TaxTMI 
TaxTMI 
2022 (9) TMI 709
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....ant. 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 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 e....
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....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, 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 pre....
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....ng 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 @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....
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....appellant as claimed by it in its return of income. The appellant craves leave to add to, alter, amend or vary the above grounds of appeal at or before the time of hearing." 3. Since all the appeals are having identical grounds and involving the similar issues, for the sake of brevity, we are taking brief facts of ITA No.2/Del/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 ta....
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....sel for the assessee submitted that the issue is involved in the present appeal are recurring in nature. The Co-ordinate Bench of the Tribunal has passed the orders in favour of the assessee, which has been upheld by the Jurisdictional High Court for the Assessment Year 1996-97 to 2012-13 and 2014-15 to 2016-17. The Ld. Counsel for the assessee 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 t....
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....d. 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 that 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. 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 I....
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....t 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." 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 duri....
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....-20) 22. Ground No. 15 to 17 are in respect of holding the booking fee of Euro 15,48,55,000/- received by the assessee held to be taxable in India as royalty both u/s 9 (1)(vi) of the Act and Article 13(3) of the Treaty. 23. Again, we find that there is no change in the facts and circumstances to the earlier years decided by the coordinate Bench of the Tribunal in AYs 2006-07 & 2007-08 to 2012-13. 24. It is the case of the Assessee that the payment for use of software is 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 Amad....
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....ticipating airlines does not answer the description of 'royalty' and, thus, is not chargeable to tax in India." 24. Since, the facts have not been disputed in the absence of any material changes, we hereby hold that the booking fee received is in the nature of business income." 26. By following the principle of consistency and the order passed by the coordinate Bench of the Tribunal in taxpayer's own case for AYs 2006-07 & 2007-08 to 2012-13, we are of the considered view that booking fee received by the taxpayer is 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 all....
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.... of the system for the business in India at the Indian Airport is an undisputable fact. While the contention of the assessee is that the software was not available outside the Indian Airport or to any of the agents of the assessee in India, the revenue contended that the ARS also provides key operational services to British Airways like accepting payment and issuance of travel documents and manage customer checking. It was also submitted by the assessee that the arguments taken up with regard to CRS activity as royalty may also be considered while dealing 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 t....
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.... of its other offices, by way of royalties, fees or other similar payments in return for the use of 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 permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, 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 perman....
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....the royalties or fees f or technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15, as the case may be, shall apply. 6. Royalties and fees for technical services 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 bo....
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....e 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 9(1)(vi). Article 12(3), Indo Thai Double Tax Avoidance Agreement: 3. The term "royalties" as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes 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 ." (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 mode....
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....ale, 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 569 AIR 1979 SC 564 AIR 1929 Privy Council 69 AIR 1952 SC 369 AIR 1929 PC 38 AIR 1979 SC 564 after "manufactures for sale" and "sells" and the absence of ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA No.7047/Del./2019 any comma after "stocks" was indicative of the fact "stocks" was to be read along with "for sale" and not in a manner so as to be divorced from it, an interpretation which would have been sound had there been a comma after the word "stocks". 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 ....
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....CD 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 satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred 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 d....
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....y 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, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by ITA No.3494/Del./2018 ITA No.7970/Del./2018 ITA 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 8....
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....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 view that payment received by the taxpayer from British Airways in relation to alleged use of 'Altea system' cannot be characterized as 'royalty' either under the Act or under the Indo- Spain Treaty because Altea system was installed at the airport and was accessed only by the airlines and not by the Amadeus's agents viz. Resbird, Amadeus India and that during the year, the said system was available to British Airways for the aforesaid purpose and that too only at the airport 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/....