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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI G.S. PANNU, HON’BLE & SHRI SAKTIJIT DEY
PER SAKTIJIT DEY, JM:
The assessee has filed the captioned appeals assailing the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short ‘the Act’) pertaining to assessment years 2018-19 and 2019-20, in pursuance to the directions of learned Dispute Resolution Panel (DRP). & 1567/Del/2022 AYs: 2018-19 & 2019-20
2. Grounds raised in both the appeals are identical, except variation in figures. Therefore, for the sake of brevity, we reproduce the grounds raised in ITA No.1566/Del/2022:
“Based on the facts and circumstances of the case, Travelport International Operations Limited ('the Appellant') respectfully appeals against the order passed by the Assistant Commissioner of Income- tax, Circle-3(1)(1), International Taxation- 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").
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.
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 is the sole distributor of Travel port GDS in India i.e. only ITQPL is authorized to sell GDS; • ITQPL is economically dependent on the Appellant; • ITQPL is not allowed to sell any other company's GDS in India without the permission of the Appellant • ITQPL group's own airline IndiGo uses only Travelport GDS to sell its tickets in the world & 1567/Del/2022 AYs: 2018-19 & 2019-20
4. 1 That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP have erred in not placing reliance on the facts that Appellant pays distribution fees to ITQPL for marketing and distributing its Computer Reservation System (`CRS') in India. 4.2 That on the facts and circumstances of the case and in law, the Ld.AO and the Ld. DRP have erred in not placing reliance on the facts that arrangement is governed by distribution agreement and basis such agreement, it is clear that ITQPL is an independent principle, working on non-exclusive basis and is not dependent on Appellant for its activities.
4. 3 That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP have erred in not placing reliance to the submissions of the Appellant wherein it was stated that the Appellant has no financial interest in its distributors including ITQPL and also have no representation in its management, which is a significant factor in establishing the independence of ITQPL.
5. That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP have grossly erred in holding the Appellant to be a conduit entity under the stepping-stone conduit framework and thereby denying the eligibility of India-UK tax treaty based on the following allegations: • No corporate structure of the group was provided by the Appellant during the assessment proceedings • Group entities are held to be investment holding companies and are structures to turn profits into loss, claiming exemption from tax on dividends etc. • There are no employees in the Appellant entity or any other group entity in UK • There is a common pool of directors and none of the entities pay remuneration to such directors • Huge expenditure incurred towards Sales & Marketing Offices (SMOs) which are Travelport group entities • Appellant's tax to revenue ratio is very low
5.1 That on the facts 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 3 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 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 which are evidently satisfied in the case of the Appellant. 5.4 Without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. DRP has erred in not placing reliance on the litigation history and facts of the Appellant, which clearly demonstrated that the business model, facts and the issues have undisputedly remained the same in past 24 years and have been duly examined by the Hon’ble ITAT/Hon’ble High Court to hold ‘Nil’ taxable income in India. 5.5 That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP have erred in not placing reliance on the. Tax Residency Certificate (`TRC') which is a conclusive proof of the status of residence of the Appellant along with beneficial ownership for availment of India-UK tax treaty benefits and concluding that, the Appellant is not a conduit entity.
6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding that the Appellant has 'Business in' India under section 9(1)(i) read with section 5(2) of the Act and is therefore, liable to tax in India. 6.1 Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP erred in not appreciating the fact that the Appellant does not have any operations in India, and hence in absence of any operations in India, no income can be apportioned to India in terms of Explanation (a) to section 9(1)(i) of the Act.
7. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Ld. AO has erred in determining the business profits of the Appellant attributable to its alleged India operations on an adhoc basis at 25% of India based revenue by applying Rule 10 of Income-tax rules 1962 and drawing & 1567/Del/2022 AYs: 2018-19 & 2019-20
analogy from section 115A of the Act, without giving any cogent reasons and without allowing any expenses.
