AMADEUS GLOBAL TRAVEL DISTRIBUTION SA,SPAIN vs. ADIT, NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Amadeus Global Travel Vs. ADIT, Distribution SA Circle-1(1), (Now known as Amadeus IT International Taxation, Group SA), New Delhi Salvador De Madariaga, E- 28027, Madrid, Spain PAN: AAFCA9629P (Appellant) (Respondent)

Assessee by : Shri Ajay Vohra, Sr. Adv Shri Anshul Sachar, CA Revenue by: Shri G. K. Dhall, CIT DR (International Taxation) Date of Hearing 29/04/2019 Date of pronouncement 18/07/2019

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the assessee Amedus global travel distribution SA (now known as Amedus IT group SA) for assessment year 2006 – 07 against the order of the learned Commissioner of Income Tax (Appeals) – XI, New Delhi dated 31/12/2010. 2. The assessee has raised the following grounds of appeal:- “1. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in completing the assessment for the relevant assessment year at an income of Rs. 928,446,114/- as against „Nil‟ income returned by the appellant. 2. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding the appellant to be liable to tax in India in respect of fees received from airlines, etc. relating to segments booked from India through the appellant‟s computer reservation system, not appreciating that no income accrued or arose to the appellant in India. 3. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding that computers, electronic hardware, Page | 1

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) and the connectivity provided by the appellant to the travel agents through SITA nodes located in India, collectively, constituted permanent establishment („PE‟) of the appellant in India in terms of Article 5(1) of the Indo-Spain DTAA („the Treaty‟) and the income arising to the appellant from the airlines, assessing officer in alleging that Amadeus India (P) Ltd. (AIPL) constituted dependent agent PE of the appellant in India and the income arising to the appellant from the airlines, etc., was attributable to the activities of the alleged etc. was attributable to the activities of the alleged PE in India. 4. That the CIT (A) erred on facts and in law in confirming the action of the Assessing Officer in alleging that Amadeus India P Ltd (AIPL) constituted dependent agent PE of the appellant in India and the income arising to the appellant from the airlines etc was attributable to the activities of the alleged PE in India. 5. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in alleging that the appellant was not making any payment to AIPL towards the activities of marketing the appellant‟s CRS and providing the hardware support to the travel agent and therefore the compensation paid to AIPL was not at an arm‟s length and consequently AIPL constituted dependent agent PE of the appellant. 4.2 That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding that AIPL constituted PE of the appellant under Article 5(4)(a) of the Treaty on the ground that AIPL was carrying out negotiations and entering into agreements with the subscribers/travel agents, not appreciating that such agreements entered into between AIPL and the subscribers/travel agents did not constitute source of income for the appellant. 5. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in alternatively holding that fee of Euro 49,013,000 received by the appellant was taxable in India as royalty both under section 9(l)(vi) of the Act and Article 12 of the Treaty . Without prejudice 6. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in computing the profits attributable to the alleged PE of the appellant in India at Rs. 928,446,114/-. 7. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in not allowing deduction on account of distribution fee paid to AIPL on the ground that in the invoices raised by AIPL on the appellant, the fee was described as “charges for export of processed data/software” and not distribution fee. 8. That the CIT (A) erred on facts and in law in not holding that the allegation made by the assessing officer that AIPL was remunerated only for software development services and not CRS marketing support services, on the ground that AIPL had claimed deduction under section 80HHE of the Act in respect of the remuneration received by the Page | 2

