SABRE TRAVEL NETWORK (INDIA) P.LTD,MUMBAI vs. DCIT 8(1)(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

M/s. Sabre Travel Network (India) P. Ltd.,

3.1. Sabre's CRS is situated in Dallas, USA. Revenue at Sabre Singapore is earned under the Global agreements executed by Sabre Singapore independently (without any assistance from NMC) with various airlines outside India. It is the Asia Pacific's leading travel facilitator with around 11,000 agency locations in 24 markets. Sabra Singapore's partners include a consortium of Asia and the world's leading airlines - All Nippon Airways, Cathay Pacific Airways, China Airlines, EVA Airways, Garuda Indonesia, DragonAir, Malaysia Airlines, Philippine Airlines, Royal Brunei Airlines, SilkAir and Singapore Airlines.

4. As Sabre India markets and distributes the GRS in India, it signs up the travel agents in India. Contracts with the travel agents are entered into with Sabre India. Its customers in India include Akbar Travels, Make

M/s. Sabre Travel Network (India) P. Ltd., My Trip.com, Clear Trip.com, Riya Travels, Corporate Clients like Wipro Travel Services Ltd., Flight Raja Group, Atlas Tours & Travels, Trinity Air Travel Pvt Ltd, and India Times.com.

Particulars Amount (Rs) Amount (Rs) Commission 25,56,96,266 Marketing Service Fee 44,50,39,722 Total Income 70,07,35,988 Expenditure Employee Benefit expense 86,127,860 Line Charges 13,174,580 Airfare Transaction Charges 39,360,880 Incentive to Travel Agents 465,039,722 Administrative and Other Expenses 95,822,605 Depreciation 24,667,415 Total Operating Cost 72,41,33,062 Operating margin (2,34,57,074) Berry Ratio (used by assessee) 0.97 Operating Profit / Operating Cost (as -2.99% computed)

M/s. Sabre Travel Network (India) P. Ltd., 5.1. It was observed that assessee as per TP study report relied upon 4 comparable companies. The search criteria adopted by the assessee comprised of the economic activity of Marketing/ Sales Support services, advertising services, exhibitions & publications. As per the transfer pricing study, during the year, Sabre India has rendered marketing services to its Associated Enterprises(AE). The assesses has applied entity level Transactional Net Margin Method (TNMM) for benchmarking its provision of marketing services and has arrived at berry ratio of 0.97 and hence, stated that the international transactions of providing marketing support services are at arm's length.

5.2. As per the TP study report, Sabre Singapore (AE) is responsible for software development and maintenance of Sabre CRS products. Sabre Singapore is also responsible for training of the staff of Sabre India to keep them up to date with the changes and further developments of Sabre CRS software. As per the Agreement, Sabre India is based in Mumbai and its primary functions include responsibility for sales and marketing of Sabre CRS products in India, installation of computer hardware and software for new subscribers, provision of technical support and post sales training to Indian subscribers and maintenance of help desk to assist the subscribers with the technically and operational issues. The assesses markets and distributes CRS in India. It signs and enters into contract with travel agents in India. The entire revenues are collected by the parent Sabre Singapore and 25% of the share of all booking fee commissions is passed on to the assessee for rendering these services.

5.3. The profit level indicator adopted by the assessee was Operating Profit (OP) / Operating Cost (OC) and assessee arrived at a margin of M/s. Sabre Travel Network (India) P. Ltd., (-) 2.99%. The ld. TPO considered the following comparable companies and arrived at the average margin of comparables at 21% as under:-

S.NO. Name of the company Margin(%) PBIT/Cost 1 Apitco Limited 14.77% 2 Killick Agencies and Marketing Limited 26.26% 3 BVG India Limited 24.92% 4 Axis Integrated Systems Limited 29.86% 5 Marketing Consultants & Agencies Limited 9.19% Average 21.00% 5.4. Based on the aforesaid average margin of comparables at 21% worked out by the ld. TPO, the same was considered to be at arm‟s length margin of market support for rendering services which was compared with the margin declared by the assessee at (-) 2.99% and the ld. TPO proceeded to make transfer pricing adjustment for the said international transaction to the tune of Rs.17,33,04,809/- as under:-

