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Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI N.K. BILLAIYA & MS. ASTHA CHANDRA
PER ASTHA CHANDRA, JM
This appeal is filed by the assessee against the order of the Asst. Commissioner of Income Tax, Circle-3(1)(1), International Taxation-3, New Delhi, (“AO”) dated 30.10.2019 under section 143(3) read with section 144C(13) of the Income Tax Act 1961 (“Act”) and modified order dated
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 2 6.11.2020 under section 154 read with section 143(3) of the Act pertaining to the assessment year (“AY”) 2016-17.
The assessee has raised the following modified grounds of appeal:-
“1. That on the facts and circumstances of the case and in law, the Assessing Officer has erred in completing the assessment at the total income of INR 47,90,64,320 as against 'NIL' income declared. 2. That the Assessing Officer and the Dispute Resolution Panel ("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 Assessing Officer and the 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 & circumstances of the case and in law, the Assessing Officer and the DRP have erred in holding that the Appellant has business connection in India and as such is liable to tax in India as per the provisions of Act 5. That on the facts and circumstances of the case and in law, both the Assessing Officer and the DRP have erred in holding that the Appellant has:
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 3 ■ A fixed place PE in India under Article 5(1) of the DTAA; and ■ A dependent agent PE in India in the form of Interglobe Technology Quotient Private Limited ('1TQPL') under Article 5(5) of the DTAA. 5.1. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in holding that the Appellant has a PE in India based on the following allegations: — provision of software by Appellant to the Distributor; — access to Galileo CRS by the participating carriers from India; — provision of connectivity by the Appellant through communication lines 5.2. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in holding that the Distributor is fully dependent on the Appellant. 6. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP has erred in attributing 75% of the India related gross booking fee to the alleged activities of the Appellant in India, which is being excessive and unwarranted, by refusing to take
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 4 into consideration that the Appellant’s operations and activities are conducted outside India. 6.1. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in not placing reliance on the order of the Hon'ble DRP in Appellant's predecessors, (i.e. Travelport Global Distribution System BV) case for the A Y 2012- 13 wherein the Hon'ble Delhi High Court's order dated August 25, 2014 was relied upon to decide that the attribution of 15% of the revenue to Indian related operations and after allowance of expenses no income was held to be chargeable to tax in India. 7. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP while attributing Appellant's taxable income to alleged Indian permanent establishment ('PE') as per India-UK Treaty, have erred in not allowing deductions for India related expenses. 7.1. That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP has erred in not allowing deduction of distribution fees amounting to USD 18,393,767 paid to the distributors, despite same being allowed to the applicant’s predecessor for A Y 2015-16. 7.1.1.That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP has erred in
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 5 allowing only 70% of distribution expenses under Section 40(a)(ia) of the Act by alleging that: — Distribution fees is in nature of commission; and — Since taxes are not deducted on such payments, expenses should be disallowed under Section 40a(ia) of the Act 7.2. That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP has erred is not allowing the deduction of Apportionment of Technology service fees for USS 20,20,307 and Vendor cost for USS 38,701 merely by following the DRP directions for AY 2015-16 and not providing any cogent reason for disallowing such expenses 7.3. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in not allowing deduction of amortization on all the Intangible assets amounting to USS 70,05,778, on the ground that: a) No amortization/depreciation on Goodwill and Trademark/tradename has been claimed in the UK corporate tax return of Company. b) No amount is debited as depreciation on Goodwill and Trademark/tradename in the global accounts therefore there is no base to determine the proportionate expenses to be
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 6 allowed for the purpose of computing the profit of the alleged PE in India. c) No reasoning has been accorded by the DRP for disallowing amortization / depreciation on Vendor Relationship amounting to USD 32,137 7.3.1. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred by not appreciating that this expense is incurred by the applicant for the first time in Assessment year 2016-17 and hence, should be considered for deduction. 7.3.2. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in disallowing the deduction of these expenses by incorrect application of Article 7 of the India-UK Double Taxation Avoidance Agreement. 7.3.3. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the DRP have erred in not accepting the ground of Appellant on the claim of finance cost expenditure for USD 2,051,015. 8. Without prejudice to the above grounds, on the facts and in the circumstances of the case and in law, the Assessing Officer and
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 7 the DRP have erred in not allowing to Appellant, the correct claim of head office expenses under section 44C of the Act 9. The Appellant denies each allegation and statement made by the Assessing Officer 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. 10. Without prejudice to the generality of the above, the Appellant denies the following amongst other, incorrect allegations of the Assessing Officer that: The Appellant has a PE in India in the form of fixed place business and agency PE and this finding has been upheld by the Hon'ble Delhi High Court in case of the Appellant's predecessor itself; The Appellant has business connection in India and is receiving income from the sources in India; The payments made by the Appellant to 1TQPL are in the nature of commission; Major part of the activities of the Appellant resulting to the income are attributable to its activities in India; Only activities carried on by the Appellant outside India correspond to the services provided by IBM; The tickets are being booked in India; The Appellant is having assets in India; The Appellant is having its sales team in India:
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 8 The Appellant is providing training to its distributors. 11. That on the facts and in the circumstances of the case and in law, the Ld. AO and the DRP have erred in making factually incorrect allegations with respect to the various expenses and income. 12. That on the facts and in the circumstances of the case and in law, the authorities below have erred in charging interest under section 234B 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.”
