TaxTMI 
TaxTMI 
2025 (6) TMI 104
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....enters ('ATCs') to be the dependent agent Permanent Establishment ('PE') of the Appellant in India under Article 5(4) of the India -Canada Double Taxation Avoidance Agreement ('tax treaty) and accordingly, taxing the revenues of Rs. 5,90,20,920/- received by the Appellant on account of provision of distance learning courses as being in the nature of business profits' under Article 7 of the India-Canada tax treaty b. Erred in not following the order of the Hon'ble Tribunal in Appellant's own case for AY 2012-13, wherein, it has been held that the ATCs do not constitute a DAPE of the Appellant in India and the income from provision of distance learning courses is not taxable as per the provisions of the India-Canada tax treaty. c. Without prejudice to the above, even assuming (without admitting) that the Appellant has a dependent agent PE in India, erred in: i. attributing 40% of the gross receipts of the Appellant from the ATCs, on account of provision of distance learning courses, as income attributable to the alleged dependent agent PE in India, and ii. estimating the profits at 100% of the gross receipts attribut....
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....as 'business profits' under Article 7 of the India - Canada tax treaty, by attributing such receipts to IATA India branch of the Appellant in India, without accepting the contention of the Appellant that the ICH services are provided by the Appellant outside India and are independent and separate from the activities provided by IATA India branch. c. Erred in taxing the receipts from e-services data processing charges as 'business profits' under Article 7 of the India - Canada tax treaty, by attributing such receipts to IATA India branch of the Appellant in India, without accepting the contention of the Appellant that such activities/services are not provided by IATA India branch. d. Without prejudice to the grounds 'a' to 'c' above, even assuming (without admitting) that income and profit should be attributed to the IATA India branch, erred in not accepting the contention of the Appellant that as the IATA India branch qualifies as a mutual association, which has also been accepted by the Hon'ble DRP, the 'joining and annual fees received from airlines, agents and strategic partners', fees from the provision of ICH facili....
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....ted vide order u/s 143(3) r.w.s. 144C(13) dated 27.07.2023 at an income of Rs. 56,14,48,568/- after making various additions based on the directions received from the Ld. Dispute Resolution Panel (DRP). The assessee has raised several grounds of appeal, which are discussed below: 4. Ground No. 1 - Provisions of distance learning course (addition of Rs. 5,90,20,920/-). 4.1 At the outset, Ld. AR has submitted that the issue is coverd in favour of the assessee by earlier decisions of the coordinate benches. However, the same has not been followed by the Ld. AO. Brief facts in this regard are summarised in the submissions made by Ld. AR as under: "IATA Canada allows students to avail of various distance learning courses such as IATA Proprietary Training Programs, the International Aviation Training Program, the International Cargo Agent Training Program, the International Travel and Tourism Training Program, etc. These courses are available to students who aspire to have a career in the aviation industry. The details of such distance learning courses can be obtained from the website of IATA Canada. The students who are interested in undertaking any of the dis....
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....strongly relied on the order of Ld. DRP and submitted that the addition made by the Ld. AR deserves to be upheld. 4.3 We have heard the rival submissions and perused the material placed before us. We have also gone through the decisions of the coordinate benches, and in particular, the order for AY 2012-13 wherein it has been held that the ATCs are independent entities and not dependent agents of the assessee. Relevant portion of the order of coordinate bench in ITA No. 587 & 964/Mum/2016, wherein the issue has been examined in detail, is reproduced below: 9. We have heard at length the authorised representatives for both the parties in context of the issue pertaining to treating of the ATCs as the DAPE of the assessee, and attribution of 40% of the revenue generated from sale of the distance learning courses as the business income of the assessee liable to be taxed in India as per Article 7 of the India-Canada tax treaty. Also, we have perused the orders of the lower authorities as well as the material available on record, and also the judicial pronouncements pressed into service by the respective parties. Before proceeding any further, we may herein observe, that thou....
