ing a sum of ₹ 53,28,56,124/- as income attributable to the PE in India and computing the income liable to tax in India as ₹ 5,32,85,612/- 3.2 The learned DDIT erred in calculating the income of the appellant on presumptive basis by estimating the prof it margin of the appellant as 10% of the receipts attributable to Indian operations of ₹ 53,28,56,124/- and treating a sum of ₹ 5,32,85,6 12/- as the income of the appellant. 3.3 The learned DDIT erred in considering the base gross receipts as US$ 1,19,87,764/- instead of US$ 1,11,83,749/- as indicated in the gross receipts statement submitted by the appellant. 3.4 The learned DDJT erred in adding an amount of US$ 8, 04,015/- to the gross receipts on the basis of the statement submitted by Indian Airlines without appreciating the f act that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presenting alleged arm's length interest on the interest-free loan granted by the appellant to its associated enterprise - Abacus Distribution Systems India Private Limited) corresponding deduction in tax assessments is not claimed by the aforesaid associated enterprise, and accordingly amounts to double taxation of the same income. 6.4 The learned DDIT erred by not allowing corresponding deduction in the hands of the said associated enterprise of the interest free loan granted by the appellant. i. The learned DDIT erred in not appreciating that there is no loss to the revenue by granting of interest free loan by the appellant to its aforesaid AE. ii. The learned DDIT erred by not considering the fact that if the appellant had charged interest instead of the loan being interest free there would be loss to Revenue of India considering the deductibility of the interest expense in the hands of the borrower and low withholding tax in respect of interest due to the assessee. 6.5 Without pre judice to the above grounds, the appellant states that the le arned DDIT erred in law by using prime lending rate instead of LIBOR for determining the arms length interest amount. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15, therefore, the view therein taken by us while disposing of the aforesaid respective grounds of appeal shall apply mutatis mutandis for the adjudication of the Grounds of appeal No(s). 2 to 6 raised by the assessee in the present appeal before us. The Grounds of appeal No(s). 2 to 6 of the present appeal are thus disposed of in terms of our aforesaid observations. 32. The assessee had further by way of ground of appeal No. 7 claimed that the DDIT(IT)-1(1), Mumbai, while passing the order under Sec. 143(3) r.w.s 144C(13) had erred in giving short credit of TDS of ₹ 38,50,596/-. It was submitted by the ld. A.R that though the assessee had submitted the original TDS certificates and an indemnity bond in respect of its aforesaid claim, however, the same had not allowed by the DRP. We have perused the order of the DRP and find from the records that though the assessee as per its objection to the draft assessment order under Sec.143(3) r.w.s 144C(1), dated. 31.12.2009, had objected to the short credit of TDS of ₹ 38,50,596/- however, the same had not been adjudicated upon by the DRP. We thus restore the matter to the file of the A.O with a direction to verify the factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds: 1. The learned DDIT erred in assessing the to tal inco me of the appellant at ₹ 8,81,87,359/-. 2. Business connection I permanent establishment in India 2.1 The learned DDIT erred in holding that the appellant had a business connection in India in terms of the Income-tax Act, 1961 and a permanent establishment ('PE') in India in terms of the India- Singapore Double Taxation Avoidance Agreement ('DTAA'). 2.2 The learned DDIT erred in holding that Abacus Distribution Systems (India) Pvt. Ltd. ('ADSIL') f unctions under the direct control of its principal namely the appellant. 2.3 The learned DDIT erred in holding that the appellant has a fixed place of business in India. 2.4 The learned DDIT erred in holding that the appellant maintains telecommunication network in India through which messages are transmitted. 2.5 The learned DDIT erred in observing that the appellant carries out its activities of Computerized Reservation System (CRS) through the Abacus Country Node located in India and is under the management and control of the appellant. 2.6 The learned DDIT erred in observing that ADSIL secures business for the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 March 2007. 6.2 The learned DDIT erred in determining the arms length interest rate erred in not appreciating in the proper perspective the Business and Economic circumstances prevailing at the time of providing the interest free loan of ₹ 12,40,95,790 /- by the appellant to ADSIL. 