TaxTMI 
TaxTMI 
2019 (7) TMI 1083
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....be liable to tax in India in respect of fees received from airlines, etc. relating to segments booked from India through the appellant‟s computer reservation system, not appreciating that no income accrued or arose to the appellant in India. 3. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding that computers, electronic hardware, and the connectivity provided by the appellant to the travel agents through SITA nodes located in India, collectively, constituted permanent establishment ("PE‟) of the appellant in India in terms of Article 5(1) of the Indo-Spain DTAA ("the Treaty‟) and the income arising to the appellant from the airlines, assessing officer in alleging that Amadeus India (P) Ltd. (AIPL) constituted dependent agent PE of the appellant in India and the income arising to the appellant from the airlines, etc., was attributable to the activities of the alleged etc. was attributable to the activities of the alleged PE in India. 4. That the CIT (A) erred on facts and in law in confirming the action of the Assessing Officer in alleging that Amadeus India P Ltd (AIPL) constituted dependent agent PE of t....
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....ficer in disallowing deduction of Euro 4,167,000/- incurred by the appellant under the head "Development Cost‟, while computing the income attributable to the alleged PE. 10. That the CIT (A) erred on facts and in law in not appreciating that the appellant was engaged in the business of providing CRS services and the expenses incurred in connection with product development function carried out outside India were required to be excluded while computing the income of the alleged PE of the appellant in India. 11. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in attributing 75% of the profits of the alleged PE of the appellant as income chargeable to tax in India. 12. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in not following the order of the Delhi Bench of the Tribunal in the appellant‟s case for the assessment years 1996-97 to 1998-99 and the order of the CIT(A) for assessment years 2003-04 to 2005-06, wherein the Tribunal had attributed 15% of the revenues relating to the bookings made from India as attributable to the appellant‟s PE in India and held that no i....
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....er Article 7 of the Treaty. 16. That the CIT (A) erred on facts and in law in not directing the assessing officer to allow credit for tax deducted at source of Rs. 56,693,368/- claimed by the appellant." 3. Brief facts of case shows that the appellant is a company Incorporated in Spain and was engaged in the business of development and distribution of computer reservation systems (CRS). Assessee filed its return of income on 29/11/2006 declaring total income of Rs. Nil. Assessment was completed by the learned Assessing Officer u/s 143 (3) of the income tax act on 31/12/2008 computing the total income of the assessee at INR 9 28446114/- against the returned income of the assessee of Rs. Nil. 4. The appellant has entered into agreements with various Airlines ["Participating Carrier Agreement] by providing interconnectivity between the host computer of the individual Airline and the Amadeus CRS created by the appellant at Erding, Germany. Amadeus also provides connectivity to its CRS to the travel agents. The Agreement, inter alia, provides that the participating Airline shall pay to the appellant the charges for display of Airline information through Amadeus CRS, in the form o....
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....e use of the CRS system. The appellant pays AIPL and ResBird distribution fees for the aforesaid services rendered to the appellant, with reference to the segments booked in India by the travel agents through the CRS system as per the terms of the Distribution Agreement. The computers with the travel agents are standard third party compatible PCs. These PCs are not Amadeus proprietary. The PC is used to emulate a remotely located host terminal. The travel agent‟s PC is connected to the Amadeus mainframe computer located in Germany. The connectivity is provided by third party providers, using in India the DOT, MTNL or VSNL leased lines. The Amadeus mainframe is in turn connected to host computers of the various providers like Airlines, hotels, etc. around the world. The computers in the offices of the agents are not capable of processing/finalizing reservations it is the job of the Amadeus Data Center in Erding, Germany to ensure that the connectivity between the Amadeus Mainframe and the travel agents as the Amadeus Mainframe and the various providers worldwide is maintained. This is done using network management tools like intelligent routers, switching equipment, etc. The c....
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....xport data, software response of the year. On verification of the invoices and on being questioned to the assessee, assessee submitted that as per the distribution agreement, it is Amedus India private limited was providing distribution services which involved provision of hardware support in respect of the hardware provided to the travel agents, marketing support services and providing connectivity to the appellant‟s computerized reservation system by creation of segment in appellant‟s CRS system for identification of travel agents to enable the CRS to provide access to the specific portion of the database and the remuneration paid by the appellant by AMedus India private limited was for the aforesaid activities. Based on the information provided by the assessee the learned AO noted that Amedus India has charged the assessee for export of processed data/software. The assessee is also paying Amedus India for receipt of processed data/software. The assessee has not made any other payments to Amedus India and accordingly it is held that the assessee has not paid any remuneration to Amedus India for various activities referred in the order of the coordinate bench in para n....
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....elaborately demonstrate that the charges was for export of data processing and not for computerized reservation system business of ticket booking. Accordingly he sustained the action of the learned assessing officer. He further upheld the attribution of profit @ 75 %. Thus, he upheld the existence of the permanent establishment and attribution of profit as determined by the learned assessing officer. 8. With respect to the royalty taxation of the above sum he did not give any finding. Thus aggrieved by the order of the learned CIT - A assessee is in appeal before us. The learned authorised representative submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon‟ble Delhi High Court in assessee‟s own case for earlier years. Even otherwise he submitted a detailed written submission on the whole issue as under: "Re: Ground of Appeal No. 2 to 4 - Permanent Establishment of Amadeus Given the background of the appellant, the assessing officer, has in the earlier years stated that the CRS is like a market place or a platform used by the airlines to reach travelers through the travel agents and make bookings thereon. It is resp....
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....her form like a lump sum payment or fixed periodical charges outside India. The revenues still arise to the appellant outside India. The Airlines have evolved a clever fee structure, which makes it impliedly necessary for the appellant to reach the Airline customers - that is the travel agents and canvass with them the use of appellant's CRS. It is, inter alia, for this purpose that the appellant engaged the services of AIPLand ResBird. It has to be noted that the main function of AIPL/ ResBird vis-à-vis the appellant is to disseminate information amongst the travel agents in India about the Amadeus CRS, canvass with them the use of the system and assist them in using the CRS, without any charge whatsoever. It has to be noted that the activity of the appellant in India is restricted to the aforesaid. The aforesaid activities are of the nature of advertising and of supplying information. Such activity has a preparatory and auxiliary character for the appellant. Under Article 7 of the Treaty, the profits of an enterprise of a contracting state shall be taxable in that state unless the enterprise carries on business in the other contracting state through a permanent estab....
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....ng the orders passed in the earlier years, held that AIPL is a dependent agent of the appellant and agency PE in terms of paragraph 5(4) of the DTAA, which is disputed for the reasons stated as under: As per paragraph 4 of Article 5 of DTAA between India and Spain, the so-called dependent agent may be deemed a permanent establishment if such agent has and habitually exercises authority to conclude contracts on behalf of the Spanish entity. It is to be appreciated that AIPL/ ResBirddoes not enter into any agreement with the travel agents on behalf of the appellant. In fact, the agreement has to be read along with the admitted understanding between AIPL/ ResBird, the appellant and the travel agents that no consideration will pass from the travel agents to AIPL/ ResBirdor for that matter to the appellant on account of the agreement. There is, therefore, no question of AIPL/ ResBirdhaving any authority to conclude contracts on behalf of the appellant. There can be no question of exercising such authority when there is no contract(s) which binds the appellant. The product that is the services of the Airline exists outside India. The information conveyed from the use of the CRS exi....
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....s are all functions which are not extraneous to the distributorship. The business of the VAR is not controlled by the appellant except to the extent necessary to promote its own business. It is beyond dispute that the VAR does not negotiate or conclude contracts with the end-users on behalf of the appellant. As noticed earlier, the acceptance of the order placed by the end-user and procured by VAR is left to the discretion of the appellant. That authority is not delegated to VAR. Moreover, VAR is free to determine its own price while entering into the deal with the end-user on the acceptance of the order by the appellant. It is not possible to accept the contention that arriving at the price is an empty formality and always follows a set pattern. The VAR does not notify or render account to the appellant for the amount collected from the end-user. The VAR cannot claim reimbursement from the appellant for the loss caused to him by reason of VAR's (sic-end-user's) failure to pay the amount. It is difficult to perceive any predominant features which point to the relationship of principal and agent. As regards the obligations cast on the VAR to furnish reports and information, ....