7.1 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 from AY 1995-96 to AY 2012-13, AY 2014-15 and AY 2017-18 wherein after considering the facts it has been held that correct 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 amounting to USD 8,18,57,911 paid to ITQPL. That on facts and in circumstances of the case and in law, the Ld. AO and the Ld. DRP has erred in not appreciating the fact that the payment is made to resident assessee i.e. ITQPL and thus, disallowance for non-deduction of taxes cannot be made u/s 40(a)(i) 8.3 That on the facts and in the circumstances of the case and without prejudice to the Appellant's claim of full deduction of distribution fees, the Ld. AO and the Ld. DRP has erred in not allowing deduction of 70% as per section 40(a)(ia) of the Act.
8.4 On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in not allowing technology service fee amounting to USD 1,02,23,158 and vendor cost of USD 11,65,675 and not providing any cogent reason for not allowing the same. 5 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 8.5 On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in not allowing deduction of Amortization on all Intangible assets amounting to USD 1,03,48,744 and not providing any cogent reason for not allowing the same. 8.6 On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP haveerred in not allowing the deduction of the claim of finance cost expenditure of USD 1,02,78,698 and R&D cost share of USD 57,11,833 and not providing any cogent reason for not allowing the same.
9. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, iri case the Business Connection (`BC')/ Permanent Establishment (PE') is upheld, the consequential relief under section 44C should be allowed to the Appellant as per the law and the eligibility.
10. The Appellant denies each and every allegation and statement made by the Ld. AO in the impugned order and orders relied upon by him, unless the same is specifically admitted by the Appellant or is otherwise borne out by the record.
11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in charging interest under section 234B of the Act.
12. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 270A(2) of the Act.
13. The Appellant prays for leave to add, alter, amend and/ or' modify any of the grounds of appeal at or before 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. & 1567/Del/2022 AYs: 2018-19 & 2019-20
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.
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:
The ability to display flight schedule and seat availability.
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.
Basically, these services are provided to airlines for helping them in facilitation of booking of tickets. For each completed booking using assessee’s CRS/GDS, airlines pay booking fee to it.
It is noteworthy, CRS was earlier owned and managed by Gallilio International Inc. (GII), a USA based entity, which operated worldwide. In the year 2002, the territory operation was split into two parts, where under, territory (1) covered USA and Canada, 7 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 whereas, territory (2) covered rest of the world. The responsibility of business in territory (2) was given to a Netherlands based entity, viz., Travelport Global Distribution System (BV). However, w.e.f. 1st January, 2016, pursuant to group re-organization, the CRS operations of the Netherlands based entity was operated by the assessee.
Having given a brief of factual backdrop of assessee’s activities, it is necessary to observe, for the impugned assessment years, the assessee had filed its Income Tax Returns declaring nil income. In course of assessment proceedings, the Assessing Officer noticed that in India the assessee has appointed Inter- globe Technology Quotient India Pvt. Ltd. (ITQPL) as distributor of its GDS. Though, the assessee claimed that it had no business connection or PE in India so as to bring to tax the fee received from CRS/GDS, however, the Assessing Officer was not convinced. After analyzing the submissions of the assessee in the context of facts and materials on record, as well as, the business model of the assessee, the Assessing Officer concluded that the assessee is a conduit company within stepping stone type of conduit framework created primarily for the purpose of treaty shopping. Thus, he held that the assessee is not entitled to the 8 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 benefits of India-UK Double Taxation Avoidance Agreement (DTAA). Further, he held that the assessee has a dependent agent PE in India in the form of ITQPL. Hence, the business profits attributable to the PE have to be computed under clause (1) of Rule 10 read with section 115A of the Act.
Having held so, she attributed 25% of the total turnover of the assessee to the PE and brought to tax, such profits attributed to the PE applying the rate of 40%. Accordingly, the Assessing Officer proposed draft assessment orders in similar lines in both the assessment years under dispute. Against the draft assessment orders so proposed, the assessee raised objections before learned DRP. After considering the submissions of the assessee in the context of facts and materials on record, learned DRP found that 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.
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 9 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 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.