6.3 The learned DDIT erred in not appreciating / considering that in respect of the adjustment of ₹ 1,43,70,292/- to the total income of the appellant representing alleged arm's length interest on the interest-free loan granted by the appellant to ADSIL no corresponding deduction is claimed by ADSIL in its tax return or assessments, and accordingly amounts to double taxation of the same income. 6.4 The learned DDIT erred by not allowing corresponding deduction of the interest free loan granted by the appellant in the hands of ADS IL. 6.5 The learned DDIT erred in not appreciating that there is no loss to the revenue by granting of interest free loan by the appellant to ADSIL. 6.6 The learned DDIT erred by not considering the fact that if the appellant had charged interest instead of the loan being interest free there would be loss to Revenue of India considering the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses; (iv). applicability of Article 24 of India-Singapore DTAA and interest income; and (v). transfer pricing adjustment of the interest on loan advanced to ASDIL. We are of the considered view that as the aforesaid issues had been adjudicated by us while disposing of the Grounds of appeal No(s) 1 to 5 of the assessee for A.Y 2005-06, viz. ITA No.4882/Mum/2015, therefore, the view taken by us while disposing of the aforesaid respective grounds of appeal shall apply mutatis mutandis for the adjudication of the Grounds of appeal No(s). 2 to 6 raised by the assessee in the present appeal before us. The Grounds of appeal No(s). 2 to 6 of the present appeal are thus disposed of in terms of our aforesaid observations. 38. The assessee had further by way of Ground of appeal No. 7 claimed that the DDIT(IT)-1(1), Mumbai, while passing the order under Sec. 143(3) r.w.s 144C(13) had by allowing credit of TDS of ₹ 3,07,55,351/- as against claim of ₹ 3,11,76,668/- raised by the assessee in its return of income, had erred in giving short credit of TDS of ₹ 4,21,317/-. We though find that neither any such objection of the assessee as regards short credit of TDS is borne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - tax Act, 1961 dated 26 September 2012 (received on 17 October 2012) passed by the Additional Director of Income-tax, (International Taxation) - 1, Mumbai (ADIT') for the aforesaid assessment year on the following among other grounds: 1. The learned ADIT erred in assessing the total income of the appellant at ₹ 9,80,54,487. 2. Business connection / permanent establishment in India 2.1 1 T he le arne d AD IT e rre d in ho ld ing th a t the appe l l an t h ad a bus ine ss connection in India in terms of the Income-tax Act, 1961 and a permanent establishment ('PE') in India in terms of the India- Singapore Double Taxation Avoidance Agreement ('DTAA'). 2.2 The learned ADIT erred in holding that Abacus Distribution Systems (India) Pvt. Ltd. ('ADSIL') functions under the direct control of its principal namely the appellant. 2.3 The learned ADIT erred in holding that the appellant has a fixed place of business in India. 2.4 The learned ADIT erred in holding that the appellant maintains telecommunication network in India through which messages are transmitted. 2.5 The learned ADIT erred in observing that the appellant carries out its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel erred in not accepting additional evidence with respect to reimbursement of expenses. 5. Applicability of Article 24 of India-Singapore DTAA The learned ADIT erred in not accepting the contention of the appellant that the provisions of Article 24 of India-Singapore DTAA are not triggered. 6. Transfer pricing adjustment 6.1 The learned ADIT erred in making a transfer pricing adjustment of ₹ 1,43,28,727/- under section 92CA(4), in respect of the international transaction entered into by the appellant during the year ended 31 March 2008. 6.2 the learned ADIT erred in determining the arms length interest rate erred in not appreciating in the proper perspective the business and economics circumstances prevailing at the time of providing the interest free loan of ₹ 11,36,29,880/- by the appellant to ADSIL 6.3 The learned ADIT erred in not appreciating / considering that in respect of the adjustment of ₹ 1,43,28,727/- to the total income of the appellant representing alleged arm's length interest on the interest- free loan granted by the appellant to ADSIL no corresponding deduction is claimed by ADSIL in its tax return or assessments, and accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 8,81,87,359/-, being general in nature is dismissed as not pressed. The Ld. A.R adverting to the Grounds of appeal No(s).2 to 6, submitted that the issues and the facts remained the same as were raised by way of Grounds of appeal No(s). 