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TMI Blog2021 (3) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by inferior court cannot merge with the orders of the superior court. In our considered view, the logic underlying the Doctrine of Merger is that there cannot be more than one decree or operative orders governing the same subject matter at a given point of time. Once the superior court has disposed of the list before it either way - it is the decree or order of the superior court which is final and binding. In the present case, the point of jurisdiction was never raised before the lower authorities and accordingly, the same never formed the subject matter of appeal before the Hon'ble High Court and hence the doctrine of Merger will not be applicable in the case in hand. Therefore, in our view, the distinction sought by the ld. DR in the decision of the Hon'ble High Court of Gujarat in the case of P.V. Doshi [ 1977 (8) TMI 29 - GUJARAT HIGH COURT] does not hold any water. DR has heavily relied upon the decision of the Hon'ble High Court of Delhi in the case of Sanjay Sawhney [ 2020 (5) TMI 441 - DELHI HIGH COURT] which is more in favour of the assessee than to the Revenue. Assessment for A.Ys 2007-08, 2008-09 and 2009-10 as barred by limitation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BILLAIYA, ACCOUNTANT MEMBER, The above captioned appeals are by the Revenue for A.Ys 2006- 07to 2010-11. This bunch of appeals were remitted back by the Hon'ble High Court of Delhi directing the Tribunal for recording specific findings on the issue of attribution of 15% Revenue to the PE in India. 2. Facts on which the Hon'ble High Court of Delhi remitted the matter back to the Tribunal are as under: 3. The assessee is a limited partnership in the State of Delaware, USA and is a tax resident of USA. The assessee is engaged in the business of providing information, reservations, transaction processing and related services for airlines, travel agencies and other travelrelated entities. It owns and operates a Global Distribution System located outside India, referred to as Computerized Reservation System (CRS) and provides subscribers with access to and use of this CRS. The assessee earns its revenue through participating in carrier agreements with airlines for which the bookings are made through the CRS. 4. The assessee entered into an agreement with Travelport Services Limited (TSL,) a limited company existing under the laws of England and which is a 100% subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. Since, the payment to Calleo Distribution Technologies Pvt. Ltd. in India is more than the revenue attributable to the PE in India the assessee s tax liability was reduced to NIL. 10. Both the assessee and the revenue filed appeal before the Tribunal. The Tribunal approved the order of the ld. CIT(A) and confirmed his findings on the PE as well as attribution. 11. Aggrieved by the order of the Tribunal, both the assessee as well as the revenue preferred appeals before the Hon'ble High Court of Delhi u/s 260A of the Act. 12. The Hon'ble High Court of Delhi, vided order dated 09.11.2016 for Assessment Years 2006-07, 2007-08 2008-09 and order vide dated 01.03.2017 for Assessment Years 2009-10 2010-11, dismissed the appeals of the assessee. However, on the challenge of the revenue relating to attribution of 15% revenue, the Hon'ble High Court remanded back the matter to the Tribunal vide order dated 19.12.2016 for Assessment Years 2007-08 order dated 20.12.2016 for Assessment Years 2006-07 2008-09 and order dated 26.04.2017 for Assessment Years 2009-10 2010-11. 13. The relevant findings of the Hon'ble High Court of Delhi read as under: 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, then how Rule 11 is applicable. 19. The ld. counsel for the assessee drew our attention to the judgment of the Hon'ble High Court of Gauhati in the case of Assam Company India Ltd Vs. CIT 256 ITR 423 and pointed out that under similar circumstances, the Hon'ble High Court held that even if the respondent is not in appeal, it can raise an addition plea before the Tribunal. 20. We have carefully perused the judgment of the Hon'ble High Court of Gauhati. We find force in the contention of the ld. counsel for the assessee. Following findings from the judgment of the Hon'ble High Court would justify the claim of the assessee: We are therefore not in favour of granting such a primacy to the rules of procedure so as to wipe off a substantial right otherwise available to the assessee in law. We find this view of ours also reinforced by the language of Rule 11 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby had sufficient opportunity of being heard on that ground. In taking this view, we are conscious about the observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order is in the body of the assessment order itself and, therefore, the evidentiary facts are very much available on record. 