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TMI Blog2023 (1) TMI 1464X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of all other expenses, 70% deduction has to be allowed. Allowance of head office expenses u/s 44C - While deciding identical issue in assessee s own case in assessment year 2016- 17 [ 2022 (2) TMI 1058 - ITAT DELHI] remit this issue to the file of the AO for allowing the correct claim of the head office expenditure to the assessee in the light of the details/information/ documents already on record and which he may require the assessee to furnish before him - Ground is allowed for statistical purposes. - SHRI G.S. PANNU, HON BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For the Appellant: Sh. S.K. Aggarwal, CA For the Respondent: Sh. Gangadhar Panda, CIT(DR) ORDER PER SAKTIJIT DEY, JM: The assessee has filed the captioned appeals assailing the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short the Act ) pertaining to assessment years 2018-19 and 2019-20, in pursuance to the directions of learned Dispute Resolution Panel (DRP). 2. Grounds raised in both the appeals are identical, except variation in figures. Therefore, for the sake of brevity, we reproduce the grounds raised in ITA No.1566/Del/2022: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case and in law, the Ld. AO and the Ld. DRP have erred in not placing reliance to the submissions of the Appellant wherein it was stated that the Appellant has no financial interest in its distributors including ITQPL and also have no representation in its management, which is a significant factor in establishing the independence of ITQPL. 5. That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP have grossly erred in holding the Appellant to be a conduit entity under the stepping-stone conduit framework and thereby denying the eligibility of India-UK tax treaty based on the following allegations: No corporate structure of the group was provided by the Appellant during the assessment proceedings Group entities are held to be investment holding companies and are structures to turn profits into loss, claiming exemption from tax on dividends etc. There are no employees in the Appellant entity or any other group entity in UK There is a common pool of directors and none of the entities pay remuneration to such directors Huge expenditure incurred towards Sales Marketing Offices (SMOs) which are Travelport group entities Appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP erred in not appreciating the fact that the Appellant does not have any operations in India, and hence in absence of any operations in India, no income can be apportioned to India in terms of Explanation (a) to section 9(1)(i) of the Act. 7. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Ld. AO has erred in determining the business profits of the Appellant attributable to its alleged India operations on an adhoc basis at 25% of India based revenue by applying Rule 10 of Income-tax rules 1962 and drawing analogy from section 115A of the Act, without giving any cogent reasons and without allowing any expenses. 7.1 Without prejudice to the above grounds, On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP erred in both facts and in law by not following the binding decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in Appellant's own case/its predecessor's case from AY 1995-96 to AY 2012-13, AY 2014-15 and AY 2017-18 wherein after considering the facts it has been held that correct attribution t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of USD 1,02,78,698 and R D cost share of USD 57,11,833 and not providing any cogent reason for not allowing the same. 9. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, iri case the Business Connection (`BC')/ Permanent Establishment (PE') is upheld, the consequential relief under section 44C should be allowed to the Appellant as per the law and the eligibility. 10. The Appellant denies each and every allegation and statement made by the Ld. AO in the impugned order and orders relied upon by him, unless the same is specifically admitted by the Appellant or is otherwise borne out by the record. 11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in charging interest under section 234B of the Act. 12. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 270A (2) of the Act. 13. The Appellant prays for leave to add, alter, amend and/ or' modify any of the grounds of appeal at or before the hearing of the appeal. 3. As could be seen from the grounds raised, ground nos. 1, 2, 3, 10 11 are general, hence, do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer concluded that the assessee is a conduit company within stepping stone type of conduit framework created primarily for the purpose of treaty shopping. Thus, he held that the assessee is not entitled to the benefits of India-UK Double Taxation Avoidance Agreement (DTAA). Further, he held that the assessee has a dependent agent PE in India in the form of ITQPL. Hence, the business profits attributable to the PE have to be computed under clause (1) of Rule 10 read with section 115A of the Act. 8. Having held so, she attributed 25% of the total turnover of the assessee to the PE and brought to tax, such profits attributed to the PE applying the rate of 40%. Accordingly, the Assessing Officer proposed draft assessment orders in similar lines in both the assessment years under dispute. Against the draft assessment orders so proposed, the assessee raised objections before learned DRP. After considering the submissions of the assessee in the context of facts and materials on record, learned DRP found that the dispute relating to the issue has been decided by the Hon ble High Court and the Tribunal in assessee s case in past assessment years. Therefore, learned DRP directed the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters and connectivity which are provided by the appellant either directly or through its agent Interglobe will amount to operating part of its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have established a PE within the meaning of paragraph 1 of Article 5 of Indo-Spain Treaty. 