TaxTMI 
TaxTMI 
2021 (10) TMI 1004
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.... by the revenue as well as the assessee. AY Appeal No. (against final order) Appeal No. (against rectified order) 2007-08 5601/Del/2010 - 2008-09 426/Del/2012 3032/Del/2016 2009-10 357/Del/2013 3033/Del/2016 2010-11 746/Del/2014 3034/Del/2016 2011-12 2101/Del/201 - 2012-13 6162/Del/2015 CO 1/Del/2021 - 2014-15 6515/Del/2017 - 2. The Assessee is a company incorporated in The United Kingdom. The Assessee provides electronic global distribution services in the 'rest of the world' territory (including the Indian region) for the travel industry, by utilizing a Computer Reservation System ('CRS'), which is an automated system which processes booking data. 3. The CRS is an automated system, which process booking data and other data to provide the following functions: a) The ability to display flight schedule and seat availability b) The ability to display and/or quote airline fare c) The ability to make airline seat reservation d) The ability to issue airline tickets, etc. 4. The Assessee appoints distributors for marketing its CRS services. In India, the au....
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....0. With regards to the grounds taken up, the profitability statement of the assessee is as under: India Specific Profitability statement for AY 2007-08 to AY 2012-13 and AY 2014-15 (Amounts in USD) Description 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2014-15 Booking Fees (A) 55,029,465 70,035,529 66,511,669 75,676,788 79,826,594 77,519,539 67,339,472 Less: Subscriber / Distribution fees or Commission 37,136,627 47,658,043 45,981,980 51,036,204 58,011,833 56,922,872 49,691,247 Less: IBM Service fee 1,845,674 2,908,608 3,180,261 2,801,139 2,871,024 7,745,314^1 6,311,271 India Specific Profitability statement for AY 2007-08 to AY 2012-13 and AY 2014-15 (Amounts in USD) Description A.Y. 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2014-15 Less: Core licence 3,249,999 2,906,229 2,591,673 2,919,311 3,122,012 Less: Royalty fees 12,030,725 14,818,090 19,810,463 20,061,605 21,579,830 15,593,965 14,965,612 Less : Vendor costs 618,260 41 1,486 117,901 112,575 86,719 1....
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....at the CRS, which is the source of revenue is partially existent in the machines namely various computers installed at the premises of the subscribers. In some cases, the appellant itself has placed those computers and in all the cases the connectivity in the form of nodes leased from SITA are installed by the appellant through its agent. The computers so connected and configured which can perform the function of reservation and ticketing is a part and parcel of the entire CRS. The computers so installed require further approval from appellant/Interglobe who allows the use of such computers for reservation and ticketing. Without the authority of appellant such computers are not capable of performing the reservation and ticketing part of the CRS system. The computer so installed cannot be shifted from one place to another even within the premises of the subscriber, leave apart the shifting of such computer from one person to another. Thus, the appellant exercises complete control over the computers installed at the premises of the subscribers. In view of our discussion in the immediately preceding paragraph, this amounts to a fixed place of business for carrying on the business of t....
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....08) in case of GII for such first batch of 4 years from AY 1995-96 to AY 1998-99 held the issue of PE/BC as academic as overall taxability of GII was held to be Nil. The relevant extracts from this order are re-produced as under: "These appeals were listed along with the appeals filed by Revenue against the same judgment. The appeals filed by Revenue have been dismissed by us vide our orders passed in today's date in WP(C) No. 851/2008. In view of this dismissal of those appeals of the Revenue, learned counsel for appellant submits that the question raised in these appeals have become academic and are therefore, dismissed." 25. Against the Hon'ble Delhi High Court order for AY 1995-96 to AY 1998-99, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP No. 6511 to 6518/2010. The Hon'ble Supreme Court vide its order dated 22 November 2019 dismissed (as withdrawn) SLP Nos. 6512 to 6515/2010 and 6517 to 6518/2010 pertaining to AY 1995-96, 1996-97 and AY 1998-99 on account of low tax effect, in consonance with circular No. 17 of 2019, leaving the question o....
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....#39;ble Delhi High Court in case of GII for first batch of 4 years and held that since factual matrix is same, the earlier decision of Hon'ble Delhi High Court in case of 25.02.2009 is squarely applicable i.e. issue of PE/BC is academic. 28. Against the Hon'ble Delhi High Court order for AY 1999-00 to 2002-03, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP Nos. 2956 of 2014, 2242 of 2013, 7222 of 2013, 2241 of 2013. These SLPs are pending adjudication by Hon'ble Supreme Court. 29. In the third batch of 4 years i.e. from AY 2003-04 to AY 2006-07 in case Galileo Netherland BV (GNBV) (now known as Travelport Global Distribution System BV) (TGDSBV) (Predecessor of the Appellant and Successor of GII), the Delhi ITAT vide its order dated 29th June 2012 (ITA No. 1306 to 1309/Del/2012), dismissed the cross objections raised by GNBV on PE/BC ground. It was held that: "21. Now coming to the cross objections filed by the assessee in all these years four years. The Ld. AR did not argue the cross objections and therefore these cross objections are treated as ....