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....ion agreements with the travel agents was merely executing the last leg of the contact already concluded outside India. AIPL/ ResBirdhaving regard to the ratio laid down in the above case, cannot in such circumstances, be said to be concluding any contract for the appellant so as to be considered as a dependent agent having authority to conclude contract and, therefore, a PE of the appellant in India. In the past, a subscriber's agreement was entered into between AIPL/ ResBirdand the travel agents, where under computer hardware, etc. was provided to the travel agents, as an incentive, and certain obligations were cast on the travel agents regarding the use of such computers. However, under the present arrangement, the appellant neither provides computers to the travel agents, nor does it bear cost towards provision of computers provided by AIPL/ ResBird, if any. Thus, even if AIPL/ ResBirdare held to be providing the computers to the travel agents on behalf of the appellant, it would not be considered as having authority to conclude contracts on behalf of the appellant. The contract resulting in accrual of income to the appellant, viz., the agreement with the Airlines, is conclu....
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....he MTCN matches, the representative/agent would honour the transaction and pay the money to the claimant in India. For the aforesaid purpose the assessee had appointed agents in India. One of the issues before the Tribunal was whether the agent's premises-cum-software was PE of the assessee. It was argued on the behalf of Revenue that there is a fixed place of business in the form of various systems installed at the premises of various agents through which the business is carried on. The Tribunal, however, rejected the contention of the Revenue and observed as under: "26. The department has made out a case that the software, which affords access to the agents to the assessee's mainframe computers in USA for the purpose of finding out the matching of the MTCN numbers, has been installed in the premises of the agents and hence taken together with the premises constitutes the PE. The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business. The software is the property of the assessee and it has not parted with its copyright therein in favo....
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.... in making a request by the travel agent and its processing by the mainframe and the display of the information on the computer screen of the travel agent in India. Thus, for example where simultaneously two or more travel agents make a booking for a same sector and there is say only one seat available on such sector, a queue is certainly formed as only one travel agent will be able to get the booking depending upon who is first in the queue. Also, if the theory of the time and space collapsing and the mainframe of the appellant coalescing with the computers of the travel agent is accepted, it would have far reaching consequences in as much as the computer of any person in India accessing a web site (located on any server anywhere in the world), would become a PE of such website in India. Though it is true that the laws have not kept pace with the advancement made in the technology, yet till such time the laws are amended, the prevailing law has to be applied. In our respectful submission, the computers with the travel agents cannot be treated as PE of the appellant in India having regard to the prevailing definition of PE as per the Treaty In view of the aforesaid, it can....
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....enterprise in India; (ii) through which the business of the foreign enterprise is wholly or partly carried on. Further, the Delhi High court in the case of CIT vs. eFunds IT Solution and Ors.: 364 ITR 256 while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the India-US Tax Treaty held that for the purposes of existence of fixed place PE under Article 5(1), there must be a fixed place of business at the disposal of the enterprise. The subsidiary constitutes an independent legal entity for taxation purposes, and hence the relationship of holding-subsidiary or control exercised by the parent on its subsidiary by itself does not result in PE of the foreign company in India. Reference is also made to the decision of the Delhi High Court in the case of Adobe Systems Incorporated vs. ADIT: 292 CTR 407 wherein the Court relied upon the decision in the case of efunds (supra) observed as under: "Para (1) of Article 5 defines a PE to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. The term 'fixed place of business....
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....an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country". Attention in this regard is invited to the following observations of the Special Bench of the Tribunal in the case of Motorola &Ors. v. DIT: 95 ITD 269 (SB) (Del), wherein the Tribunal held that unless the office was at the disposal of the nonresident assessee, it could not be held to be constituting PE: 127. We now turn to the provisions contained in Article 5 of the DTAA. Article 5:1 state that the term "Permanent Establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The thrust of the Assessing Officer's contention has been that since the employees of the assessee and/or LME came to India frequently and since the Indian company (ECI) provided facilities to these employees the office of ECI constituted a fixed place of business for the assessee. The OECD commentary on Double Taxation refers to a "fixed place" as ....
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....es had a PE in Belgium as he had an office 3 m by 6 m at his disposal on the premises of his principal supplier in Belgium, together with telephone and telex, where the German and his tour employees worked (KH v. Belgium [1995] 3 R.G.F. 100). The assessee's case is akin to that of the German travel agency in the first mentioned case and not to the German resident in the second mentioned case. Therefore, in the light of this discussion, it cannot be said that the assessee had a PE in India as envisaged in Article 5.1 of the DTAA."[Emphasis supplied] From the aforesaid discussions, it would emerge that in order to constitute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facilities of another enterprise. The assessing officer has, on the basis of evidence collected from the website of the appellant, alleged that the offices of Amadeus India constitute PE of the appellant in India.....
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....nal, in the case of Airlines Rotables Ltd Vs DDIT8, ―It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. that the onus is on the Revenue to demonstrate that a PE of the foreign enterprise exists in India". In the present case, i.e. in the case of DAPE in accordance with provisions of Indo French DTAA, the onus is even greater inasmuch the very foundation of DAPE rests on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. "if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions". Unless this negative finding is on record, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolution Panel. Even in the proceedings before us, no material has been brought on record which at least prima facie demonstrates, or even indicates, that the transactions between the principal and agent are not under arm's length conditions. Once this onus is not discharged by the revenue authorities at any of these stages, and in accordance with the la....
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.... The assessing officer (on page 21 of the order) has further alleged that the transaction is initiated in India, the CRS is used in India and transaction is completed in India and, therefore, the source of income of the appellant is in India. It has not been appreciated that only certain instructions/commands are sent through the computers of the travel agents in India. The booking gets completed outside India in the Airline host system and the only the result thereof is communicated back to the travel agent. d) The assessing officer has (on pages 12 and 31 of the order) alleged that all foreign airlines have permanent establishment / branch office in India on the basis that the TDS certificates issued by such airlines bear an Indian address. It is submitted that the aforesaid findings of the assessing officer is purely based on conjectures and surmises without even indicating the source of such information and the basis for arriving at such a conclusion. As regards the TDS certificates bearing Indian address, it is common knowledge that any non-resident making a tax deduction is compulsorily required to obtain a TAN and furnish an Indian address. The presence of an Indian....
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....sfer pricing report submitted by Amadeus India, held that Amadeus India is a PE of the appellant in India. The said report, was never confronted to the appellant and, therefore, cannot be relied upon to draw an adverse inference against the appellant. 3) The assessing officer has also relied on letters, dated 8.12.08 and 16.12.08, written by Amadeus India to the assessing officer to hold that no compensation for marketing activity was paid by the appellant to Amadeus India. In this regard, too, it is respectfully submitted that the said letters were never confronted to the appellant and, therefore, no cognizance can be taken of the said letters. Information collected at the back of the assessee - not confronted - Pages 4 and 5 and 8-10 of the order Information submitted by NACIL (Air India) The assessing officer has also relied on letter, dated 28.11.08 written by Air India to the assessing officer, which has not been confronted to the appellant and, therefore, no cognizance can be taken of the said letter.However, the inference the assessing officer seeks to draw from the above agreement is not spelt out. Information submitted by Cox & Kings India Pvt. Ltd., F....
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....leged to have not been filed and the impugned assessment order framed in violation of the principles of natural justice, is bad in law and liable to be set aside. Re: Ground of Appeal Nos. 6, 11, 12, 13, 14 - Attribution of profits Without prejudice to the submissions that the appellant has no PE in India, it is respectfully submitted, that no income liable to tax arises to the appellant for reasons given hereunder: It is to be appreciated that the appellant's server, mainframe, hardware, software, the Amadeus host, Amadeus data center and the airline hosts are all located outside India. The connectivity is provided by third partyproviders, using in India the DOT, MTNL or VSNL leased lines. The appellant is not engaged in any business in India. The revenues of the appellant are not generated from the passenger in India or the travel agent in India or the hardware with which the travel agent operates or the line through which the communication travels. The revenue is generated by the appellant providing to the airlines the facility of display of airlines data information on the appellant's CRS. The fact that the payment to the appellant for the services rendered to the airl....
