AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (2) TMI 1677
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....the Deputy Commissioner of Income-tax, (International Taxation) - 1(1)(1), Mumbai [DCIT] for the aforesaid assessment year on the following among other grounds: 1. The learned DCIT erred in assessing the total income of the appellant at Rs. 12,50,23,923. 1. Business connection /permanent establishment in India 2.1 The learned DCIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which all the messages are transmitted. 2.4 The learned DCIT erred in observing that the appellant carries out its activities of Computerized Reservation System [CRS] through the Abacus Country Node located in India which is under the management and control of the appellant. 2.5 The learned DCIT erred in observing that Sabre Travel Network (India) Private Limited (earlier known as Abacus Distribution Systems (India) Private ....
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....rom STNIPL amounting to Rs. 3,51,92,700 are part of business income of the appellant and thereby taxing Rs. 35,19,270 (i.e. 10% of Rs. 3,51,92,700). 4.2 The learned DCIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by the appellant on airfare transaction charges, other expenses, and foreign travel and in the nature of pure reimbursement not having any element of income/service. 4.3 Without prejudice to the above, the learned DRP/DCIT erred in not following the decision of the ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. commission and marketing fees paid to STNIPL) is sufficient to absorb its income. 5. Transfer pricing adjustment 5.1 The learned DCIT/DRP erred in making a transfer pricing adjustment of Rs. 2,10,24,208 under section 92CA(4), in respect of the international transaction entered into by the appellant during the year ended 31 March 2012. 5.2 The learned DCIT/DRP while determining the arm's length interest rate err....
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....y resident of Singapore engaged in the business of promotion, development, operation, marketing and maintenance of a Computerized Reservation System ( for short 'CRS'). The primary business of the assessee is to make airline reservations for and on behalf of the participating airlines by using the CRS. The participating airlines provide the necessary information which is displayed to the travel agents throughout the world so that they could guide their customers to make the necessary requests for booking of tickets through the CRS. The assessee licenses the right to market the CRS to a company in each of the Asia Pacific Countries, i.e a National Marketing Company (for short 'NMC'), which in turn markets the CRS directly to the travel agents. The assessee also solicits the participation of the travel related vendors e.g airlines, tour operators, car rental agencies and hotels so as to list their services in the CRS in order to enable the travel agents to make booking for their services through the CRS. The airlines/travel-related vendors pay to the assessee a fee for each of the booking made by the travel agents. That for each of the booking made through the NMC's subscribers commi....
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.... the same communication channels which were used for its outgoing message, would receive the ticket image from the Abacus host which either would be printed by the printer in his office or issued manually to the customer. It was submitted by the assessee that it did not have a PE in India for the reason viz. (i). there was no contractual relationship between the assessee and the customer who makes the payment to the airline through the travel agent, as the revenue generated was of the airline and not of the assessee; (ii). the assessee had no PE in India in terms of Article 5(8) of the India-Singapore tax treaty; (iii). the fact that the Singapore entity controlled the company ADSIL would not by itself constitute a PE of the assessee in India; (iv). ADSIL may be an agent of the assessee but it was not carrying on any of the activities mentioned in Article 5(8) on the basis of which it could be held to be a PE of the assessee in India; and (v). ADSIL was even otherwise acting independently. The assessee in order to support its contention that it did not have a PE in India relied on the orders of the coordinate benches of the Tribunal, viz. ITAT Delhi 'B' bench in the case of Galileo....
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....d that such activities through a Node and agent would constitute a PE under the DTAA. The A.O in the backdrop of his aforesaid deliberations concluded that the assessee had a PE in terms of Article 5 of the India-Singapore tax treaty. Accordingly, the A.O vide his draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 07.03.2016 proposed to attribute income of Rs. 10,04,80,445/- to the assesses PE in India. 6. The A.O further during the course of the assessment proceedings observed that the assessee had received certain payments from ADSIL aggregating to Rs. 3,51,92,700/-.The assessee submitted that the aforesaid amounts were in the nature of reimbursement of expenses viz. (i). airfare transaction charges; (ii). other expenses; and (iii). foreign travel expenses which were incurred by it on behalf of ADSIL. The assessee explaining the nature of the expenses submitted that the line charges and services charges were incurred for providing the connectivity to the travel agents while for the service charges were the expenses incurred for accessing the CRS. It was submitted by the assessee that the connectivity globally provided by SITA was billed to the assessee which in....