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) appellant, was without basis and not a valid ground for disallowing distribution fee. 9. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in disallowing deduction of Euro 4,167,000/- incurred by the appellant under the head „Development Cost‟, while computing the income attributable to the alleged PE. 10. That the CIT (A) erred on facts and in law in not appreciating that the appellant was engaged in the business of providing CRS services and the expenses incurred in connection with product development function carried out outside India were required to be excluded while computing the income of the alleged PE of the appellant in India. 11. That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in attributing 75% of the profits of the alleged PE of the appellant as income chargeable to tax in India. 12. That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in not following the order of the Delhi Bench of the Tribunal in the appellant‟s case for the assessment years 1996-97 to 1998-99 and the order of the CIT(A) for assessment years 2003-04 to 2005-06, wherein the Tribunal had attributed 15% of the revenues relating to the bookings made from India as attributable to the appellant‟s PE in India and held that no income is taxable as the payment made to dependent agent was more than the revenues so attributed, alleging that the facts before the Tribunal in the aforesaid assessment years were different than the facts obtaining in the assessment year 2006-07. 13. That the CIT (A) erred on facts and in law in appreciating that the assessing officer misinterpreted the aforesaid order of the Tribunal while observing that the Tribunal has attributed revenues to only the software development related services provided by AIPL, ignoring the fact that the Tribunal considered all the services required to be provided by AIPL under the Distribution Agreement and AIPL continued to provide the same services under the Distribution Agreement during the previous year under consideration, too. 14. That the CIT (A) erred on facts and in law in not appreciating that even if it is assumed that AIPL or the computers, electronic hardware provided to the travel agents etc., constituted PE of the appellant in India, the income derived from such PE was completely consumed by distribution and other expenses attributable thereto and that no income survives for taxation. 15. That the CIT (A) erred on facts and in law in not appreciating that the booking fee received from non-resident airlines was not sourced in India in terms of Article 13(6) of the Treaty and hence was not liable to tax in India as „royalty‟. 15.1 That the CIT (A) erred on facts and in law in confirming the action of the assessing officer in holding that the source of the alleged royalty was in Page | 3

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) India since most of the airlines from whom revenues were received were resident in India as the TDS certificates were issued by Indian offices of non-resident airlines, which constituted PE of such airlines in India. 15.2 That the CIT (A) erred on facts and in law in not appreciating that even if the non-resident airlines could be said to have a PE in India, it has not been demonstrated that the aforesaid payment of royalty was borne by such PE, and consequently the alleged royalty cannot be said to have been sourced in India. 15.3 Without prejudice, that the CIT(A) erred on facts and in law in not appreciating that having held the appellant to have permanent establishment in India, royalty income being effectively connected with the PE of the non-resident was required to be taxed as business income on net basis under Article 7 of the Treaty. 16. That the CIT (A) erred on facts and in law in not directing the assessing officer to allow credit for tax deducted at source of Rs. 56,693,368/- claimed by the appellant.” 3. Brief facts of case shows that the appellant is a company Incorporated in Spain and was engaged in the business of development and distribution of computer reservation systems (CRS). Assessee filed its return of income on 29/11/2006 declaring total income of Rs. Nil. Assessment was completed by the learned Assessing Officer u/s 143 (3) of the income tax act on 31/12/2008 computing the total income of the assessee at INR 9 28446114/– against the returned income of the assessee of Rs. Nil. 4. The appellant has entered into agreements with various Airlines [„Participating Carrier Agreement] by providing interconnectivity between the host computer of the individual Airline and the Amadeus CRS created by the appellant at Erding, Germany. Amadeus also provides connectivity to its CRS to the travel agents. The Agreement, inter alia, provides that the participating Airline shall pay to the appellant the charges for display of Airline information through Amadeus CRS, in the form of booking fee for each participant net booking made through the Amadeus system (in Article 4 of the Agreement). The responsibilities of the appellant and participant Airlines are stated in Article 2 & 3 of the Agreement. It is important to note that the Airlines are the clients of the appellant for whom the Amadeus CRS is developed. The computers used by the travel agents are only a means of receiving display of information and communication with the participating Page | 4