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....the revenue attributed to the alleged PE, no income was held to be liable to tax India in the Tribunal. The assessing officer has grossly erred in not following the order of the Delhi Bench of Tribunal in the appellant's case for the assessment year 1996-97 to 1998-99. It may be pertinent to point out that the ITAT, vide order dated 16.11.2016 passed for assessment years 1999-00 and 2000-01, following the order for the assessment years 1996-97 to 1998-99, held that 15% of the revenues earned by Amadeus from its activities in India shall be attributable to the PE. It may also be pertinent to point out that the ITAT, vide order dated 24.04.2009, in MA Nos. 212 to 213/D/2008, filed by the Department against the order dated 30.11.2007 relating to AY 1997-98 and 1998-99, categorically held that revenues of 15% attributed by it to the PE were in relation to activity of the PE as a whole, i.e., considering the agency and as well as fixed place of business functions. Infact, in assessment year 1996-97, the appellant was held to have 'business connection' (a much wider concept than a PE and encompassing all business related activities in India of a non-resident) and revenues to the ex....
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....ide order dated 29.10.2010 and the High Court vide order dated 31.05.2011 (Revenue appeal) and 13.08.2013 (Assessee appeal). It has not been appreciated that AIPL continued to provide to the appellant the same services in the relevant previous year as were being provided in the earlier assessment year and only the basis of remuneration for a part of the relevant previous year was changed pursuant to the new distribution agreement entered into between the appellant and the AIPL. It is further respectfully submitted that as per the Distribution Agreement, AIPL was providing software development support services and marketing support services, as part of the CRS distribution function performed by it and the remuneration paid by the appellant to AIPL was for both the aforesaid activities. The assessing officer had, in the assessment framed, solely on the basis that AIPL has claimed deduction under section 80HHE of the Act in respect of the compensation received from the appellant alleged that no compensation has been paid for the marketing support function performed by AIPL and, therefore, held that income, in addition to the amount paid by the appellant to AIPL, needed to be ....
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.... be brought to tax in India as substantial and substantive part of the appellant's activities are carried outside India. The principle of attribution has been upheld by the Hon'bleSupreme Court of India in the case of CIT Vs AhmedbhaiUmarbhai& Co.: 18 ITR 472. The Court observed that where a person is carrying on manufacture and sale, the profits received relate firstly to his business as manufacturer and secondly, to his trading operations. Profit or loss has to be apportioned in a business-like manner and according to well established principles of accountancy. In such cases, the Court held that it will be doing no violence to the meaning of the words 'accrue or arise' if the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of sale are said to arise at the place where the sales are made. The aforesaid view was reiterated by the Hon'ble Supreme Court in the case of The Anglo-French Textile Co Ltd. v. CIT: 25 ITR 27. It was observed in the aforesaid case that though profits may not be realized until the manufactured article is sold, profits are not wholly made ....
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....s in that year. The Madras High Court in the case of Annamalais Timber Trust and Co. Vs CIT: 41 ITR 781, held that the apportionment of profits under the above provisions should not be arbitrary but on a rational basis. Where the only operation within the taxable territory was the negotiation and conclusion of the contract, there was no justification for apportioning 50% of the profits to the operation carried out within the taxable territory. The Court held that there was justification only for apportioning 10% of the assessee's share of the profits to the trading operations carried out in the taxable territory. The decision of the Calcutta High Court in the case of CIT Vs Bertrams Scotts Ltd.: 31 Taxman 444, where the Court upheld the order of the Tribunal is directly to the point under consideration. In that case the Tribunal had noted that a large number of services were to be performed outside India as compared to the comparatively fewer services rendered in India. The Court upheld the estimated 10% of the net profits as income accruing or arising in India. Your Honour's kind attention in this regard is further invited to decision of the Special Bench of the Tribunal ....
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....shment." 6. In the event, an enterprise having a tax identity in one Contracting State for having a permanent establishment there, and dealing wholly independently with its other tax entity situate in the other Contracting State, the profit attributable to the first tax identity will be profit which might be expected to be made. 7. Therefore, the said Agreement does not give any guidance to ascertain what income is attributable to which tax entity unless profit is generated by one tax entity dealing with the other tax entity. 8. In the instant case, appellant held out that a part of the money received by it was attributable to within India activities and the remaining on account of out of India activities. Appellant was not generating any revenue by dealing with either its Indian tax identity, or its Korean tax identity. It was generating revenue by dealing with O.N.G.C. under the said contract. It confessed that a part of such revenue was earned by it for having had carried out within India activities. It asserted and continues to assert that the remaining revenue was generated by carrying out of India activities. There is no finding anywhere that the revenue earned and sa....
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....tant case, according to the revenue, the Project Office of the appellant in Mumbai is the ―permanent establishment" of the appellant in India through which it carried on business during the relevant assessment year and 25 per cent of the gross receipt is attributable to the said business. Neither the Assessing Officer, nor the Tribunal has made any effort to bring on record any evidence to justify the same. 10. That being the situation, we allow the appeal, set aside the judgment and order under appeal as well as the assessment order in so far as the same relates to imposition of tax liability on the 25 per cent of the gross receipt upon the appellant in the circumstances mentioned above, and observe that the questions of law formulated by us, while admitting the appeal, have not, in fact, arisen on the facts and circumstances of the case, but the real question was, whether the tax liability could be fastened without establishing that the same is attributable to the tax identity or permanent establishment of the enterprise situate in India and the same, we think, is answered in the negative and in favour of the appellant. (emphasis supplied) Reliance in this regard is p....
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....ion based on the above approach for the assessment year 2006-07, the profits attributable to India comes as under: Particulars Amount (in USD) Total Revenue of CMG as per the Annual Report (A) 1,663,600,000 Operating Income of CMG as per the Annual Report (B) 175,500,000 Operating Income as a percentage of revenue earned (C = B/A) 10.55% End-customer revenue from Indian operations (D) 138,900,000 Operating Income from Indian operations (E = C * D) 14,653,950 Operating Income of CIS (Profit before tax of CIS) (F) 13,800,000 Profit retained by CMG in the US (G = E - F) Placitum 'X' 853,950 11.19. As per this working, the worldwide profit earned by CMG for A.Y. 2006-07 comes to USD 853950. This by and large tallies with the submission of the assessee dated 26-12-2010 to the assessing officer in which it has been submitted that the approximate operating profits of CMG in USD come to 0.8 million. Now the important question that arises is as to how much of the profits shall be attributable to CMG's Indian PE over and above the profits declared by its subsidiary CIS. 11.20. Apropos TPO's estimation, we are of the view that the same is not justified as it involves a v....
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....India PE, will meet the ends of justice. Thus, assessing officer will work out the profits attributable to Indian PE on this method for A.Y. 2006-07." (emphasis supplied) Applying the ratio of the aforesaid decisions to the facts of the appellant's case, it will be appreciated that the net result of the period as per the audited profitability analysis for the India distribution activity, only represents the net profit relatable to the bookings made from India, i.e., the Indian sales. The same is not, however, the income attributable to the alleged PE of the appellant in India. Only a part of the aforesaid net profit can be attributed to the alleged PE in India since all the activities resulting in generation of such profits are not performed in India. In fact, a major part of such activities are performed outside India. Thus, at best, without prejudice, 15% of the net results as per the aforesaid audited profitability analysis can be brought to tax in India. Re: Ground of Appeal Nos. 6 to 10: Submission on disallowance of expenses In addition to holding that 75% of the net results of the Indian distribution activity is attributable to the alleged PE, the assessing offic....
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....ibution fee for the same as per the Distribution Agreement is collected by AIPL by raising a monthly invoice to the appellant which bears the description of ―charges for export of processed data/software". AIPL has further, vide letter dated 16.12.2008, once again not only confirmed that the distribution fee for the services rendered to the appellant as per the Distribution Agreement is collected by AIPL by raising a monthly invoice on the appellant which bears the description of ―charges for export of processed data/software", but also confirmed that the nature of services in this regard have not undergone any change as compared to the earlier years. AIPL has also confirmed that the invoice value and the underlying computation are based on the number of segments in accordance with the Distribution Agreement. In that view of the matter, it is respectfully submitted that in the preceding years, deduction for distribution fees has erroneously been denied to the appellant. It would be appreciated that the nomenclature used in the invoice is not determinative of the nature of payments. It is settled law that the nature of payment/expense is to be judged in light of....
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.... that the development costs mainly relate to product planning activities, functional support, design analysis, problem solving, regression testing, practice training programme organization, online help data maintenance, user documentation, etc. The product development consists of the development of new products, features to be used by users of Amadeus system in order to facilitate their access to such system and product positioning and evaluation. The aforesaid services are provided by an Amadeus affiliated company established in France. The range of products is constantly under review and Amadeus actively seeks opportunities to develop new products for the travel industry. The aforesaid expenses which are common expenses incurred for the appellant's CRS, which is used worldwide, were allocated to the Indian territory on the basis of a formula, which multiplies the total expenses incurred worldwide by the number of bookings in India divided by the total number of bookings worldwide. It is to be appreciated that the development costs relate to design and development of the CRS as a whole and is not market specific. It is to be further appreciated, that whatever product/feat....