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....reaty. 10. The DRP further adverting to the issue as to whether any income of the assessee was taxable in India for the reason that its marketing, distribution, sales and revenue generation activities had taken place in India and whether 10% of the overall revenues generated from its Indian operations was to be treated as the income of the assessee, observed, that once it was held that the assessee had a PE in India, the revenues generated from its India operations were liable to be taxed in India as per law. The DRP observed that the said issue was also decided by the coordinate benches of the Tribunal in the assesses own case in the earlier years and the estimation of 10% of overall revenues from India operations as per Rule 10 of the Income tax Rules, 1962 as the income of the assessee was upheld by the Tribunal. Accordingly, the DRP in the backdrop of its aforesaid observations upheld the estimation of income of the PE of the assessee by the A.O. 11. The DRP adverting to the objection of the assessee as regards the working of the amount of fees received by the assessee from the airlines and the commission paid to its NMC in India, viz. ADSIL, observed, that if any deduction o....
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....al before us. The ld. Authorized Representative (for short 'A.R') for the assessee at the very outset of the hearing of the appeal submitted that the issues involved in the present appeal were squarely covered by the consolidated order of the Tribunal in the assesses own case for A.Y 2005-06 to A.Y 2011-12, dated 16.02.2018 r.w its order dated 16.10.2019 that was passed on recall. Ld. Departmental representative did not controvert the claim of the assessee that the issues involved in the present appeal were covered by the aforesaid orders of the Tribunal in the assesse's own case. Accordingly, in the backdrop of the aforesaid factual position we shall deliberate upon the respective issues involved in the present appeal of the assessee before us. 15. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. We shall first advert to the contention of the ld. A.R that the assessee had no Permanent Establishment (PE) in India. We find that the issue as to whether the assessee had a PE in India, or not, had been deliberated upon at lengt....
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.... fair determination of the income of the assessee attributable to its PE in India, the ALP was required to be determined after carrying out a FAR analysis. The ld. D.R had submitted before us that as the reliance placed by the assessee on the judicial pronouncements wherein it was held that ALP at 15% of the gross receipts in respect of CRS operation would be justified pertained to the era of pre-TP regulations, therefore, the same could not be adopted as a yardstick and transposed as such for determining the income of the assessee attributable to its PE in India for the year under consideration, viz. A.Y 2005-06. The ld. D.R on the basis of his aforesaid contentions had submitted that the issue was required to be set aside to the A.O/TPO for fair determination of the income of the assessee attributable to its PE in India. We have given a thoughtful consideration to the contentions of the authorized representatives for both the parties. We though would fairly concede that the contention raised by the ld. D.R in his attempt to seek a FAR analysis for fair determination of the income of the assessee attributable to its PE in India at the first blush appeared to be very convincing, bu....
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.... the assessee for the year under consideration, viz. A.Y 2005-06, for the reason that the adjudication in the aforesaid cases was in respect of the years falling within the sweep of the era of pre-Transfer pricing provisions, which alongwith the related rules were notified in India with effect from 01.04.2002, vide the Finance Act, 2001. We are of the considered view that not only the ld. D.R by raising the aforesaid contention had tried to build up a new case before us which is not permissible in the eyes of law, but rather, while raising the aforesaid contention had also lost sight of the fact that the aforesaid view as regards adoption of 15% of the gross receipts of the assessee as its income attributable to India operations was also taken by the Tribunal in the assesses own case for A.Ys 2002-03 to 2004-05, which pertained to the period subsequent to the introduction of the Transfer pricing provisions. We further find that the High Court of Delhi while dismissing the appeal of the revenue in the case of CIT Vs. Galileo International Inc. (2011) (336 ITR 264) had observed that the determination of the income of the PE from the CRS activities in the said case was in conformity w....