17.4 ..The dependent agent is not to be considered as PE unless he has authority to conclude contract on behalf of such enterprise. The authority to conclude contracts must be in respect of contracts relating to operations, which constitute the business proper of the enterprise. The appellant in the present case in order to enhance its business operations has appointed Interglobe as its agent who promote the 'Galileo System' in India. Interglobe in its turn has appointed various subscribers for use of 'Galileo System'. Though the revenue flows only from participants who have entered into PGA with the appellant, yet the revenue could not have been generated but for the subscribers using the 'Galileo System'. In a way the revenue is generated from the participants but only on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 26. In the second batch of 4 years i.e. from AY 1999-00 to 2002-03 in case of GII, the Hon'ble Delhi ITAT vide its order dated 17th March 2011 (ITA No.2971-2974 /Del/2010) (Page 281 to 284 of Paperbook Part 1), held as under : 4. Regarding various grounds raised by the assessee in the cross objections relating to existence of business connections in India and accrual and arising of Income in India and the deemed accrual and deemed arising of Income in India and existence of PE in India etc., it was submitted that these issues were decided by the tribunal against the assessee in assessment year 1995-96 to 1998-99. He submitted a copy of tribunal decision in assessee's own case for these assessment years 1995-96 to 1998-99 in ITA Nos. 1733/D/2001, 2473-2475/D/2000 and 820-823/D/2005 and CO. No. 47 to 54/D/2006 dated 30.11.2007. It is also submitted that against this tribunal order; both the assessee and revenue were in appeal before the Hon'ble High Court of Delhi. It is submitted that revenue's appeal were dismissed by the Hon'ble High Court of Delhi in its judgment dated 25.02.2009 in ITA No. 851 to 860/2008 and it was held by Hon'ble Delhi High Court that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (ITA No. 654/2012 656/2012, 659/2012 661/2012) in case of Galileo Netherlands B.V (GNBV) (Successor of GII and Predecessor of the Appellant) for third batch of years i.e. AY 2003-04 to AY 2006- 07 refrained from forming any opinion on GNBV's PE/BC in India. Relevant extract of this order is reproduced as under: (Please refer Para 2 on Page 313 of Paperbook Part 1) 2. We begin with a caveat that a limited issue and question arises for consideration in these appeals and we are not required are not pronouncing any opinion and finding on whether the appellant assessee had a Permanent Establishment (PE) in India and other related issues. The only question and issue raised in these appeals relates to profit attribution to Indian Operations on the assumption that the appellant- assessee had a PE in India. 31. Against the Hon'ble Delhi High Court order for AY 2003-04 to AY 2006-07, both the Income-tax department and Appellant's predecessor entity i.e. GNBV/TGDSBV filed an appeal before Hon'ble Supreme Court of India vide SLP Nos. 391 of 2015, 3780 of 2015, 3779 of 2015 and 1297 of 2015. These SLPs are pending adjudication by Hon'ble Supreme Court. 32. Thus, the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue, learned DRP directed the Assessing Officer to verify whether the department has gone in appeal against the decision of the Tribunal in earlier assessment years and in case, it is found to be so, to sustain the addition. The Assessing Officer having found that the department has gone in appeal against the decisions of the Tribunal, confirmed the additions. 15. Before us, it is a common point between the parties that the issue stands covered in favour of the assessee by decisions of the Tribunal in assessee s own case in past assessment years. 16. Having considered rival submissions, we find, while deciding identical issue in assessment year 2017-18 (supra), the Tribunal has held as under: 33. Ground No.6 is covered in favour of the Appellant by virtue of the application of the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of Appellant and its predecessor entities i.e. GII and TGDSBV. The Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Appellant's own/ predecessor's case i.e. GII and GNBV, have held that attribution rate to the alleged India PE is 15% of gross booking fees and since Indian related expenses are more than attribute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med, 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. The CRS as a whole is developed and maintained outside India. The risk in this regard entirely rests with the appellant and that is in USA, outside India. However, it is equally important to note that but for the presence of the assessee in India and the configuration and connectivity being provided in India, the income would not have generated. Thus the initial cause of generation of income is in India also. On the basis of