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....rning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipments but not including the amount referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)." Further, Explanation 4 has been inserted in section 9(1)(vi) of the Act, with retrospective effect, from 01.06.1976 by the Finance Act, 2012, which reads as under: "....
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....nt year 1977-78 and subsequent assessment years." The definition of 'royalty', as contained in Explanation 2 to section 9(1)(vi) of the Act, includes consideration for transfer of all or any rights in respect of any copyright. It is further clarified in Explanation 4 that transfer of all or any rights in respect of any right, property or information includes transfer of all or any right for use or right to use computer software including the grant of license. In view of the aforesaid, in terms of definition of royalty, provided in Explanation 2 read with Explanation 4 to section 9(1)(vi) of the Act, transfer of all or any right to use computer software (including software license) would be characterized as royalty and the payment thereof by a resident to a non-resident would be chargeable to tax in India as per the source rule provided in section 9(1)(vi) of the Act. The aforesaid Explanation 4, inserted with retrospective effect from 01-06-1976, in section 9(1)(vi) of the Act, has sought to clarify the position under the Act that payment for standard or specialized software, whether embedded in hardware or not, would constitute royalty under the Act. Section 90(2) of the Act....
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....consideration for the ―use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." It would be observed that the definition of royalty under the treaty is much narrower in scope than the definition under the Act, wherein the term 'royalty' is defined to include, inter alia, consideration for use of or right to use any copyright of literary / scientific work, etc. Further, there is no provision like Explanation 4 to section 9(1)(vi)(b) in the Tax Treaty, which artificially expands the scope of the term 'royalty' by providing that transfer of all or any rights in respect of any right, property or information includes transfer of all or any right for use or right to use computer software including the grant of license. It is trite that any subsequent unilateral amendment to the provisions of the Act should not be constr....
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.... language of the said treaty differs from the amended s. 9 of the Act. It is categorically held in CIT vs. Siemens Aktiongesellschaft (2008) 220 CTR (Bom) 425 : (2008) 15 DTR (Bom) 233 : (2009) 310 ITR 320 (Bom) that the amendments cannot be read into the treaty. On the wording of the treaty, we have already held in Ericsson (supra) that a copyrighted article does not fall within the purview of royalty."(emphasis supplied) To the same effect are the following decisions: B4U International Holdings Ltd. v. DCIT: 346 ITR 62 (Mumbai) Convergys Customer Management vs. ADIT [ITA Nos.1443/Del/2012 & 5243/Del/2011 (Delhi) WNS North America Inc. vs. ADIT: 152 TTJ 145 (Mumbai) ADIT vs. Antwerp Diamond Bank NV Engineering Centre:44 taxmann.com 175 Further, in the case of DIT vs. Ericsson A.B., Ericsson Radio System A.B. and Metapath Software International Ltd. 343 ITR 470 (Del), the High Court observed that when the provisions under the Tax Treaty expressly state that the payment in issue is not ―royalty", there is no requirement to examine the amended provisions under the Act. Reliance is further placed on the decision of the Canadian Supreme Cour....
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....ee is charged for the computers provided to the travel agents by the appellant as an incentive. The appellant has only provided a service to the airlines by using its process and equipments. Position under OECD Model Commentary Article 12(2) of the OECD Model Convention, too, defines 'royalties' to mean, "payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work......" Following a survey in the Member States, the OECD amended the Model Commentary to Article 12 in the version of the Model Convention released in 1992. The Committee of Fiscal Affairs of the OECD presented a draft amendment to the OECD Model Commentary to Article 12 (paras 12 to 17) which were a refinement of the approach set forth in the 1992 text and further elaborate on the criteria for the characterization of software payments. The amendments were incorporated in the version of the Model Commentary released in the year 2000. The said Commentary focuses on the distinction between ―the copyright in the program and software which incorporates a copy of the copyrighted program": the right (intellectual property) is disti....
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....rred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user's computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as....
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....certain whether the consideration received by Amadeus from various airlines for use of CRS would be construed as consideration for use of or right to use any copyright, it would be necessary to ascertain its characterization in terms of the Copyright Act, 1957. The Copyright Act, 1957 defines computer program as a set of instructions expressed in words, codes, schemes, or any other form including a machine readable medium capable of causing a computer to perform a particular task or achieve a particular result. The Copyright Act further defines the term ―literary work" as including computer programs, table compilation including computer databases. The Copyright Act defines 'copyright' in case of a 'computer program' as certain exclusive rights (which are primarily granted in case of literary works), to reproduce the work, to issue copies of the work to the public, to make any translation or adaptation etc. Those rights attached to copyright are enumerated in Section 14 of the Copyright Act, 1957 as under: "14. Meaning of copyright For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorise the doing of....
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....ve right to reproduce or to issue copies or to adapt, or to sell or give on commercial rental the computer program. In the present case, the payment by the various airlines to the appellant under agreement with the airlines, is for facilitating display of airlines information on the computer screen of the travel agents to enable them to obtain airlines information and make reservations. It is a static display used to communicate to the travel agents certain information pertaining to the participating airlines including but not limited to instructions for pricing support, marketing information, special request procedures and briefings. Any computer can be used to access the information and avail the aforesaid services once the connectivity is provided. The appellant uses sophisticated technology/software in the course of providing service but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use by the participating airlines. Further, it is a matter of record that no fee is ch....
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....he right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 99. In view of the above we accordingly hold that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income. 100. The question of law is thus answered in favour of the Assessee and against the Revenue that the Income-tax Appellate Tribunal was right in holding that the consideration received by the respondent Assessee on grant of licences for use of software is not royalty within the meaning of Article 12(3) of the Double Taxation Avoidance Agreement between India and the United States of America." It may be pertinent to note that the Delhi High Court in the aforesaid decision has distinguished the ratio decidendi laid down by the Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd.: 345 ITR 494. Accordingly, the rel....
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....y incorporated under the laws of Japan, engaged in the business of providing software solutions, applications and related services. The applicant appointed various distributors called 'Value Added Resellers' (VAR) through which its licensed software (product) were marketed and sold. The VARs were independent, third party resellers with no authority to bind the applicant. The modus operandi of transaction was as follows: a) The applicant entered into a General VAR Agreement with the distributor/reseller/VAR under which the product was sold by the applicant to VAR for consideration based on standard price list less discount. b) The VAR, in turn, sold the product to the end users at an independent price negotiated by VAR with the end users. It was the end users, however, who would enter into End Users License Agreement (EULA) with the applicant for the products supplied. c) The VAR received the order from the end users and placed back to back orders on the applicant, and on the acceptance of the order by the applicant, a license key was provided to the customer by the applicant directly via email. In the aforesaid facts, the applicant sought ruling from the Authority on th....
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....d the facts of the case, the Authority came to the conclusion that there was no transfer of the 'copyright' in the software to the end users or the VAR/reseller so as to bring the transaction within the ambit of the definition of 'royalty'. The aforesaid principle has been affirmed by the AAR in the case of Geoquest Systems B.V. vs. DIT [2010] 327 ITR 1, where it has been held that mere use of computer software without conferment of the right to use the copyright does not fall within the ambit of the royalty. The observations of the AAR are extracted as under: "9. The crucial clauses in the Agreement concerning Dassault Systems K.K.'s case (supra) are substantially similar to the clauses in the agreement relevant to the present case. In Dassault Systems K.K.'s case (supra), the product was to be hosted on a server located outside India and the end-user in India will electronically download the same by accessing the weblink directly on its computer system. In the applicant's case, the title to the tangible media containing the software has been delivered to the customer in the country of origin. Though the facts vary to this extent, the principles laid down equally apply to th....
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....lleged that the consideration of supply of software was taxable as royalty under section 9(1)(vi) of the Act. The High Court following the principles laid down in the case of Ericsson A.B. (supra) held that the consideration received by the assessee for supply of product along with license of software to end user is not taxable as royalty under Article 12 of the Tax Treaty. The Court further held that even where the software is separately licensed without supply of hardware to the end users then also, as held by the High Court in the case of Infrasoft (supra), there is no transfer of any right in respect of copyright by the assessee and it was a case of mere transfer of a copyrighted article. Accordingly, payment for such software is not in the nature of royalty under Article 12 of the Tax Treaty and would constitute business income. Reliance is also placed on the decision of the Bangalore Tribunal in the case of Lucent Technologies Hindustan Ltd. vs. ITO: 92 ITD 366, which examined taxability of payment for import of application software purchased along with related hardware. The relevant observations of the Tribunal in that case are as follows: The acquisition of softwar....
