TaxTMI 
TaxTMI 
2023 (1) TMI 1464
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....on- 3, New Delhi (`Ld. AO') under section 144C(13) / 143(3) of the Income tax Act, 1961, ('the Act') on the following grounds, which are without prejudice to each other: 1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in completing the assessment at the total income of INR 1,67,60,05,642 as against 'NIL' income declared. 2. That the Ld. AO and the Dispute Resolution Panel (`Ld. DRP') ought to have held that the Appellant has no income chargeable to tax in India either under the Act or under the provisions of the Double Taxation Avoidance Agreement between India and the United Kingdom ("DTAA"). 3. That the Ld. AO and the Ld. DRP ought to have held that no income had accrued or deemed to accrue or received or deemed to have received by the Appellant in India. 4. That on the facts and circumstances of the case and in law, both the Ld. AO and the Ld. DRP have erred in holding Interglobe Technologies Quotient India Private Limited (`ITQPL') to be legally and economically dependent entity of the Appellant and hence a dependent agent in India based on following allegations: * ITQPL....
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....s and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP have grossly erred in holding that no commercial substance can be attributed to the Appellant, and it will not qualify as a resident for tax purposes in UK and thus India-UK treaty benefits are withdrawn. 5.2 That on the facts and in the circumstances of the case and in law, the Ld. DRP have grossly erred in confirming the draft order of the Ld. AO on the substance of the entity thereby up-holding that the appellant is a conduit in a stepping stone framework, without even considering the detailed submissions and evidences filed by the appellant demonstrating and clearly evidencing its commercial substance, legal structure, tax returns, employee details, and all such documents which are sufficient to demonstrate an entity's legal existence. Thus, the Ld. DRP has erred in not passing a sound order. 5..3 Without prejudice to ground of objection above, on the facts and circumstances of the case and in law, the Ld. AO have erred in not appreciating that India-UK treaty benefits are available by reasons of residence, domicile, place of incorporation as per Article 4 of India- UK tax treaty....
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....rect attribution to Indian operations is 15% of the revenue/gross booking fees and after allowing the deduction of expenses, the overall taxability becomes 'Nil'. 7.2 Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP erred in both facts and in law by not following the binding decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in Appellant's own case/its predecessor's case, wherein the Hon'ble courts have held that even where the appellant is taxable under the domestic law under section 5(2) read with Section 9(1)(i) of the Act, the attribution cannot exceed 15% even under the domestic law, as held by the Hon'ble ITAT 8. That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP erred in disregarding the financial statements of Appellant and not allowing expenses claimed by it during the course of assessment proceedings as part of India related profitability statement. 8.1 That on the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in disallowing 100% of distribution fees....
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....fore the hearing of the appeal. 3. As could be seen from the grounds raised, ground nos. 1, 2, 3, 10 & 11 are general, hence, do not required specific adjudication. 4. In ground nos. 4, 5 and 6, the assessee has raised the issue of absence of business connection and Permanent Establishment (PE) in India. 5. Briefly the facts relating to this issue are, the assessee, a non-resident corporate entity, is incorporated in the United Kingdom (UK) and engaged in the business of providing electronic Global Distribution Services (GDS) 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 set in place for processing booking data. The CRS broadly provides the following functions: 1. The ability to display flight schedule and seat availability. 2. The ability to display and/or quote airlines fare 3. The ability to make airline seat reservation. 4. The ability to issue airline tickets, etc. 6. Basically, these services are provided to airlines for helping them in facilitation of booking of tickets. For each completed booking using asse....