Having considered rival submissions, we find, while deciding assessee’s appeal for assessment year 2017-18 in 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 Paperbook Part 1.) The relevant extracts from this order are re-produced as under:
"17.1 In the present case it is seen that the CRS, which is the source of revenue is partially existent in the machines namely various computers installed at the premises of the subscribers. In some cases, the appellant itself has placed those computers and in all the cases the connectivity in the form of nodes leased from SITA are installed by the appellant through its agent. The computers so connected and configured which can perform the function of reservation and ticketing is a part and parcel of the entire CRS. The computers so installed require further approval from appellant/Interglobe who allows the use of such computers for reservation and ticketing. Without the authority of appellant such computers are not capable of performing the reservation and ticketing part of the CRS system. The computer so installed cannot be shifted from one place to another even within the premises of the subscriber, leave apart the shifting of such computer from one person to another. Thus, the appellant exercises complete control over the computers installed at the premises of the subscribers. In view of our discussion in the immediately preceding paragraph, this amounts to a fixed place of business for carrying on the business of the enterprise in India. But for the supply of computers, the configuration of computers and connectivity which are provided by the 10 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 appellant either directly or through its agent Interglobe will amount to operating part of its CRS system through such subscribers in India and accordingly PE in the nature of a fixed place of business in India. Thus the appellant can be said to have established a PE within the meaning of paragraph 1 of Article 5 of Indo-Spain Treaty."
"17.4 …………………..The dependent agent is not to be considered as PE unless he has authority to conclude contract on behalf of such enterprise. The authority to conclude contracts must be in respect of contracts relating to operations, which constitute the business proper of the enterprise. The appellant in the present case in order to enhance its business operations has appointed Interglobe as its agent who promote the 'Galileo System' in India. Interglobe in its turn has appointed various subscribers for use of 'Galileo System'. Though the revenue flows only from 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 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."
The Hon'ble Delhi High Court vide its order dated 25 Feb 2009 (ITA No. 1048 to 1055/2008 and 17437/2008, 17409/2008, 17438/2008, 17473-74/2008, 17469- 70/2008, 17410/2008, 17439/2008 and 17471/2008 ) in case of GII for such first batch of 4 years from AY 1995-96 to AY 1998-99 held the issue of PE/BC as academic as overall taxability of GII was held to be Nil. The relevant extracts from this order are re-produced as under:
"These appeals were listed along with the appeals filed by Revenue against the same judgment. The appeals filed by 11 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20
Revenue have been dismissed by us vide our orders passed in today's date in WP(C) No. 851/2008. In view of this dismissal of those appeals of the Revenue, learned counsel for appellant submits that the question raised in these appeals have become academic and are therefore, dismissed."
25. Against the Hon'ble Delhi High Court order for AY 1995-96 to AY 1998-99, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP No. 6511 to 6518/2010. The Hon'ble Supreme Court vide its order dated 22 November 2019 dismissed (as withdrawn) SLP Nos. 6512 to 6515/2010 and 6517 to 6518/2010 pertaining to AY 1995-96, 1996-97 and AY 1998-99 on account of low tax effect, in consonance with circular No. 17 of 2019, leaving the question of laws open. For remaining SLPs, the matter is pending for adjudication before the Hon'ble Supreme Court.
26. In the second batch of 4 years i.e. from AY 1999-00 to 2002-03 in case of GII, the Hon'ble Delhi ITAT vide its order dated 17th March 2011 (ITA No.2971-2974 /Del/2010) (Page 281 to 284 of Paperbook Part 1), held as under :
"4. Regarding various grounds raised by the assessee in the cross objections relating to existence of business connections in India and accrual and arising of Income in India and the deemed accrual and deemed arising of Income in India and existence of PE in India etc., it was submitted that these issues were decided by the tribunal against the assessee in assessment year 1995-96 to 1998-99. He submitted a copy of tribunal decision in assessee's own case for these assessment years 1995-96 to 1998-99 in 2473- 2475/D/2000 and 820-823/D/2005 and CO. No. 47 to 54/D/2006 dated 30.11.2007. It is also submitted that against this tribunal order; 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- 12 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20
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."
Hon'ble Delhi High Court in its order dated 25th September 2012 (ITA No. 1148 to 1151/2011 and to 472/2012) in case of GII for such second batch of 4 years from AY 1999-00 to AY 2002- 03 relied on the decisions of Hon'ble Delhi ITAT and Hon'ble Delhi High Court in case of GII for first batch of 4 years and held that since factual matrix is same, the earlier decision of Hon'ble Delhi High Court in case of 25.02.2009 is squarely applicable i.e. issue of PE/BC is academic.
