TaxTMI 
TaxTMI 
2020 (11) TMI 206
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....sessee: "1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs. 381,32,77,751 /- as against 'Nil' income returned by the appellant. 2. That the assessing officer erred on facts and in law in passing the impugned order without affording the appellant reasonable and adequate opportunity of being heard. 3. That the assessing officer erred on facts and in law in alleging that the appellant's replies were evasive and the appellant purposely avoided replying to the queries raised/did not furnish the specific information called for in the assessment. Re: CRS income - Permanent establishment 4. That the assessing officer erred on facts and in law in holding the appellant to be liable to tax in India in respect of receipts 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. 5. That the assessing officer erred on facts and in law in holding that computers, electronic hardware, and the connectivity provided by the appellant to the travel agents through SITA nodes lo....
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.... the Tribunal considered all the services required to be provided by AIPL under the Distribution Agreement and AIPL continued to provide the same services under the Distribution Agreement during the previous year under consideration, too. 10. That the assessing officer erred on facts and in law in alleging that no remuneration was paid by the appellant to AIPL for main activity of marketing the CRS and providing the hardware support to travel agents and, therefore, profits from such functions were required to be attributed to the appellant' s dependent agency PE in India. 11. Without prejudice, that the assessing officer erred on facts and in law in not allowing deduction on account of distribution fee paid to AIPL on the ground that in the invoices raised by AIPL on the appellant, the fee was described as "charges for export of processed data/software" and not distribution fee. 11.1 That the assessing officer erred on facts and in law alleging that AIPL was remunerated only for software development services and not CRS marketing support services, on the ground that AIPL had claimed deduction under section 80HHE of the Act in respect of the remuneration received by the appell....
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....in relation to use of Altea system at the fag end of the assessment and that the nature of Altea Reservation System was explained for the first time at the fag end of the assessment, vide reply dated 28.12 .2009 . 18. That without prejudice, the assessing officer erred on facts and in law in not appreciating that the payments received from British Airways in relation to the Altea System were not sourced in India in terms of Article 13(6) of the Treaty and were liable to tax in India as ' royalty'. 18.1 That the assessing officer erred on facts and in law in not bringing any evidence on record to establish British Airways had permanent establishment in India and the payments made for the use of Altea system were borne by such permanent establishment. 19. Further without prejudice, the assessing officer erred on facts and in law in holding on adhoc basis a sum of Euro 6 million as the income of the appellant liable to tax in India as ' royalty' for the alleged use of Altea system by British Airways. 20. Without prejudice, the assessing officer erred on facts and in law in levying tax @ 20% on the aforesaid alleged ' royalty' income, not appreciating that in terms of Article 1....
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....ing to presence of assets in India have also been found out. Holding thus, the AO worked out the profit attributable to India @ 75 % of the total profit. The AO held that the Profit attributable to Indian Permanent Establishments was Rs. 1,08,94,12,818/- taxable at the rate of 40% plus surcharge & education cess i.e. 41.82%. 10. The ld. DRP confirmed the order of the Assessing Officer. 11. This issue has been adjudicated over a period of time for various years and the decision of the Tribunal has been affirmed by the Hon'ble Jurisdictional High Court. The Co-ordinate Bench of the Tribunal for the assessment years 1996-97 to 1998-99, after considering the extent of activities in India and abroad, the assets employed and risks assumed, held 15% of the revenues relating to the bookings made from India as attributable to the assessee' s PE in India. 12. The Co-ordinate Bench of 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 is also pertinent to point out that the ITAT,....
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....oducts free of charge to Amadeus India for distribution to the Subscribers. As per the Distribution Agreement, the assessee has authorized Amadeus India to conclude "Subscriber Agreement" with the Subscribers which allows the Travel Agents to use the CRS Owned by it. The Assessing Officer has given a finding that the paying airlines have offices in India. The assessee has granted to Amadeus India the right to further grant the right to access and right to use its platforms/software/product offerings to Subscribers. Amadeus India has the exclusive rights to distribute the CRS in India. 20. The AO has held that a software is also type of equipment in the facts of the case. The system comprising of equipments is used by the subscribers to book tickets and the same is the source of income for the assessee. The AO held that the income of the assessee is taxable as royalty also as ' use of process'. 21. The ld. DRP confirmed the order of the Assessing Officer. 22. In the assessment framed for assessment year 2006-07, the Assessing Officer had substantively brought to tax, the booking fee as business income and protectively held the same to royalty since in that year the tax worked out....