1 to 5 in the appeal of the assessee for A.Y 2005-06, viz. ITA No. 4882/Mum/2015.The aforesaid factual position so canvassed before us had not been rebutted by the ld. D.R. We have perused the Grounds of appeal No(s). 2 to 6 raised by the assessee in the present appeal and find that the same pertain to the issues viz. (i). existence of the PE/Business connection of the assessee in India; (ii). attribution of income to PE; (iii). reimbursement of expenses; (iv). applicability of Article 24 of India-Singapore DTAA and interest income; and (v). transfer pricing adjustment of the interest on loan advanced to ASDIL. We are of the considered view that as the aforesaid issues had been adjudicated by us while disposing of the Grounds of appeal No(s) 1 to 5 of the assessee for A.Y 2005-06, viz. ITA No.4882/Mum/2015, therefore, the view taken by us while disposing of the aforesaid respective grounds of appeal shall apply mutatis mutandis for the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. The assessee assailing the order of the CIT(A) had raised the following grounds of appeal before us: The appellant objects to the order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 dated 22 January 2014 (received on 3 February 2014) passed by the Assistant Director of Income-tax, ( International Taxation) - 1(1), Mumbai ('ADIT') f or the aforesaid assessment year on the following among other grounds: 1. The learned ADIT erred in assessing the total income of the appellant at ₹ 13,51,08,490/-. 2. Business connection/permanent establishment in India 2.1 The learned ADIT erred in holding that the appellant had a business connection in India in terms of the Income-tax Act, 1961 and a permanent establishment ('PE') in India in terms of the India- Singapore Double Taxation Avoidance Agreement ('DTAA'). 2.2 The learned ADIT erred in holding that Abacus Distribution Systems (India) Pvt. Ltd. ('ADSIL') functions under the direct control of its principal namely the appellant. 2.3 The learned ADIT erred in holding that the appellant has a fixed place of business in India. 2.4 The learned ADIT erred in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med against the revenue of ₹ 1,07,48,41,423/- from Indian operations and not against the income estimated by the ADIT at 10% of total revenue. 3.6 The learned ADIT / DRP erred in not following the ITAT decision in the appellant's own case for earlier years and Delhi High Court judgment in the case of Galileo International Inc. (336 ITR 264) despite of no change in facts. 4. Reimbursement of expenses 4.1 The learned ADIT erred in holding that the expenses reimbursed by ADSIL amounting to ₹ 8,38,76,045/- are part of business income of the appellant and thereby taxing 10% of the said amount (i.e. ₹ 83,87,605/-). 4.2 The learned ADIT erred in not appreciating that the expenses reimbursed by ADSIL were towards expenses incurred by the appellant on line charges, service charges and other expenses and the same were in the nature of pure reimbursement not having any element of income / service. 4.3 The learned DRP erred in observing that the appellant has not f urnished any evidence bef ore the ADIT to substantiate its claim that the payments are reimbursement. 4.4 Without prejudice to the above, the appellant submits that even if the reimbursement i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234B 7.1 The learned ADI[ erred in levying interest ₹ 2,76,60,550 under section 234B. 7.2 The learned ADIT erred in not appreciating that in case a view is taken that the income earned by it is liable to tax in India, appropriate tax should have been deducted at source by the persons who paid the income. Accordingly, no advance tax was payable by the appellant (entire tax should have been deducted at source) and the question of levy of interest under section 23413 for delayed payment of tax does not arise. 7.3 The learned ADIT erred in not following the judgment of the Bombay High Court in appellants own case for levy of interest under section 234B. 8. Adjustment of refund The learned ADIT erred in adjusting a sum of ₹ 75,56,280/ - as refund already issued, without appreciating the fact that no such refund has been issued to the appellant. 9. Levy of interest under section 234D The learned ADIT erred in levying interest of ₹ 12,84,568/- under section 234D of the Act. 10. Each one of the above grounds of appeal is without prejudice to the other. 