TaxTMI 
TaxTMI 
2016 (11) TMI 1676
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....ssing officer in holding that the appellant had a 'permanent establishment' ('PE') in India, in terms of the Double Taxation Avoidance Agreement ('DTAA') entered into between India and Spain. 2.1 That the CIT(A) erred on facts and in law in holding the computers on the desks of the travel agents/airlines, through which the bookings are made using the appellant's Computer Reservation System (CRS) constitutes a fixed place of business and, therefore, a PE of the appellant in India, in terms of paragraph (1) of Article 5 of the DTAA between India and Spain. 2.2 That the CIT(A) erred on facts and in law in observing that the appellant has installed computers in the premises of the travel agents for the purposes of display of airlines information and such 'installation' can be said to constitute a PE of the appellant in India as per Article 5(2)(k) of the DTAA between India and Spain. 2.3 That the CIT(A) erred on facts and in law in observing that the computers on the desk of the travel agents in India are extended arms of the mainframe of the appellant situated in Germany and the computers of the travel agents and the mainf....
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....erred on facts and in law in confirming the levy of interest under section 234A and 234B of the Act." 2. At the outset, the ld. Counsel for the assessee submitted that almost all the issues involved in these appeals are covered by the decisions of Tribunal and of Hon'ble Delhi High Court in the cases of assessee itself for assessment years 19996-97 to 1998-99 and 2001-02 to 2005-06. The ld. DR, on the other hand, relied on the orders of the authorities below. 3. After hearing the submissions of both the parties and perusing the entire material available on record, we deal with various grounds of these appeals as under : 4. Ground No. 1 is general in nature and needs no specific adjudication by us. The same is dismissed as such. 5. Grounds Nos. 2 to 2.5 relate to the issue whether the appellant had a permanent establishment (PE) in India in terms of Double Taxation Avoidance Agreement (DTAA). This issue is covered against the assessee by the order of Tribunal in the case of assessee itself for A.Y. 1996-97 to 1998-99, wherein the Tribunal has observed in para 23 to 23.5 as under : 23. The next question to be decided is whether the appellant has any PE in India w....
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.... (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods and merchandise, or of collecting information for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, for supply of information, for scientific research or for similar activities which have a preparatory auxiliary character, for the enterprise. 4. Notwithstanding the provisions of paras 1 and 2, where a person-other than an agent of an independent status to whom para 5 applies-is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have PE in the first- mentioned State, if (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of good or mercha....
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....he enterprise and it simply has a certain amount of space at its disposal. It is immaterial whether the premises, facilities or installations are owned or rented or are otherwise at the disposal of the enterprise. A place of business may thus be constituted by a pitch in a market place or by a certain permanently used area. The place of business can be situated in the business vicinity of another enterprise. What is to be seen is that on fact an enterprise has a certain amount of space at its disposal, which is used for business activities and then it is sufficient to constitute a place of business. No formal legal right to use that place is visualized or required. A PE could exist even where an enterprise unauthorizingly or illegally occupies certain locations where it carried on its business. For a place of business to constitute a PE, the enterprise using it must be carrying on its business wholly or partly through it. It is not necessary that whole of the business should be carried on through such PE or fixed place. Time and again it is being contended on behalf of appellant that for application of para 1 of art. 5 of the treaty to apply, it must have a productive character i.e....
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....r discussion in the immediately preceding para, this amounts to a fixed place of business for carrying on the business of the enterprise in India. But for the supply of computers, the configuration of computers and connectivity which are provided by the appellant either directly or through its agent AIPL will amount to operating part of its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have established a PE within the meaning of para 1 of art. 5 of Indo-Spain treaty. 23.2 The next question to be considered is if there is a PE, whether the exception provided in para 3 of art. 5 applies so as to hold that there is no PE in India. The case of the appellant is that the existence of such computers is merely for the purpose of advertising and the activities are preparatory or auxiliary in character and hence there is no fixed place PE in India in view of the Explanation provided in para 3 of art. 5. We are unable to accept such a contention. The function of the PE in India is not only to advertise its products. The activity of the appellant is developing and maintaining a ful....
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....ivers goods on behalf of the enterprise. Thus the first question to be decided is whether the agent is of a dependent status or of an independent status. In the present case we find that AIPL is totally dependent on the appellant. The entire business of AIPL is to provide data processing and software development services together with relative distribution of 'Amadeus products' to the subscribers in India. AIPL has also an authority to enter into agreements with the subscribers. AIPL installs the computers, configures the computers for accessing the CRS and also provides connectivity through SITA nodes. Thus functionally as well as financially it is dependent entirely on the appellant. It can therefore, be said that AIPL is a dependent agent of the appellant. 23.4 The next question to be decided is whether he is habitually exercising an authority to conclude contracts on behalf of the appellant. Under the distribution agreement entered into by the appellant with AIPL, AIPL is responsible for effecting and contracting with subscribers in the Indian territory and is to use reasonable efforts to provide access to all the 'Amadeus products' out of Indian territory. Though the ....
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.... enterprise and the activities are carried on either through the PE namely fixed place or through a dependent agent. The dependent agent is not to be considered as PE unless he has authority to conclude contract on behalf of such enterprise. The authority to conclude contracts must be in respect of contracts relating to operations, which constitute the business proper of the enterprise. The appellant in the present case in order to enhance its business operations has appointed AIPL as its agent who promote the 'Amadeus products' in India. AIPL in its turn has appointed various subscribers for use of 'Amadeus products'. Though the revenue flows only from participants who have entered into PCA with the appellant, yet the revenue could not have been generated but for the subscribers using the 'Amadeus products'. In a way the revenue is generated from the participants but only on the basis of use of CRS by the subscribers. But for such use no revenue would accrue to the appellant. Thus the agreements entered into by the AIPL with the subscribers under an authority granted to it, are contracts relating to operations which constitute business proper and not merely in the nature of intern....
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....laced in the paper book submitted before us. Therefore, respectfully following the above decisions, these grounds of assessee are dismissed. 7. The issue involved in grounds Nos. 3 to 3.1 and 5 to 5.1 relate to the question whether there was any attribution of income to the 'PE' of assessee company in India. This issue is squarely covered in favour of the assessee by the orders of Tribunal and Delhi High Court in the cases of assessee for the assessment years as mentioned in the foregoing paragraph of this order. For the sake of convenience, we reproduce the relevant findings of Tribunal recorded in para 24 of the order for A.Y. 1996-97 to 1998-99 : 24. Having considered that the appellant has a PE in India in two forms namely (1) fixed place PE under para 1 of art. 5 and (2) agency PE under cl. (a) of para 4 of art. 5, we shall examine whether as to what is the profit attributable to the PE in terms of art. 7 of the DTAA between India and Spain. We shall also examine whether the income so computed would be absorbed by the expenses incurred to earn such income which will prima facie extinguish the assessment. Paras 1 to 3 of the art. 7 of the DTAA are extracted hereunde....
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.... payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices." Reading the above art. 7 of the treaty it is clear that the profit of an enterprise will be taxable only to the extent as is attributable to that PE. This is in pari materia with cl. (a) of Expln. 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 is attributable to the functions carried through the PE can be taxable in such source State. While dealing with the question as to what is such part of income as is reasonably attributable to the operations carried out in India, we have held that only 15 per cent of the revenue generated from the bookings made within India is taxable in India. The same proportion has to be adopted here while computing profit attributable to the PE. We have also held that since the payment to the agent in India....