TaxTMI 
TaxTMI 
2022 (9) TMI 709
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....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 following the orders of earlier years, 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 by the appellant to the travel agents through third party nodes located in India, collectively, constituted PE of the appellant in India under Article 5 of the Indo-Spain DTAA ("the Treaty") and the income arising to the appellant from the airlines, etc. was attributable to the activities of the alleged PE in India. 4.1 That the DRP/ assessing officer erred on facts and in law in holding that as the website of the appellant shows that it ....
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.... officer erred on facts and in law in not following the order of the Delhi Bench of the Tribunal, affirmed by the Delhi High Court, 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 2017-18. 9.1 That the DRP/ assessing officer erred on facts and in law in misinterpreting the aforesaid order of the Tribunal and alleging 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 DRP/ assessing officer erred on facts and in law in following the order for assessment year 2007-08 to allege th....
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....r 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 @5% of adjusted income under section 44C of the Act. 14. That without prejudice the DRP/ assessing officer erred in facts and in law in erroneously computing the income of the alleged PE of the appellant. Re: CRS income - Royalty 15. That the DRP/assessing officer erred on facts and in law in, alternatively, holding that booking fee of Euro 15,48,55,000 received by the appellant was taxable in India as 'royalty' both under section 9(l)(vi) of the Act and Article 13(3) of the Treaty. 16. That without prejudice, the DRP/assessing officer erred on facts and in not appreciating that the booking fee received from nonresident airlines was not sourced in India in terms of....
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....2021 for AY 2017-18 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 board. The taxpayer claimed to have entered into agreements with various Airlines (Participating Carrier Agreement) by providing interconnectivity between the host computer of the individual Airline and the Amadeus CRS created by the taxpayer at Erding, Germany. The taxpayer also provides connectivity to its CRS to the travel agents. After analysis of th....
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....further submitted that the instant three appeals are in respect of Assessment Year 2017-18, 2018-19 and 2019-20. Since there is no change in the facts and circumstances, submitted that the present Appeals deserves to be decided in terms of the orders of the Co-ordinate Bench and the Hon'ble High Court of Delhi. 7. Per contra, the Ld. DR has neither disputed the above fact nor produced any contrary decisions/judgments referred by the Counsel for the assessee. 8. We have parties perused the material on record and gave our thoughtful consideration. GROUND NOS. 3 TO 6 OF: I.T.A. No. 2/DEL/2021(A.Y 2017-18) I.T.A. No. 1465/DEL/2022 (A.Y 2018-19) I.T.A. No. 1466/DEL/2022 (A.Y 2019-20) 9. Grounds No.3, 4, 5 & 6 are regarding the issue regarding the computers installed at the premises of the subscribers constitutes a PE of the taxpayer in India in terms of Article 5(1) of India Spain Tax Treaty. It is the case of the Revenue that that computers provided to the travel agent through which sales are constituted amounts to Fixed Place PE of the taxpayer in India under Article 5 (1) of the India-Spain Tax Treaty and likewise held the taxpayer to be dependent agency PE in terms of Par....
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....assumed. The Order passed by the Tribunal has been affirmed by the Hon'ble Delhi High Court and the Department reported to have challenged the order of Hon'ble High Court before the Hon'ble Supreme Court. 16. Ld. DR has neither controverted the above 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 2016-17 already decided in favour of the taxpayer. 17. We have gone through the order passed by the coordinate Bench of the Tribunal dated 26.10.2020 in Assessee's own case for AY 2007-08 to 2012-13 which is on identical facts and the relevant portion thereof is extracted for ready reference :- "9. The AO held that the assessee has earned a profit of Rs.1,452,550,424/- or Euro 2,50,90,000 from India. The ratio of attribution is to be worked out, by considering the importance & 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....
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....ourt 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." 18. By following the orders passed by the coordinate Bench of the Tribunal in earlier years and the Judgment of the jurisdiction High Court, we are of the considered view that since there is no change in the business model and facts of the cases at hand and the extent & nature of the activities of the PE in India and abroad, and the assets employed and risk assumed is same as in the earlier years, distribution fee paid in those years approximately of the booking fee per segment, no further addition can be made during the year under assessment. Consequently, grounds No.7, 8, 9 & 10 of I.T.A. No. 2/DEL/2021(A.Y 2017-18), I.T.A. No. 1465/DEL/2022 A.Y 2018-19) and I.T.A. No. 1466/DEL/2022 (A.Y 2019-20)respectively are decided in favour of the Assessee. GROUND NOS. 11 TO 14 OF I.T.A. No. 2/DEL/2021(A.Y 2017-18 I.T.A. No. 1465/DEL/2022 A.Y 2018-19 I.T.A. No. 1466/DEL/2022 (A.Y 2019-20) 19. Ground No. 11 to 14 are regarding disallowance of expe....
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....not in the nature of royalty under DTAA and relied the decision of Hon'ble Delhi High Court in case of DIT vs. Tinto Technical Services 340 ITR 507 (Del.). 25. The Coordinate Bench of the Tribunal in Assessee's own case for AYs 2007- 08 to 2012-13, which was affirmed by the Hon'ble Delhi High Court, held that booking fee received by the taxpayer is taxable as business income and not under the head 'royalty' by returning following findings :- "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. ....