Particulars Amount (Rs) Income 70,07,35,988 Total Operating Cost 72,23,47,766 Operating Margin (2,16,11,778) Operating Profit/Operating Cost -2.99% Arm's Length margin 21.00% Arm's Length income 87,40,40,797 Transfer Price 70,07,35,988 Transfer Pricing Adjustment 17,33,04,809

M/s. Sabre Travel Network (India) P. Ltd., 5.5. This transfer pricing adjustment was reduced to Rs.14,03,65,751/- by the ld. DRP by upholding the comparables adopted by the ld. TPO and also by directing the ld. TPO to include one of the comparable companies considered by the assessee i.e. Quadrant Communication Ltd. 5.6. Before us, the ld. AR argued for exclusion of the following comparables:-

(a) Aptico Ltd., (b) BVG India Ltd., (c) Axis Integrated System Ltd., (d) Killick Agencies and Marketing Ltd., 5.7. Exclusion of Aptico Ltd - We find that this comparable had been held to be functionally not comparable with that of the assessee company vide order of this Tribunal in assessee‟s own case in dated 04/05/2018 for A.Y.2012-13. The relevant operative portion of the said order of the Tribunal is as under:-

5.8. Exclusion of BVG India Ltd - We find that this comparable had been held to be functionally not comparable with that of the assessee company vide order of this Tribunal in assessee‟s own case in dated 04/05/2018 for A.Y.2012-13. The relevant operative portion of the said order of the Tribunal is as under:-

21.BVG INDIA LIMITED Objecting to the selection of this company the Ld. Authorized Representative submitted that this company cannot be treated as comparable to the assessee

M/s. Sabre Travel Network (India) P. Ltd., as it is not providing marketing support services. Referring to the observations of the Transfer Pricing Officer in respect of this comparable the Ld. Authorized Representative submitted that services provided by this company cannot be compared to the services provided by the assessee to its AE. Therefore, it has to be excluded from the list of comparables.

5.8.1. We find that though this Tribunal had restored the exclusion of this comparable to the file of the ld. TPO in A.Y.2012-13, the ld. TPO vide his order dated 28/12/2020 while giving effect to the directions of this Tribunal, had accepted the contentions of the assessee, that BVG India Ltd functions were totally different from M/s. Sabre Travel Network (India) P. Ltd., functions performed by the assessee company and hence, functionally not comparable. Moreover, the ld. TPO in A.Y.2012-13 while giving effect to Tribunal order had also observed that segmental details for marketing supporting services were not available from the financial statements of BVG India Ltd., and hence, the same deserves to be excluded on that count also. The situation is same for A.Y.2013-14 also as it could be seen from financial statements of BVG India Ltd., from the year ended 31/03/2013. Hence, respectfully following the aforesaid decision of this Tribunal, the giving effect order passed by the ld. TPO on 20/12/2020 for A.Y.2012-13, we hold that BVG India Ltd., chosen as comparable by the ld. TPO and upheld by the ld. DRP, is functionally not comparable with the assessee company ; further in the absence of segmental details thereon for marketing support services, the same deserves to be excluded from the final list of comparables for the purpose of determination of arms length price.

5.9. Exclusion of Axis Integrated Systems Ltd - We find that this comparable had been held to be functionally not comparable with that of the assessee company vide order of this Tribunal in assessee‟s own case in dated 04/05/2018 for A.Y.2012-13. The relevant operative portion of the said order of the Tribunal is as under:- 24 AXIS INTEGRATED SYSTEMS LIMITED Objecting to the selection of this company, the Ld. Authorized Representative submitted, the company is functionally different from the assessee as it develops a simulation, acceleration and emulation platform and associated software. It was submitted, this company is engaged in the business of trading in digital certificate and providing liasioning services such as verification of service tax, excise etc. Thus, it was submitted, since, the company is not providing marketing support services it cannot be treated as a comparable 25. The Ld. Departmental Representative relied upon the observations of the Transfer Pricing Officer and DRP.