22. Similar view was taken by the Hon ble High Court of Gujarat in the case of P.V. Doshi Vs. CIT 113 ITR 22. The relevant findings of the Hon ble High Court of Gujarat read as under: 16. Even the alternative ground of finality of this order of the Tribunal suffers from the same infirmity, as the Tribunal has failed to notice this material distinction between a mere procedural provision which could be waived and such jurisdictional provision or a mandatory provision enacted in public interest which could not be waived, because by consent no jurisdiction could be conferred on the authority unless the conditions precedent were first fulfilled. In DasaMuni Reddy v. Appa Rao, AIR 1974 SC 2089, 2092, such a question of waiver was examined also in the context of the bar of estoppel or of res judicata. At page 2091, it was us exercise of jurisdiction. If there is want of jurisdiction the whole proceeding is coram non judice. The absence of a condition necessary to found the jurisdiction to make an order to give a decision deprives the order or decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and because consent could not confer jurisdiction, and so, such objection in regard to the validity of the notice under section 34 could be raised before the Appellate Assistant Commissioner. 17. The learned standing counsel in this connection marshalled in aid the decision in Northern Railway Co-operative Credit Society Ltd. v. Industrial Tribunal, Rajasthan, AIR 1967 SC 1182; 31 FJR 511, which could hardly be invoked in the present case. There the High Court in writ jurisdiction had held at the earlier stage that the dispute in question was an industrial dispute and, therefore, the reference being a competent reference, the writ petition was dismissed. The order of the High Court was a final judgment which terminated the independent writ proceeding. It was held at page 1186 that order having not been appealed before the Supreme Court, it had become final and it was no longer open to the parties to raise a plea of jurisdiction in appeal against the subsequent award given by the Industrial Tribunal after exercising jurisdiction which the Tribunal was permitted to exercise by the order of the High Court. These were competent proceedings and the independent writ proceeding was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout jurisdiction. As per the aforesaid settled legal position such a point could not be waived and there can be no question of the earlier remand order operating as a final order, because if such a jurisdictional point could not be waived, even the fact of passing of the remand order by the Tribunal could not confer jurisdiction on the Income-tax Officer, if the conditions to found his jurisdiction were absent. 18. Therefore, if this settled position was borne in mind, the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless the assessee had come in the reference to this court at that stage. The Tribunal's view was also incorrect that in restoring the case to the file of the Income-tax Officer by the earlier order, the only point left open was in respect of addition of ₹ 19,421 on merits and that the legal or jurisdictional aspect whether the reassessment proceedings were legally initiated was not kept open. Even on the third question the Tribunal's view was erroneous that even though this point went to the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining only to the income computed under the normal provisions of the Act. The ld. AR relied on the judgment of the Hon'ble jurisdictional High Court in CIT Vs Nalwa Sons Investment Ltd. (2010) 327 ITR 543 (Del) to propel this submission. 14.2. Before proceeding with the matter on merit, it would be apposite to first decide about the maintainability or otherwise of such application. Rule 27 of ITAT Rules, 1963 with its marginal note reads as under :- `Respondent may support order on grounds decided against him. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.' 14.3. The effect of this rule is that a respondent has been entitled to support the order on the ground which has been decided against him. The underlying idea and the spirit of Rule 27 is to arm a respondent, in an appeal filed by the plaintiff, with an option to contest unfavourable decision of the CIT(A) on the aspect(s) of an issue, the final decision on which issue has been delivered in his favour. Take an instance of first appellate authority deciding the legal issue of reopening of an assessment against the assessee but de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14.5. A cursory look at the language of rule 27 transpires that a respondent has been empowered to support the order appealed against on any of the grounds `decided against him.' In other words, the challenge can be made by a respondent only in respect of a `ground decided against him'. In such circumstances, a question arises that if there is no decision at all of the CIT(A) on a particular aspect, which is otherwise germane to the overall issue decided in favour of the respondent, can the respondent espouse such aspect under rule 27 in an appeal filed by the plaintiff ? If we go by the literal interpretation of the Rule, then the answer is in negative that unless the ground is not `decided against' the respondent, he cannot take recourse to this provision. However, it is of paramount importance to keep in mind the fundamental object of enshrining rule 27, being giving an opportunity to the respondent to support the impugned order in an appeal filed by the plaintiff. A pragmatic approach on consideration of the object of such Rule, in our considered opinion, necessitates the adoption of liberal interpretation that when a particular issue is decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pond to the application filed by the assessee under Rule 11 27 of ITAT Rules. 