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) carriers host computer mainframe located at the Airlines head offices. The reservations are made/ finalized at the Airlines host computer mainframe at foreign locations access to which is provided through Amadeus CRS facility at Erding, Germany. In order to ensure that the customers‟ needs in each national market/country are met, the appellant has entered into distribution agreements with various National Marketing Companies (NMCs), incorporated in the respective national markets/countries for distribution/marketing of the aforesaid CRS. The NMCs are required to seek subscribers (normally travel agents) and enter into agreements with them whereby the NMCs provide the subscribers with appropriate access to the CRS host. The appellant has a distribution agreement with two NMCs in India viz., Amadeus India Private Ltd. („AIPL‟) and ResBird Technologies Pvt. Ltd. („ResBird‟). The Airlines as part of business promotion, advertising, in a highly competitive travel business bear all expenses for the facilities provided to the travel agents for sale of participating Airline tickets. The appellant receives its charges from the participating Airlines, which are expressed in terms of booking fee and accrue to the appellant for each net booking made by an agent using the Amadeus CRS. The said booking matures in the participating Airlines host computer through Amadeus CRS. The travel agents in India, who intend to use the aforesaid CRS have entered into subscriber‟s agreement with the AIPL and ResBird. It needs to be pointed out that the appellant is not a party to such agreements. AIPL and ResBird configures the computers, etc. installed at the premises of the travel agents and carries out certain programming/modification and other activities in order to provide connectivity/access to the travel agents to the CRS host. Further, AIPL and ResBird also trains the travel agents regarding the use of the CRS system. The appellant pays AIPL and ResBird distribution fees for the aforesaid services rendered to the appellant, with reference to the segments booked in India by the travel agents through the CRS system as per the terms of the Distribution Agreement. The computers with the travel agents are standard third party compatible PCs. These PCs are not Amadeus proprietary. The PC is used to emulate a remotely located host terminal. The travel agent‟s PC is connected to the Amadeus Page | 5

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) mainframe computer located in Germany. The connectivity is provided by third party providers, using in India the DOT, MTNL or VSNL leased lines. The Amadeus mainframe is in turn connected to host computers of the various providers like Airlines, hotels, etc. around the world. The computers in the offices of the agents are not capable of processing/finalizing reservations it is the job of the Amadeus Data Center in Erding, Germany to ensure that the connectivity between the Amadeus Mainframe and the travel agents as the Amadeus Mainframe and the various providers worldwide is maintained. This is done using network management tools like intelligent routers, switching equipment, etc. The connectivity is done using leased lines. The Airlines provide the information, which they would like to be displayed in a neutral form on the CRS host terminal from where the information is disseminated worldwide to the travel agents who ask for being connected to the CRS host terminal. The business of the Airlines is promoted if the travel agent is facilitated to obtain the information easily and promptly, which facility is provided for the Airlines by the CRS. The flow of information is broadly as follows:

i. The Airlines provide the information which they would like to reach the travel agent to Amadeus CRS in a neutral form – Input to data stage and on the mainframe of CRS ii. As per Agreement with Airlines, the aforesaid is to be disseminated as widely as possible amongst the travel agents.

iii. The travel agent checks for an availability of an Airline on a terminal connected to the Amadeus Mainframe. This request is routed via the Amadeus host to the Airline host and a response comes back which in turn is sent back to the terminal where the request is generated.

iv. Once the travel agent makes up his mind in consultation with his client as to the flight he needs to book, he sends a booking request to the Airline via the Amadeus Host.

v. Depending upon the seat availability, the Airline host may or may not accept the booking. Page | 6