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.... No. 163/Del/2021) by relying on the decisions of Hon'ble Delhi High Court and Delhi ITAT in Company/it's predecessor's case for AY 1995-96 to AY 2006-07. 17. In para 38 of the said order reads as under: "38. AY 2017-18, PE attribution at 15% of gross revenue less the expenses (as already allowed by the Ld. AO and Ld. DRP), as per the decision of the Hon'ble Delhi ITAT Benches and Hon'ble Delhi High Court, reduces the taxable income to Nil and thus, no income is taxable in India. " 18. The adjudication of this issue taken from ITA No. 163/Del/2021 dated 27.09.20201(sic) in the assessee's own case which is as under: "Ground No. 6 is covered in favour of the Appellant by virtue of the application of the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of Appellant and its predecessor entities i.e. GII and TGDSBV. The Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Appellant's own/predecessor's case i.e. GII and GNBV, have held that attribution rate to the alleged India PE is 15% of gross booking fees and since Indian related expenses are more than attributed gross booking fees to the PE in ....
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....formed, assets used and risk shared in two different countries, the income can be attributed. In the present case, we have found that majority of the functions are performed outside India. Even the majority of the assets, i.e., host computer which is having very large capacity which processes information of all the participants is situated outside India. The CRS as a whole is developed and maintained outside India. The risk in this regard entirely rests with the appellant and that is in USA, outside India. However, it is equally important to note that but for the presence of the assessee in India and the configuration and connectivity being provided in India, the income would not have generated. Thus the initial cause of generation of income is in India also. On the basis of above facts we can reasonably attribute 15 per cent of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising in India and chargeable under section 5(2) read with section 9(1)(i) of the Act." (Para 10 on Page 224 of Paperbook Part 1) "10. Next question to be decided is if it is found that the income accruing in India is consumed by the payment m....
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....e assessment and requires no further exercise for computation of income. We accordingly hold so and in view of the same the income of the Appellant will be NIL." 35. The revenue authorities thereafter filed, (Para 5 on Page 260 of Paperbook Part 1) a Miscellaneous Application (MA) before the ITAT to revise the earlier order on the ground that, even after holding that the Appellant's predecessor i.e. GII has a PE in India the Hon'ble ITAT erred in holding that no income was attributed to the said PE. The questions posed also included manner of attribution i.e. whether attribution is on sales or the net profits. The revenue authorities contended that the attribution should be on the net profits and not Sales - This contention of the revenue authorities was rejected by the Hon'ble ITAT vide its MA order dated 21 November 2008 (MA No. 108/Del/2008, 311 to 318/Del/2008 and 220 to 223/Del/2008), in case of GII in the first batch of 4 years- AY 1995-96 to 1998-99, wherein it was held that for computation of income of an Indian PE, first step is to attribute the revenues to India and then allow deduction of India related expenses from such attributed revenue. ....
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....s place outside India. Insofar as the role played in India is concerned, that is limited to the computers at the desk which are merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. The Tribunal was also influenced by another important fact viz., such functioning requires huge investment and huge capacity which is not available in the computers installed at the desk of the subscriber in India. On this basis, the Tribunal formed the opinion that major part of the work are processed at the host computer in Denver in USA and the activities in India are only minuscule portion. Taking into consideration all these factors the Tribunal was of the opinion that one could reasonably attribute 15 per cent of the "revenue" accruing to the respondent in respect of bookings made in India as major expenses in that behalf is incurred in activities carried out in US.........." (Please refer Para on Page 272 of Paperbook Part 1) "Thus, the approach adopted by the Tribunal was to first arrive at the figure relating to the revenue generated in India and abroad. It concl....
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....would extinguish the assessment of tax as no further income is taxable in India. The AO may check the correctness of the figures before giving effect to this order. On the issue of allowability of distribution expenses: 21. For AYs 1995-96 to 2006-07, the Assessing Officer was allowed the distribution expenses incurred by the Company. The Delhi ITAT and Hon'ble Delhi High Court for AY 1995-96 to AY 2006-07 in the predecessor company namely Galileo International Inc. allowed 100% deduction of distribution expenses and held overall taxability as Nil of the alleged PE in India. 22. For AY 2016-17 and AY 2017-18 in case of Company's successor entity namely, Travelport International Operations Ltd., the Assessing Officer and Ld. DRP allowed deduction of distribution expenses (70%) from attributed revenue. 23. For AY 2012-13 (one of years in captioned matter), both ld. DRP and the Assessing Officer has allowed 100% distribution expenses by relying on Hon'ble Delhi High Court's decision in case of Company/its predecessor company for AY 1995-96 to AY 2006-07. The relevant extract is as under: "The Panel taking note of the above Jurisdictional High Court....
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....madeus IT Group SA for AY 2007-08 to AY 2012-13 dated 26 October 2020 (ITA No. 4906/Del/2010, ITA No. 5150/Del/2011, ITA No. 60/Del/2013, ITA No. 1824/Del/2014, ITA No. 1204/Del/2015 and ITA No. 1626/Del/2016, wherein the distribution expenses incurred by the assessee were allowed. 27. Relevant extract is re-produced as under: "17. We have gone through the history of such expenditure and find that the addition is being made owing to confusion in the description of the services as "export of processed data/software "or" distribution fee." "18. This expenditure has been allowed by the Co-ordinate Bench of 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." 28. It is also on record that the distribution commission has been made to resident of India and duly offered to tax. Hence, the provisions of Section 40(a)(ia) are not attracted in the instant case. Since, there is no change in the factual matrix and legal proposition, we hereby allow the claim of the assessee. Allowability of other expenses: 29. The following table de....