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TMI Blog2021 (10) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... NEW DELHI [ 2021 (10) TMI 1023 - ITAT DELHI] the assessee has Business Connection and Permanent Establishment (PE) in India. Attribution to the PE in India - The correct attribution rate be taken at 15% of the gross booking fee for the years in appeal before us.As per the table above, Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment of tax as no further income is taxable in India. The AO may check the correctness of the figures before giving effect to this order. Allowability of distribution expenses - As duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their network of subscribers/travel agents and thus, an inseparable part of the business and thus it cannot be denied that the expenses have been incurred for the purpose of the business. It is also an accepted fact that there is only one business of the Company i.e., the CRS business. Therefore, all expenses incurred by Company including distribution expenses can only be related to such business. Thus, the AO's argument that distribution fees is not related to its business s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 2012-13 6162/Del/2015 CO 1/Del/2021 - 2014-15 6515/Del/2017 - 2. The Assessee is a company incorporated in The United Kingdom. The Assessee provides electronic global distribution services in the 'rest of the world' territory (including the Indian region) for the travel industry, by utilizing a Computer Reservation System ('CRS'), which is an automated system which processes booking data. 3. The CRS is an automated system, which process booking data and other data to provide the following functions: a) The ability to display flight schedule and seat availability b) The ability to display and/or quote airline fare c) The ability to make airline seat reservation d) The ability to issue airline tickets, etc. 4. The Assessee appoints distributors for marketing its CRS services. In India, the authorized distributor is Interglobe Technologies Quotient India Private Limited (ITQPL/'the distributor'). ITQPL is entitled to receive distribution fees from the Assessee for each segment booked in the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USD) Description 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2014-15 Booking Fees (A) 55,029,465 70,035,529 66,511,669 75,676,788 79,826,594 77,519,539 67,339,472 Less: Subscriber / Distribution fees or Commission 37,136,627 47,658,043 45,981,980 51,036,204 58,011,833 56,922,872 49,691,247 Less: IBM Service fee 1,845,674 2,908,608 3,180,261 2,801,139 2,871,024 7,745,314 1 6,311,271 India Specific Profitability statement for AY 2007-08 to AY 2012-13 and AY 2014-15 (Amounts in USD) Description A.Y. 2007-08 2008-09 2009-10 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 27 September 2021 (ITA No. 163/Del/2021) by relying on the decisions of Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Company/it's predecessor's case for AY 1995-96 to AY 2006-07. 13. The adjudication of this issue taken from ITA No. 163/Del/2021 dated 27.09.20201(sic) in the assessee's own case which is as under: Ground No. 4 and 5 are related to Assessee's Business Connection PBO and Permanent Establishment ('PE') in India 22. Ground No. 4 and 5 are covered against the Appellant by the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of Appellant's predecessor entity i.e. GII and TGDSBV. 23. In the first batch of 4 years i.e. from AY 1995-96 to 1998-99 in case of GII, the Hon'ble Delhi ITAT vide its dated 30 Nov. 2007 (19 SOT 257 (DELHI) held that GII has a fixed place PE and Agency PE in form of the Interglobe in India. (Page 194 to 251 of Paperbook Part 1.) The relevant extracts from this order are re-produced as under: 17.1 In the present case it is seen that the CRS, which is the source of revenue is partially existent in the machines namely various computers installed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CRS by the subscribers. But for such use no revenue would accrue to the appellant. Thus the agreements entered into by the Interglobe with the subscribers under an authority granted to it, are contracts relating to operations which constitute business proper and not merely in the nature of internal operations. Such contracts are habitually exercised and there is nothing on record to suggest that such authority was cancelled at any point of time. We, therefore, hold that Interglobe is dependent agent of the appellant who has habitually exercised the authority to conclude contracts on behalf of the appellant. To that extent the appellant has a PE in India. Since we have held that Interglobe is a dependent agent of appellant in India, we need not discuss para (5) of Article 5 of the treaty regarding independent agent form of PE. 24. The Hon'ble Delhi High Court vide its order dated 25 Feb 2009 (ITA No. 1048 to 1055/2008 and ITA Nos. 17408/2008, 17437/2008, 17409/2008, 17438/2008, 17473-74/2008, 17469-70/2008, 17410/2008, 17439/2008 and 17471/2008) in case of GII for such first batch of 4 years from AY 1995-96 to AY 1998-99 held the issue of PE/BC as academic as overall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arises in this matter which needs further determination by this court. It is also submitted that in the assessee's appeal, it was held by the Hon'ble Delhi High Court that in view of the dismissal of appeals of the revenue, the question raised by assessee in these appeals have become academic and are therefore dismissed. It is submitted that this judgement of Hon'ble High Court of Delhi in respect of assessee's appeal is also dated 25.02.2009 in ITA Nos. 17408, 17409, 17437, 17438, 17473-74, 17469-70, 17410, 17439 and 17471-72/2008. He submitted a copy of both these judgements of Hon'ble Delhi High Court rendered in the assessee's appeals as well as revenue's appeals. Ld. DR also agreed that these issues are covered as per these judgements. 27. Hon'ble Delhi High Court in its order dated 25th September 2012 (ITA No. 1148 to 1151/2011 and ITA No. 466 to 472/2012) in case of GII for such second batch of 4 years from AY 1999-00 to AY 2002-03 relied on the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of GII for first batch of 4 years and held that since factual matrix is same, the earlier decision of Hon'ble Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. 