2023 (8) TMI 163 - SCH - Income Tax

Supreme Court affirms revenue attribution in international tax based on Galileo Nederland BV case.

The Supreme Court concurred with the High Court's decision on the attribution of profits in international tax matters based on the Galileo Nederland BV ... Income taxable/attribuable in India - attributed 15% of the assessee’s income to India - applicability of the Galileo rule - HELD THAT:- As decided in GALILEO INTERNATIONAL INC. [2009 (2) TMI 497 - DELHI HIGH COURT] looking at the nature and the character of the functions undertaken in India viz., the functions and assets outside India, 15% was attributed to India. (Aspect of risk has not been discussed but it has never been the case of the revenue that risk factor tilts the scale for higher attribution of income to Indian PE). This worked out to Euro 0.45 and this was less than the commission of Euro 1, which was paid by the appellant- assessee to the distributor in India. Galileo Nederland BV [supra] has now merged with the order of this Court in Travelport [2023 (5) TMI 227 - SUPREME COURT] filed by the Revenue before this Court. In view of the fact that the judgment of the Delhi High Court has been affirmed by this Court by dismissing the appeals filed by the Revenue, we find that the appeals filed by the assessee(s) are liable to be allowed. Issues: The issues involved in the judgment are the application of principles of attribution of profits in international tax matters and the question of permanent establishment.Principles of Attribution of Profits: The judgment referred to the case of Galileo Nederland BV vs. Assistant Director of Income-Tax, Circle-1(2), New Delhi, where the High Court had approved the Tribunal's reasoning that only a small part of the operations and functions were performed in India. The High Court affirmed that 15% of the revenue accruing to the assessee in respect of bookings made in India should be considered as income arising in India. The Tribunal had applied principles of attribution of profits and not revenue, attributing income based on functions performed, assets used, and risk shared in different countries. The High Court rejected the Revenue's submission that the Tribunal had erred in attributing only 15% of the income to Indian operations, emphasizing that the Tribunal had correctly assessed what would be attributable to operations in India.Permanent Establishment: The Supreme Court, in its order, stated that it concurred with the High Court on the issue of attribution of profits and did not delve into the question of permanent establishment. The Court affirmed the High Court's decision, which led to the dismissal of the appeals filed by the Revenue. Consequently, the appeals filed by the assessee(s) were allowed based on the affirmation of the Delhi High Court judgment.This summary highlights the application of attribution of profits principles in international tax matters as per the Galileo Nederland BV case and the Supreme Court's decision regarding the question of permanent establishment, ultimately leading to the allowance of the assessee(s) appeals.