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TMI Blog2021 (2) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years 2013-14, 2014-15, 2015-16 & 2016-17 respectively on the identical grounds, except the difference of additions/disallowances, inter alia that :- "1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs. 416,18,80,875/- as against 'Nil' income returned by the appellant. 2. That the assessing officer erred on facts and in law in alleging that the appellant avoided furnishing specific information called for in the assessment, particularly the various agreements with the airlines. Re: CRS income - Permanent establishment 3. That the Dispute Resolution Panel ('DRP')/assessing officer erred on facts and in law in holding the appellant to be liable to tax in India in respect of receipts from airlines, etc. relating to segments booked from India through the appellant's computer reservation system, not appreciating that no income accrued or arose to the appellant in India. 4. That the DRP/ assessing officer erred on facts and in law in holding that computers, electronic hardware/software and the connectivity provided by the appellant to the travel agents through SITA/ third party nodes located ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts and in law in not appreciating that even if it is assumed that AIPL or the computers, electronic hardware provided to the travel agents etc., constituted PE of the appellant in India, the income derived from such PE was completely consumed by distribution and other expenses attributable thereto and that no income survives for taxation. 9. That the DRP/assessing officer erred on facts and in law in not following the order of the Delhi Bench of the Tribunal in the appellant's case for the assessment years 1996-97 to 1998-99, wherein the Tribunal had attributed 15% of the revenues relating to the bookings made from India as attributable to the appellant's PE in India and held that no income is taxable as the payment made to dependent agent was more than the revenues so attributed, and in following the rate of attribution of 75% adopted in the order for assessment years 2007-08 to 2012-13. 9.1 That the DRP/assessing officer erred on facts and law in misinterpreting the aforesaid order of the Tribunal and alleging that the Tribunal has attributed revenues to only the software development related services provided by AIPL, not appreciating that the Tribunal considered all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method adopted by the appellant. 13.2 That the DRP/ assessing officer erred on facts and in law in not appreciating that the aforesaid costs have a direct nexus with the booking fees received from bookings made from India and, therefore, the same were required to be taken into consideration while computing the income attributable to the alleged PE. 13.3 That the DRP/ assessing officer erred on facts and in law in, alternatively, disallowing the aforesaid expenses by invoking provisions of section 40(a)(i) of the Act. 13.4 That the DRP/ assessing officer erred on facts and in law in holding that part of the allocated expenses has already been included in the expenses incurred in India resulting in duplication of deduction. 13.5 That the DRP/ assessing officer erred on facts and in law in alleging that the aforesaid expenses were in the nature of 'head office' expenses and allowed deduction @S% of adjusted income under section 44C of the Act. 14. That without prejudice the DRP/ assessing officer erred in facts and in law in erroneously computing the income of the alleged PE of the appellant. Re: CRS income - Royalty 15. That the DRP/ assessing officer erred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rief facts of ITA No.2007/Del/2017 for AY 2013-14 to decide the issues in controversy in all the aforesaid appeals. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : The taxpayer, a tax resident of Spain along with its affiliated companies, has developed a fully automatic computer information system, which enables display and dissemination of information supplied by various Airlines, which in turn facilitates, inter alia, reservations, communications, ticketing and related functions on a world-wide basis (hereinafter referred to as CSR) for the travel industry. The aforesaid system is for the facility of both travel agencies and Airline offices worldwide. The taxpayer has also developed Altea system which is a three-module solution that manages reservations, inventory and departures for all involved in getting passengers on board. The taxpayer claimed to have entered into agreements with various Airlines (Participating Carrier Agreement) by providing interconnectivity between the host computer of the individual Airline and the Amadeus CRS created by the taxpayer at Erding, Germany. The taxpayer also provides connectivity to its CRS to the trav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the taxpayer contended that the grounds raised in the present appeals are covered in taxpayer's own case vide order dated 26.10.2020 passed in AYs 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 in ITA Nos.4906/Del/2010, 5150/Del/2011, 60/Del/2013, 1824/Del/2014, 1204/Del/2015 & 1626/Del/2016 respectively. 8. Ld. DR for the Revenue, on the other hand, has relied on the order passed by the AO/DRP and has failed to point out any distinguishing facts of the instant appeals vis-à-vis taxpayer's appeals in the earlier years and law applicable thereto. 