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....ailable only to British Airways for the purpose of accepting payment and travelled documentation only at the Airport counters. It was argued that the payment made by British Airways to the assessee in relation to the ARS is for services rendered by the Amadeus and not for use of any process. It was argued that since the inventory hosting takes place outside India and payment is made by non- resident Airlines to another non- resident outside India, in terms of Article 13(6) of the treaty, the payments deemed to have been not sourced in India. We find that the revenue has brought out information which proclaim that the assessee with British Airways developed Altea Reservation System for distribution through British Airways Sales Outlets, the products namely Altea Inventory for Global Inventory Management and Altea Departure Control for passenger checking and flight departure management. The British Airways uses ARS on its website and for revenue management system. We also heard the argument of the assessee that the ARS has no relation to the PE of the assessee in India. The source of revenue received by the assessee in connection with ARS is not situated in India. We find that ARS is....
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.... permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the l imitations of the taxation laws of that State. Provided that where the law of the State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that State shall notify the competent authority of the other State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State or requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by....
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....ties, 20 per cent of the gross amount of fees for technical services or royalties. 3. The term " royalties" as used in this Article means 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, 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. 4. The term " fees for technical services" as used in this Article means payments of any kind to any person other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent Personal Services), in consideration for the services of a technical or consultancy nature, including the provision of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of ....
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....ng change in the DTAA with regard to interpretation of royalty in the domestic law. He relied on the ratio law laid down by the Hon'ble Jurisdictional High Court in the case of Director of Income Tax vs New Skies Satellite Bv vide order dated 8 February, 2016. The ld. DR argued that the provisions of DTAA would have primacy over the domestic provisions. 32. The operative part of the said judgment is as under: "54. Neither can an Act of Parliament supply or alter the boundaries of the definition under Article 12 of the DTAAs by supplying redundancy to any part of it. This becomes especially important in the context of Explanation 6, which states that whether the 'process' is secret or not is immaterial, the income from the use of such process is taxable, nonetheless. Explanation 6 precipitated from confusion on the question of whether it was vital that the " process" used must be secret or not. This confusion was brought about by a difference in the punctuation of the definitions in the DTAAs and the domestic definition. For greater clarity and to illustrate this difference, we reproduce the definitions of royalty across both DTAAs and sub clause (iii) to Explanation 2 to....
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....meaning of a statutory provision. It is but, a minor element in the construction of a statute, Hindustan Const50. 56. The courts have however created an exception to the general rule that punctuation is not to be looked at to ascertain meaning. That exception operates wherever a statute is carefully punctuated. Only then should weight undoubtedly be given to punctuation; CIT v. Loyal Textile51; Sama Alana Abdulla vs. State of Gujarat52 ; Mohd Shabbir vs. State of Maharashtra53; Lewis Pugh Evans Pugh vs. Ashutosh Sen54; Ashwini Kumar Ghose v. Arbinda Bose55; Pope Alliance Corporation v. Spanish River Pulp and Paper Mills Ltd.56 An illustration of the aid derived from punctuation may be furnished from the case of Mohd. Shabbir v. State of Maharashtra where Section 27 of the Drugs and Cosmetics Act, 1940 came up for construction. By this section whoever " manufactures for sale, sells, stocks or exhibits for sale or distributes" a drug without a license is liable for punishment. In holding that mere stocking shall not amount to an offence under the section, the Supreme Court pointed out the presence of comma 98 F 240 (1899) 103 ITR 189 208 ITR 291 supra note 46 231 ITR 573 AIR 1996 SC....
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....t the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. " 74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DTAA) entered into by India are based. Article 12 of the said model DTAA contains a definition of royalty which is in all material respects virtually the same as the definition of royalty contained in clause (iii) of Explanation 2 to Section 9(1) (vi) of the Act. This fact is also not in dispute. The learned counsel for the appellant had relied upon the commentary issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under: '9.1 Satellite operators and their customers (including broadcasting and telecommunication enterprises) frequently enter into transponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a sate....
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.... the case only in the event the entire direction and control over the satellite, such as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience, etc., on the one hand and use of it by the licensor himself, e. g., within the framework of an advisory activity. Within the range from services', viz. outright transfer of the asset involved (right, etc.) to the payer of the royalty. The other, just as clear- cut extreme is the exercise by the payee of activities in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer.' 77. The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on the ground that it is not safe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, ....
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....ces as partaking of the nature of royalty, or amend the definition in a manner so supra note that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement. 61. For the above reasons, it is held that the interpretation advanced by the Revenue cannot be accepted. The question of law framed is accordingly answered against the Revenue. The appeals fail and are dismissed, without any order as to costs." 32. In view of the law laid down, the revenue is hereby directed not to tax the royalty in accordance with the judgment of the Hon' ble High Court. 33. Regarding the Charge of Interest u/s 234B, the ratio laid down by the Tribunal for the assessment year 2006-07 applies. The relevant portion of the Co-ordinate Bench of ITAT in ITA No. 1494 /Del/2011, order dated 18.07.2019 is as under: "19 Ground no. 17 is with respect to the charge of the interest u/s 234B of the Income Tax Act. The claim o the lerned authorized representative is that no intere u/s 234B of the Income Tax Act was ....