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....he payment made by the cellular operator could not be characterized as royalty either under the Act or under the DTAA. After analysis of the terms of the contract, the Hon'ble Special Bench held as follows: "A conjoint reading of the terms of the supply contract and the provisions of the 1957 Act, clearly showed that the cellular operator could not exploit the computer software commercially which was the very essence of a copyright. In other words, a holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he had acquired could not be considered as a copyright. In that case, it could not be said that he had acquired a copyrighted article. One cannot have the copyright without the copyrighted article but at the same time just because one has the copyrighted article, it does not follow that one has also the copyright in it. Therefore, the payment by the cellular operator was not for any copyright in the software but was only for the software as such as a copyrighted article. It followed that the payment could not be considered as royalty within the meaning of Explanation 2 below section 9(1) or article 13.3 of the DTAA ....
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....ht to use" was transferred by the foreign corporation to the assessee. The AAR further observed that if in the process of rendering a service, the assessee uses some sophisticated technology itself without transferring the ―right to use" of such technology/equipment, the fee received for rendering such services would not constitute ―royalty". The relevant observations of the AAR are as under: "12.5 It seems to us that the two expressions 'use' and 'right to use' are employed to bring within the net of taxation the consideration paid not merely for the usage of equipment in praesenti but also for the right given to make use of the equipment at future point of time. There may not be actual use of equipment in praesenti but under a contract. the right is derived to use the equipment in future. In both the situations, the royalty clause is invokable. The learned senior counsel for the appellant sought to contend, relying on the decision of Andhra Pradesh High Court in the case of RashtriyaIspat Nigam Ltd. v. CTO [1990] 77 STC 182 which was affirmed by the Supreme Court, that mere custody or possession of equipment without effective control can only result....
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....the time of getting the telephone connection. It was clarified that a telephone service is nothing but a service and there was no sale element apart from the obvious one relating to the handset, if any. This judgment, in our view, does not have much of bearing on the issue that arises in the present application. However, it is worthy of note that the conclusion was reached on the application of the well-known test of dominant intention of the parties and the essence of the transaction. The word 'use' - what it means: 12.7 Let us now explore the meaning of the keyword 'use'. The expression 'use' has a variety of meanings and is often employed in a very wide sense, but the particular meaning appropriate to the context should be chosen. In S.M. Ram Lal & Co. v. Secretary to Government of Punjab [1998] 5 SCC 574, the Supreme Court noted that 'in its ordinary meaning', "the word 'use' as a noun, is the act of employing a thing; putting into action or service, employing for or applying to a given purpose". In the New Shorter Oxford Dictionary, more or less the same meaning is given. The very first meaning noted there is: "the action of using som....
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....onsideration paid is towards rent for circuits and the physical components that go into the system. It is further contended that rendition of service by way of maintenance and fault repairs is only incidental to the dominant object of renting the automated telecommunication network. 13.1 There is no doubt that the entire network consisting of under-sea cables, domestic access lines and the BT equipment - whichever is kept at the connecting point, is for providing a service to facilitate the transmission of voice and data across the globe. One of the many circuits forming part of the network is devoted and earmarked to the appellant. Part of the bandwidth capacity is utilised by the appellant. From that, it does not follow that the entire equipment and components constituting the network is rented out to the appellant or that the consideration in the form of monthly charges is intended for the use of equipment owned and installed by BTA. The questions to be asked and answered are: Does the availment of service involve user of equipment belonging to BT or its agent by the appellant? Is the appellant required to do some positive act in relation to the equipment such as operation an....
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....ing its own network and providing a service that enables the appellant to transmit voice and data through the media of telecom bandwidth. The predominant features and underlying object of the entire agreement unerringly emphasize the concept of service. The consideration paid is relatable to the upkeep and maintenance of specific facility offered to the appellant through the BTA's network and infrastructure so that the required bandwidth is always available to the appellant. The fact that the international circuit as well as the access line is not meant to offer the facility to the appellant alone but it enures to the benefit of various other customers is another pointer that the appellant cannot be said to be the user of equipment or the grantee of any right to use it. May be, a fraction of the equipment in visible form may find its place at the appellant's premises for the purpose of establishing connectivity or otherwise. But, it cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment. 13.3 In cases where the customers make use of standard facility like telephone connection offered by the service provider, i....
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....hat score, make it provision of a technical service to the subscriber.The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act. The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, an....
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....tion paid by the telecasting companies is a consideration for user of the process. It was further pointed out that it is not necessary that the process in respect of which the consideration is paid should be a secret process. ―The simple process, even if unprotected intellectual property, will fall within the ambit of royalty." It was observed that as per the Agreement, the use of process was provided by the Satellite Companies to the telecasting Companies whereby the telecasting companies were enabled to telecast their programmes by uplinking and downlinking the same with the help of that process. The assessee in that case is a non-resident company engaged in the business of providing satellite transponders to the telecasting and telecom companies in the Asian region. The payments received by the assessee were held to be royalty within the meaning of the Act as well as DTAA. We do not think that on the same analogy and reasoning, the payment received by the appellant from VAR can be treated as royalty income. We are unable to hold that the analogy of use of process in a transponder can be invoked in the present case. The nature of operations involved therein is different and....
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.... wanting to travel from UK to Sri Lanka may book a ticket from London to New Delhi and from New Delhi to Colombo. However, for effecting the said bookings, he may use the services of an Indian travel agent, who is hooked on to the appellant's CRS. In the aforesaid example, the bookings made from India would give rise to booking fee relating to Indian distribution activity, but the traveler may not be in India. No doubt the genesis of the payment is the traveler but the traveler is the source of income for the travel agents or the airlines but not the source of income for the appellant. For the appellant, the source of income is the Airlines and no one else. It is like saying the source of salary paid to Government officers is the tax payer and not the Government. It is, therefore, an incorrect assumption drawn by the assessing officer that the source of income for the assessee is the traveler in India. The assessing officer has further alleged that the transaction is initiated in India, the CRS is used in India and transaction is completed in India and, therefore, the source of income of the appellant is in India. It has not been appreciated that only certain instructions/com....
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....similarly worded as Article 12(6) of the Indo-Spain Tax Treaty. The assessing officer held that the payments made by the assessee to GCC were in the nature of 'Royalty' as defined in Explanation 2 to section 9(1)(vi) of the Act, which were deemed to arise in India and hence taxable in India. Aggrieved by the order of assessing officer, assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), while disposing off the appeal in respect of the aforesaid issue observed as under: "I have considered the submissions of the appellant as well as the submissions made by the ADIT. There are two aspects of the matter. Whether payment for live cricket event rights constitutes Royalty within the meaning of Article 12(3) of the Tax Treaty. Assuming that the answer to the above is in the affirmative, whether such a Royalty arises in India within the meaning of provisions of Article 12(7) of the Tax Treaty. As is apparent, if my answer to the second issue viz., that the Royalty does not arise in India is in the affirmative, my answer to question No. 1 would become redundant. Accordingly, while I find substantial merit in the arguments canvassed by the appellant th....
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....Commentary on Article 11, it is clearly evident that for royalties to arise in India, an existence of an economic link between the liability for payment of such royalties and PE is necessary. However, in the present case there is no economic link between the payment of royalties and the alleged PE of the assessee in India (i.e. SET India), the economic link is entirely with the assessee's head office in Singapore. Thus, the payments to GCC cannot be said to have been incurred "in connection" with the appellant's PE in India (i.e. SET India). Further, the alleged PE in India (i.e. SET India) was also not involved in any way with the acquisition of the right to broadcast the cricket matches, nor did the PE bear the cost of payments to GCC. Thus the payments to GCC cannot be said to have been "borne by" the assessee's PE in India (i.e. SET India). 19. We find that the case laws cited by the Ld. Counsel for the assessee also supports the assessee's case. In the case of Stanley Keith Kinnett vs CIT 278 ITR 155 and cit vs Elitos S.P.A and Others 280 ITR 495 in which it has been held that when the burden of payment is not borne by PE or fixed base , trade or business lo....