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....ock of the Course material on behalf of the assessee at any time. 10. We have perused the records to which our attention was drawn by the Id. A.R in the course of the hearing of the appeal, and find, that the ATCs were independent third party organisations that provided training of their various self-designed courses, courses designed by other third parties, and also the courses designed by the assessee viz. IATA Canada to its students. In fact, the Id. A.R in order to drive home his claim that the ATCs were not exclusively into providing of courses designed by the assessee and were providing a host of other self-designed/third party courses, had taken us through Page 65-67 of the APB, which revealed the multiple educational programs offered by one of the ATC viz. Srinivassa Sinai Dempo College of Commerce and Economics. On a perusal of the aforesaid sample screenshots, we find that Srinivassa Sinai Dempo College of Commerce and Economics was providing multiple courses, viz. Bachelor of Commerce, Bachelor of Business Administration, Master of Commerce, M.A (Tourism and Heritage) Management, PGDBA-Event Management, Accounting for Small Businesses, Certificate Course in Tour....
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....observations it can safely be concluded that the aforesaid ATCs could not be held to be exclusively into providing of courses designed by the assessee, but were also providing a host of other self-designed/third party courses. On being confronted with the aforesaid factual matrix the Id. D.R failed to dislodge the claim of the counsel for the assessee that the ATCs were independent third party organisations providing training of their various self-designed courses, courses designed by other third parties, and also the courses designed by the assessee viz. IATA Canada, and were not exclusively into providing of courses designed by the assessee viz. IATA, Canada. In fact, no observation to the said effect is also discernible from the orders of the lower authorities. On the contrary, the DRP at Page 53 Para 5.3.2(i), had observed, that the ATCs were independent organisations doing their business of providing training to the students to enable them to work in aviation, travel and tourism industry. But then, after so observing, the DRP was of the view that as the ATCs for rendering the training courses were entirely dependant on the various manuals and study material provided by the ass....
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.... streams of revenue generation clearly militates against the observation of the DRP that distance learning courses of the assessee constituted the backbone of the overall operations of the ATCs. 11. It is in the backdrop of our aforesaid observations that we shall now deliberate on the aspect as to whether or not the ATCs could be held to be the DAPE of the assessee viz. IATA, Canada. At the outset, we may herein observe that in order to treat the ATCS as a DAPE of the assessee the provisions of Article 5(5) of the India-Canada tax treaty needs to be satisfied prior to evaluating the provisions of Article 5(4) of the said treaty. As per Article 5(5) of the India-Canada tax treaty, an enterprise of a contracting state shall not be deemed to have a PE in the other Contracting state merely because it carries on business in that other state through a broker, general commission agent, or any other agent of an independent status, subject to the condition that such person is acting in the ordinary course of its business. But then, as per the rider provided in Article 5(5) of the tax treaty, the agent would be divested of its independent status, if it cumulatively satisfied the du....
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....a broker, general commission agent or any other agent of an independent status, or merely maintaining in that other State a stock of goods with an agent of an independent status from which deliveries are made by that agent, shall not be deemed to have a PE in the other Contracting state, subject to the condition that such agent of an independent status is acting in the ordinary course of its business. As regards the rider therein provided in Article 5(5) of the India-Canada tax treaty, the same as observed by us hereinabove would require cumulative satisfaction of for the purpose of divesting the agent of its status as that of of being an independent agent viz. (i). the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise; AND (ii). the transactions between the agent and the enterprise are not made under arm's length conditions. In the case before us the DRP itself had observed that ATCs are independent organisations doing their business of providing training to the students to enable them to work in aviation, travel and tourism industry. As such, the fact that the ATCs are independent agents, acting in the ordinary course of their busine....
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.... unique in the sense that this provision is in clear deviation from the standard UN and OECD Model conventions, is that even when an agent is wholly or almost wholly dependent on the foreign enterprise, he will still be treated as an independent agent unless additional condition of the transactions being not an arm's length conditions is fulfilled. It is so for the reason that Article 5(6) provides that even when an agent is wholly or almost wholly dependent on the principal, I.e. foreign enterprise, "he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions" (emphasis by underlining supplied by us). In other words, as long as it is not shown that the transactions between the agent and the principal are not made under arm's length conditions, the agent is treated to be an independent agent. The implication of the agent being treated as an independent agent is that the provisions of dependent agent PE, as set out in Article 5(5), can never come into play in the cases in which the business is carried out by the foreign ....