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....d by the assessee to its NMC viz. ADSIL at 25% of its gross receipts pertaining to India bookings was higher than its income attributable to India, therefore, no part of the aforesaid income would remain in the hands of the assessee which could be brought to tax in India. As such, in terms of our aforesaid observations we allow the Ground of appeal No. 3 raised by the assessee before us. 17. We shall now take up the claim of the ld. A.R that the DRP/A.O had erred in holding that 10% of the expenses reimbursed by ADSIL amounting to Rs. 3,51,92,700/- were to be held as the business income of the assessee. On a perusal of the order passed in the assesse's own case for the aforementioned preceding years viz. for A.Y 2005-06 to A.Y 2011-12 the Tribunal had in context of the issue pertaining to treatment of 10% of the expenses which were claimed by the assessee as reimbursements by ADSIL observed as under: "We find that the assessee had submitted before the A.O that ADSIL had reimbursed the following expenses which were incurred by the assessee on its behalf:- Particulars Amount (Rs.) Line charges [payments to SITA for Connectivity of travel agents (lease lines) 12,032,811/- &nbs....
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....ncome of the assessee, still there would be no income chargeable to tax in the hands of the assessee, because the amount of marketing fees paid by the assessee to ADSIL of Rs.10,30,00,287/-would absorb the said income element. We have given a thoughtful consideration to the contention advanced by the ld. A.R that 10% of the reimbursement amount as claimed by the assessee which had been characterized by the CIT(A) as the business income would justifiably be entitled for set off against the commission payment made by the assessee to ADSIL, merits acceptance. However, we may herein observe that as the quantification of the gross receipts and commission paid to ADSIL had been restored by the CIT(A) to A.O, therefore, the commission paid by the assessee to its NMC, viz. ADSIL would be that as determined by the A.O. The Ground of appeal No. 3 raised by the assessee is allowed in terms of our aforesaid observations." As the facts and the issue involved in the present appeal of the assessee principally remains the same in context of treating of 10% of the amount that was claimed by the assessee to have been reimbursed by ADSIL, as was therein involved in the aforesaid case of the assessee....
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....would go to support his aforesaid view. We find that though the ld. A.R had assailed the transfer pricing adjustment in respect of the aforesaid transaction for the reason that as the assessee had not charged any specified price, therefore, no transfer pricing adjustment in respect of the aforesaid transaction was permissible, but however, he had during the course of hearing of the appeal sbmitted that he was not pressing the said contention. We find that the ld. A.R had during the course of the hearing of the appeal focussed his contentions in respect of the transfer pricing adjustment, on the ground that the ALP interest rate should not have exceeded the LIBOR being the rate of interest applicable to USD. We find substantial force in the contention raised by the ld. A.R before us. We have given a thoughtful consideration and are unable to persuade ourselves to be in agreement with the contention of the ld. D.R that the Hon'ble High Court of Bombay in the case of CIT Vs. Tata Autocomp Systems ltd. (2015) 374 ITR 516 (Bom) had concluded that ALP in the case of loans advanced to AE was to be determined on the basis of rate of interest being charged in the country where the loan is r....
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....d by the revenue in the case of CIT-1 Vs. M/s V.F.S Global Services Pvt. Ltd. (ITA No. 336/Mum/2015, dated 19.07.2017) was not persuaded to be in agreement with the contention of the revenue that the Tribunal had erred in directing the A.O/TPO to determine the ALP interest by considering the LIBOR plus 2% and not the rates of the Indian Market. We further find that a coordinate bench of the Tribunal, ITAT, Pune Bench "B", Pune, had in the case of Tool Tech Global Engineering Pvt. Ltd. Vs. DCIT (ITA No. 273/PN/2014, dated 22.08.2014) had observed that in the case of a transaction in foreign currency between two cross border entities, the ALP should be computed in context of the prevailing lending practises in the international market. The Tribunal had further observed that in respect of such international transactions, the domestic bank rate would not be a sound basis and rather internationally accepted LIBOR rate would be the proper basis for benchmarking the ALP interest rate in respect of the said transactions. We further find that the Hon'ble High Court of Delhi in the case of Commissioner of Income Tax-1 Vs. M/s Cotton Naturals (I) Pvt. Ltd. (ITA No. 233/Mum/2014, dated 27.03.2....
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....t as the Tribunal while disposing off the appeals of the assessee for A.Y 2005-06 to A.Y 2011-12, vide its order dated 16.02.2018 had inadvertently omitted to adjudicate upon the alternative claim of the assessee that if the interest income (on interest free loan advanced to AE viz. ADSIL) was to be considered as part of its business income, there would not be any income chargeable to tax since the marketing fees paid by it to ADSIL would absorb the same. In the backdrop of the aforesaid facts, the Tribunal had on a miscellaneous application filed by the assessee, therein vide its order dated 10.05.2019 recalled its aforesaid order dated 16.02.2018, for the limited purpose of adjudicating the aforesaid alternative claim of the assessee. Subsequently, the Tribunal had vide its order dated 16.10.2019 adjudicated upon the aforesaid issue and had concluded as under: "We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the original order of the Tribunal, dated 16.02.2018, as well as the material available on record. As is discernible from the order of the Tribunal, dated 16.02.2018, the ld. A.R had in the course of the ori....