M/s. Sabre Travel Network (India) P. Ltd.,

5.10. Exclusion of Killick Agencies And Marketing Ltd., - We find that the ld. AR vehemently argued that this comparable company is functionally not comparable with that of the assessee company in view of the fact that the said company is into the services of ship building industry. The ld. AR also drew our attention to the Annual report for the year ended 31/03/2013 of Killick Agencies and Marketing Ltd., wherein it is mentioned as under:-

“However, the Indian Shipping industry has not shown any such signs. The established Shipyards like Bharati and ABG are feeing financial difficulties and are still to execute orders received by them in earlier years. The New Shipyards like - Pipavav and Larsen & Toubro have secured some orders at very low prices; due to M/s. Sabre Travel Network (India) P. Ltd., which the Marine equipment purchased by them are also at very low prices, which our Principals are not able to meet. During this year the Ship-lighting business from Glamox has done well as Ship Lights are generally purchased last.”

5.10.1. The ld. AR also submitted that the said comparable company is also engaged in the water treatment business and in this regard, it has been mentioned in the Annual report of the said comparable company as under:- “Efforts continue to be put into N.E.I., the newly acquired Ballast Water Treatment Systems Agency. The International ratification for these systems is taking time and due to which the requirements of this equipment are still not on a regular basis. However, we are hopeful that the future prospects for this Agency are good.”

5.10.2. The ld. AR also submitted that these facts were duly brought on record before the ld. TPO and the ld. DRP. The ld. AR also drew our attention to the financial statements of the said comparable for the year ended 31/03/2013, wherein it was pointed out that the said company is having inventory and stock in trade in its balance sheet and hence, it could be safely concluded that it is not merely the service rendering company. We also find from the Annual report of the said comparable companies that the company is acting as agent for various foreign principals for sale of dredges, dredging equipment, steerable rudder, propellers, maritime and aviation lighting, acoustic communication equipment etc., The company also offers after sale services. Apart from this, the company is involved in exports of micro switches, engineering items, acoustic items and head sets.

5.10.3. The ld. DR vehemently argued that this comparable company is engaged in providing marketing support services in ship building

M/s. Sabre Travel Network (India) P. Ltd., industry and hence, functionally comparable with that of the assessee. He also argued that assessee had submitted that exclusion of this comparable before the ld. DRP only due to high margins and not on functional dissimilarity and that the said aspect of functional dissimilarity cannot be argued before this tribunal for the first time. We find from page 16 of the order of the ld. DRP that assessee had specifically objected the functional dissimilarity of this comparable company with that of the assessee company. Hence, the argument advanced by the ld. DR in this regard is dismissed. We also find that from the financials of the said comparable company that no segmental details are available in respect of income from services derived by the assessee. Hence there is no detail available as to what extent of service income derived by the said company out of rendering marketing supporting services, if any. Hence, based on functional dissimilarities and also in the absence of segmental details for marketing support services, if any, we hold that this comparable company deserves to be excluded from the list of comparables chosen by the ld. TPO and upheld by the ld. DRP for the purpose of determination of arms length margin.

5.11. Accordingly, we direct the ld. TPO to exclude the aforesaid four comparable companies and include Quadrant Communication Ltd., which was included as a comparable company by the assessee and upheld by the ld. DRP, more so, when the revenue is not in appeal before us, against such inclusion. The ground Nos. 2.1 to 2.9 raised by the assessee are disposed of in the above mentioned terms.

M/s. Sabre Travel Network (India) P. Ltd.,

6. The ground Nos.3.1 and 3.2 raised by the assessee is with regard to challenging the addition made on account of marketing service fees amounting to Rs.2 Crores.