9. The issues raised by the taxpayer vide different grounds are discussed as under. GROUNDS NO.1 & 2 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 10. Grounds No.1 & 2 are general in nature, hence do not require any specific adjudication. GROUNDS NO.3, 4, 5 & 6 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 11. Grounds No.3, 4, 5 & 6 are pertaining to the issue that the computers installed at the premises of the subscrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the taxpayer that this issue has already been decided in favour of the taxpayer by the coordinate Bench of the Tribunal for AYs 1996-97 to 2006-07 and held 15% of the revenue relating to bookings made from India being attributable to the taxpayer's PE in India after considering the nature and extent of activities in India and abroad and assets employed & risk assumed. Order passed by the Tribunal has been affirmed by the Hon'ble Delhi High Court and Department reported to have challenged the order of Hon'ble High Court before the Hon'ble Supreme Court. 17. Ld. DR for the Revenue has not controverted these facts nor controverted the fact that the grounds raised and facts and law are identical to the earlier assessment years 2006-07 and 2007-08 to 2012-13 already decided in favour of the taxpayer. 18. We have perused the order passed by the coordinate Bench of the Tribunal dated 26.10.2020 in taxpayer's own case for AY 2007-08 to 2012-13 which is on identical facts and operative part thereof is extracted for ready perusal :- "9. The AO held that the assessee has earned a profit of Rs. 1,452,550,424/- or Euro 2,50,90,000 from India. The ratio of attribution is to be worked out, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 25.02.2010, allowed the appeal of the assessee holding that no more than 15% of the revenues generated from India could be attributed to the alleged PE of the assessee in India. The aforesaid order passed by the ld. CIT(A) for assessment year 2005-06 has been confirmed by the ITAT, vide order dated 29.10.2010 and the Hon'ble High Court vide order dated 31.05.2011 (Revenue appeal) and dated 13.08.2013 (Assessee appeal). 15. Since, the facts remained unaltered and since payment to the agent is already @33%, no further addition is warranted in the case of the assessee." 19. So, following the order passed by the coordinate Bench of the Tribunal in earlier years and affirmed by the Hon'ble Delhi High Court, we are of the considered view that since there is no change in the business model and facts of the cases at hand and the extent & nature of the activities of the PE in India and abroad, and the assets employed and risk assumed is same as in the earlier years, distribution fee paid in those years @ 33% approximately of the booking fee per segment, no further addition can be made during the year under assessment. Consequently, grounds no.7, 8, 9 & 10 of ITA Nos.2007/Del./ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware" as distribution fee and has also erred in disallowing development cost and marketing cost incurred for earning revenue from booking made from India. All these expenditure have been allowed by the coordinate Bench of the Tribunal in earlier years. So, the claim of the taxpayer raised vide grounds no.11, 12, 13 & 14 of ITA Nos.2007/Del./2017, 3494/Del./2018, 7970/Del./2018 & 7047/Del./2019 for Assessment Years 2013-14, AY 2014-15, AY 2015-16 & AY 2016-17 respectively are allowed. GROUNDS NO.15, 16 & 17 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 25. In the alternative, Assessing Officer held that booking fee of Euro 104,673,000 received by the taxpayer in India as royalty both under section 9(1)(vi) of the Act and Article 13 (3) of Indo-Spain Treaty for the reason that "booking fee" received by the taxpayer from various airlines is payment for use of process and scientific equipment. Again, it is not in dispute that facts of the years under consideration are identical to the earlier years decided by the coordinate Bench of the Tribunal in AYs 2006-07 & 2007-08 to 2012-13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d below: "In the present case, too, as sub mitted herein above, the appellant uses sophisticated technology/software in the course of providing a service/facility but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use to the participating airlines. Further, no payment is made by the subscribers, viz., the travel agents to the appellant, unlike the aforesaid case. In that view of the matter, the booking fee received by the appellant from the participating airlines does not answer the description of 'royalty' and, thus, is not chargeable to tax in India." 24. Since, the facts have not been disputed in the absence of any material changes, we hereby hold that the booking fee received is in the nature of business income." 28. