TaxTMI 
TaxTMI 
2021 (2) TMI 358
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1961 (for short 'the Act') qua the assessment years 2013-14, 2014-15, 2015-16 & 2016-17 respectively on the identical grounds, except the difference of additions/disallowances, inter alia that :- "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. 416,18,80,875/- as against 'Nil' income returned by the appellant. 2. That the assessing officer erred on facts and in law in alleging that the appellant avoided furnishing specific information called for in the assessment, particularly the various agreements with the airlines. Re: CRS income - Permanent establishment 3. That the Dispute Resolution Panel ('DRP')/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. 4. That the DRP/ assessing officer erred on facts and in law in holding that computers, electronic hardware/software and the connectivity provided....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uting the profits attributable to the alleged PE of the appellant in India at Rs. 311,87,23,875/-. 8. That the DRP/assessing officer erred on facts and in law in not appreciating that even if it is assumed that AIPL or the computers, electronic hardware provided to the travel agents etc., constituted PE of the appellant in India, the income derived from such PE was completely consumed by distribution and other expenses attributable thereto and that no income survives for taxation. 9. That the DRP/assessing officer erred on facts and in law in not following the order of the Delhi Bench of the Tribunal in the appellant's case for the assessment years 1996-97 to 1998-99, wherein the Tribunal had attributed 15% of the revenues relating to the bookings made from India as attributable to the appellant's PE in India and held that no income is taxable as the payment made to dependent agent was more than the revenues so attributed, and in following the rate of attribution of 75% adopted in the order for assessment years 2007-08 to 2012-13. 9.1 That the DRP/assessing officer erred on facts and law in misinterpreting the aforesaid order of the Tribunal and alleging ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arketing costs, on the basis of number of bookings generated will always result in over allocation of cost to a fully grown up market like India and consequently, erred in not accepting the cost allocation method adopted by the appellant. 13.2 That the DRP/ assessing officer erred on facts and in law in not appreciating that the aforesaid costs have a direct nexus with the booking fees received from bookings made from India and, therefore, the same were required to be taken into consideration while computing the income attributable to the alleged PE. 13.3 That the DRP/ assessing officer erred on facts and in law in, alternatively, disallowing the aforesaid expenses by invoking provisions of section 40(a)(i) of the Act. 13.4 That the DRP/ assessing officer erred on facts and in law in holding that part of the allocated expenses has already been included in the expenses incurred in India resulting in duplication of deduction. 13.5 That the DRP/ assessing officer erred on facts and in law in alleging that the aforesaid expenses were in the nature of 'head office' expenses and allowed deduction @S% of adjusted income under section 44C of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tish Airways. Re: Charge of interest 21. That the DRP/assessing officer erred on facts and in law in levying interest under section 234B and 234D and withdrawing interest under section 244A of the Act." 3. Since all the appeals are having identical grounds, for the sake of brevity, we are taking brief facts of ITA No.2007/Del/2017 for AY 2013-14 to decide the issues in controversy in all the aforesaid appeals. 4. Briefly stated the facts necessary for adjudication of the controversy at hand are : The taxpayer, a tax resident of Spain along with its affiliated companies, has developed a fully automatic computer information system, which enables display and dissemination of information supplied by various Airlines, which in turn facilitates, inter alia, reservations, communications, ticketing and related functions on a world-wide basis (hereinafter referred to as CSR) for the travel industry. The aforesaid system is for the facility of both travel agencies and Airline offices worldwide. The taxpayer has also developed Altea system which is a three-module solution that manages reservations, inventory and departures for all involved in getting passengers on boar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me up before the Tribunal by way of filing the present appeal. 6. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. 7. At the very outset, ld. AR for the taxpayer contended that the grounds raised in the present appeals are covered in taxpayer's own case vide order dated 26.10.2020 passed in AYs 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 & 2012-13 in ITA Nos.4906/Del/2010, 5150/Del/2011, 60/Del/2013, 1824/Del/2014, 1204/Del/2015 & 1626/Del/2016 respectively. 8. Ld. DR for the Revenue, on the other hand, has relied on the order passed by the AO/DRP and has failed to point out any distinguishing facts of the instant appeals vis-à-vis taxpayer's appeals in the earlier years and law applicable thereto. 9. The issues raised by the taxpayer vide different grounds are discussed as under. GROUNDS NO.1 & 2 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 10. Grounds No.1 & 2 are general i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ents etc. constituted PE of the taxpayer in India and the income derived from such PE is taxable in India. AO by following its earlier years order attributed 75% of the income earned in India to the PE after adding development cost, distribution fees, etc.. Ld. DRP has also confirmed the findings returned by the AO. 16. However, it is brought to our notice by the ld. AR for the taxpayer that this issue has already been decided in favour of the taxpayer by the coordinate Bench of the Tribunal for AYs 1996-97 to 2006-07 and held 15% of the revenue relating to bookings made from India being attributable to the taxpayer's PE in India after considering the nature and extent of activities in India and abroad and assets employed & risk assumed. Order passed by the Tribunal has been affirmed by the Hon'ble Delhi High Court and Department reported to have challenged the order of Hon'ble High Court before the Hon'ble Supreme Court. 