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.... to be taxed as business income and not under the head 'royalty'. Accordingly, we decide grounds No.15, 16 & 17 of ITA Nos. 2/DEL/2021(A.Y 2017-18), I.T.A. No. 1465/DEL/2022 A.Y 2018-19) and I.T.A. No. 1466/DEL/2022 (A.Y 2019-20)respectively in favour of the Assessee. 27. Ground No. 18 to 20 is regarding holding the payments received by the assessee from various airlines in relation to the use of Altea System Taxable in India as royalty both u/s 9(1)(vi) of the Act and Article 13(3) of the Treaty. 28. It is contended by the ld. AR for the Assesseethat AO/DRP have erred in holding that payment received from the British Airways for alleged use of Altea system as taxable in India as 'royalty' both under section 9(1)(vi) and under Article 13 (3) of the Treaty on the ground that Altea system is not merely an inventory management and hosting system rather it provides key operational services to various airlines like accepting payment and issuance of travel documents, performing credit card validation, maintaining data security, manage customer check-ins, etc.. It is brought to our notice that this issue has also been decided by the coordinate Bench of the Tribunal in ta....
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....aling with ARS issue. 29. The Article 7 reads as under: ARTICLE 7 BUSINESS PROFITS 1. The profits of an enterprise of one of the States shall be taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of ITA No.3494/Del./2018 ITA No.7970/Del/2018 ITA No.7047/Del./2019 the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject to the provisions of paragraph 3, where an enterprise of one of the States carries on business in the other State through a permanent establishment situated therein, there shall in each State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is permanent establishment. In any case where the correct amount of profits attributable to a permanent establishment is incapable of determination or the determinati....
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....es, by way of royalties, fees or other similar payments in return for the use o f patents or other rights, or by way of commission 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. 4. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 5. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. 6. `Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article." 30. Article 13 reads as under: ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. Howeve....
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....ices shall be deemed to arise in a Contracting State when the payer in that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred , and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid, exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contract....
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....ercial or scientific equipment, or for information concerning industrial, commercial or scientific experience ." (emphasis supplied) Article 12(4), Indo Netherlands Double Tax Avoidance Agreement " 4. 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 cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience." (emphasis supplied) Section 9(1)(vi), Explanation 2, Income Tax Act, 1961 (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (emphasis supplied) 55. The slight but apparently vital difference between the definitions under the DTAA and the domestic ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 definition is the presence of a comma following the word process in the former. In the initial determinations before various ITATs across the country, much discussion took place on the implications of the presence or absence of the "comm....
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....tocks". It was therefore held that only stocking for the purpose of sale would amount to an offence but not mere stocking. 57. However, the question, which the n arises, is as follows. How is the court to decide whether a provision is carefully punctuated or not? The test- to decide whether a statute is carefully (read consciously) punctuated or not- would be to see what the consequence would be had the section been punctuated otherwise. Would there be any substantial difference in the import of the section if it were not punctuated the way it actually is? While this may not be conclusive evidence of a carefully punctuated provision, the repercussions go a long way to signify intent. If the inclusion or lack of a comma or a period gives rise to diametrically opposite consequences or large variations in taxing powers, as is in the present case, then the assumption must be that it was punctuated with a particular end in mind. The test therefore is not to see if it makes "grammatical sense" but to see if it takes on any "legal consequences". 58. Nevertheless, whether or not punctuation plays an important part in statute interpretation, the construction Parliament gives to such pun....
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....supra note to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific (ICS) equipment in the definition of royalties, the characterization of the payment will depend to a large extent on the relevant contractual arrangements. Whilst the relevant contracts often refer to the lease of a transponder, in most cases the customer does not acquire the physical possession of the transponder but simply its transmission capacity: the satellite is operated by the lessor and the lessee has no access to the transponder that has been assigned to it. In such cases, the payments made by the customers would therefore be in the nature of payments for services, to which Article 7 applies, rather than payments for the use, or right to use, ICS equipment. A different, but much less frequent, transaction would be where the owner of the satellite leases it to another party so that the latter may operate it and either use it for its ITA No.3494/Del./2018 ITA No.7970/Del./2018....
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.... No.7047/Del./2019 the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act.... ***** ********** ***** 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] at pages 156-157. (c) N.V. Philips Vs. Commissioner o f Income Tax [172 ITR 521] at pages 527 & 5 38-539." 59. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mer....
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....rt counter and the said software was not available outside the Indian airport or to any of the agents of the taxpayer since the agents were booking the tickets only through the CRS of the taxpayer. Consequently, grounds No.18, 19 & 20 of I.T.A. No. 2/DEL/2021(A.Y 2017-18), I.T.A. No. 1465/DEL/2022 A.Y 2018- 19) and I.T.A. No. 1466/DEL/2022 (A.Y 2019-20) respectively are decided in favour of the Assessee. 32. The Ground No. 21 in ITA No. 1466/Del/2022 and 1465/Del/2022 is regarding levying of interest at Rs.2, 12,03,220/- and Rs. 2,01,63,856/- respectively by the A.O. under Section 234A of the Act. The Ld. Counsel for the assessee submitted that the A.O has fail to appreciate the return of assessee for the relevant Assessment Year was filed within the prescribed period. But the Ld. A.O has committed an error by levying interest u/s 234A of the Act. Therefore, submitted that, the Ground No. 21 deserves to be allowed. 33. The contention of the assessee Ld. Counsel for the assessee is that the return was filed well within the due date, if that is the fact, the question of levying interest u/s 234A does not arise. Therefore, we deem it fit to restore the said issue to the file of the ....