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....orne by such PE, no income can be said to accrue or arise to Amadeus in India in respect of the 'booking fees'. The Revenue has totally failed to discharge the above onus. Existence of PE is a fact, which has to be established with evidence and not assumed in a casual manner. Further, the assessing officer has not stated anything regarding the requirement of booking fee being borne by the airline offices in India assuming that the same constituted PE of the airlines in India, which has not been fulfilled leave aside leading any evidence in this regard. In view of the aforesaid, it is respectfully submitted that booking fee received by the appellant from the participating airlines for display of airlines information on the computer screen of the user cannot be characterized as ―royalty" either under the Act or under the Treaty and in any case does not have its source in India and hence, the aforesaid action of the assessing officer is not sustainable. Without prejudice, it is respectfully submitted that after having held the appellant to have permanent establishment in India, even if the 'booking fees' received by the appellant from the airlines is held to in the natu....
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....e is made in this regard to the recent decision of the Delhi High Court in the case of DIT v. Rio Tinto Technical Services: 340 ITR 507, wherein the High Court held that payments in the nature of FTS, received by a non-resident assessee would still be taxable as business profits under Article 7 of the India-Australia DTAA since they were connected to assessee's PE in India. The relevant observations of the Court are as under: "10. Paragraph 4 of Article 12 states that paragraphs 1 and 2 of Article 12 will not apply if "royalty" arises through a PE situated in the contracting State where business is carried on, of which the assessee is not a resident. Paragraph 4 states that in such cases Article 7 or 14 would apply. Tribunal is, therefore, right in holding that Article 12 of DTAA is not applicable but the reason is paragraph 4 of Article 12. Once an assessee has a PE in the contracting state of which he is not resident, then paragraphs 1 and 2 of the said Article do not apply. 11. Thus, for the reasons different than those, mentioned by the tribunal we hold that Article 12 of the DTAA is not applicable. Sequitor is Article 7 of the DTAA is applicable. Interpretation and provi....
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....erefore, if at all, taxable as business income on net basis. For the reasons given hereinabove in relation to the attribution of income to the PE, no part of the aforesaid amount is liable to tax in India having regard to the decision of the Tribunal in appellant's own case for assessment years 1996-97 to 1998-99 and 2003-04 to 2005-06, which have been confirmed by the High Court. Without prejudice, even if the aforesaid booking fee was held to be in the nature of royalty for any reason, only that part of the income which relates to activities allegedly undertaken by the appellant in India could be brought to tax in India. As already submitted hereinabove, in the context of attribution of income to the alleged PE of the appellant in India, which submissions are relied upon and not being repeated for the sake of brevity, it is respectfully reiterated that a major part of the CRS activities are performed outside India and, thus, at best, only 10% of the booking fee can be brought to tax in India as 'royalty'. Even otherwise, it is submitted that the Revenue has to come to a firm conclusion whether the booking fee received by the appellant is taxable as income of the PE or as....
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....nd the levy of interest under section 234B of the Act should be deleted. Reliance is placed on applicant's own case for the assessment years 2008-09 to 2010- 11 ((ITA No. 470/ Del/2013, 815/Del/2014, 107Del/2015) wherein the Hon'ble Tribunal followed the decision of the Uttarakhand High Court in the case of DIT vs. Maersk Ltd: 334 ITR 79 and held as under: 11. We have carefully considered the arguments of both the sides and perused the material placed before us. The ld. CIT-DR (Intl. Tax) has distinguished the decision of Hon'ble Jurisdictional High Court on the ground that in the case before the Hon'ble Uttarakhand High Court, the assessee's income was chargeable to tax under the head ―salaries" on which tax was to be deducted by the employer. In the case of the assesee, it is the business income and not the salary income and, moreover, the employees of the assessee-company were looking after the accounts of the payers i.e. BGEPIL. She further submitted that even while raising the bill, the assessee used to mention the amount of the TDS and thus, the rate of TDS was determined by the assessee and not by the payers i.e. BGEPIL. In support of her contention, she has reli....
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....ted at source. We are unable to agree with this contention of the Ld. CIT-DR because tax is to be deducted at source as per the rate prescribed under the Income-tax Act. If any assessee wants the deduction, of tax at lower rate than the rate prescribed under the Income-tax Act, such assessee has to apply to the Income Tax Officer and it is the Income Tax Officer who can issue the certificate for deduction of tax at lower rate. It is not the case of the Revenue that the tax deducted at source by BGEPIL was not as per the prescribed rate under the Income-tax Act. Moreover, the Hon;ble Jurisdictional High Court has also taken note of the situation that if the tax is not property deducted by payer, then he would be liable to pay interest u/s 201(1A) if he fails to deduct the tax at source. Therefore, in our opinion, the decision of Hon'ble Jurisdictional High Court in the case of Maersk Co. Ltd. (supra) would be squarely applicable to the case of the assessee. Though the decision of Delhi High Court in the case of Alcatel Lucent USA. Inc. (supra) relied upon by the Ld. CIT-DR, supports the case of the Revenue under certain circumstances, however, when there is a decision of Hon'ble Jur....
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....the applicant was not liable to pay any advance tax, even if the payer had not actually deducted tax at source: DIT v. Maersk Co. Ltd.: 334 ITR 79 (Uttrakhand HC)(FB) DIT Vs. Jacabs Civil Incorporated: 330 ITR 578 Motorola Inc. (96 TTJ 1) (Del.)(SB) Sedco Forex International v. DCIT, Delhi (72 ITD 415)/186 CTR 144 (Del.) Asia Satellite Ltd. (ITA No.166/Delhi/2001) Rheinbraun Engineering & Wasser GmbH (1915/Bom/96) In view of the aforesaid, it is respectfully submitted, that no interest under section 234B of the Act was leviable for the above reason since the entire payment received by Applicant from India, was subject to deduction of tax at source on the said payments. It may be pointed out that the Finance Act, 2012, w.e.f. 1.4.2012 added proviso below section 209(1)(d) of the Act to the following effect: "Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any....
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.... "The assessee had signed Distribution Agreement with Amadeus India Private Limited on 9th March 1994. First tax assessment of the assessee in India was for AY 1996-97. The Hon'ble Delhi Bench of the Tribunal by an order dated 30th November 2007 had decided the appeals of the assessee for Assessment Years 1996-97 to 1998-99. Copy of this order is available on pages 269- 313 of the Paper Book filed by the assessee (PB). 2. Based on the facts of the case and Grounds of the Appeal, the Hon'ble Tribunal had framed five questions for its consideration (paragraph 17 on page 297 of the PB). 3. The Hon'ble Tribunal, after considering the provisions in the Income Tax Act and the judicial pronouncements in paragraph 17.1 of the order, had held that there is a direct business connection established in India and hence in terms of s.9 (l)(i) the income in respect of the bookings which take place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India (paragraph 17.2 of the order). The Hon'ble Tribunal has briefly summarized the facts in this paragraph and the Revenue strongly urges the Hon'ble Tribunal to confirm the order of....
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....able only to the extent as is attributable to that PE. This is in par material with clause (a) of Explanation 1 to s. 9(1)(i) of the IT Act. Thus where the entire activities of an enterprise are not carried out in a Contracting State where the PE is situated, then only so much of the profit as attributable to the functions carried through the PE can be taxable in such source state". Therefore the income deemed to accrue or arise in India or the profits attributable to the PE depend on the operations of the business carried out in India. This is a question of fact and depends on the activities carried out on a year to year basis may decrease or increase and consequently taxable income will vary accordingly. 6. The Ld AR during the course of the present hearing submitted that the Hon'ble Delhi High Court has dismissed the appeals filed by the assessee. Copy of this Order is available on pages 348 to 350 of the PB for AY 2009-10. With regard to the assessee's appeals whether it is running permanent establishment in India or not, the Hon'ble Court observed that, ' We find that all the Authorities below, caking into consideration various facts, have arrived at the fin....
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....applies is misconceived and not accordance with the law and needs to be rejected out rightly. The attribution of profits depend on the operations carried out in India and the assessment order explicitly mentions the change in operations and accordingly profits have been attributed to the PE and these findings have been confirmed by the Ld CIT(A). Assessment year 2001-02 and 2002-03 On the appeal filed by the assessee, the Hon'ble Delhi Tribunal passed order on 27 April 2009. Ground Nos. 1, 2 and 3 dealing with the liability to tax and permanent establishment were held against -e assessee. Regarding attribution of profit to the PE, the Hon'ble Tribunal, as per paragraph 7, has set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our reservations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observations after giving the assessee an opportunity of being heard. It is not out of place to state that the Hon'ble Tribunal set aside the issue taking into account the order of the Hon'ble Tribunal for AY 1996-97 to 1998-99. Accordingly, the claim of the Ld AR that the method ....
