Business connection and PE attribution: limited Indian operations left no further income taxable in India.

Business connection and a permanent establishment in India were accepted, but taxability depended only on income attributable to Indian operations. Applying the functions-assets-risks attribution principle and the coordinate bench approach in the Galileo line of cases, the Tribunal held that the Indian marketing and booking support was only a limited part of the overall reservation system. Because the assessee had already paid 25% of gross receipts to the Indian subsidiary, exceeding the comparable 15% attribution benchmark, no further income was attributable to India and nothing more was taxable there.

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Issues: Whether the assessee had a business connection or permanent establishment in India and, if so, whether any income could be attributed to operations in India and taxed.

Analysis: The assessee carried on the business of computerized airline reservation through a host computer located outside India, while the Indian marketing and booking support was provided through a wholly owned subsidiary that rendered services to travel agents and received commission. The Tribunal accepted the finding that there was a business connection and permanent establishment in India, but held that taxability depended only on the income attributable to the Indian operations. Following the coordinate bench decision in the identical Galileo line of cases, it applied the principle that attribution must be made on the basis of functions performed, assets used, and risks undertaken. As the Indian activities were only a small part of the overall reservation system and the assessee had already paid 25% of gross receipts to the Indian subsidiary, which exceeded the 15% attribution benchmark adopted in the comparable case, no further income remained attributable to India.

Conclusion: The issue was decided in favour of the assessee, and no income from the receipts was taxable in India.

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