above facts we can reasonably attribute 15 per cent of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under section 5(2) read with section 9(1)(i) of the Act. (Para 10 on Page 224 of Paperbook Part 1) 9. Next question to be decided is if it is found that the income accruing in India is consumed by the payment made to the ITA No.6661/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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, (Para 5 on Page 260 of Paperbook Part 1) a Miscellaneous Application (MA) before the ITAT to revise the earlier order on the ground that, even after holding that the Appellant's predecessor i.e. GII has a PE in India the Hon'ble ITAT erred in holding that no income was attributed to the said PE. The questions posed also included manner of attribution i.e. whether attribution is on sales or the net profits. The revenue authorities contended that the attribution should be on the net profits and not Sales - This contention of the revenue authorities was rejected by the Hon'ble ITAT vide its MA order dated 21 November 2008 (MA No. 108/Del/2008, 311 to 318/Del/2008 and 220 to 223/Del/2008), in case of GII in the first batch of 4 years- AY 1995-96 to 1998-99, wherein it was held that for computation of income of an Indian PE, first step is to attribute the revenues to India and then allow deduction of India related expenses from such attributed revenue. The relevant extract of order is re-produced as under: 5. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. The Tribunal was also influenced by another important fact viz., such functioning requires huge investment and huge capacity which is not available in the computers installed at the desk of the subscriber in India. On this basis, the Tribunal formed the opinion that major part of the work are processed at the host computer in Denver in USA and the activities in India are only minuscule portion. Taking into consideration all these factors the Tribunal was of the opinion that one could reasonably attribute 15 per cent of the revenue accruing to the respondent in respect of bookings made in India as major expenses in that behalf is incurred in activities carried out in US (Please refer Para on Page 272 of Paperbook Part 1) Thus, the approach adopted by the Tribunal was to first arrive at the figure relating to the revenue generated in India and abroad. It concluded that out of the revenue accrued to the respondent in respect of these bookings 15 per cent thereof should be attributed to India, keeping in view a very m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 15% of the gross booking fees. The coordinate bench of ITAT followed the decisions of Hon ble Delhi High Court and Hon ble ITAT in the case of assessee/assessee s predecessor entities i.e. TGDSBV and GII to arrive at the above conclusion. The relevant paras of the Hon ble ITAT s order is reproduced below: 33. Ground No. 6 is covered in favour of the Appellant by virtue of the application of the decisions of Hon ble Delhi ITAT and Hon ble Delhi High Court in case of Appellant and its predecessor entities i.e. GII and TGDSBV. The Hon ble Delhi High Court and Hon ble Delhi ITAT in Appellant s own/predecessor s case i.e. GII and GNBV, have held that attribution rate to the alleged India PE is 15% of gross booking fees and since Indian related expenses are more than attributed gross booking fees to the PE in India, it would extinguish the assessment as no further income is taxable in India. 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. Similar view was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of assessee s predecessor entity i.e. TGDSBV for AY 2007-08 to 2012-13 and AY 2014-15, wherein the coordinate bench of ITAT vide its order dated 13.10.2021 allowed 100% deduction of distribution fees in the hands of the assessee. The relevant paras of the Hon ble Delhi ITAT s order is reproduced below: 21. For AYs 1995-96 to 2006-07, the Assessing Officer was allowed the distribution expenses incurred by the Company. The Delhi ITAT and Hon ble Delhi High Court for AY 1995-96 to AY 2006-07 in the predecessor company namely Galileo International Inc. Allowed 100% deduction of distribution expenses and held overall taxability as Nil of the alleged PE in India. 22. For AY 2016-17 and AY 2017-18 in case of Company s successor entity namely, Travelport International Ltd., the Assessing Officer and Ld. DRP allowed deduction of distribution expenses (70%) from attributed revenue. 23. For AY 2012-13 (one of years in captioned matter), both Ld. DRP and the Assessing Officer has allowed 100% distribution expenses by relying on Hon ble Delhi High Court s decision in case of Company/its predecessor company for AY 1995-96 to AY 2006-07... 24. For AY 2015-16, the Id. DRP in its direction in C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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%. Following the decisions (supra) we hold and order accordingly. 21. Facts being identical in the impugned assessment year, we direct the Assessing Officer to allow deduction of expenses following the directions of the Tribunal in the past assessment years, as discussed above. This ground is allowed. 22. In ground no. 9, the assessee has raised the issue of allowance of head office expenses under section 44C of the Act. 23. Having considered rival submissions, we find, while deciding identical issue in assessee s own case in assessment year 2016- 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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