9911796707
TMI Blog2021 (9) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 6' without considering the main arguments/submissions of the assessee, therefore, the same had rendered the order passed by it as suffering from a mistake apparent from record making it amenable for rectification under sub-section (2) of Sec. 254 of the Act. It is stated by the assessee applicant that the Tribunal dispensing with the adjudication of the issue of taxability of the revenue in question, viz. (i). membership fees; and (ii). fees for IATA Clearing House Facility (ICH facility) had rather drawn support from the judgment of the Hon'ble Supreme Court in Ishikawajima Harima Heavy Industries Co. Ltd. Vs. DIT (2007) 288 ITR 408 (SC) and confined its adjudication to the attribution of the income qua the said respective revenues to IATA India branch depending on the role that was played by the PE in the respective transactions in question. It is further stated by the assessee applicant that the Tribunal had also failed to address its specific claim that the BSP link charges could not have been brought to tax in its hands, and had restricted its adjudication to the alternative contention of the assessee and directed the A.O to verify as to whether the payments made for BSP ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion dated 21 January 2020- re-enclosed as Annexure 2). 4. Accordingly, once the Hon'ble DRP/learned AO had accepted the aforesaid claim in IATA India Branch's own ease after due verification of facts, a contrary position cannot be adopted. 5. Further, in addition to the order of the Hon'ble DRP in the case of IATA India Branch, reliance was also placed on the following judicial precedents in this regard: * CIT Vs. Bankipur Club Limited (226 ITR 97) (SC) * Chelmsford Club vs. CIT (243 ITR 89) (SC) * Venkatesh Premises Co-operative Society Ltd. (91 taxmann.com 137) (SC) * KPMG(I64 lTD421)(Mumbai-Trib) * Societe International de Telecommunications Aeronautiques (ITA No. 6651/Mum/2011) * International Zine Association (94 Taxmann.com 27) (AAR). 6. In addition to the arguments with respect to BSP Link Charges being pure cost reimbursements, reliance was also placed on the Hon'ble Tribunal's decision in IATA India Branch's own case (which were also filed vide legal paper book filed on 16 January 2020), wherein it has been held that the BSP link services cannot be chargeable to tax in India and should accordingly not be subject to withholding tax in India." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facility' ('ICH facility') In relation to collection of membership fees a. Erred in taxing the membership fees as 'business profits' under Article 7 of the India - Canada tax treaty, by treating the Indian office of the Appellant as a PE of the Appellant under Article 5 of the India - Canada tax treaty, without appreciating the fact that the membership fees collected by the Appellant is independent and not related to the BSP activities undertaken by the Indian branch office. b. Erred in failing to provide any reason or basis for deeming the contribution/ membership fees received from the members, by which they obtain membership with the Appellant and get access to information pertaining to the various services provided by the Appellant, as being related to IATA branch office which is specifically involved in providing BSP services only as per the approval of the RBI. c. Without prejudice to the above, erred in not appreciating the contention of the Appellant that it qualifies as a mutual association and hence, the membership fees received from the members should not be liable to tax having regard to the principle of mutuality under the Act. In relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that though the assessee had assailed the taxability of the aforesaid revenues in its hands, viz. (i). membership fees; (ii). fees for IATA Clearing House Facility (ICH facility); and (iii). BSP Link charges by raising the aforementioned specific contentions (as stated in Para 2 hereinabove), however, the Tribunal while disposing off the appeal had inadvertently confined its adjudication qua the said issues, viz. (i). the tribunal had observed that the revenue from membership fees and fees for IATA Clearing House Facility (ICH facility) be attributed to IATA India branch depending on the role that was played by the PE in the respective transactions in question; and (ii). the tribunal had directed the A.O to verify as to whether the payments made for BSP Link charges were collected by the assessee without any mark-up. For the sake clarity, the observations recorded by the Tribunal while disposing the 'Ground of appeal no. 6' are reproduced as under : 20. We shall now take up the grievance of the assessee that the A.O/DRP had erred in taxing certain receipts viz. (i) collection of membership fees; (ii). BSP link charges; and (iii). fees for clearing house facility ('ICH facility') ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not find favour with the A.O. Although, the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 27.03.2015 observed, that reimbursements received on actual basis at cost cannot be taxed as they do not carry any element of profit, but then, insofar the BSP charges were concerned, he after allowing 10% of the gross BSP charges as deduction for relatable expenses, therein subjected the balance amount of BSP charges (90% of gross receipts) to tax in the hands of the assessee. After rejecting the contentions of the assessee the DRP principally upheld the view taken by the A.O that the BSP charges were liable to be assessed as the 'business income' of the assessee. But then, the DRP directed the A.O to restrict the income on account of BSP charges to 40% of the gross receipts. (ii). Aggrieved with the order of the A.O/DRP the assessee has assailed the assessing of the BSP charges as its 'business income' under Article 7 of the India-Canada tax treaty. On the other hand, the revenue is aggrieved with the scaling down of the quantum of income from BSP charges from 90% of gross receipts as was proposed by the A.O vide his draft