2. At the outset, it is submitted that the case pending before Hon'ble ITAT is a case remanded back to ITAT by Hon'ble Delhi High Court with specific directions which are reproduced as under:- 10. The Revenue's limited and specific argument in this appeal is that the exact particulars with respect to the assessee's operations in respect of India were available and therefore attribution of 15% was not warranted. The learned counsel for the assessee resisted the appeal and submitted that the ITA T was correct in following the decision of Galileo International lnc's case (supra) in the circumstances. 11. It is apparent from the above discussion that the specific and limited challenge by the Revenue in this appeal is to the ITA T's order, rather mechanical adherence to the Galileo International Inc's case (supra) attribution, principally to the extend it followed 15% rule. In the present case, the AO had based his conclusions and determined the income based upon figures furnished by the assessee, as is apparent from a plain reading of the order. In the circumstances, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it may be relevant to highlight that Rule 11 starts with phrase the appellant , which means that this rule can be invoked only by an appellant to file additional ground of appeal. The assessee in this case being respondent is not in a position to take shelter of Rule 11 of ITAT Rules which is evident from the plain language of Rule 11. 6. As regards application under Rule 27, the rule says that the respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him. However, it is not a case where the ground has been decided against the assessee. In this regard, the appellant relied on the decision of ITAT, Delhi in the case of where V the facts of the case are that the penalty was deleted by Ld. CIT(A) and ITAT upheld the penalty on part of the additions made in this case. At this stage, the respondent, challenged the penalty ground on jurisdictional/legal ground of appeal. Hon'ble tribunal accepted the application under Rule 27 in this case. However, it is important to note that the cited case was very mush pending before Hon'ble tribunal on all scores and it was not a case of remanded back case as against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has remanded the matter back to Hon'ble tribunal on specific point and it is open to Delhi High Court to take up the jurisdictional issue even at this stage as it is the order of Hon'ble High Court. However, due to doctrine of merger, the tribunal is not empowered to decide on this point at this stage where the case has been remanded by Hon'ble High Court on a particular aspect. 9. It may also be interesting to take note of the decision of landmark judgement of Delhi HC in Sanjay Sawhney case ITA 834/2019 Dated 18.05.2020which considered a no. of watershed renderings viz., CIT vs. Edward Keventor Successive Pvt. Ltd., CIT vs. Divine Infra Pvt. Ltd, Commissioner of Income Tax, Madras vs. Sundaram Co. Pvt. Ltd.(1964) 52 ITR 763 (Madras) etc. Para 20 of the decision reads as under:- If we refer to Rule 27 of ITAT Rules, 1963, a bare reading thereof manifest that a Respondent has a right to support the impugned order, without having filed any cross appeal or cross objection. This understanding emerges from the language of the said provision which begins with the words The Respondent, though he may not have appealed, . This means that the provision is to enable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e superior court has disposed of the list before it either way - it is the decree or order of the superior court which is final and binding. In the present case, the point of jurisdiction was never raised before the lower authorities and accordingly, the same never formed the subject matter of appeal before the Hon'ble High Court and hence the doctrine of Merger will not be applicable in the case in hand. Therefore, in our view, the distinction sought by the ld. DR in the decision of the Hon'ble High Court of Gujarat in the case of P.V. Doshi [supra] does not hold any water. 31. The ld. DR has heavily relied upon the decision of the Hon'ble High Court of Delhi in the case of Sanjay Sawhney [supra]. 32. We have carefully gone through the decision of the Hon'ble High Court of Delhi. We find that in the very beginning of Para 20, the Hon'ble High Court has observed as under: If we refer to Rule 27 of ITAT Rules, 1963, a bare reading thereof manifest that a Respondent has a right to support the impugned order, without having filed any cross appeal or cross objection. This understanding emerges from the language of the said provision which begins wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. 