6.1. We have heard rival submissions and perused the materials available on record. At the outset, we find that this issue is squarely covered in favour of the assessee by the decision of this Tribunal in assessee‟s own case for A.Y.2012-13 in dated 04/05/2018. The AR drew our attention to page No.120 of the paper book containing the sub-distribution agreement together with its addendum at page 149 of the paper book. The facts have not undergone any change during the year when compared to A.Y.2012- 13. Hence, we deem it fit to reproduce the entire order of A.Y.2012-13 with regard to this issue as under:-

3. In ground no.2, assessee has challenged addition of ₹ 2 crore as undisclosed income from marketing service fees.

M/s. Sabre Travel Network (India) P. Ltd., framing the draft assessment order besides incorporating the transfer pricing adjustment also made couple of other additions. One of them being addition of ₹ 2 crore on account of marketing service fee. The facts as regard this issue are, during the assessment proceedings, the Assessing Officer on verifying the financial statements of the assessee found that it has claimed deduction of an amount of ₹ 56,13,02,874, towards payment of incentives to travel agents during the relevant previous year. Whereas, it has claimed receipt of ₹ 54,13,02,874, towards marketing service fee from its A.E. Therefore, the Assessing Officer called upon the assessee to furnish the complete details relating to the payment and receipt of marketing fees and also to explain why the difference of ₹ 2 crore between the incentive paid to travel agents and marketing service fee received from the A.E. should not be added to the income. In response to the query raised by the Assessing Officer, the assessee furnished necessary details and submitted that in view of the stiff competition faced by the assessee and the efforts it made and cost incurred to increase the market share of the computerized reservation system of AE in India, payment of marketing service fee was agreed upon through an addendum to the agreement entered into between the assessee and the A.E. It was submitted, by virtue of such agreement, the assessee had received marketing service fee of ₹ 54,13,02,874, from the A.E. which has been duly credited to the Profit & Loss account. It was submitted, though, the assessee had paid incentives to travel agent amounted to ₹ 56,13,02,874, however, as per the terms of the agreement, no deemed right is created in favour of the assessee to receive the entire incentives paid to travel agents from the A.E. It was submitted, marketing service fee is not in the nature of reimbursement of the incentive cost incurred by the assessee but it is received towards additional efforts and costs incurred to increase the market share of AE’s computerized reservation system in India. It was submitted, since, the difference of ₹ 2 crore between the fee received and incentive paid was neither actually received nor receivable from the AE, it cannot be taxed at the hands of the assessee. The Assessing Officer, however, did not find merit in the submissions of the assessee. Referring to the addendum to sub–distribution agreement, the Assessing Officer observed that as per the clause the entire expenses incurred by the assessee would be subsequently set–off by the AE. He observed, the difference of ₹ 2 crore not reimbursed to the assessee by the A.E. is not in terms with the agreement. He further observed that similar difference between the incentive paid to travel agents and marketing service fee received was added back in preceding assessment years 2009–10, 2010–11 and 2011–12. Thus, on the aforesaid reasoning, the Assessing Officer added back the amount of ₹ 2 crore to the income of the assessee. Being aggrieved of the said addition, assessee filed objections before the DRP.

5. The DRP taking note of the fact that while deciding identical issue in assessee’s own case for assessment years 2009–10 and 2010–11, the additions were sustained and further, stating that there is no change in facts and circumstances of the case on the disputed issue in the impugned assessment year, the DRP sustained the addition made by the Assessing Officer.