11. The appellant reserves the right to amend, alter or add to the grounds of appeal. 50. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the considered view that as the issue as regards levy of interest under Sec. 234B had been adjudicated by us in the aforementioned appeal of the assessee for A.Y 2005-06, viz. ITA 4882/Mum/2015, therefore, our directions passed while disposing of the aforesaid Ground of appeal No. 6 in the case of the assessee for A.Y. 2005-06, viz. ITA 4882/Mum/2015 shall to the said extent apply mutatis mutandis for disposing of the Ground of appeal No. 7 raised by the assessee before us in the present appeal. The Ground of appeal No. 7 is allowed in terms of our aforesaid observations. 53. The assessee had by way of Ground of appeal No. 8 claimed that the A.O had erred in adjusting a sum of ₹ 75,56,280/- as refund already issued, while for the fact was that no such refund was issued to the assessee. However, the ld. A.R during the course of hearing of the appeal submitted that as the A.O had vide his order passed under Sec. 154 of the Act, dated 15.02.2016 rectified the aforesaid mistake, therefore, the Ground of appeal No. 8 was not being pressed by him. We thus in the backdrop of the concession of the ld. A.R dismiss the Ground of appeal No. 8 as not pressed. 54. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that ADSIL secures business f or the appellant by entering into subscription agreement with the travel agents and this activity is habitually, wholly and exclusively performed by ADSIL f or the appellant. The learned DCIT further erred in holding that ADSIL constitutes agency PE in terms of India-Singapore DTAA. 2.7 The learned DCIT erred in observing that ADSIL is dependent on the appellant for its financial existence and is performing only activities for the appellant and that ADSIL is not an independent agent. 3. Income attributable to PE 3.1 The learned DCIT erred in treating a sum of ₹ 72,95,63,237/- as income attributable to the PE in India and computing the income liable to tax in India as ₹ 7,29,56,324/- (10% of ₹ 72,95,63,237/-). 3.2 The learned DCIT erred in calculating the income of the appellant on presumptive basis by estimating the prof it margin of the appellant as 10% of the receipts attributable to Indian operations of ₹ 72,95,63,237/- and treating a sum of ₹ 7,29,56,324/- as the taxable income of the appellant. 3.3 The learned ADIT erred in not deducting the commission of ₹ 19,78,14,045/- and marketing service fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ended 31 March 2010. 5.2 The learned DCIT while determining the arm's length interest rate erred in not appreciating the business and economic circumstances prevailing at the time of providing the interest free loan of ₹ 12,88,91,940/- by the appellant to ADSIL in the proper perspective. 5.3 The learned DCIT erred in not appreciating / considering that in respect of the adjustment of ₹ 1,54,09,713/- to the total income of the appellant representing alleged arm's length interest on the interest-free loan granted by the appellant to ADSIL, no corresponding deduction is allowed to ADSIL in its tax return or assessments and accordingly amounts to double taxation of the same income. 5.4 Without prejudice to the above, the learned DCIT erred by not allowing corresponding deduction of the interest free loan granted by the appellant in the hands of ADSIL. 5.5 The learned DCIT erred by not considering the f act that if the appellant had charged interest instead of the loan being interest free there would be loss to revenue of India, considering the deductibility of the interest expense in the hands of the borrower (i.e. ADSIL) and low withholding tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same pertain to the issues viz. (i). existence of the PE/Business connection of the assessee in India; (ii). attribution of income to PE; (iii). reimbursement of expenses; and (iv). transfer pricing adjustment of the interest on loan advanced to ASDIL. We are of the considered view that as the aforesaid issues had been adjudicated by us while disposing of the Grounds of appeal No(s) 1 to 3 and Ground of appeal No. 5 of the assessee for A.Y 2005-06, viz. ITA No.4882/Mum/2015, therefore, the view taken by us while disposing of the aforesaid respective grounds of appeal shall apply mutatis mutandis for the adjudication of the Grounds of appeal No(s). 2 to 5 raised by the assessee in the present appeal before us. The Grounds of appeal No(s). 2 to 5 of the present appeal are thus disposed of in terms of our aforesaid observations. 