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

vi. The response from the Airline is then sent back to the travel agency terminal. 5. The fact of the case of the assessee was verified by the learned assessing officer in assessment proceedings for assessment year 2005 – 06 and this year. The assessee referred to the facts of the case pertaining to assessment year 96 – 97 to 2002 – 03. The facts relating to assessment and 96 – 97 to 90 – 99 find place in the order of the coordinate bench dated 30 /11/2007. The case the learned assessing officer is that the facts referred in that order of the coordinate bench undergone changes. Facts are available as per the return of income filed by the assessee is that the assessee company has claimed a refund of INR 5 6693368/– on account tax deducted by the participating centers. During the course of assessment proceedings assessee submitted invoices raised by Amedus India on the above company. On verification of the invoices raised by Amedus India and accepted by the assessee, which were found to be pertaining to account of export data, software response of the year. On verification of the invoices and on being questioned to the assessee, assessee submitted that as per the distribution agreement, it is Amedus India private limited was providing distribution services which involved provision of hardware support in respect of the hardware provided to the travel agents, marketing support services and providing connectivity to the appellant‟s computerized reservation system by creation of segment in appellant‟s CRS system for identification of travel agents to enable the CRS to provide access to the specific portion of the database and the remuneration paid by the appellant by AMedus India private limited was for the aforesaid activities. Based on the information provided by the assessee the learned AO noted that Amedus India has charged the assessee for export of processed data/software. The assessee is also paying Amedus India for receipt of processed data/software. The assessee has not made any other payments to Amedus India and accordingly it is held that the assessee has not paid any remuneration to Amedus India for various activities referred in the order of the coordinate bench in para number 19 for assessment year 96 – 97 to 98 – Page | 7

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 99 dated 30/11/2007. Therefore according to the order of the coordinate bench for that year no deduction for the expenses is allowable to the assessee. The learned assessing officer further noted that assessee has entered into a new distribution agreement dated 1/10/2004 with Amedus India and there are certain changes. On the basis of the discussion in the assessment order as well as per the order of the coordinate bench in assessee‟s own case for the earlier year, the learned assessing officer held that compensation paid by the assessee to the Amedus India private limited results into an Dependent agent permanent establishment of the assessee and held that assessee has permanent establishment as per in paragraph 1 of paragraph 4 of the article 5 of the tax treaty between India and Spain. The learned assessing officer found that the total profit earned by the assessees INR 1237928152/– from India. He further determined the ratio of attribution at the rate of 75% of the total profit and thus he computed the profit attributable to Indian permanent establishment of INR 9 28446114/–. The above amount was charged to tax at the rate of 41.82 percent including surcharge on education cess. 6. Alternatively he further held that that the consideration of Euro 49013000 is also taxable as rightly both as per the provisions of the Indian income tax act and the tax treaty between India and Spain. Accordingly, he converted the equivalent rupees of Euro 2640895430 and charged to that tax at the rate of 10% as per the double taxation agreement avoidance agreement between India and Spain. Accordingly assessment order u/s 143 (3) of the act was passed on 31/12/2008. 7. The assessee being aggrieved with the order of the learned assessing officer preferred an appeal before The Commissioner of Income Tax Appeals – XI, New Delhi. On the issue of the existence of the permanent establishment in India the learned CIT – A noted in para number 2.7 of the order that the computers provided to the travel agents by the applicant must be treated as a fixed place permanent establishment and the Amedus India private limited should be held to be an agency permanent establishment of the assessee in terms of article 5 of double taxation avoidance agreement dated 21/4/95. He further stated that the invoice of the Amedus India private limited Page | 8

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) elaborately demonstrate that the charges was for export of data processing and not for computerized reservation system business of ticket booking. Accordingly he sustained the action of the learned assessing officer. He further upheld the attribution of profit @ 75 %. Thus, he upheld the existence of the permanent establishment and attribution of profit as determined by the learned assessing officer. 8. With respect to the royalty taxation of the above sum he did not give any finding. Thus aggrieved by the order of the learned CIT – A assessee is in appeal before us. The learned authorised representative submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon‟ble Delhi High Court in assessee‟s own case for earlier years. Even otherwise he submitted a detailed written submission on the whole issue as under: ―Re: Ground of Appeal No. 2 to 4 - Permanent Establishment of Amadeus Given the background of the appellant, the assessing officer, has in the earlier years stated that the CRS is like a market place or a platform used by the airlines to reach travelers through the travel agents and make bookings thereon. It is respectfully submitted that the CRS is not a market place or a platform to bring the passengers and airlines together but only a facility created to help dissemination of information of the airlines like number of seats, price, etc. It is not the airlines who seek access to the travelers but vice versa. The bookings are concluded in the airlines‘ host systems and not in the server of the appellant. In any case, nothing turns on the above observation of the assessing officer since the so-called CRS platform exists outside India. It is stated that the computer hardware at the travel agent‘s desk is an extension of the mainframe at Erding and at the Airlines offices. Technically, Airlines host computer mainframe is an independent facility which has been created to store data, process data and provide information about the availability or non-availability of a seat pursuant to a booking request – an enquiry originating from a travel agent. Re: Activities in India being auxiliary in nature – no PE