32. Thus, the issue of Appellant's PE/BC in India is covered against it by the above decisions of Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Appellant's predecessor's case. 14. Hence, respectfully following the established judicial pronouncement, we hereby hold that the assessee has Business Connection and Permanent Establishment (PE) in India. On the issue of attribution to the PE in India: 15. The issue of attribution in India is covered in favour of Company by the decisions of Hon'ble Delhi High Court and Delhi ITAT in Company/it's predecessor's case for AYs. 1995-96 to 2006-07. The Hon'ble Delhi High Court and the Delhi ITAT in Company's own/predecessor's case, has held that attribution rate to the alleged India PE is 15% of gross booking fees. 16. For AY 2017-18 in case of Company's successor entity i.e., TIOL, this issue on attribution has been held in favour of TIOL by Delhi ITAT vide order dated 27 September 2021 (ITA No. 163/Del/2021) by relying on the decisions of Hon'ble Delhi High Court and Delhi ITAT in Company/it's predecessor's case for AY 1995-96 to AY 2006-07. 17. In p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of processing the data of all the airlines together at one place. Such function requires huge investment and huge capacity, which is not available to the computers 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 251 of Paperbook Part 1) 18. .............................While dealing with the question as to what is such part of income as is reasonably attributable to the operations carried out in India, we have held that only 15 per cent of the revenue generated from the bookings made within India is taxable In India. The same proportion has to be adopted here while computing profit attributable to the PE. We have also held that since the payment to the agent in India is more than what is the income attributable to the PE in India, it extinguish the assessment as no further income is taxable in India. It is to be noted that even in the first assessment framed by the Assessing Officer, the entire expenses in the form of remuneration paid to Interglobe was held as allowable deduction and was reduced while computing the income of Appellant. If that be the case, the income attributable to PE in India being less than the remuneration paid to the dependent agent, it extinguishes the assessment and requires no further exercise for computation of income. We accordingly hold so and in view of the same the income of the Appellant will be NIL. 35. The revenue authorities thereafter filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i ITAT for these years, vide its order dated 25th Feb 2009 (ITA No. 851 to 856 of 2008, 859 to 860 of 2008), it was held as under: The Tribunal thereafter discussed the principle which is to be followed in apportioning the Income-tax accruing in India and the Income accruing outside India. The Tribunal found that only a part of CRS order operates and functions in India. The extent of working in India is only to the extent of channelizing the request and receiving the result of the process in India and the major functioning and collecting the data base of various airlines and hostels which have entered into PCA with the respondent takes place outside the India. The Tribunal also took into consideration the fact that the computer of Denver at USA processes 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 takes place outside India. Insofar as the role played in India is concerned, that is limited to the computers at the desk which are merely connected or configured to the extent that it can perform a booking function but are not capable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before Hon'ble Supreme Court of India vide SLP No. 6511 to 6518/2010. The Hon'ble Supreme Court vide its order dated 22 November 2019 dismissed (as withdrawn) SLP Nos. 6512 to 6515/2010 and 6517 to 6518/2010 pertaining to AY 1995-96, 1996-97 and AY 1998-99 on account of low tax effect, in consonance with circular No. 17 of 2019, leaving the question of laws open. 38. AY 2017-18, PE attribution at 15% of gross revenue less the expenses (as already allowed by the Ld. AO and Ld. DRP), as per the decision of the Hon'ble Delhi ITAT Benches and Hon'ble Delhi High Court, reduces the taxable income to Nil and thus, no income is taxable in India. 19. Hence, we hereby hold that the correct attribution rate be taken at 15% of the gross booking fee for the years in appeal before us. 20. As per the table above, Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment of tax as no further income is taxable in India. The AO may check the correctness of the figures before giving effect to this order. On the issue of allowability of distribution expenses: 21. For AYs 1995-96 to 2006-07, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifiable, they need to be deducted at source and in the first place.'' 25. Thus, it was duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their network of subscribers/travel agents and thus, an inseparable part of the business and thus it cannot be denied that the expenses have been incurred for the purpose of the business. 26. It is also an accepted fact that there is only one business of the Company i.e., the CRS business. Therefore, all expenses incurred by Company including distribution expenses can only be related to such business. Thus, the AO's argument that distribution fees is not related to its business since its nomenclature in invoices is specified as 'data processing charges' instead of distribution fees lacks basic fallacy. The similar issue has come up before the Delhi ITAT in case of another CRS entity i.e., Amadeus IT Group SA for AY 2007-08 to AY 2012-13 dated 26 October 2020 (ITA No. 4906/Del/2010, ITA No. 5150/Del/2011, ITA No. 60/Del/2013, ITA No. 1824/Del/2014, ITA No. 1204/Del/2015 and ITA No. 1626/Del/2016, wherein the distribution expenses incurred by the assessee w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, license fee owing to non-deduction of withholding tax. From the above table, the position of the profit/loss of the assessee is evident. After deduction of the distribution expenses and 15% booking fee, the assessee is left with no taxable profit. Considering the disallowance @ 30% u/s. 40(a)(ia) in accordance with the law laid down by the Hon'ble Delhi High court in case of CIT Vs. Herbalife International India (P.) Ltd. 69 taxman.com 205 wherein the High Court struck down discriminating treatment of disallowance u/s. 40(a)(i) and Section 40(a)(ia) of the Act by relying on Article 26(3) of the DTAA between India and US, we hereby direct the AO to re-compute the net losses computing the disallowance on other expenses @ 30%. 31. Additional grounds taken up by the assessee stands withdrawn, hence not required to be adjudicated. 32. Cross Objection No. 1 2 in ITA No. 6162/Del/2015 for A.Y. 2012-13 are infructuous in view of the adjudication above. 33. Cross Objection No. 3 in ITA No. 6162/Del/2015 for A.Y. 2012-13- Due credit for the TDS be given. 34. In the result, all the appeals of the assessee and CO are allowed and the appeal of the revenue is dismissed. O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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