TaxTMI 
TaxTMI 
2020 (7) TMI 248
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....9,26,263/-. 1. Business connection /permanent establishment 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.....
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....ing Rs. 49,02,860/- (i.e. 10% of Rs. 4,90,28,603/-). 4.2 The learned DCIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by 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'....
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.... 8 Each one of the above ground of appeal is without prejudice to the other. 9. The appellant reserved the right to amend, alter or add to the grounds of appeal." . Further, the assessee has also raised before us the following additional grounds of appeal: "1. Without prejudice to 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 t....
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..... Inadvertently, the assessee appears to have omitted to raise the said ground in its appeal filed before us. Apart from that, we find that the issue involved in the present appeal would not require any verification of any additional facts, and would require to be adjudicated on the basis of the facts borne from record. 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 th....
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....airlines and not that of the assessee. The assessee in order to fortify its aforesaid contention elaborated before the A.O the sequence of events involved in its business, viz. (i). the travel agents for raising of a query or requesting for a booking used the equipment owned and provided by ADSIL; (ii). the message was transmitted 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 ....
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....d an Agency PE of the assessee in terms of Article 8(c) and 9 of the India-Singapore DTAA. The A.O fortified his aforesaid conviction by taking support of the fact that the inquiries made from Air India Ltd revealed that ADSIL which did not have any agreement with the airlines provided services and assistance to Air India to resolve 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 Se....
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....erest free) as per "LIBOR 6 months plus 500bps for loan having maturity period exceeding 5 years". 8. On the basis of his aforesaid deliberations the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 20.12.2016 proposed to assess the income of the assessee company at Rs. 11,09,26,263/-. 9. Aggrieved, the assessee 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 th....
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....he arms length interest @ 5.687% on the loan (interest free) that was provided by the assessee to its AE viz. ADSIL i.e by using LIBOR 6 months plus 500 bps for loan having maturity period exceeding 5 years during F.Y 2013-14. Observing, that the interest free loan given by the assessee to its AE viz. ADDSIL was covered by the provisions of Sec. 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 t....
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....dia. The Ground of appeal No. 2 raised by the assessee is dismissed. 16. We shall now advert to the issue as regards the amount of income that was attributable to the PE of the assessee in India. As regards the said issue the Tribunal while disposing off the appeals of the assessee for A.Y 2005-06 to A.Y 2011-12 had vide its consolidated order dated 16.02.2018 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, theref....
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.... orders had thereafter been followed by the Tribunal while disposing of the appeal of the assessee for A.Y 2000-01 (ITA No. 346/Mum/2007) and A.Y 2003-04 (ITA No. 1756/Mum/2007), vide its order dated 20.05.2011. We further find that the Tribunal while disposing of the appeal of the assessee for A.Y 2004-05 in ITA No. 1045/Mum/2008, dated 31.05.2013 had again followed 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. ....
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.... in India. We thus in the terms of our aforesaid observations and following the view taken by the coordinate bench of the Tribunal in the assesses own case for the preceding years, therefore, conclude that 15% of the gross receipts pertaining to India bookings shall be the income attributable to the India operations of the assessee. We may herein observe that we are also persuaded 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 attr....
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.... the nature of reimbursement of expenses by ADSIL. However, the CIT(A) being of the view that the assessee despite being afforded sufficient opportunity by the A.O had failed to substantiate its aforesaid contention and place on record the aforementioned documentary evidence, therefore, it could not be permitted to furnish the same by way of additional evidence before him. We have deliberated on the facts and are persuaded 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 ....
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....sed Transfer pricing adjustment of Rs. 88,62,569/- as regards the ALP of the interest free advance that was granted by the assessee to its AE viz. ADSIL. On a perusal of the order passed in the assesse's own case for the preceding years viz. A.Y 2005-06 to A.Y 2011-12, we find that the Tribunal had in context of the aforesaid issue under consideration observed as under: "We find that the interest free loan which was advanced 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 c....
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....t of the revenue to take a different view, as against the one which had been allowed to attain finality. We find that it was on the basis of the aforesaid observations that the Hon'ble High Court had declined to entertain the appeal filed by the revenue. We thus are of the considered view that the contention of the ld. D.R that the Hon'ble High Court had observed that the ALP in respect of interest on the loans advanced to AE's is 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 d....
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....ed that the application of the State Bank of India PLR of 11.75% for determining the ALP of the interest on loan advanced in USD by the assessee to its AE, could not be approved. We have deliberated on the issue under consideration and finding ourselves to be in agreement with the view taken in the aforesaid judicial pronouncements, are thus of the considered view that the ALP of the interest on the loans advanced by the assessee to its 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 di....
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.... its income, then there would be a 'Loss' in the hands of the assessee for all the aforesaid years, as under: A.Y Loss 2005-06 (-) Rs. 3,66,91,140/- 2006-07 (-) Rs. 20,18,38,117/- 2007-08 (-) Rs. 18,19,34,123/- 2008-09 (-) Rs. 30,28,11,359/- 2009-10 (-) Rs. 35,28,72,303/- 2010-11 (-) Rs. 31,14,09,914/- 2011-12 (-) Rs. 39,70,52,993/- 8. We have given a thoughtful consideration to the aforesaid claim of the ld. A.R, and are persuaded 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 ....
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....e same had been advanced before us and it is even otherwise also consequential to our aforesaid adjudication, therefore, the same is not being adjudicated upon and is left open. The Ground of appeal No. 6 is disposed off in terms of our aforesaid observations. 21. The ld. A.R has assailed before us the allowing of short credit of tax deducted at source (TDS) of Rs. 16,50,637/- by the A.O. It is the claim of the ld. A.R that though a TDS credit of Rs. 5,90,63,640/- was raised on the basis of the revised return of income that was validly filed on 31.03.2015, however, the A.O has allowed credit of only an amount of Rs. 5,74,13,003/-, therein resulting to a short credit of TDS of Rs. 16,50,637/-. In order to drive home his aforesaid claim, the ld. A.R took us through the "Form 26AS" of the assessee company. In the backdrop of the aforesaid claim of the ld. A.R, we herein restore the issue to the file of the A.O with a direction to verify the factual position. In case the aforesaid claim of the assessee is found to be in order, then the A.O shall give credit for the short/deficit amount of TDS, involving no further loss of time. The Ground of appeal No. 7.1 is allowed for statistical....