The assessee has also raised an additional ground of appeal on 24.12.2020 which reads as under:- “On the facts and in the circumstances of the case and in law, and without prejudice to the contention of Appellant that it has Nil taxability in India, in case any such tax liability is determined, the Appellant should be allowed deduction of education cess forming part of such tax liability.”
The underlying facts of the case including the business model of the assessee remains the same for the AY 2016-17 as it was in the AY 2007-08 to 2012-13 and in AY 2014-15, the appeals for which have already been disposed off by the coordinate bench of the ITAT. We have therefore not gone deep into the factual details except highlighting that with effect from
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 9 01.01.2016, the CRS business of Travelport Global Distribution Systems BV (which was assessee’s predecessor entity) has been assumed by the assessee and accordingly the assesee has been assessed in India for the first time in AY 2016-17 as a new entity, Travelport International Operations Limited, UK.
Briefly stated, the assessee is a company incorporated under the laws of United Kingdom and hence governed by the provisions of Double Taxation Avoidance Agreement entered into between India and United Kingdom (“India-UK DTAA”) being more beneficial. The assessee is engaged in the business of providing electronics global distribution services to the travel industry, in the ‘rest of the world’ territory (including the Indian region) through Computerized Reservation System (“CRS”). CRS is an automated system, which processes booking data and other data to provide the functions such as – (i) the ability to display flight schedule and seat availability; (ii) the ability to display and / or quote airline fare; (iii) the ability to make airline seat reservation; the ability to issue airline tickets; etc.
For the AY 2016-17, the appellant filed its return of income declaring NIL income on 29.9.2016 and thereafter revised return of income on 29.3.2018 declaring NIL income and claiming a refund of Rs. 9,68,98,320/-. The assessee declared that it had received booking fees (pertaining to India) of USD 25,698,697/- from various airlines and has claimed a refund of Rs.
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 10 9,68,98,320/- on account of tax deducted at source (TDS) by the participating carriers. The case was selected for scrutiny under CASS. In response to statutory notices issued by the Ld. AO, the assessee filed various details on the e-filing portal which were examined. The Ld. AO in his draft assessment order concluded that the assessee has a business connection (“BC”)/ Permanent Establishment (“PE”) in India and attributed 75% of the India related gross booking fee to its Indian operations. Further, he allowed only 70% of the subscriber fees paid to Interglobe Technology Quotient Private Limited (“ITQPL”) holding such payment to be in the nature of commission on which tax was not deducted at source before making the payment. All other expenses were disallowed by the Ld. AO not being of operating nature.
The assessee filed objection before the Hon’ble Dispute Resolution Panel (“DRP”) against the draft assessment order. The Hon’ble DRP vide its order dated 29.08.2019 upheld most of the findings of the Ld. AO including the presence of BC/PE of the assessee in India and attribution at 75% of the net profits. The Ld. AO following the directions of the Hon’ble DRP passed the final assessment order on 30.10.2019 which was rectified on 6.11.2020 under section 154 read with section 143(3) of the Act assessing total income at Rs. 47,90,64,317/- as business income to be taxed at the rate of 40% plus applicable surcharge and education cess thereon.
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 11 8. Aggrieved, the assessee is before us. We have heard the Ld. Representatives of the parties. Ld. AR submitted that the modified grounds raised by the assessee are squarely covered by the Delhi ITAT’s order in ITA No. 163/Del/2021 dated 27.9.2021 in assessee’s own case for the subsequent assessment year 2017-18, a copy of which has been filed before us. Ld. AR also submitted that similar grounds taken in the case of the assessee’s predecessor entity namely Travelport Global Distribution System BV (“TGDSBV”) has also been adjudicated by the Hon’ble ITAT vide its order dated 13.10.2021 in ITA No. 5601/Del/2010, 426/Del/2012, ITA No. 357/Del/2013, 746/Del/2014, ITA Nos. 2101 & 6162/Del/2015 CO No. 01/Del/2021 ITA No. 6515/Del/2017 ITA Nos. 3032, 3033 & 3034/Del/2016 pertaining to the assessment years 2007-08 to 2012-13 and assessment year 2014-15, a copy of which has been submitted before us. Ld. DR had no objection to the submissions of the Ld. AR.
The parties have agreed that the facts of the assessment year under consideration are similar to those assessment years in respect of which coordinate bench of the ITAT has already adjudicated and decided the same issues involved in the present appeal. Respectfully following the ITAT’s decisions (supra) we decide the grounds raised by the assessee in this appeal.
Ground No. 1 to 3 are general.
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 12 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 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.
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 13
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 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.”
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 14 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. 16. 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. 19. 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.
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
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 15 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 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 network of subscribers/ travel agents and thus, an inseparable part of the
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 16 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. 5150/Del/2011, 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. 28. 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
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 17 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 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.
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
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 18 section 44C of the Act. It is further 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.
Ground No. 9 to 12 are general and consequential in nature.
Additional ground relating to deduction of education cess has not been pressed by the assessee.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 21st February, 2022.
sd/- sd/- (N.K. BILLAIYA) (ASTHA CHANDRA) ACCOUNTANT MEMBER JUDICIAL MEMEBR
Dated: 21/02/2022
ITA No. 9711/Del/2019 Travelport International Operations Limited vs ACIT 19 Veena Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi