Treaty override and permanent establishment rules govern attribution, royalty characterisation, and section 234B interest for non-residents.

Where the factual matrix is unchanged, binding jurisdictional precedent governs the tax treatment of a non-resident's Indian operations, including recognition of a fixed place and dependent agent permanent establishment and attribution of profits on the settled 15% basis. The commentary also notes that booking fee receipts under a computer reservation system were treated as business income rather than royalty, and that domestic law amendments cannot enlarge the treaty meaning of royalty absent treaty amendment. It further states that interest under section 234B is not leviable where tax was deductible at source, and TDS credit is to be allowed after verification.

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Issues: (i) whether the assessee constituted a permanent establishment in India and, if so, the extent of profits attributable to that permanent establishment; (ii) whether the booking fee received from airlines was taxable as royalty under the Act and the treaty; (iii) whether payments relating to the Altea Reservation System were taxable as royalty; (iv) whether interest under section 234B was chargeable; and (v) whether credit for tax deducted at source was to be allowed.

Issue (i): whether the assessee constituted a permanent establishment in India and, if so, the extent of profits attributable to that permanent establishment.

Analysis: The Tribunal noted that the jurisdictional High Court had already held, in the assessee's own case for earlier years, that the computer terminals at subscriber premises constituted a fixed place permanent establishment and that the Indian affiliate functioned as a dependent agent permanent establishment. On attribution, the Tribunal relied on the earlier coordinate bench decisions, which had consistently limited attribution to 15% of revenues from Indian bookings after considering the functions, assets and risks in India and abroad. The Assessing Officer's attribution at 75% was found inconsistent with the settled position for the assessee's earlier years.

Conclusion: The existence of a permanent establishment was accepted, but the higher attribution made by the Assessing Officer was not sustained; the assessee succeeded on the attribution issue.

Issue (ii): whether the booking fee received from airlines was taxable as royalty under the Act and the treaty.

Analysis: The Tribunal followed the earlier decision in the assessee's own case for assessment year 2006-07, which had held that the booking fee received for the CRS was business income and not royalty. It was held that the assessee did not grant any right to use a secret process or any equipment in the treaty sense, and the revenue failed to establish that the receipts answered the treaty definition of royalty. The Tribunal also applied the jurisdictional High Court ruling that amendments in domestic law could not expand the treaty definition of royalty unless the treaty itself was amended.

Conclusion: The booking fee was not taxable as royalty.

Issue (iii): whether payments relating to the Altea Reservation System were taxable as royalty.

Analysis: The Tribunal held that the Altea system functioned as an inventory hosting and management system and that the receipts were connected with use of the system by the airline, but on the treaty analysis it accepted the assessee's contention that the source of the income was not in India in the manner required for treaty taxation. The Tribunal then relied on the broader treaty framework and its earlier reasoning on royalty to hold that the domestic law expansion could not alter the treaty position. Nevertheless, on the facts, it ultimately upheld the Assessing Officer's characterization only to the extent of treating the receipts as royalty for domestic tax purposes while directing that treaty protection be given in accordance with the jurisdictional High Court's law.

Conclusion: The assessee obtained treaty relief and the revenue was directed not to tax the royalty contrary to the binding High Court law.

Issue (iv): whether interest under section 234B was chargeable.

Analysis: The Tribunal followed the coordinate bench and jurisdictional High Court decisions holding that where the payer was required to deduct tax at source, interest under section 234B was not leviable in the manner adopted by the Assessing Officer. Since there was no material change in facts, the earlier ratio was applied.

Conclusion: Interest under section 234B was not chargeable.

Issue (v): whether credit for tax deducted at source was to be allowed.

Analysis: The Tribunal directed the Assessing Officer to allow TDS credit after due verification in accordance with the Act.

Conclusion: TDS credit was to be granted, subject to verification.

Final Conclusion: The assessee succeeded in the appeals on the substantial tax issues, with the Tribunal applying earlier binding decisions on permanent establishment, attribution, royalty characterisation, and interest, and granting consequential relief.

Ratio Decidendi: Where the factual matrix remains unchanged and the jurisdictional High Court has settled the tax treatment, the Tribunal must follow the binding precedent on permanent establishment, attribution of profits, treaty meaning of royalty, and non-leviability of interest under section 234B when tax was deductible at source.

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