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....hat the dispute relating to the issue has been decided by the Hon'ble High Court and the Tribunal in assessee's case in past assessment years. Therefore, learned DRP directed the Assessing Officer to verify the status of such cases pending in Supreme Court and thereafter decide the issue. 9. We have heard Sh. S.K. Aggarwal, learned Authorized Representative of the assessee and Sh. Gangadhar Panda, learned CIT (DR). It is a common point between the parties that the issue of existence of PE has been consistently decided against the assessee, both by the Tribunal as well as the Hon'ble Jurisdictional High Court in past assessment years upto immediately preceding assessment year 2017-18. 10. Having considered rival submissions, we find, while deciding assessee's appeal for assessment year 2017-18 in ITA No. 163/Del/2021, the Tribunal vide order dated 27.09.2021 considered identical issue and held as under: "23. In the first batch of 4 years i.e. from AY 1995-96 to 1998-99 in case of GII, the Hon'ble Delhi ITAT vide its dated 30 Nov. 2007 (19 SOT 257 (DELHI) held that GII has a fixed place PE and Agency PE in form of the Interglobe in India. (Page 194 to 251 of Paperb....
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.... participants who have entered into PGA with the appellant, yet the revenue could not have been generated but for the subscribers using the 'Galileo System'. In a way the revenue is generated from the participants but only on the basis of use of CRS by the subscribers. But for such use no revenue would accrue to the appellant. Thus the agreements entered into by the Interglobe with the subscribers under an authority granted to it, are contracts relating to operations which constitute business proper and not merely in the nature of internal operations. Such contracts are habitually exercised and there is nothing on record to suggest that such authority was cancelled at any point of time. We, therefore, hold that Interglobe is dependent agent of the appellant who has habitually exercised the authority to conclude contracts on behalf of the appellant. To that extent the appellant has a PE in India. Since we have held that ITA No.6661/Del/2019 Aspect Software Inc. 14 Interglobe is a dependent agent of appellant in India, we need not discuss para (5) of Article 5 of the treaty regarding independent agent form of PE." 24. The Hon'ble Delhi High Court vide its order d....
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.... both the assessee and revenue were in appeal before the Hon'ble High Court of Delhi. It is submitted that revenue's appeal were dismissed by the Hon'ble High Court of Delhi in its judgment dated 25.02.2009 in ITA No. 851 to 860/2008 and it was held by Hon'ble Delhi High Court that no questions of law arises in this matter which needs further determination by this court. It is also submitted that in the assessee's appeal, it was held by the Hon'ble Delhi High Court that in view of the dismissal of appeals of the revenue, the question raised by assessee in these appeals have become academic and are therefore dismissed. It is submitted that this judgment of Hon'ble High Court of Delhi in respect of assessee's appeal is also dated 25.02.2009 in ITA Nos 17408, 17409, 17437, 17438, 17473-74, 17469-70, 17410, 17439 and 17471- 72/2008. He submitted a copy of both these judgements of Hon'ble Delhi High Court rendered in the assessee's appeals as well as revenue's appeals. Ld. DR also agreed that these issues are covered as per these judgements." 27. Hon'ble Delhi High Court in its order dated 25th September 2012 (ITA No. 1148 to 1151....
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....inst the Hon'ble Delhi High Court order for AY 2003-04 to AY 2006-07, both the Income-tax department and Appellant's predecessor entity i.e. GNBV/TGDSBV filed an appeal before Hon'ble Supreme Court of India vide SLP Nos. 391 of 2015, 3780 of 2015, 3779 of 2015 and 1297 of 2015. These SLPs are pending adjudication by Hon'ble Supreme Court. 32. Thus, the issue of Appellant's PE/BC in India is covered against it by the above decisions of Hon'ble Delhi High Court and Hon'ble Delhi ITAT in Appellant's predecessor's case." 11. Following the consistent view of the Hon'ble High Court and the Tribunal on the issue, the Tribunal in the latest order passed in assessee's case in assessment year 2016-17 vide ITA No. 9711/Del/2019, dated 21.02.2022 has held as under: "11. Ground No. 4 and 5 relate to the presence of BC/ PE of the assessee in India. The Hon'ble Delhi ITAT vide its order dated 27.9.2021 in assessee's own case pertaining to the AY 2017-18 held that the assessee has a BC/ PE in India. In arriving at this conclusion, the coordinate bench followed the decisions of Hon'ble Delhi High Court and Hon'ble Delhi ITAT in case of assess....