59. The assessee by way of Ground of appeal No. 6 had assailed the levy of interest of ₹ 32,63,312/- under Sec. 234B. We are of the considered view that as the issue as regards levy of interest under Sec. 234B had been adjudicated by us in the aforementioned appeal of the assessee for A.Y 2005-06, viz. ITA 4882/Mum/2015, therefore, our directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which al l the messages are transmitted. 2.4 The learned DCIT erred in observing that the appellant carries out its activities of Computerized Reservation System [CRS] thro ugh the Abacus Country Node located in India which is under the management and control of the appellant. 2.5 The learned DCIT erred in observing that ADSIL secures business for the appellant by entering into subscription agreement with the travel agents and this activity is habitually, wholly and exclusively performed by ADSIL for the appellant. The learned DCIT further erred in holding that ADSIL constitutes agency PE of the appellant in terms of India-Singapore DTAA. 2.6 The learned DCIT erred in observing that ADSIL is dependent on the appellant for its financial existence and is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Without prejudice to the above, the learned DRP/DCIT erred in not following the decision of the ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. commission and marketing fees paid to ADSIL) is sufficient to absorb its income. 5. Transfer pricing adjustment 5.1 The learned DCIT erred in making a transfer pricing adjustment of ₹ 1,58,69,765/- under section 92CA(4), in respect of the international transaction entered into by the appellant during the year ended 31 March 2011. 5.2 The learned DCIT while determining the arm's length interest rate erred in not appreciating the business and economic circumstances prevailing at the time of providing the interest free loan of ₹ 12,88,91,940/- by the appellant to ADSIL in the proper perspective. 5.3 The learned DCIT erred in not appreciating / considering that in respect of the adjustment of ₹ 1,58,69,765/- to the total income of the appellant representing alleged arm's length interest on the interest-free loan grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been issued to the appellant. 10.2 The learned DCIT erred in adjusting a sum of ₹ 20,77,284/- as interest on refund already issued, without appreciating the f act that no such ref und or interes t thereon has not been issued to the appellant. 11. Levy of interest under section 234D 11.1 The learned DCIT erred in levying interest of ₹ 35,63,495/- under section 234D of the Act. 12. Each one of the above grounds of appeal is without prejudice to the other. 13. The appellant reserves the right to amend, alter or add to the grounds of appeal. 65. The Ground of appeal No. 1 raised by the assessee wherein the assessee had assailed the income assessed by the A.O at ₹ 8,96,95,213/- being general in nature is dismissed as not pressed. The Ld. A.R adverting to the Grounds of appeal No(s).2 to 5, submitted that the issues and the facts remained the same as were raised by way of Grounds of appeal No(s). 1 to 3 and Ground of appeal No. 5 in the appeal of the assessee for A.Y 2005-06, viz. ITA No. 4882 /Mum/2015. The aforesaid factual position so canvassed before us had not been rebutted by the ld. D.R. We have perused the Grounds of appeal No(s). 2 to 5 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act, dated 15.02.2016 rectified the aforesaid mistake, therefore, the Ground of appeal No. 8 was not being pressed by him. We thus in the backdrop of the concession of the ld. A.R dismiss the Ground of appeal No. 8 as not pressed. 69. The assessee by way of Ground of appeal No. 9 had assailed the levy of interest of ₹ 1,07,83,659/- under Sec. 234B. However, at the time of hearing of the appeal it was submitted by the ld. A.R that as the A.O had vide his order passed under Sec. 154 of the Act, dated 20.03.2017 rectified the aforesaid mistake, therefore, the Ground of appeal No. 9 was not being pressed by him. We thus in the backdrop of the concession of the ld. A.R dismiss the Ground of appeal No. 9 as not pressed. 70. The assessee had by way of Ground of appeal No. 10 claimed that the A.O had erred in adjusting a sum of ₹ 1,88,84,449/ as refund already issued, and a further amount of ₹ 20,77,284/- towards interest on refund, while for the fact was that no such refund was issued to the assessee. However, the ld. A.R during the course of hearing of the appeal submitted that as the A.O had vide his order passed under Sec. 154 of the Act, dated 20.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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