28. Against the Hon'ble Delhi High Court order for AY 1999-00 to 2002- 03, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP Nos. 2956 of 2014, 2242 of 2013, 7222 of 2013, 2241 of 2013. These SLPs are pending adjudication by Hon'ble Supreme Court.
In the third batch of 4 years i.e. from AY 2003-04 to AY 2006-07 in case Galileo Netherland BV (GNBV) (now known as Travelport Global Distribution System BV) (TGDSBV) (Predecessor of the Appellant and Successor of GII), the Delhi ITAT vide its order dated 29th June 2012 (ITA No. 1306 to 1309/Del/2012), dismissed the cross objections raised by GNBV on PE/BC ground. It was held that:
"21. Now coming to the cross objections filed by the assessee in all these years four years. The Ld. AR did not argue the cross objections and therefore these cross objections are treated as not pressed. Therefore, the assessee's cross objections in all four years are dismissed"
The Hon'ble Delhi High Court in its order dated 25 th August 2014 (ITA No. 654/2012 656/2012, 659/2012 & 661/2012) in case of Galileo Netherlands B.V (GNBV) (Successor of GII and Predecessor of the Appellant) for third batch of years i.e. AY 2003-04 to AY 2006- 07 refrained from forming any opinion on GNBV's PE/BC in India. Relevant extract of this order is reproduced as under:
(Please refer Para 2 on Page 313 of Paperbook Part 1) "2. We begin with a caveat that a limited issue and question arises for consideration in these appeals and we are not required are not pronouncing any opinion and finding on whether the appellantassessee had a Permanent Establishment (PE) in India and other related issues. The only 13 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 question and issue raised in these appeals relates to profit attribution to Indian Operations on the assumption that the appellant- assessee had a PE in India."
Against 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.
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.”
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 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 assessee’s predecessor entities i.e. TGDSBV and Galileo International Inc. (“GII”). The relevant para of the Hon’ble Delhi ITAT’s order dated 27.09.2021 is reproduced below:-
“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.”
Similarly, for AY 2007-08 to 2012-13 and AY 2014-15 in the case of TGDSBV (assessee’s predecessor), the coordinate bench of ITAT vide its order dated 13.10.21 following the decisions in the case of TGDSBV and GII held as under:
“14. Hence, respectfully following the established judicial pronouncement, we hereby hold that the assessee has & 1567/Del/2022 AYs: 2018-19 & 2019-20
Business Connection and Permanent Establishment (PE) in India.” Accordingly, we decide Ground No. 4 and 5 in favour of the Revenue and against the assessee.”
Facts being identical, respectfully following the consistent view of Hon’ble Jurisdictional High Court and Coordinate Bench in assessee’s own case, as discussed above, we decide these grounds against the assessee by holding that the assessee has business connection and PE in India. These grounds are dismissed.
In ground no. 6, the assessee has raised the issue of attribution of profit to PE at 25% of the total turnover.
14. As discussed earlier, while framing the draft assessment orders, the Assessing Officer held that the assessee is not entitled to avail any benefit under India-UK DTAA. Further, he held that 25% of the total turnover should be treated as profits attributable to the PE. While disposing of assessee’s objections on the issue, learned DRP directed the Assessing Officer to verify whether the department has gone in appeal against the decision of the Tribunal in earlier assessment years and in case, it is found to be so, to sustain the addition. The Assessing Officer having found & 1567/Del/2022 AYs: 2018-19 & 2019-20 that the department has gone in appeal against the decisions of the Tribunal, confirmed the additions.
Before us, it is a common point between the parties that the issue stands covered in favour of the assessee by decisions of the Tribunal in assessee’s own case in past assessment years.
16. Having considered rival submissions, we find, while deciding identical issue in assessment year 2017-18 (supra), the Tribunal has held as under:
“33. Ground No.6 is covered in favour 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.