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....d, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolution Panel. Even in the proceedings before us, no material has been brought on record which at least prima facie demonstrates, or even indicates, that the transactions between the principal and agent are not under arm's length conditions. Once this onus is not discharged by the revenue authorities at any of these stages, and in accordance with the law laid down by Special Bench decision in the case of Motorola Inc, we have to hold that the assessee did not have any PE in India. We are not inclined to grant a fresh inning to the Assessing Officer for making roving and fishing enquiries on the aspect of transactions not having been done in arm's length conditions particularly as there is nothing on record to even remotely suggest a prima facie case in this regard. A negative finding in this regard is a sine qua non for making out a case for existence of DAPE in the context of Indo French DTAA, and this finding being absent, we have to hold that the stand of the Assessing Officer, with regard to existence of PE, is not sustai....
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.... in the light of the factual position that there are no findings by the Assessing Officer, or the Dispute Resolution Panel, to the effect that the transactions between the agent and the assessee are not at an arm's length price, and that, in view of the provisions of Article 5(6) of Indo French DTAA, such a finding by the revenue is a sine qua non for existence of DAPE. Το this extent, our decision is confined to the facts of this case for the particular assessment year before us". 10. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal in assessee's own case (supra) hold that the assessee has no PE in India and, hence, not liable to tax and accordingly the grounds taken by the assessee are allowed." On further appeal by the revenue, the Hon'ble High Court of Bombay in its order passed in the case of DIT(International Taxation) Vs. Delmas France (2015) 232 Taxman 401 (Bom) had affirmed the order of the Tribunal and dismissed the appeal of the revenue, observing as under: "9) There is substance in the contention of Mr. Irani that the departmental represen....
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....between the assessee and the agent. The Tribunal did not accept this. Not because of any broad legal principle, but there being no finding of this nature on record at all. If the assessing officer or the DRP failed to render the finding and which would indicate the applicability of the Article and as pressed by the departmental representative, then, to our mind, the Tribunal was under no obligation to remand the matter back to the Assessing Officer The Tribunal has rightly observed that even during the course of the proceedings before it, no material was placed on record, which would prima facie demonstrate or even indicate that the transactions between the principal namely the Assessee and the agent are not under at arm's length conditions. Once this onus is not discharged by the Revenue and the Tribunal has confined its observations and conclusions to the facts and circumstances peculiar to the Assessee's case and for the particular assessment year, then, we agree with Mr. Irani that this Appeal does not raise any substantial question of law. However, we do not find any basis for the submission made by Mr. Singh that the Tribunal should have examined the matter in the lig....
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....had established that the transactions between the assessee viz. IATA, Canada and the ATCs were not done under arm's length condition, nor any material was placed on our record by the Id. D.R to demonstrate any such fact. Accordingly, in the absence of any finding by the lower authorities that the transactions between the assessee and the ATCs were not at arm's length, we thus on a similar footing conclude that as per a conjoint reading of Article 5(4) and Article 5(5) of the India-Canada tax treaty, the ATCs being an independent agent within the meaning of Article 5(5) of the India-Canada tax treaty could not have been held to be the DAPE of the assessee in India. 12. As we have concluded hereinabove that the ATCs are the agent's of an independent status of the assessee viz. IATA, Canada, within the meaning of Article 5(5) of the India-Canada tax treaty, therefore, there remains no occasion for us to deal with the contentions advanced by the Id. A.R that the ATCs do not satisfy the conditions laid down for dependant agent PE under Article 5(4) of the tax treaty, which aspect is thus left open. 13. In the backdrop of our aforesaid observations, we herei....
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....strial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 or Article 8 from activities described in paragraph 3(c) or 4 of Article 8." As observed by us hereinabove, the assessee pursuant to the request from the student's/ATCs despatches the course material i.e the learning kit in the form of books or CD's directly to the students or ATCs. Although, the course material providing knowledge, information and training about the aviation and travel and tourism industry in general is sold to the students/ATCs, but no 'use' or 'right to use' any copyright in relation to such study material is granted to them. In fact, the student's/ATCs do not have any right to reproduce/sell the contents of the study material in any form or media. As the course material providing knowledge, information and training about the av....
