TaxTMI 
TaxTMI 
2020 (7) TMI 248
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....ment in India 2.1 The learned DCIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which all the messages are transmitted. 2.4 The learned DCIT erred in observing that the appellant carries out its activities of Computerized Reservation System [CRS] through the Abacus Country Node located in India which is under the management and control of the appellant. 2.5 The learned DCIT erred in observing that Sabre Travel Network (India) Private Limited (earlier known as Abacus Distribution Systems (India) Private Limited) [STNIPL] secures business for the appellant by entering into subscription agreement with the travel agents and this activity is habitually, wholly and exclusively performed by STNIPL for the appellant. The learned DCIT further erred in holding that STNIPL constitutes agency PE of the appellant in te....
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....y the appellant on airfare transaction charges, other expenses, and foreign travel and in the nature of pure reimbursement not having any element of income/service. 4.3 Without prejudice to the above, the learned DCIT/DRP erred in not following the decision of the Hon'ble ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. commission and marketing fees paid to STNIPL) is sufficient to absorb its income. 5. Transfer pricing adjustment 5.1 The learned DCIT/DRP erred in making a transfer pricing adjustment of Rs. 88,62,569/- under section 92CA(4), in respect of the international transaction in relation to an interest-free loan extended by the appellant to its Associated Enterpridse, STNIPL reported in the Accountant's Report in Form 3CEB. 5.2 The learned DCIT/DRP while determining the arm's length interest rate erred in not appreciating in the proper perspective the business and economic circumstances prevailing at the time of providing the interest free loan by the appellant to STNIPL. ....
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.... the other grounds of appeal, even if the alleged interest income on the external commercial borrowing [ECB] is considered as part of business income, there should not be any income chargeable to tax, since the expenditure paid by the appellant [i.e commission and marketing fees paid to Sabre Travel Network (India) Pvt. Ltd.] is sufficient to absorb its income and accordingly there will be no loss to the revenue. 2. The appellant reserves the right to amend, alter or add to the grounds of appeal." It was submitted by the ld. Authorised representative (for short "A.R') for the assessee, that the adjudication of the aforesaid claim of the assessee was based on the facts available on record, and would not require verification of any facts. Apart from that, it was submitted by the ld. A.R that the issue raised hereinabove was recurring in the case of the assessee for the preceding years viz. A.Ys 1999-2000 to 2004-05, A.Ys 2005-06 to 2011-12 and A.Y 2012-13, as well as in its immediately succeeding year viz. A.Y 2014-15. It was averred by the ld. A.R that the said issue had consistently been decided by the Tribunal in favour of the assessee. In fact, it was submitted by the ld. A.R ....
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....Also, we find that the aforesaid issue being in the nature of a recurring issue in the assessee's appeals for the preceding and the succeeding years before the Tribunal, had already been adjudicated upon in the said respective years. In the totality of the aforesaid facts, we are of the considered view that the additional ground of appeal raised by the assessee merits admission. 2. Briefly stated, the facts of the case are that the assessee is a company resident of Singapore engaged in the business of promotion, development, operation, marketing and maintenance of a Computerized Reservation System ( for short 'CRS'). The primary business of the assessee is to make airline reservations for and on behalf of the participating airlines by using the CRS. The participating airlines provides the necessary information which is displayed to the travel agents throughout the world so that they could guide their customers to make the necessary requests for booking of tickets through the CRS. The assessee licenses the right to market the CRS to a company in each of the Asia Pacific Countries, i.e a National Marketing Company (for short 'NMC'), which in turn markets the CRS directly to the trav....
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....tted through the MTNL lines to Societe Internationale Telecommunications Aeronautiques (for short 'SITA') network in all the cities from where it was transmitted via SITA network to Abacus host in USA; (iii). that on receiving the message the airlines computer would be consulted by the Abacus host for the latest position on seat availability and if a seat would be available the booking would be confirmed by the Abacus host computer and conveyed to the travel agent in India; (iv). the travel agent on receiving the message of confirmed booking from Abacus through the same communication channels which were used for its outgoing message, would receive the ticket image from the Abacus host which either would be printed by the printer in his office or issued manually to the customer. It was submitted by the assessee that it did not have a PE in India for the reason viz. (i). there was no contractual relationship between the assessee and the customer who makes the payment to the airline through the travel agent, as the revenue generated was of the airline and not of the assessee; (ii). the assessee had no PE in India in terms of Article 5(8) of the India-Singapore tax treaty; (iii). the f....
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....olve problems relating to connectivity reservation system, accounting and billing, which thus proved that ADSIL was carrying on the activities of the assessee in India. The A.O further observed that the fact that the assessee had advanced interest free loans to ADSIL to boost its own business in India proved to the hilt that ADSIL was not an independent agent. The A.O further observed that the ITAT, Delhi in the case of M/s Galileo International Inc. Vs. DCIT (2009) 116 ITD 1 (Del) and Amadeus Global Travel Distribution Vs. DCIT (2008) 113 TTJ 767 (Del) had held that such activities through a Node and agent would constitute a PE under the DTAA. The A.O in the backdrop of his aforesaid deliberations concluded that the assessee had a PE in terms of Article 5 of the India-Singapore tax treaty. Accordingly, the A.O vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 20.12.2016 proposed to attribute income of Rs. 9,37,18,332/- to the assessee's PE in India. 6. The A.O further during the course of the assessment proceedings observed that the assessee had received certain payments from ADSIL aggregating to Rs. 4,90,28,603/-.The assessee submitted that the afores....