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. The extent of work in India is only to the extent of generating request and receiving end-result of the process in India. The major functions like collecting the database of various airlines and hotels, which have entered into PCA with the appellant takes place outside India. The computer at Denver in USA processes various data like schedule of flights, timings, pricing, the availability, connection, meal preference, special facility, etc. and that too on the basis of neutral display real time on line 16 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 takes place outside India. The computers at the desk of travel agent in India are merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. Such function requires huge investment and huge capacity, which is not available to the computers installed at the desk of subscriber in India. The major part of the work or to say a lion's share of such activity, are processed at the host computer in Denver in USA. The activities in India are only minuscule portion. The appellant's computer in Germany is also responsible for all other functions like keeping data of the booking made worldwide and also keeping track of all the airlines/hotels worldwide that have entered into PCA. Though no guidelines are available as to how much should be Income reasonably attributable to the operations carried out in India, the same has to be determined on the factual situation prevailing in each case. However, broadly to determine such attribution one has to look Into the factors like functions performed, assets used and risk undertaken. On the basis of such analysis of functions performed, assets used and risk shared in two different countries, the income can be attributed. In the present case, we have found that majority of the functions are performed outside India. Even the majority of the assets, i.e., host computer which is having very large capacity which processes information of all the participants is situated outside India. The CRS as a whole is developed and maintained outside India. The risk in this regard entirely rests with the appellant and that is in USA, outside India. However, it is equally important to note that but for the presence of the assessee in India and the configuration and connectivity being provided in India, the income would not have generated. 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 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 17 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20
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 computers of the subscribers and maintaining them. Interglobe is also responsible for training of the subscribers in respect of use of CRS. For all these services rendered by Interglobe to the appellant, it is being paid remuneration in terms of distribution agreement. Broadly the assessee receives three 'Euros' as fees per 'net booking', i.e., gross booking minus cancellation. The assessee passed one dollar to Interglobe for each net booking processed through Galileo system by subscriber. Thus, in respect of the activities carried out in India and considering the income accruing in India, remuneration paid to the Indian agents consumes the entire income accruing or arising in India………………."
(Para 18 on Page 251 of Paperbook Part 1)
"18…………………………While dealing with the question as to what is such part of income as is reasonably attributable to the operations carried out in India, we have held that only 15 per cent of the revenue generated from the bookings made within India is taxable In India. The same proportion has to be adopted here while computing profit attributable to the PE. We have also held that since the payment to the agent in India is more than what is the income attributable to the PE in India, it extinguish the assessment as no further income is taxable in India. It is to be noted that even in the first assessment framed by the Assessing Officer, the entire expenses in the form of remuneration paid to Interglobe was held as allowable deduction and was reduced while computing the income of Appellant. If that be the case, the income attributable to PE in India being less than the remuneration paid to the dependent agent, it extinguishes the assessment and requires no further exercise for computation of income. We accordingly hold so and in view of the same the income of the Appellant will be NIL."
The revenue authorities thereafter filed, (Para 5 on Page 260 of Paperbook Part 1) a Miscellaneous Application (MA) before the ITAT to revise the earlier order on the ground that, even after holding that the Appellant's predecessor i.e. GII has a PE in India the Hon'ble ITAT erred in holding that no income was attributed to the said PE. The questions posed also included manner of attribution i.e. whether attribution is on sales or the net profits. The revenue authorities contended that the attribution should be on the net profits and not 18 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20
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 India………"
"…………9. We find that all issues arising in the appeal have beenanswered. Neither any argument nor any ground is left out. In view of overall situation if the tribunal has consciously come to the conclusion that no income accrues in India and in respect of which elaborate reasons are given, if the applicant do not agree with the reasoning, it cannot be said that any mistake has crept in the order of the Tribunal which is rectifiable under section 254(2) of the Act. We therefore decline to interfere".
