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2020 (11) TMI 206
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....0, following grounds have been raised by the assessee: "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, ....
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....leging that the Tribunal has attributed revenues to only the software development related services provided by AIPL, not appreciating that 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....
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.... was taxable in India as ' royalty' both under section 9 (1)(vi) of the Act 13 (3) of the Treaty. 17. That the assessing officer erred on facts and in law in alleging that the appellant filed the agreement with British Airways 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 ....
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....ce & range of functions of AIPL especially in the new agreement dated 01 .10.2004. The AO held that as the competition is growing in the market, the role of marketing functions in earning profit increases. Further, it was held that the number of assets of the assessee is growing in India and new facts relating 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....
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....d, in the absence of any material change, we hereby allow the claim of distribution expenses. CRS Income - Royalty: 19. The AO has held that the income received by the assessee with respect to bookings arising from India is also taxable as royalty income. The AO observed that the assessee supplies/licenses its proprietary products 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 taxa....
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....nality on the business module facts of ARS suggests that the revenue charging on this account may be linked to the number of reservations/bookings done through this system. 27. It was canvassed before us, the ARS system is installed at the Airports and is accessed only by the Airlines and not by the agents of the assessee. It was argued that the system was available 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 Co....
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....ablishment may be estimated on the basis of an apportionment of the total profits of the enterprise to its various parts, provided, however, that the result shall be in accordance with the principles contained in this Article. 3. (a) In determining the profits of a permanent establishment, there shall be allowed as deductions, expenses which are incurred for the purposes of the 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....
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....n which they arise and according to the law of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services the tax so charged shall not exceed : (i) in the case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment, 10 per cent of the gross amount of the royalties; (ii) in the case of fees for technical services and other royalties, 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 ....
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....e Article 13 and Article 7 and keeping in view the fact that the computer terminals are at Airport terminals and since the amounts have been received for utilization of ARS which is predominantly a reservation system, the same may be treated as "income from royalty". We upheld the action of the AO to this extent. 31. During the arguments, the ld. AR raised a point regarding the taxability of royalty income in the hands of the assessee as per DTAA. He argued that in the absence of corresponding 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' i....
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....cement of commas is notorious for diametrically opposite implications. However in the realm of statutory interpretation, courts are circumspect in allowing punctuation to dictate the meaning of provisions. Judge Caldwell once famously said " The words control the punctuation marks, and not the punctuation marks the words." Holmes v. Pheonix Insurance Co. 47. It has been held in CGT v. Budur and Hindustan Const v. CIT that while punctuation may assist in arriving at the correct construction, yet it cannot control the clear 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 d....
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....or us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia Satellite58 takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that 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) ....
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.... to lease or purchase the capacity of cables for the transmission of electrical power or communities (e.g. through a contract granting an indefeasible right of use of such capacity) or pipelines (e.g. for the transportation of gas or oil). 75. Much reliance was placed upon the commentary written by Klaus Vogel on Double Taxation Conventions (3 rd Edition)'. It is recorded therein: 'The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany' s DTC with Luxembourg); this would not be 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, ....
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....uently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word " royalty" in Asia Satellite, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services 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....