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        Tax Tribunal: PE in India Confirmed, Taxpayer Wins on Income Attribution, Expenditures, Booking Fees

        Amadeus IT Group SA, C/o Vaish Associates, Advocates Versus DCIT, Circle 1 (1) (1), Intl. Taxation, New Delhi.

        Amadeus IT Group SA, C/o Vaish Associates, Advocates Versus DCIT, Circle 1 (1) (1), Intl. Taxation, New Delhi. - TMI Issues Involved:
        1. Computation of Income
        2. Permanent Establishment (PE) and Dependent Agent PE
        3. Attribution of Income
        4. Disallowance of Expenditure
        5. Taxation of Booking Fee as Royalty
        6. Taxation of Altea System as Royalty
        7. Levy of Interest under Sections 234B and 234D

        Detailed Analysis:

        1. Computation of Income:
        The primary issue was whether the computation of the appellant's income by the Assessing Officer (AO) at Rs. 416,18,80,875/- was correct. The AO alleged that the appellant avoided furnishing specific information, particularly various agreements with airlines.

        2. Permanent Establishment (PE) and Dependent Agent PE:
        The DRP and AO held that the taxpayer had a Fixed Place PE and a Dependent Agent PE in India under Article 5 of the Indo-Spain DTAA. This was based on the presence of computers, electronic hardware/software, and connectivity provided to travel agents in India, as well as the activities of Amadeus India (P) Ltd. (AIPL). The taxpayer conceded that this issue had been decided against them by the Hon’ble High Court for earlier assessment years, confirming the presence of a PE in India.

        3. Attribution of Income:
        The AO attributed 75% of the income earned in India to the PE, which was confirmed by the DRP. However, the Tribunal noted that this issue had been previously decided in favor of the taxpayer, attributing only 15% of the revenue relating to bookings made from India to the taxpayer's PE. This decision was based on the nature and extent of activities in India and abroad, assets employed, and risks assumed. The Tribunal followed this precedent, determining that no further addition was warranted.

        4. Disallowance of Expenditure:
        The AO disallowed various expenditures, including distribution fees, development costs, and marketing costs, while computing the income attributable to the taxpayer's PE in India. The Tribunal found that these expenditures had been allowed in earlier years and that the AO had erred in treating the "export of processed data/software" as distribution fees. The Tribunal allowed the taxpayer's claim for these expenditures.

        5. Taxation of Booking Fee as Royalty:
        The AO alternatively held that the booking fee received by the taxpayer was taxable as royalty under section 9(1)(vi) of the Act and Article 13(3) of the Treaty. The Tribunal, following its earlier decisions, held that the booking fee received by the taxpayer was to be taxed as business income and not as royalty.

        6. Taxation of Altea System as Royalty:
        The AO and DRP taxed the amount received from British Airways for the use of the Altea system as royalty. The Tribunal, following its earlier decisions, held that the payment received for the Altea system could not be characterized as royalty under the Act or the Treaty. The system was installed at airports and accessed only by airlines, not by the taxpayer's agents.

        7. Levy of Interest under Sections 234B and 234D:
        The AO levied interest under section 234B of the Act. The Tribunal noted that since the taxpayer's income was subject to tax deduction at source, the levy of interest under section 234B was not warranted. The Tribunal followed the precedent set in BG International Ltd. vs. DCIT, concluding that the interest under section 234B would not apply when no addition sustains.

        Conclusion:
        The Tribunal partly allowed the appeals, confirming the presence of a PE in India but favoring the taxpayer on issues related to the attribution of income, disallowance of expenditures, and characterization of booking fees and Altea system payments as business income rather than royalty. The levy of interest under section 234B was also set aside.

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        ActsIncome Tax
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