The Hon'ble Delhi High Court in case of Galileo International Inc (GII) (Predecessor of the Appellant) in the first batch of 4 years- AY 1995- 96 to 1998-99 upheld the decision of Hon'ble Delhi ITAT for these years, vide its order dated 25th Feb 2009 (ITA No. 851 to 856 of 2008, 859 to 860 of 2008), it was held as under:
"The Tribunal thereafter discussed the principle which is to be followed in apportioning the Income-tax accruing in India and the Income accruing outside India. The Tribunal found that only a part of CRS order operates and functions in India. The extent of working in India is only to the extent of channelizing the request and receiving the result of the process in India and the major functioning and collecting the data base of various airlines and hostels which have entered into PCA with the respondent takes place outside the India. The Tribunal also took into consideration the fact that the computer of Denver at USA processes various data like schedule of flights, timings, 19 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 pricing, the availability, connection, meal preference, special facility, etc. and that too on the basis of neutral display real time on line takes place outside India. Insofar as the role played in India is concerned, that is limited to the computers at the desk which are merely connected or configured to the extent that it can perform a booking function but are not capable of processing the data of all the airlines together at one place. The Tribunal was also influenced by another important fact viz., such functioning requires huge investment and huge capacity which is not available in the computers installed at the desk of the subscriber in India. On this basis, the Tribunal formed the opinion that major part of the work are processed at the host computer in Denver in USA and the activities in India are only minuscule 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 has been allowed as expenses while computing total Income of the respondent. After arriving at these findings of facts, the Tribunal referred to Circular No. 23 of 23-7-1969 which prescribes that no income can be further charged to tax in India. To same effect is the judgment of the Supreme Court in Morgan Stanley & Co. Inc.'s case (supra)"
(Please refer last Para on Page 276 of Paperbook Part 1)
& 1567/Del/2022 AYs: 2018-19 & 2019-20
"We, therefore, are of the opinion that no question of law arises in these matters which needs any further determination by this Court. These appeals are accordingly dismissed in limine."
Against the Hon'ble Delhi High Court order for AY 1995-96 to AY 1998-99, both the Income-tax department and Appellant's predecessor entity i.e. GII filed an appeal before Hon'ble Supreme Court of India vide SLP No. 6511 to 6518/2010. The Hon'ble Supreme Court vide its order dated 22 November 2019 dismissed (as withdrawn) SLP Nos. 6512 to 6515/2010 and 6517 to 6518/2010 pertaining to AY 1995-96, 1996-97 and AY 1998-99 on account of low tax effect, in consonance with circular No. 17 of 2019, leaving the question of laws open.
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.”
Following the aforesaid decision of the Coordinate Bench, the Tribunal has decided assessee’s appeal in assessment year 2016-17 (supra) holding as under:
“12. Ground No. 6 relates to the attribution of 75% of the India related gross profit instead of 15% of revenue to the alleged PE of the assessee in India. The coordinate bench of ITAT vide its order dated 27.9.2021 in assessee’s own case for AY 2017-18 held that the correct attribution to PE of the assessee in India is 15% of the gross booking fees. The coordinate bench of ITAT followed the decisions of Hon’ble Delhi High Court and Hon’ble ITAT in the case of assessee/assessee’s predecessor entities i.e. TGDSBV and GII to arrive at the above conclusion. The relevant paras of the Hon’ble ITAT’s order is reproduced below:
“33. Ground No. 6 is covered in favour 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 21 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 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.
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- 96 to 2006-07. The Hon’ble Delhi High Court and the Delhi ITAT in Company’s own / predecessor’s case, has held that attribution rate to the alleged India PE is 15% of gross booking fees.
For AY 2017-18 in case of Company’s successor entity i.e., TIOL, this issue on attribution has been held in favour of TIOL by Delhi ITAT vide order dated 27th September, 2021 (ITA No. 163/Del/2021) by relying on the decisions of Hon’ble Delhi High Court and Delhi ITAT in Company/it’s predecessor’s case for AY 1995-96 to AY 2006-07.
Hence, we hereby hold that the correct attribution rate be taken at 15% of the gross booking fee for the years in appeal before us.”
Accordingly, following the decisions (supra), we decide the issue in favour of the assessee.”
Thus, considering the consistent view of the Hon’ble Jurisdictional High and the Tribunal in assessee’s own case in past assessment years, we hold that 15% of the booking fees should be attributed to the PE in India. Ground no. 7 is allowed. & 1567/Del/2022 AYs: 2018-19 & 2019-20
19. In ground no. 8, the assessee has challenged disallowance of various expenses, including distribution expenses/distributors fee while computing the profit of the PE. As could be seen from the facts on record, while the Assessing Officer did not allow any expenses from the profit attributed to the PE, learned DRP directed the Assessing Officer to confirm the addition, in case, the department has gone in further appeal against the decision of the Tribunal.
Be that as it may, while deciding identical issue in past assessment years, the Tribunal has held that 100% deduction of distribution expenses/distributors fee has to be allowed.