38. The aforesaid section 144C of the Act can only apply prospectively i.e. from A.Y. 2011-12 and is not applicable to the captioned assessment years.The Hon ble High Court of Madras in the case of M/s Vedanta Limited vs. ACIT Writ Petition No.1729 of 2011 has categorically held that the provisions of Section 144C of the Act can be held to be applicable prospectively, from AY 2011-12 only. The relevant findings read as under: 26. Thus, where there is a change in the form of assessment itself, such change is not a mere deviation in procedure but a substantive shift in the manner of framing an assessment. A substantive right has enured to the parties by virtue of the introduction of Section 144C, that, bearing in mind the settled position that the law applicable on the first day of assessment year be reckoned as the applicable law f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The computer at Georgia in USA processes schedule of flights, The computer at Georgia in USA processes timings, pricing, the availability and connection etc. The aforesaid data is processed on the basis of neutral display real time on line. All of this takes place outside India. Travelport USA is responsible for the design and product development by which it decides which market segments to pursue, the software characteristics that are needed to meet the market demand etc. The key personnel of Travelport would undertake the conceptualization and coding of software. Further, it also makes constant updates to the software whenever it is required. These activities are carried outside of India. The invoicing is done outside of India and the payment too is received outside of India Travelport USA is responsible for the development and enhancement of products, obtaining legal protection for the developed intangibles. These activities again are carried outside of India. 42. Out of the aforesaid several activities, the activities of Calleo Distribution Technologies Pvt. Ltd. are only in respect of generating request and receiving end-result of the process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs installed at the desk of subscriber in India. The major part of the work or to say a lion's share of such activity, are processed at the host computer in Denver in USA. The activities in India are only minuscule portion. The appellant's computer in Germany is also responsible for all other functions like keeping data of the booking made worldwide and also keeping track of all the airlines/hotels worldwide that have entered into PCA. Though no guidelines are available as to how much should be income reasonably attributable to the operations carried out in India, the same has to be determined on the factual situation prevailing in each case. However, broadly to determine such attribution one has to look into the factors like functions performed, assets used and risk undertaken. On the basis of such analysis of functions performed, assets used and risk shared in two different countries, the income can be attributed. In the present case, we have found that majority of the functions are performed outside India. Even the majority of the assets i.e. host computer which is having very large capacity which processes information of all the participants is situated outside India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Thus in a given case if all the operations are not carried out in India, the income has to be apportioned between the income accruing in India and income accruing outside India. In instant case, it was found that only part of CRS system operated or functioned in India. The extent of work in India was only to the extent of generating request and receiving end result of the process in India. The major functions like collecting the database of various airlines and hotels, which had entered into PCA with the assessee took place outside India. The computer at Erding in Germany processed various data like schedule of flights, timings, pricing, the availability, connection, meal preference, special facility, etc. and that too on the basis of neutral display real time on line took place outside India. The computers at the desk of travel Page 21 of 26 agent in India were merely connected or configured to the extent that it could perform a booking function but were not capable of processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruing or arising in India is also warranted in the case at hand. 50. On similar facts, similar view was taken by the Hon ble High Court of Delhi in the case of Galileo Nederland BV v. DCIT [2014] 51 taxmann.com 419 Delhi) wherein the assessee was a providing travel industry services of Computerized Reservation System and its Indian distributor merely gave connection to Indian travel agents for booking and major functioning of collecting and data analysis/development took place in, USA. 51. The Hon'ble High Court held as under: The major functioning, i.e., collecting data bases with various airlines, hotels etc. and entering or feeding them into the computer took place outside India. It was in the computer in Denver, USA that various processed data with regard to schedule of flights timing, pricing, availability, meal preference, special facilities etc. was stored and process undertaken. The role performed by the computers in India or the Indian agents was to merely get connected or be configured so that the travel agents could perform the booking function. The computers in India were not capable of processing data, which was processed abroad. Further, the functions re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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