assessment order, to 40% of gross r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n billings. The ICH facility provided by the assessee, viz. IATA, Canada facilitated raising of the invoices, netting off of payables and receivables, providing transaction details report to the airlines/strategic partners. In order to explain the concept of ICH facility the assessee had drawn support from an example before the lower authorities. Say, a passenger booked a ticket through Air India for a journey from India to Geneva, with a lay-over at Amsterdam. On the basis of an interlining agreement among the world's airlines, the Air India aircraft would carry the passenger from India to Amsterdam, and thereafter a Swiss Airlines aircraft would carry the passenger from Amsterdam to Geneva. In this situation, Air India would collect the entire fare from the passenger and would be required to pay the Swiss Airlines for the journey between Amsterdam to Geneva. Now, it is by availing the ICH facility that Air India would settle its dues with the Swiss Airlines. As such, it was submitted by the assessee before the lower authorities that the ICH facility enabled the airlines to settle their billings/dues securely and efficiently, thereby reducing their exposure arising on account of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnible from the orders of the lower authorities, the assessee was given permission by the RBI to open a branch office in India, vide its order dated 25.11.1995, under Sec. 29 of the Foreign Exchange Regulation Act, 1973, for conducting non-commercial activities on no profit basis. We find that though it was the claim of the assessee that as per the approval of the RBI the IATA-India branch was not permitted to undertake any activity apart from the BSP services, but the DRP taking cognizance of the financial statements of the IATA-India branch, and also observing that RBI had never conducted any enquiry into the affairs of the assessee, declined to accept the said claim of the assessee. As regards the claim of the assessee that though IATA-India branch constituted a PE of the assessee in India as per Article 5(2)(b) of the India-Canada tax treaty, but then, as the ICH services were provided directly outside India, and the fees in respect of the said services was also received by the assessee in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been attributed to the IATA-India branch, the same we find was rejected by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices were provided by the assessee, viz. IATA, Canada directly outside India, and the fees in respect of the said services was also received by the assessee in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been attributed to the IATA-India branch. In our considered view, the matter in all fairness requires to be restored to the file of the A.O. The A.O shall in the course of the 'set aside' proceedings verify the veracity of the claim of the assessee that the ICH services were provided by the assessee, viz. IATA, Canada directly outside India. In case, the claim of the assessee is found to be in order, then the addition of fees received from providing ICH services made in its hands would stand vacated. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard during the course of the 'set aside' proceedings and shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Accordingly, the matter is restored to the file of the A.O for fresh adjudication in terms of our aforesaid observations. The Grounds of appeal Nos. 6(f) to 6(h) are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein rejected its claim of mutuality. Alternatively, it was submitted by the assessee that as its Indian PE viz. IATA India branch which as per the approval of RBI was not permitted to undertake any activity apart from the BSP services had no role in collection of membership dues which was carried out outside India, therefore, the said activity could not be attributed to the said PE. However, the A.O did not find favour with the aforesaid claim of the assessee, and vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 27.03.2015 after allowing deduction of 10% of the gross collection of membership dues as deduction for relatable expenses, therein subjected the balance amount (90% of gross receipts) to tax in the hands of the assessee. Observing, that the assessee had not demonstrated that the activities pertaining to the collection of membership dues were being conducted by the assessee, viz. IATA, Canada directly from outside India, the DRP concurred with the view taken by the A.O that the same was liable to be assessed as the business income of the assessee under Article 7 of the India-Canada tax treaty. But then, the DRP directed the A.O to restrict the addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. Vs. DIT (2007) 288 ITR 408 (SC). In the said case, the Hon'ble Apex Court had observed that as the PE of the assessee company had nothing to do with the offshore services rendered by the assessee company, a resident of Japan, in connection with a turnkey project executed in India, therefore, consideration received by the assessee company for rendition of such services could not be brought to tax in India. Referring to Article 7 of the DTAA, it was observed by the Hon'ble Apex Court that the same limits the tax on business profits to that arising from the operations of the PE. It was observed by the Hon'ble Court, that as in the case before them the entire services were rendered outside India and had nothing to do with the PE, therefore, nothing could be attributed to the PE and thus brought to tax in India. Apart from that, it was observed by the Hon'ble Apex Court that in case of composite transactions which have some operations in one territory and some in others, the principle of apportionment has to be essentially applied in order to determine the taxability of its various operations. In the backdrop of the aforesaid settled position of law, the amount of profit that w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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