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....sessee for providing course material to the students/ATCs was liable to be assessed as royalty, we vacate the same. The Ground of appeal No. 2 raised by the assessee. is allowed in terms of our aforesaid. observations. As we have held that the ATCs are not the DAPE of the assessee, therefore, the Ground of appeal No. 1 raised by the revenue, wherein it had challenged the scaling down of the quantum of revenue attributed by the A.O pursuant to the directions of the DRP is dismissed as having been rendered as infructuous." 4.4. Thus, the above decision of the coordinate bench has thoroughly examined all aspects of the issue before allowing the appeal on this issue. For AYs 2011-12, 2014-15 and 2016-17 also, the coordinate benches had held that the income of the assessee from the provision of distance learning courses is not taxable in India, after placing reliance on the decision of the Hon'ble Apex Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (2021) 125 taxmann.com 42 (SC). 4.5 Respectfully following the above decisions of the coordinate benches, after noting that there is no change in the facts and circumstances in this year, we hold that the addit....
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.... upheld. 5.3 We have heard the rival claim and perused the material placed before us. We find that this issue also stands covered in favour of the assessee vide the order of the coordinate bench for AY 2012-13. Relevant portion of the order is reproduced below: "15. We shall now deal with the claim of the assessee that the A.O/DRP had erred in taxing the income from sale of physical publications (i.e DGR manuals) as royalty income under Article 12(3) of the India-Canada tax treaty. On a perusal of the orders of the lower authorities, we find, that the assessee had came up with annual physical publications known as "Dangerous Goods Regulations Manual" ('DGR' manuals), which provided information inter-alia pertaining to handling of shipment of dangerous goods. These publications could be purchased online by the airlines or any other customer who was involved in the business of transportation of cargo. The DGR manuals published by the assessee was based on the "Technical Instructions for the Safe Transport of Dangerous Goods by Air", as were developed by the International Civil Aviation Organization (hereinafter referred to as "ICAO"), a United Nations age....
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....conciliation statement that was filed by the assessee in respect of the amounts which were wrongly treated by it as royalty received from the ATCs, Page 82-84 of APB'. Being of the view that the DGR manual was a proprietary material sold by the assessee viz. IATA, Canada, which falls in the category of "Information concerning industrial, commercial or scientific experience" the A.O/DRP held the receipts from sale of the DGR manuals as 'royalty' within the meaning of Article 12(3) of the India-Canada tax treaty. 16. Aggrieved, the assessee has assailed the treating of the sale consideration of DGR manuals/publications as 'royalty' by the A.O/DRP. We have heard the authorised 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. As observed by us hereinabove, the DGR manuals published by the assessee were a compilation of the Instructions on Dangerous Goods developed by ICAO, which in a comprehensive manner provided a user friendly compilation of instructions for safe transport of goods as laid down by ICAO. In the backdrop of the ....
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....ructions for safe transport of dangerous goods as laid down by ICAO did not share its experience, techniques or methodology employed in developing the publication with the subscribers nor did it impart any information relating to the formation of the publication; * The information or data transmitted through the publication was already available in the public domain and it was not something which was exclusively available with the assessee. In fact, the assessee merely compiled and presented information in a proper form by applying its own methodology; * Further, the information concerning any industrial, commercial or scientific experience (i.e., know-how) generally implies undivulged technical information in the areas of industry, commerce or science, which however, was not so insofar the information published in the DGR manuals was concerned. Accordingly, on the basis of our aforesaid observations, we are of a strong conviction that the consideration received by the assessee on sale of DGR manuals cannot be brought within the realm of the definition of 'royalty' as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is ....