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....he attribution of profits the matter has been remitted back to :ne file of the Assessing Officer for fresh consideration by adopting a reasonable and commercial test for estimation of business profits attributable to India and net taxable income which could have been said to have accrued to the appellant due to bookings from India (Reference paragraph 19 of the Order). PRESENT APPEAL OF THE ASSESSEE 14. The attribution of profits to the PE, as per Article 7 of the treaty between India and Spain (page 231 of the PB) depends on the activities carried by the assessee through the PE and also direct activities of the assessee. The income deemed to accrue or arise in India depends on the operations carried out by the assessee in India. Therefore, attribution of profits depends on the facts and circumstances in each year. Each year is a separate unit of assessment and income tax proceedings are applicable from year to year depending upon facts of each year and the principle of res judicata do not apply to income tax proceedings and therefore the facts in the case of the assessee for AY 1996-96 being the start of the business of the assessee cannot be relied for the year under appeal....
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.... directly. Therefore, even if Amadeus India servers are switched off, subscriber can still access the CRS. Amadeus India servers have no link with subscribers connectivity to the host. (Page 4 of the assessment order). Amadeus India has set up key Amadeus value services in India that consists of toll free numbers for help desk, 24 hours help desk in three cities (Page 4 of the assessment order). There was no hotel reservation service in India. Indian Hotels reservation System, a unique Amadeus reservation service for hotels in the two and three star range. These hotels are widely used in India for the junior and midlevel staff of corporations and by many business travelers for their leisure requirements (Page 4 of the assessment order) Agreement with Cox and kings, an international travel agent in India provides various products andi services by Amadeus India which were not provided in earlier years (Page 4 and 5 of the assessment order). No bookings for car and hotel segments Booking for car and hotel segment added (Page 5 of the assessment order). This indicates that Amadeus has PCA in India with regard to cars and hotels also No charges have been received ....
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....ave entered into PCA (Paragraph 18 of the Order on pages 298 and 299 of the PB) Various domestic airlines (Indian) are now using the Amadeus system not only for international travel but domestic travel. So all the elements travelers, ticket agent, airlines are in India. Therefore, situation has changed and activities outside India are only miniscule portion. Amadeus marketing will pay to Amadeus India a distribution fee US 0.84 cents for each net segment processed through the Amadeus system by a subscriber located in Amadeus India territory (Appendix A TO distribution agreement on page 280 of the PB) Compensation basis has changed. The product that is the services of the airlines exists outside India. The information conveyed from the use CRS exists outside India (9th sub -paragraph of paragraph 801 of the ITAT order on page 286 of the PB Airlines companies of India are the major revenue source now. 17. The Ld AR has claimed that the fresh agreement between the assessee and AIPL effective 1.10.2004 has been considered in the order for AY 2005-06 and Hon'ble Tribunal has followed the order for AY 1996-97 to 1998-99. For the reasons mentioned in paragraph 10 to 12 of....
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....-04 to 2005- 06, dated 25.02.2010, placed at Pages 314-338 @ Pg 331/337/338 of the PB, wherein the Commissioner (Appeals) observed as under: "6. Determination I have carefully considered the appellant‟s submissions, the points raised by the AO in the assessment orders for the years under consideration, judicial precedents relied upon by the appellant and the IT AT Delhi‟s order in the appellant‟s own case for the AYs 1996-97 to 1998-99. Admittedly the facts of the case for the years under consideration are similar to the facts for the AYs 1996-97 to 1998-99. However. in the A.Y. 2005-06, the AO has stated that the facts of this assessment year are different from the facts of the earlier assessment years. The principle of res-judicata is not applicable in income-tax proceedings. Each year is a separate and distinct year and a different view can be taken in an assessment year based on the facts of the case. Keeping in view the above facts, discussion of various issues and the Hon‟ble ITAT Delhi‟s decision in appellant‟s own case it is held as under: 1............. 2. Keeping in view the facts of the appellant‟s case for the yea....
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....antially relied on his own findings for the preceding assessment year to hold that the revenues to the extent of 75% should be attributed to appellant‟s Indian operations. Since, on similar facts, the Hon‟ble High Court has confirmed attribution of 15% of revenues to the alleged PE in assessment year 2005-06, in our humble submission, the said order is required to be followed in the assessment year under consideration. 2. Assessment Years 2001-02 and 2002-03 9. On the appeal filed by the assessee, the Hon'ble Delhi Tribunal passed order on 27 April 2009. Ground Nos. 1, 2 and 3 dealing with the liability to tax and permanent establishment were held against the assessee. Regarding attribution of profit to the PE, the Hon'ble Tribunal, as per paragraph 7, has set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our observations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observations after giving the assessee an opportunity of being heard. It is not out of place to state that the Hon 'ble Tribunal set aside the issue taking into account the order of the Hon&#....
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....his income is subject to the deduction of expenditure. We clarify that it is that expenditure which the Tribunal has referred to and not the issue of 15% of the charseable tax. With the aforesaid clarification, these appeals are disposed of. " The penultimate paragraph of the High Court order, it is respectfully submitted, clarifies that attribution of income could only be limited to 15% of revenues and that remand by the Tribunal in assessment years 2001-02 and 2002-03, was limited to examination of expenditure incurred by the appellant and not the issue of attribution of revenue. Thus, the assessing officer in terms of the aforesaid decision of the Tribunal (as modified by the High Court) is only required to determine the expenses allowable against 15% of the revenues from Indian bookings while computing the income attributable to the PE of the appellant in assessment years 2001-02 and 2002-03. The assessing officer in terms of the aforesaid order of the Delhi High Court cannot tinker with the percentage (15%) of the revenues which is to be attributed to the activities of the alleged PE of the appellant in India in computing the income attributable to the PE in India.....
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....s order for the preceding year. In any case MA was filed by the Department against the IT AT order for AY 2005-06 to contend that the facts being different has already been dismissed by the ITAT. (b) There is no averment in assessment order for assessment years 2003-04 and 2004-05, of there being any change in facts as compared to the earlier years. (c) Reliance is also placed on the decision of the Delhi Bench of the Tribunal in the case of Sabre Inc. vs DDIT and DCIT: ITA Nos. 1215 and 1216/Del/2005, which is in the same business as the appellant, wherein the Tribunal took cognizance of the fact that the ratio of attribution fixed on the basis of relevant material should not be arbitrarily disturbed. The relevant observations of the Tribunal read as under: "6. High Court upheld the approach adopted by the Tribunal to first arrive at the figure relating to the revenue generated in India and abroad and concluding that out of the revenue accrued to the assessee in respect of these bookings 15% thereof should be attributed to India, which was keeping in view a very minor portion of the activity being carried out outside India. It also so observed that the Tribunal focused it....
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....okings from India (Reference paragraph 19 of the Order). Reply: In this regard, it is respectfully submitted as under: The Delhi Bench of the Tribunal in the aforesaid case of Galileo, set aside the matter of determination of income attributable to the PE to file of the assessing officer based on the Tribunal‟s order in appellant‟s own case for assessment year 2001-02 and 2002-03. However, the Delhi High Court‟s order modifying the aforesaid order of the ITAT in appellant‟s own case for assessment year 2001-02 and 2002-03 was not brought to the notice of the Tribunal by the Department and was hence not considered by the ITAT in Galileo‟s case. The aforesaid order of the Tribunal in Galileo‟s case, therefore, has no precedent value, having been rendered without considering the decision of the Hon‟ble High Court modifying the decision of the co-ordinate Bench of the Tribunal followed in the case of Galileo. In any case the decision of the ITAT has been set aside by the Delhi High Court in 224 CTR 251. 5. 15. The claim of Ld AR that there is no change in activities in comparison to the year corresponding to assessment years 1996....