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AYs 2006-07 & 2007-08 to 2012-13, we are of the considered view that booking fee received by the taxpayer is to be taxed as business income and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish Airways Sales Outlets, the products namely Altea Inventory for Global Inventory Management and Altea Departure Control for passenger checking and flight departure management. The British Airways uses ARS on its website and for revenue management system. We also heard the argument of the assessee that the ARS has no relation to the PE of the assessee in India. The source of revenue received by the assessee in connection with ARS is not situated in India. We find that ARS is essentially an inventory hosting and management system developed by the assessee which some airlines outsourced to Amadeus, with British Airways as a launch customer. The payment for the ARS is made by the British Airways for the use of the system for the business in India at the Indian Airport is an undisputable fact. While the contention of the assessee is that the software was not available outside the Indian Airport or to any of the agents of the assessee in India, the revenue contended that the ARS also provides key operational services to British Airways like accepting payment and issuance of travel documents and manage customer checking. It was also submitted by the assessee that the arguments taken up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the competent authority of the other State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State or requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any person other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent Personal Services), in consideration for the services of a technical or consultancy nature, including the provision of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees f or technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer in that State itself, a political sub-division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot is immaterial, the income from the use of such process is taxable, nonetheless. Explanation 6 precipitated from confusion on the question of whether it was vital that the "process" used must be secret or not. This confusion was brought about by a difference in the punctuation of the definitions in the DTAAs and the domestic definition. For greater clarity and to illustrate this difference, we reproduce the definitions of royalty across both DTAAs and sub clause (iii) to Explanation 2 to 9(1)(vi). Article 12(3), Indo Thai Double Tax Avoidance Agreement: 3. The term "royalties" as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience ." (emphasis supplied) Article 12(4), Indo Netherlands Double Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e furnished from the case of Mohd. Shabbir v. State of Maharashtra where Section 27 of the Drugs and Cosmetics Act, 1940 came up for construction. By this section whoever "manufactures for sale, sells, stocks or exhibits for sale or distributes" a drug without a license is liable for punishment. In holding that mere stocking shall not amount to an offence under the section, the Supreme Court pointed out the presence of comma 98 F 240 (1899) 103 ITR 189 208 ITR 291 supra note 46 231 ITR 573 AIR 1996 SC 569 AIR 1979 SC 564 AIR 1929 Privy Council 69 AIR 1952 SC 369 AIR 1929 PC 38 AIR 1979 SC 564 after "manufactures for sale" and "sells" and the absence of any comma after "stocks" was indicative of the fact "stocks" was to be read along with "for sale" and not in a manner so as to be divorced from it, an interpretation which would have been sound had there been a comma after the word "stocks". It was therefore held that only stocking for the purpose of sale would amount to an offence but not mere stocking. 57. However, the question, which the n arises, is as follows. How is the court to decide whether a provision is carefully punctuated or not? The test- to decide whether a statute i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in dispute. The learned counsel for the appellant had relied upon the commentary issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under: '9.1 Satellite operators and their customers (including broadcasting and telecommunication enterprises) frequently enter into transponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred supra note to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payee of activities in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer.' 77. The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on the ground that it is not safe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act.... ***** ********** ***** 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x the royalty in accordance with the judgment of the Hon'ble High Court." 31. Following the order passed by the coordinate Bench of the Tribunal in AYs 2007-08 to 2012-13, we are of the considered view that payment received by the taxpayer from British Airways in relation to alleged use of 'Altea system' cannot be characterized as 'royalty' either under the Act or under the Indo-Spain Treaty because Altea system was installed at the airport and was accessed only by the airlines and not by the Amadeus's agents viz. Resbird, Amadeus India and that during the year, the said system was available to British Airways for the aforesaid purpose and that too only at the airport counter and the said software was not available outside the Indian airport or to any of the agents of the taxpayer since the agents were booking the tickets only through the CRS of the taxpayer. Consequently, grounds no.18, 19 & 20 of ITA Nos.2007/Del./2017, 3494/Del./2018, 7970/Del./2018 & 7047/Del./2019 for Assessment Years 2013-14, AY 2014-15, AY 2015-16 & AY 2016-17 respectively are determined in favour of the taxpayer. GROUND NO.21 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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