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....ppeal is, accordingly, allowed. 6. Ground No. 4: Provision of advertising space (Rs. 1,20,962/-) 6.1 With regard to this issue, Ld. AR has made the following submissions: IATA Canada has provided advertising space to its customers either on its website that was located outside India, or in its publications/manuals that were published by it outside India. The customer does not get any rights in the publication or the website, it merely provides the advertisement. The provision of the advertisement space in both the website and the publications was managed by IATA Canada from outside India and the consideration for rendering such services was also received directly in a bank account outside India. The Hon'ble Mumbai Tribunal in IATA Canada's own case for AY 2012-13 held that revenue received from provision of advertising space is not taxable as 'royalty' as per Article 12(3) of the India Canada 6.2 Ld. DR while placing strong reliance on the order of Ld. AO, has not controverted the claim of the Ld. AR that the issue is a recurring one and is covered by the orders of the coordinate benches in earlier years. 6.3 We have h....
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....l within the realm of the definition of 'royalty' as provided in Article 12(3) of the India-Canada tax treaty. In sum and substance, as no 'use' or 'right to use' any copyright, patent, trademark, design or model, plan was granted to the customers by the assessee in the course of providing of advertising space to them in its publications/manuals or website, the consideration received in lieu thereof cannot be brought within the meaning of the definition of the term 'royalty' as provided in Article 12(3) of the India-Canada tax treaty. Viewed from another angle, as the customers by obtaining an advertising space in the website or publications/manuals of the assessee in no way get vested with any right to commercially exploit the brand or logo of the assessee, therefore, the consideration therein received by the assessee for providing such advertising space would fall beyond the meaning of the term 'royalty' as defined in Article 12(3) of the India-Canada tax treaty. Our aforesaid view that consideration received by an assessee for providing advertising space cannot be held as 'royalty' in its hands is fortified by the order of the ITAT....
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....deration received by the assessee for a simplicitor providing of advertisement space to the customers in its publications/manuals or website cannot be held as 'royalty'. Our aforesaid view is supported by the order of the ITAT, Kolkata in the case of ITO Vs. Right Florists Pvt. Ltd. (2013) 143 ITD 445 (Kol). In the said case, it was observed by the Tribunal that payment made by assessee for online advertisement to Yahoo and Google was not in the nature of 'royalty'. A similar view had also been arrived at by the ITAT, Mumbai in the case of Pinstorm Technologies Pvt. Ltd. Vs. ITO (2013) 154 TTJ 0173 (Mum). In the said case, it was observed by the tribunal that the amount paid by the assessee to M/s. Google Ireland Ltd. for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax was deductible at source since the same was not chargeable to tax in India in the absence of any PE. Accordingly, on the basis of our aforesaid observations we are unable to persuade ourselves to subscribe to the characterisation of the consideration received by the assessee for providing advertising space to it....
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....ia. These databases comprise of publicly available data for e.g.: IATA Rates of Exchange (IROE)/ passenger tariffs etc. which is collated, stored and displayed in an organized manner by Assessee. For accessing the databases, a request is placed by an Indian customer by logging on Assessee's website. Pursuant thereto, the customer is required to submit an online form and the necessary subscription fee by credit card/ bank transfer. These databases are maintained by Assessee outside India. Further, the subscription fee for accessing these databases is also received by Assessee in its bank account outside India. However the AO/DRP held that the information shared by the assessee are copyrighted information and therefore the amount received towards data base access facility should be treated as Royalty to be taxed in India. 16. The Id AR submitted that the assessee through data base access is facilitating the access to otherwise publicly available information in one place to the Airlines, customers etc. The Id AR further submitted that by providing the data access the assessee is not imparting any information concerning the technical, industrial, commercial or scientific e....
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....ility, Ld. AR has submitted the submissions as under: "The ICH facility enables the world's airlines and industry suppliers to settle their passenger, cargo and miscellaneous/ non-transportation billings ICH facility provided by IATA Canada involves facilitation for raising of the invoices, netting-off of payables and receivables, providing transaction details report to the airlines and industry suppliers The said ICH facility enables the airlines and SPs to settle their billings/ dues securely and efficiently, thereby, reducing their exposure to losses arising on account of foreign currency fluctuation The said services are provided by IATA Canada directly outside India and the fees in respect of the said services are also received by IATA Canada directly outside India." 8.2 For the issue of membership fees Ld. AR submitted the submissions as under: "IATA Canada is a corporation incorporated under the Special Act of the Parliament of Canada. It is a non-profit organisation whose purpose, objects and aims are to promote safe, regular and economical air transport for the benefits of the people of the world. Further, to provide mean....