M/s. Sabre Travel Network (India) P. Ltd.,

assessee to the travel agent for determining the arm's length price of the international transaction and accordingly has arrived at transfer pricing adjustment of ₹ 14,12,65,777. Of course, it is a fact that the Transfer Pricing Officer in the order passed under section 92CA(3) of the Act did observe that the assessee has failed to provide a reasonable explanation with respect to deduction of ₹ 2 crore with regard to marketing service fee received from AE against the trade incentives paid to travel agent. It is also true that the Tribunal in the order passed in assessee’s own case for assessment year 2009–10 in ITA no.1402/Mum./2014, dated 5th January 2018, has approved similar observation of the Transfer Pricing Officer with regard to short receipt of ₹ 2 crore from the A.E. However, a perusal of the order passed by the Transfer Pricing Officer would make it clear that he has aggregated all the international transactions with the AE for determining the arm's length price and has neither determined the arm's length price of marketing service fee separately nor has suggested any separate addition on account of the difference of ₹ 2 crore between the incentive paid to travel agent and the marketing support fee received from the AE. Rather, it is the Assessing Officer who while framing the draft assessment order has made a separate addition of ₹ 2 crore on the ground that the assessee should have received the amount of ₹ 2 crore from the AE as against the total incentives paid to travel agents. Nothing has been brought on record by the Departmental Authorities to demonstrate that the assessee has actually received the amount of ₹ 2 crore from the AE. The Department has also not disputed or doubted the payment of incentives of ₹ 56,13,02,874 to the travel agents. That being the case, the addition made purely on presumption and surmises cannot be sustained. Moreover, it is evident from the order of the DRP that relying upon their own decision in assessee’s case for assessment year 2010–11, they have upheld the disallowance. Notably, while deciding the appeal of the assessee on identical addition of ₹ 2 crore on account of difference in payment of incentives to travel agents and marketing service fee received from the AE, the Tribunal in assessment year 2009–10 in ITA no.1402/Mum./2014, dated 5th January 2018, has deleted the addition with the following observations:– “As far as disallowing the expenditure of ₹.2 crores, while computing the taxable income of the assessee, is concerned, we would like to hold that the DRP was not justified in disallowing the same. There is no doubt about incurring of expenditure by the assessee, as stated earlier. The assessee had introduced an incentive scheme and had incurred the expenses of ₹.34.61 crores. Whether the money received from AE was at arm’s length or not is a separate issue. But, incurring of expenditure was never in doubt. So, in our opinion, the alternate argument raised by the assessee has to allowed"

referred to above, we delete the addition made by the Assessing Officer. This ground is allowed.

6.2. We find that the ld. DR argued that assessee is a low level marketing service provider and as such should have operated at cost plus margin model and hence, ought not to have incurred in loss of Rs.2 Crores in the incentives given to travel agents. We find that this is not even the case of the lower authorities and hence, the argument of the ld. DR could not be appreciated at this stage. Respectfully following the aforesaid decision in assessee‟s own case, the addition of Rs 2 crores made on account of income from marketing service fees is hereby directed to be deleted. Accordingly, the ground nos. 3.1. and 3.2. raised by the assessee are allowed.

7. The ground No. 4.1 and 4.2 raised by the assessee is challenging the disallowance made on account of foreign exchange loss of Rs.19,49,09,643/-.

7.1. We have heard rival submissions and perused the materials available on record. We find that the same issue was the subject matter of adjudication in assessee‟s own case by this Tribunal for A.Y. 2012-13 in dated 04/05/2018 wherein it was observed as under:-

10. “Ground no.3 is against disallowance of foreign exchange loss of ₹ 48,63,46,027.

M/s. Sabre Travel Network (India) P. Ltd., claimed submitted that the loss incurred by the assessee since was in course of conducting its business activity it is allowable as business loss. The Assessing Officer, however, did not find merit in the submissions of the assessee. He observed, similar loss claimed by the assessee in assessment year 2009–10 was disallowed by the DRP. Accordingly, following the reasoning of the DRP in assessment year 2009–10 the Assessing Officer disallowed the loss claimed by the assessee. Though, the assessee objected to the disallowance of such loss before the DRP, however, the assessee’s objection on the issue was rejected by the DRP relying upon its own decision in assessment year 2009–10.

M/s. Sabre Travel Network (India) P. Ltd., Respectfully, following the above mentioned two judgments of the honorable Apex court, relied upon by the assessee, we decide ground number four in favour of the assessee.”

7.2. Respectfully following the aforesaid decision, we hereby direct the ld. AO to grant deduction towards foreign exchange loss amounting to Rs.19,49,09,643/-.

9. The ground No.6 raised by the assessee is general in nature and does not require any specific adjudication.

Order pronounced on 14/07/2021 by way of proper mentioning in the notice board.