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....ssessee filed objections with the Dispute Resolution Panel-2, Mumbai (for short 'DRP'). The DRP after deliberating on the contention of the assessee that as it had no business connection/Permanent Establishment in India, therefore, no income was liable to be brought to tax in India, did not find favour with the same. Observing, that the issue of PE in India was covered against the assessee by the orders passed by the Tribunal in the assesse's own case for A.Y 1999-2000 to A.Y 2004-05, the DRP followed the aforesaid orders and concluded that the assessee had a PE in India. It was further observed by the DRP that the assessee had not only accepted the aforesaid orders of the Tribunal in context of the issue under consideration, but had also not controverted the said fact in the course of the proceedings before it. 10. The DRP further adverting to the issue as to whether any income of the assessee was taxable in India for the reason that its marketing, distribution, sales and revenue generation activities had taken place in India and whether 10% of the overall revenues generated from its Indian operations was to be treated as the income of the assessee, observed, that once it was hel....
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....c. 92B of the Act, the DRP was of the view that the AE by receiving an interest free loan from the assessee had derived a benefit which was rightly ascertained by the TPO at Rs. 88,62,569/- on the basis of LIBOR 6 months plus 500 bps for loan having a maturity period exceeding 5 years during F.Y 2013-14. As such, finding no infirmity in the view taken by the A.O/TPO, the DRP sustained the said TP adjustment. Also, it was observed by the DRP that a similar addition made by the A.O/TPO on the said issue in the preceding year was confirmed by the DRP. 13. On the basis of the order passed under Sec. 144C(5), dated 15.03.2017 by the DRP, the A.O vide his order passed u/s 143(3) r.w.s 144C(13), dated 17.05.2017 assessed the income of the assessee company at Rs. 11,09,26,263/-. 14. The assessee being aggrieved with the assessment framed by the A.O u/s 143(3) r.w.s 144C(13), dated 17.05.2017 has carried the matter in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset of the hearing of the appeal submitted that the issues involved in the present appeal are squarely covered by the consolidated order of the Tribunal in the assesses own ....
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....02.2018 observed as under: "We find that the ld. A.R had submitted that as held by the coordinate benches of the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 15% of the gross receipts pertaining to India bookings were to be taken as the income attributable to the India operations of the assessee. The ld. A.R had further averred that as the assessee had paid a commission of 25% of the gross receipts pertaining to India bookings to its NMC, viz. ADSIL, which was higher than the income attributable to India, therefore, no income remained in the hands of the assessee which could be brought to tax in India. We find that to the contrary the ld. D.R had submitted that now when the Transfer pricing provisions and the related rules had been notified with effect from 01.04.2002, vide the finance Act, 2001, therefore, the adoption of the adhoc ALP of 15% of the gross receipts as the income of the assessee attributable to its India operations could not be sustained. We find that the ld. D.R had submitted that for fair determination of the income of the assessee attributable to its PE in India, the ALP was required to be determined after carrying out a FAR analysis. The ld.....
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....llowed its aforementioned orders. We are of the considered view that as the facts of the case had not witnessed any change as against those which were involved in the case of the assessee for the aforementioned earlier years, therefore, following the principle of consistency as had been emphasized by the Hon'ble Supreme Court in the case of Radhsoami Satsang Vs. CIT (193 ITR 321) (SC) and Godrej & Boyce Manufacture Co. Ltd. Vs. DCIT (2017) (394 ITR 449) (SC), finding no reason to take a different view, follow the same. Before parting, we may herein observe that we are not persuaded to accept the contention of the ld. D.R that the adhoc adoption of 15% of the gross receipts of the assessee as its income attributable to India operations as observed by the Tribunal in the case of Galileo International Inc. Vs. DCIT (2009)116 ITD 1 (Del) for A.Ys 1995-96 to 1998-99, which thereafter had been approved by the High Court of Delhi in CIT Vs. Galileo International Inc. (2011) (336 ITR 264)(Del) would not be applicable to the case of the assessee for the year under consideration, viz. A.Y 2005-06, for the reason that the adjudication in the aforesaid cases was in respect of the years falli....
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....aded to be in agreement with the view taken by the Tribunal in the assesses own case for A.Ys 1999-2000 to 2004-05 that as the commission paid by the assessee to its NMC, viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than the income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. We thus in terms of our aforesaid observations allow the Ground of appeal No. 2 raised by the assessee before us." As the facts and the issue involved in the present appeal of the assessee before us remains the same, therefore, we respectfully follow the aforesaid view of the tribunal. Accordingly, we herein conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. Also, we follow the view taken by the Tribunal in the aforesaid preceding years viz. A.Y 1999-2000 to A.Y 2004-05; A.Y 2005-06 to A.Y 2011-12 AND that for A.Y 2012-13 and A.Y 2014-15, dated 18.02.2020, that as the commission paid by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was h....