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.... on principle of mutuality. The Hon'ble DRP for AY 2014-15 and learned AO in its assessment order for AY 2012-13 in the case of IATA India branch (alleged PE) has held that IATA India branch qualifies as a mutual concern." Ld. DR has fairly conceded that these issues are covered by the orders of the coordinate benches in earlier years. 8.3 We have heard the rival submissions and perused the material placed before us. We find that these issues also stand covered in favour of the assessee vide the order (supra) for AY 2012-13 of the coordinate bench. Relevant portion of the order is reproduced below: "(ii). We have given a thoughtful consideration to the contentions advanced by the authorised representatives for both the parties in context of the aforesaid issue under consideration, and have perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them. As is discernible from the orders of the lower authorities, the assessee was given permission by the RBI to open a branch office in India, vide its order dated 25.11.1995, under Sec. 29 of the Foreign Exchange Regu....
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....e Apex Court that the same limits the tax on business profits to that arising from the operations of the PE. It was observed by the Hon'ble Court, that as in the case before them the entire services were rendered outside India, and had nothing to do with the PE, therefore, nothing could be attributed to the PE and thus brought to tax in India. Apart from that, it was observed by the Hon'ble Apex Court that in case of composite transactions which have some operations in one territory and some in others, the principle of apportionment has to be essentially applied in order to determine the taxability of various operations. In the backdrop of the aforesaid NISTRY OF Settled position of law, the amount of profit that would be attributable to a PE would be on the basis of the extent appropriate -o the role played by the PE in the transaction from which revenue as been generated. We are unable to subscribe to the manner in which the A.O/DRP had summarily rejected the claim of the assessee that as the ICH services were provided by the assessee, viz. IATA, Canada directly outside India, and the fees in respect of the said services was also received by the assessee in its bank accou....
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....ing is made by the agent and allows the agent to pay on the BSP system. Thus, these facilities act as a communicating link between the systems of the airlines, agents and the billing and settlement system which undertakes the settlement activities between airlines and agents. The consideration in respect of such services is received directly outside India. Separately, IATA India branch files its return of income in India disclosing the surplus/ deficit which is not taxed in India based on principle of mutuality. The Hon'ble DRP for AY 2014-15 and learned AO in its assessment order for AY 2012-13 in case of IATA India branch (alleged PE) has held that IATA India branch qualifies as a mutual concern." 10.2 Ld. DR has fairly conceded that the issue is a recurring one and is covered by the orders of the coordinate benches in earlier years. He has however strongly relied on the order of Ld. DRP and submitted that the addition made by the Ld. AR deserves to be upheld as the department has not accepted the order of the coordinate bench. 10.3 We have heard the rival submissions and perused the material placed before us. We find that this issue also stan....
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....redit notes issued to its customer in subsequent year alongwith the copy of original invoices and corresponding credit notes. Copy of the additional evidence was also submitted with the learned AO. Pursuant to above, the remand report dated 27 April 2023 issued by the learned AO forwarded to IATA Canada by the Hon'ble DRP vide notice dated 2 May 2023 wherein the application for additional evidence made by IATA Canada was not accepted on the basis that IATA Canada did not furnish third party confirmation w.r.t credit notes accepted and also IATA Canada has not furnished the relevant documents regarding how the transaction related to credit notes have been incorporated in the books of accounts of the customer. Pursuant to above, IATA Canada filed a rejoinder to the remand report issued by the learned AO on 8 May 2023 and a sample email communication dated 27 April 2020 regarding a request from BEST to cancel an invoice as the training was rescheduled in light of the Covid-19 situation." 11.2 Accordingly, Ld. AR has submitted that the income from class room training course was suo moto offered to tax in AY 2020-21 amounting to USD 1,36,325 (INR 1,01,83,478) sh....