17. Ld. DR for the Revenue has not controverted these facts nor controverted the fact that the grounds raised and facts and law are identical to the earlier assessment years 2006-07 and 2007-08 to 2012-13 already decided in favour of the taxpayer. 18. We ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ileo International 224 CTR 251, has affirmed the orders of the Tribunal passed for assessment years 1996-97 to 2006-07. 14. It was brought to our notice that the Assessing Officer had, in the assessment order for assessment year 2005-06, sought to distinguish the decision of the Tribunal in assessee's own case for assessment years 1996-97 to 1998-99 on similar grounds. However, the ld. CIT (A), vide order dated 25.02.2010, allowed the appeal of the assessee holding that no more than 15% of the revenues generated from India could be attributed to the alleged PE of the assessee in India. The aforesaid order passed by the ld. CIT(A) for assessment year 2005-06 has been confirmed by the ITAT, vide order dated 29.10.2010 and the Hon'ble High Court vide order dated 31.05.2011 (Revenue appeal) and dated 13.08.2013 (Assessee appeal). 15. Since, the facts remained unaltered and since payment to the agent is already @33%, no further addition is warranted in the case of the assessee." 19. So, following the order passed by the coordinate Bench of the Tribunal in earlier years and affirmed by the Hon'ble Delhi High Court, we are of the considered view that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 18. This expenditure has been allowed by the Co-ordinate Bench of the Tribunal from the assessment years 1996-97 to 2006-07. Since, the facts have not been disputed, in the absence of any material change, we hereby allow the claim of distribution expenses." 24. So, following the order passed by the coordinate Bench of the Tribunal in taxpayer's own case vide order (supra), we are of the considered view that the AO has erred in treating the "export of processed data/software" as distribution fee and has also erred in disallowing development cost and marketing cost incurred for earning revenue from booking made from India. All these expenditure have been allowed by the coordinate Bench of the Tribunal in earlier years. So, the claim of the taxpayer raised vide grounds no.11, 12, 13 & 14 of ITA Nos.2007/Del./2017, 3494/Del./2018, 7970/Del./2018 & 7047/Del./2019 for Assessment Years 2013-14, AY 2014-15, AY 2015-16 & AY 2016-17 respectively are allowed. GROUNDS NO.15, 16 & 17 OF ITA No.2007/Del./2017 (AY 2013-14) ITA No.3494/Del./2018 (AY 2014-15) ITA No.7970/Del./2018 (AY 2015-16) ITA No.7047/Del./2019 (AY 2016-17) 25. In the alternative, Assessing Officer he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otectively held the same to royalty since in that year the tax worked out in treating the income as royalty was less than the tax worked out after attributing income to the alleged PE of the assessee. 23. The Delhi Tribunal in assessee's own case for the assessment year 2006-07 has held that booking fee received by the assessee is taxable as business income and not under the head royalty. For the sake of ready reference and brevity, the relevant portion of the order of the ITAT in ITA No. 1494/Del/2011 is reproduced below: "In the present case, too, as sub mitted herein above, the appellant uses sophisticated technology/software in the course of providing a service/facility but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use to the participating airlines. Further, no payment is made by the subscribers, viz., the travel agents to the appellant, unlike the aforesaid case. In that view of the matter, the booking fee received by the appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 essentially an inventory hosting and management system developed by the assessee which some airlines outsourced to Amadeus, with Briti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations 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 the permanent establishment to the head office of the enterprise or any of its o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....percent 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, trademark, 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 t his 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 f or technical services, being a resi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gued 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' 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T 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 Rive r 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 off....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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) (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 (inclu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entions (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, just as clearcut 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 Kl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring 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 the law laid down, the revenue is here by directed not to tax the royalty in accordance with the judgment of the Hon'ble High Court." 31. Following the order passed by the coordinate Bench of the Tribunal in AYs 2007-08 to 2012-13, we are of the considered vi....