Whereas, in respect of all other expenses, 70% deduction has to be allowed. In this regard, we refer to the following observations of the Coordinate Bench in assessee’s own case in assessment year 2016-17 (supra):
“13. Ground No. 7.1 relates to allowability of 100% of distribution expenses. This ground is covered in favour of the assessee in the case of assessee’s predecessor entity i.e. TGDSBV for AY 2007-08 to 2012-13 and AY 2014-15, wherein the coordinate bench of ITAT vide its order dated 13.10.2021 allowed 100% deduction of distribution fees in the hands of the assessee. The relevant paras of the Hon’ble Delhi ITAT’s order is reproduced below: “21. For AYs 1995-96 to 2006-07, the Assessing 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 & 1567/Del/2022 AYs: 2018-19 & 2019-20 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...
Thus, it was duly accepted by the revenue authorities that the distribution expenses incurred by the assessee is for maintaining their network of subscribers/ travel agents and thus, an inseparable part of the business and thus it cannot be denied that the expenses have been incurred for the purpose of the business.
26. It is also an accepted fact that there is only one business of the Company i.e., the CRS business. Therefore, all expenses incurred by Company including distribution expenses can only be related to such business. Thus, the AO's argument that distribution fees is not related to its business since its nomenclature in invoices is specified as 'data processing charges' instead of distribution fees lacks basic fallacy. The similar issue has come up before the Delhi ITAT in case of another CRS entity i.e., Amadeus IT Group SA for AY 2007-08 to AY 2012-13 dated 26 October 2020 (ITA No. 4906/Del/2010, ITA No. 60/Del/2013, ITA No. 1824/Del/2014, ITA No. 1204/Del/2015 and ITA No. 1626/Del/2016, wherein the distribution expenses incurred by the assessee were allowed.
It is also on record that the distribution commission has been made to resident of India and duly offered to tax. Hence, the provisions of Section 40(a)(ia) are not attracted in the instant case. Since, there is no change in the factual matrix and legal proposition, we hereby allow the claim of the assessee.” Following the decisions (supra) we hold in favour of the assessee.
Ground No. 7.2 and 7.3 relate to allowability of other expenses like apportionment of technology service fees, vendor cost, amortization expenses and finance cost. The coordinate bench of ITAT vide its order dated 13.10.2021 in the case of assessee’s predecessor entity, TGDSBV for AY 2007-08 to 2012-13 and AY 2014-15 has allowed 70% deduction of all other expenses in the 24 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20
hands of TGDSBV relying on non-discrimination clause. The relevant para of the Hon’ble ITAT’s order is reproduced below:- “30. The AO disallowed entire amount (100%) claimed by the assessee on account of other expenses such as royalty, vendor cost, license fee owing to non-deduction of withholding tax. From the above table, the position of the profit/loss of the assessee is evident. After deduction of the distribution expenses and 15% booking fee, the assessee is left with no taxable profit. Considering the disallowance @ 30% u/s 40(a)(ia) in accordance with the law laid down by the Hon'ble Delhi 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.”
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.
In ground no. 9, the assessee has raised the issue of allowance of head office expenses under section 44C of the Act.
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 claim of head office expenditure incurred, notwithstanding the provisions of section 28 to section 44C of the Act. It is further 25 | P a g e & 1567/Del/2022 AYs: 2018-19 & 2019-20 submitted that the Ld. AO and the Hon’ble DRP have suo moto allowed the deduction of head office expenditure in AY 2016-17, however the amount of such expenditure is computed incorrectly. Therefore, the Ld. AO may be directed to provide correct allowance of head office expenditure.
In view of the above submissions of the assessee, we remit this issue to the file of the Ld. AO for allowing the correct claim of the head office expenditure to the assessee in the light of the details/information/ documents already on record and which he may require the assessee to furnish before him. We order accordingly.”
24. Facts being identical, we dispose of the ground with similar direction to the Assessing Officer. Ground is allowed for statistical purposes.
25. Ground no. 11 being consequential and ground no. 12 being premature at this stage, do not require adjudication.
In the result, the appeals are partly allowed.
Order pronounced in the open court on 10th January, 2023