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....uaded to be in agreement with the CIT(A) that as the assessee despite having been afforded sufficient opportunity by the A.O had however failed to furnish the said documentary evidence to substantiate its contention during the course of the assessment proceedings, therefore, it could not be permitted to undo the said lapse in the garb of filing of additional evidence before the first appellate authority. We thus finding no infirmity in the aforesaid observations of the CIT(A), therefore, uphold the declining of the admission of the additional evidence by him. We however find substantial force in the contention of the ld. A.R that now when the CIT(A) in line with the orders of the A.O and DRP in the case of the assessee for the subsequent years had observed that 10% of the aforesaid amount was to be brought to tax as the business income of the assessee, therefore, the same would be entitled for set off against the commission payment made by the assessee to its NMC, viz. ADSIL. The ld. A.R had submitted before us that if the amount of Rs. 20,54,947/- was taken as the business income of the assessee, still there would be no income chargeable to tax in the hands of the assessee, becaus....
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....ced by the assessee to its NMC, viz. ADSIL, was treated by the revenue as an international transaction whose arms length interest was worked out by applying the Indian PLR of 10.50%. The ld. A.R had submitted before us that as the aforesaid amount was advanced by the assessee to its WOS, viz. ADSIL with a view to financially strengthen the said company which was the National marketing company for the assessee in India, as the same would had facilitated garnering of more customers for the assessee in the India Market, therefore, the said advancing of interest free loan which was prompted by business prudence and commercial reasons, thus not liable to be subjected to a transfer pricing adjustment. We are unable to persuade ourselves to accept the aforesaid contention of the ld. A.R. We are of the considered view that as the advancing of the aforesaid loan by the assessee to ADSIL was an international transaction, therefore, the transfer pricing provisions stood invoked. We may herein observe that the ld. A.R had not drawn our attention to any judicial pronouncement which would go to support his aforesaid view. We find that though the ld. A.R had assailed the transfer pricing adjustme....
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.... to be determined on the basis of rate of interest being charged in the country where the loans is received/consumed is absolutely misconceived. We are rather persuaded to be in agreement with the contention of the ld. A.R that the issue as regards the determination of the ALP in respect of interest on loan advanced to AE was looked into by the Hon'ble High Court of Bombay in the case of CIT-1 Vs. M/s VFS Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.01.2017), wherein the High Court dealing with the contention of the revenue that the Tribunal was not justified in directing the A.O/TPO to determine the ALP interest by considering the LIBOR plus 2%, as against the rates of the Indian Market, had observed that the view of the Tribunal as regards determination of the ALP interest at LIBOR plus 2% appeared to be in conformity with the earlier judgment of the High Court in the case of CIT-2 Vs. Tata Autocomp Systems Ltd. (ITA No. 1320/Mum/2012, dated 03.02.2015). We are of the considered view that the Hon'ble High Court of Bombay while disposing of the appeal filed by the revenue in the case of CIT-1 Vs. M/s V.F.S Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.07.2....
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....subsidiary company, viz. ADSIL was to be determined on LIBOR and not as per the Indian PLR rate so adopted by the A.O/TPO. We thus in the backdrop of our aforesaid observations direct the A.O/TPO to take ALP of the interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. We thus in terms of our aforesaid observations partly allow the Ground of appeal No. 5 raised by the assessee before us." Accordingly, in conformity with the aforesaid view of the Tribunal, we herein direct the A.O/TPO to take the ALP of the notional interest on the loan advanced by the assessee to ADSIL as per the LIBOR rate plus 2%. 19. Now, we shall advert to the additional ground of appeal raised by the assessee before us. The Tribunal while disposing off the appeals of the assessee for A.Y 2005-06 to A.Y 2011- 12, vide its order dated 16.02.2018 had inadvertently omitted to adjudicate upon the alternative claim of the assessee that if the interest income (on interest free loan advanced to AE viz. ADSIL) was to be considered as part of its business income, there would not be any income chargeable to tax since the marketing fees paid by it to ADSIL would absorb the same. In the bac....
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....d to accept his claim. In our considered view, the notional interest income on the interest free loan advanced by the assessee to its AE viz. ADSIL would be assessable as the income of the assessee which has a business connection/PE in India. At the same time, we are in agreement with the claim of the ld. A.R, that the said notional interest income on the loans advanced by the assessee to its AE would be entitled to be adjusted against the expenditure incurred by the assessee by way of marketing service fees paid to its National Marketing Agency in India, i.e its AE viz. ADSIL. In fact, the said claim of the assessee had been accepted by the Tribunal in context of addition of 10% of reimbursement of expenses, vide its order dated 16.02.2018. Accordingly, we allow the claim of the assessee that the notional interest income would be entitled to be adjusted as against the expenditure incurred by it by way of marketing service paid to ADSIL during the aforesaid respective years. At the same time, we may herein observe, that as the quantification of the aforesaid claim as had been projected by the assessee before us cannot be summarily accepted on the very face of it, therefore, for the....