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....vour 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 India, it would extinguish the assessment as no further income is taxable in India. 34. The ITAT in the case of Galileo International Inc (GII) (Predecessor of the Appellant) in the first batch of 4 years- AY 1995-96 to 1998-99 vide its order dated 30 Nov. 2007 (19 SOT 257 (DELHI) on the basis a Function, assets and risk (FAR) analysis, held that only 15% of the revenue could be attributed to India which got completely exhausted by the commission paid to the Indian distributor/ ITQPL, resulting in no income remaining to be taxed in India. It was held as under: "9. .......................In the present case, we find that only part of CRS system operates or functions in India....
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....ted. 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) " 9. Next question to be decided is if it is found that the income accruing in India is consumed by the payment made to the ITA No.6661/Del/2019 Aspect Software Inc. 20 agents in India, whether any income still is left to be taxed in India. The activities of the appellant in India are entirely routed through the efforts of NMC namely Interglobe India (P.) Ltd. (Interglobe). Interglobe is responsible for monitoring the activities of the subscribers enrolled in India. The request originated from the computers at the desk of travel agent is once again routed through the facility of processing such information at Interglobe. If Interglobe finds that the subscriber accessing the CRS is authorized to do so, the request is further forwarded. Interglobe is also responsible for establishing connectivity of the ....
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....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. The relevant extract of order is re-produced as under: "5. The next contention of applicant is that instead of estimating or apportioning income or profits the Tribunal has attributed the revenue. In our opinion this is not a mistake apparent from record. For computation of any income, the first point is to apportion the revenue from the operations carried out in India. Unless the revenues are attributed, the income which is a second step cannot be attributed. However, after apportioning revenue, since it was found that out of the apportioned revenue, the remuneration payable to the agent in India exceeds such apportioned revenue, no further income is taxable in Ind....
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....cule 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 concluded that out of the revenue accrued to the respondent in respect of these bookings 15 per cent thereof should be attributed to India, keeping in view a very minor portion of the activity being carried out here" (Please refer Para on Page 273 of Paperbook Part 1) "After formulating the aforesaid question, the Tribunal answered the same holding that since the revenue attributable in respect of the booking made in India is only 0.45 Euro (15 per cent of Euro 3) and commission paid to Interglobe was Euro 1, there was no income which was taxable in India." "The Tribunal in this behalf has noted that the entire payment made by the respondent to the Interglobe h....
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....d 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 India, it would extinguish the assessment as no further income is taxable in India. 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." Similar view was taken by the coordinate bench of ITAT in its order dated 13.10.2021 for AY 2007-08 to 2012-13 and AY 2014-15 in case of TGDSBV (assessee's predecessor). The relevant paras of the Hon'ble Delhi ITAT's order is reproduced below: "15. The issue of attribution in India is covered in favour of Company by the decisions of Hon'ble Delhi High Court and Delhi ITAT in Company/it's predecessor's case for AYs. 1995-9....
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....sing 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 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... 24. For AY 2015-16, the Id. DRP in its direction in Company's own case accepted that distribution expenses are integral expenses for CRS companies like Company and therefore a deduction should be allowed of such expenses... 25. Thus, it was duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their....
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....hi High court in case of CIT Vs. Herbalife International India (P.) Ltd. 69 taxman.com 205 wherein the High Court struck down discriminating treatment of disallowance u/s 40(a)(i) and Section 40(a)(ia) of the Act by relying on Article 26(3) of the DTAA between India and US, we hereby direct the AO to re-compute the net losses computing the disallowance on other expenses @ 30%." Following the decisions (supra) we hold and order accordingly." 21. Facts being identical in the impugned assessment year, we direct the Assessing Officer to allow deduction of expenses following the directions of the Tribunal in the past assessment years, as discussed above. This ground is allowed. 22. In ground no. 9, the assessee has raised the issue of allowance of head office expenses under section 44C of the Act. 23. Having considered rival submissions, we find, while deciding identical issue in assessee's own case in assessment year 2016- 17 (supra) the Tribunal has held as under: "15. Ground No. 8 relates to allowability of head office expenses under section 44C of the Act. The assessee submitted that as per section 44C of the Act, a non resident assessee shall be allowed c....