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....s order dated 16.02.2018. Accordingly, we allow the claim of the assessee that the notional interest income would be entitled to be adjusted as against the expenditure incurred by it by way of marketing service paid to ADSIL during the aforesaid respective years. At the same time, we may herein observe, that as the quantification of the aforesaid claim as had been projected by the assessee before us cannot be summarily accepted on the very face of it, therefore, for the limited purpose of making verification as regards the veracity of such quantification the matter is restored to the file of the A.O/TPO. As the Ground of appeal No. 5.8 has been allowed by us as above, therefore, as per the concession of the ld. A.R the Ground of appeal No. 5.7 which is rendered as academic in nature is thus not being adverted to and adjudicated upon by us. Accordingly, the Ground of appeal No. 5.8 is allowed in terms of our aforesaid observations. The view taken by us hereinabove would also be applicable to A.Y. 2006-07 to A.Y. 2009-10, wherein the said issue in the absence of a specific ground of appeal to the said effect was allowed to be raised with the leave of the Tribunal at the time of heari....
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.... ITA No. 7379/Mum/2018 A.Y. 2014-15 24. We shall now advert to the appeal of the assessee for A.Y 2014-15. The assessee has assailed the impugned order of the A.O on the following grounds of appeal before us: The appellant objects to the order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [Act] dated 26 October 2018 passed by the Deputy Commissioner of Income-tax, (International Taxation) - 4(2)(1), Mumbai [DCIT] for the aforesaid assessment year on the following among other grounds: 1. The learned DCIT erred in assessing the total income of the appellant at Rs.16,37,62,989. 2. Business connection/permanent establishment in India 2.1 The learned DCIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India-Singapore Double Taxation Avoidance Agreement [DTAA]. 2.2 The learned DCIT erred in holding that the appellant has a fixed place of business in India. 2.3 The learned DCIT erred in holding that the appellant maintains telecommunication network in India through which all the messages are transmitted. 2.4 The learned DCIT erred in observing that t....
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....llant's own case for earlier years (i.e. AYs 1999-00 to 2011-12), Hon'ble Delhi High Court's judgment in the case of Galileo International Inc. (336 1TR 264) and decision of the Hon'ble Delhi ITAT in case of Sabre Inc. (ITA No. 2311 to 2317/Del/2008) despite no change in facts. 4. Reimbursement of expenses 4.1 The learned DCIT erred in holding that the reimbursement of expenses from STN amounting to Rs. 4,83,96,108 are part of business income of the appellant and thereby taxing Rs. 48,39,611 (i.e. 10% of Rs. 4,83,96,108). 4.2 The learned DCIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by the appellant on airfare transaction charges and other expenses towards courier charges, marketing and consulting fees, etc. and in the nature of pure reimbursement not having any element of income/service. 4.3 Without prejudice to the above, the learned DCIT/DRP erred in not following the decision of the Hon'ble ITAT in appellant's own case for AY 2004-05 wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by t....
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....ellant in the hands of STN. 5.8 The learned DCIT/DRP erred in not following the Hon'ble ITAT decision in the Appellant's own case for earlier years (i.e. AYs 2005-06 to 2011-12), wherein it was held that the ALP of the interest rate to benchmark the said ECB loan transaction should be LIBOR rate plus 2%. 5.9 The learned DCIT/DRP while passing its directions for AY 2014-15, erred in relying on the directions issued by the DRIP in the immediately preceding assessment year (i.e. AY 2013-14) instead of relying on the ITAT order as referred above. 5.10 Without prejudice to the above, the learned DRP/DCIT erred in not appreciating that even if the interest income is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. commission and marketing fees paid to STN) is sufficient to absorb its income and accordingly there will be no loss to the revenue. 6. The learned DCIT has erred in initiating penalty proceedings under section 271(1)(c) of the Act 7. Each one of the above grounds of appeal is without prejudice to the other. 8. The appellant reserves the right to amend, alter or add to ....