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....n fee' from the appellant. (Paragraph 5.1 of the ITAT order on page 282 of the PB). Amadeus India has not received any compensation for marketing services provided to Amadeus Global (Last paragraph on page 17 and first paragraph on page 18 of the assessment order and also on page 5 of the assessment order). A. Position of appellant accepted in AY 2005-06 In AY 2005-06, the same assessing officer held that Amadeus Global is paying no compensation to Amadeus India for the main activity of marketing the CRS and providing the support to travel agents, therefore a profit is required to be attributed (refer pg 461/ 471-473 of the PB). The CIT(A), in that year, after examining the Distribution Agreement (refer Pg 334- 337 of the PB) held that ―payment to Amadeus India is being made for all the services being performed by it in India including distribution/ marketing of Amadeus Products in India, training to personnel of subscribers, maintenance of computer hardware and software at the subscribers' locations and providing access to subscribers to the Amadeus CRS. The aforesaid order has been confirmed by the Tribunal and the Hon'ble High Court. Further, in AY 1996-....
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....connectivity to the host. (Page 4 of the assessment order). The role of Amadeus India is to define the access rights for subscribers through the web configurator. Amadeus web configurator is the Amadeus' software distribution tool. The front end is a web site for Amadeus India to use when defining the access rights of a travel agency. Without prejudice, if the DR's contention is that the Indian distributor is not involved in any software/data export, then the assessing officer's submission that the ITAT in earlier years did not attribute any income to the marketing/distributor activity carried Amadeus India has set up key Amadeus value services in India that consists of toll free numbers for help desk, 24 hours help desk in three cities (Page 4 of the more than 15% of the revenues need to be allocated to the alleged PE I suggest an additional scope of service carried out for the appellant There was no hotel reservation service in India assessmenIndian Hotels reservation System, ord r). a unique Amadeus reservation service for hotels in the two and three star range. These hotels are widely used in India for the junior and mid-level staff of ....
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....gents, it is submitted that the appellant is absorbing such cost of incentive due to changing market realities/ business conditions, which should not be confused with the scope of distributor's services. Regarding incentives to Airlines, it is submitted that the Airlines are given discounts/rebates and are not paid any incentive. Further, it would be pertinent to point out that not all the Indian airlines receive such discounts. As regards the submissions of the Ld. CIR DR that payment of incentives by the appellant indicates aggressive marketing in India, it is submitted that payment of incentive(s) and offering of discount(s) is a common business tactic and such offerings are commensurate with growth in the Indian travel market, which should not be looked at as an expansion of scope of business activities. Aggressive marketing is also indicated by paying incentive to travel agents for their agreeing to use only Amadeus system (Page 8 of the assessment order). Same as above Started providing satellite ticket printers (page 8 of the assessment order). Total assets in India increased to EUR 12,508,073 (Page 21 of the order). Providing satellite....
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....atabase of various airlines and hotels which have entered into PCA with the appellant take place outside India. The activities in India are only miniscule portion. The appellant's computer in Germany is also responsible for all other functions like keeping data of booking made worldwide and also keeping track of all the airlines/hotels worldwide who have entered into PCA (Paragraph 18 of the Order on pages 298 and 299 of the PB). Various domestic airlines (Indian) are now using the Amadeus system not only for international travel but domestic travel. So all the elements travelers, ticket agent, airlines are in India. Therefore, situation has changed and activities outside India are ONLY MINISCULE PORTION. Same as above. Further, it is to be appreciated that substantial efforts/ investment is made and expenditure is incurred by the appellant outside India on an ongoing basis to develop new products, adding new international airline content to the CRS, improving the existing CRS, upgrading the huge and sophisticated infrastructure so as to be ahead of competition and in order to make its CRS appeal more to the subscribers. The marketing/ distribution activity carried out in I....
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....Distribution Agreement, dated 01.10.2004, as is evident relevant portion of the assessment order at Pages 453-454 of the PB. The change in facts were also noted by the CIT(A), which is evident from Page 331 of the PB. It is only after considering the orders of the lower authorities, which sufficiently records the changes and the facts, that the Tribunal and thereafter the High Court held 15% as reasonable attribution, after following the orders of the preceding years. (ii) Regarding reliance on the Hon'ble Tribunal's order for AY 2001-02 and 2002-03, we rely on our submissions in point 3 above. Submissions: In so far as the activity of booking of tickets by travel agents in India using CRS owned by the appellant is concerned, there is no change in the business model in the year under consideration as compared to earlier years. The role of the travel agents located in India in respect of booking of tickets using CRS system, as in earlier years, is limited to initiating a request for booking, which is processed in the appellant's main frame located at Erding, Germany and finally generating the ticket for a confirmed reservation. The computers at the desk of the travel agents....
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....activities of the permanent establishment. The Ground No. 5 is with respect to the order of the ld CIT(A) confirming the action of the AO in alternatively holding that the fees of Euro 49013000 received by the asssessee was taxable in India as royalty under the Indian Income Tax Act and Article 12 of the treaty. The ld CIT(A) held that as he has already held that assessee has a permanent establishment in India therefore, he did not decide the issue of alternative taxation of royalty. The ground No. 5 relates to the alternative ground of taxation. Ground number 6, 11, 12, 13 and 14 relates to the attribution of profits to the permanent establishment of the assessee. The ld CIT(A) held that as he has already held that assessee has a permanent establishment in India therefore, he did not decide the issue of alternative taxation of royalty. 13. Now the above issue is already been decided by the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 in ITA No. 2424, 2425, 2426/Del/2010 as per order dated 29/10/2010 wherein, the whole issue is considered as under:- "7. We have heard both the parties on this issue. So as it relates to the attribution of income arisin....
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....es are available as to how much should be income reasonably attributable to the operations carried out in India, the same has to be determined on the factual situation prevailing in each case. However, broadly to determine such attribution one has to look into the factors like functions performed, assets used and risk undertaken. On the basis of such analysis of functions performed, assets used and risk shared in two different countries, the income can be attributed. In the present case, we have found that majority of the functions are performed outside India. Even the majority of the assets i.e. host computer which is having very large capacity which processes information of all the participants is situated outside India. The risk in this regard entirely rests with the appellant and that is in Spain, outside India. However, it is equally important to note that but for the presence of the assessee in India and the configuration and connectivity being provided in India, the income would not have generated. Thus the initial cause of generation of income is in India also. On the basis of above facts we can reasonably attribute 15 per cent of the revenue accruing to the assessee in res....
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....olution to the question must depend upon the particular facts of each case. Even the amended definition will not determine as to what constitutes business connection as the same is not an exhaustive definition but is a definition which also includes some of the activities to be termed as business connection. We shall, therefore, revert to some of the judicial pronouncements in this regard. Hon'ble Supreme Court in the case of CIT vs. R.D. Agarwal & Co. (supra) held thus: "The expression business connection undoubtedly means something more than business. A business connection in s. 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicated an element of continuity between the business of the nonresident and the activity in the taxable territories, a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms. It may include carrying on a part of the main business or activity incidental to the main business of the non-resident ....
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....rovisions of the IT Act and the judicial pronouncements, we may appreciate the facts and deal within the issue. The appellant has developed a fully automatic reservation and distribution system known as Amadeus system with ability to perform comprehensive information, communication, reservation, ticketing distribution and related functions on a worldwide basis. Through this Amadeus system, the appellant provides service to various participants i.e. airlines and hotels, etc. whereby the subscribers who are enrolled through the efforts of NMC can perform the functions of reservations and ticketing etc. Thus the Amadeus system or the CRS is capable of not only processing the information of various airlines for display at one seamless system originating from the desk of the subscriber's computer which may or may not be provided by the appellant but which in all cases is configured and connected to such an extent that such computers can initiate or generate a request for reservation and also receive the information in this regard so as to enable the subscriber to book the airlines seat or hotel room. The request which originated from the subscriber's computer ended at the subscr....
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.... regard are in accordance with the aforementioned order of the Tribunal dated 30.11.2007. We dismiss the cross-objections filed by the assessee. 11. In the result, the appeals filed by the department as well as crossobjections of the assessee both are dismissed." 14. Aggrieved with the above order the revenue filed miscellaneous application on 21.02.2014 which was further revised on 03.03.2014. On this miscellaneous application the coordinate bench passed an order and dismissed the applications of the revenue. 15. The matter reached the Hon‟ble Delhi High Court in assessee‟s own case which was dismissed holding that the issues raised in this appeal has arisen in the assessment orders in the case of the assessee and such appeals have already been disposed off in ITA No. 900-905/2008 and 689/2011 dismissing the appeal. In view of this it is apparent that the order of the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 squarely covers the points raised by the revenue. 16. Further, the appellant also challenged the order of the coordinate bench for AY 2003-04 to 2005-06 before the Hon‟ble Delhi High Court which was also dismissed as it....