Income attribution and permanent establishment upheld where India-based booking operations formed part of the revenue-generating process.

A non-resident's booking revenue was treated as partly attributable to India where the reservation process involved a material operational component in India, while core processing and database functions were outside India. Applying a functions-assets-risks approach, the Tribunal upheld 15% attribution of revenue as income accruing in India under section 9(1)(i) and Article 7 of the DTAA. It also sustained the finding of a permanent establishment in India, holding that the configured systems and connectivity used by travel agents created a continuous and seamless business connection and formed an integral part of the booking process. Both the Revenue's appeals and the assessee's cross-objections failed.

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Issues: (i) Whether 15% of the revenue from bookings made in India was reasonably attributable as income accruing or arising in India under section 9(1)(i) and Article 7 of the DTAA; (ii) Whether the assessee had a permanent establishment in India, including a fixed place or dependent agent permanent establishment.

Issue (i): Whether 15% of the revenue from bookings made in India was reasonably attributable as income accruing or arising in India under section 9(1)(i) and Article 7 of the DTAA.

Analysis: The attribution question was treated as covered by the Tribunal's earlier decision in the assessee's own case. The reasoning adopted there was that only part of the reservation system operated in India, while the main processing and database functions were outside India. Since the Indian operations consisted of generating the booking request and receiving the result, and the attribution had to be made on the basis of functions performed, assets used, and risks undertaken, 15% of the revenue was treated as reasonably attributable to operations carried out in India.

Conclusion: The attribution of 15% of the revenue as income arising in India was upheld, against the Revenue.

Issue (ii): Whether the assessee had a permanent establishment in India, including a fixed place or dependent agent permanent establishment.

Analysis: The Tribunal followed its earlier finding that the reservation system created a continuous and seamless business connection in India through the configured computers and connectivity provided to travel agents in India. The activities in India were not merely passive display functions but formed an integral part of the booking process that generated revenue. On that basis, the Indian presence was held to constitute a permanent establishment, and the cross-objections challenging that finding were not accepted.

Conclusion: The finding that the assessee had a permanent establishment in India was sustained, against the Assessee.

Final Conclusion: Both the Revenue's appeals and the assessee's cross-objections failed, and the Tribunal left intact the earlier view on attribution of income and existence of a permanent establishment in India.

Ratio Decidendi: Where a non-resident's business process is carried on through a continuous and seamless system that has a material operational component in India, income is attributable in India on a reasonable basis having regard to functions, assets, and risks, and such Indian operations may also establish a business connection and permanent establishment.

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