It is to be appreciated that the Amadeus mainframe/host and the Airlines‘ hosts are all located outside India. The revenues of the appellant are not generated from the passenger in India or the travel agent in India or the hardware with which the travel agent operates or the telecom line through which the communication travels. The revenue accrues to the appellant from providing to the Airlines the facility of display of Airlines data information on the CRS, which in turn held the bookings to be made. The fact that the payment to the appellant for the services rendered to the Airlines Page | 9

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) outside India is expressed in terms of the responses received by the Airlines based on the bookings made through the CRS used by the travel agents wherever they might be located does not mean that the services are rendered by the CRS in the respective countries.

It is further respectfully submitted, that the appellant is not engaged in any business in India. The booking fee receivable by the appellant from the clients, i.e., the participating Airlines, have been so structured that the appellant to augment its revenues has to advertise and make known to the travel agents the facility created by the appellant so that they use the facility for making bookings of seat for their traveler customers. The charges for the services of the appellant could be provided by the Airlines in any other form like a lump sum payment or fixed periodical charges outside India. The revenues still arise to the appellant outside India. The Airlines have evolved a clever fee structure, which makes it impliedly necessary for the appellant to reach the Airline customers – that is the travel agents and canvass with them the use of appellant‘s CRS. It is, inter alia, for this purpose that the appellant engaged the services of AIPLand ResBird.

It has to be noted that the main function of AIPL/ ResBird vis-à-vis the appellant is to disseminate information amongst the travel agents in India about the Amadeus CRS, canvass with them the use of the system and assist them in using the CRS, without any charge whatsoever. It has to be noted that the activity of the appellant in India is restricted to the aforesaid. The aforesaid activities are of the nature of advertising and of supplying information. Such activity has a preparatory and auxiliary character for the appellant. Under Article 7 of the Treaty, the profits of an enterprise of a contracting state shall be taxable in that state unless the enterprise carries on business in the other contracting state through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other state but only so much of them as are attributable to that permanent establishment.

Article 5 of the Treaty defines permanent establishment to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. Article 5(3)(e) of the Treaty provides that the term ―permanent establishment‖ shall be deemed not to include maintenance of a fixed place of business solely for the purpose of advertising, for supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character for the enterprise.

As stated earlier, the activity of AIPL/ ResBird is only of the nature of advertising or supply of information. In doing so, AIPL/ ResBirdcontacts the travel agents and canvasses to them to use the Amadeus CRS for making the Airline bookings for their clients. Although, AIPL/ ResBirdenters into an agreement, for this purpose, with the travel agents which provides for certain charges for the computer provided and other services, the universal understanding with all the travel agents is that the agents are Page | 10

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) provided the facilities without any financial obligation on them irrespective of whether they use the required extent or do not use the specified extent of the Amadeus CRS facility.

It is reiterated that the bookings generated on the Amadeus CRS by the travel agents in India is only a measure for the charges for the services rendered by the appellant to the Airlines outside India. That cannot change the character of those charges or cause an exposure for them for tax in India. E.g. A lawyer may charge a lump sum fees or on the basis of number of appearances, however, the character of income in both cases will remain the same, i.e., fee for legal services. Merely because the fee is deferred till the date of disposal, it cannot be said that the character of income has changed.

It is respectfully submitted, that the assessing officer has failed to appreciate that since the appellant is not carrying on any business in India and not earning any revenues in India, and is merely advertising and disseminating information about the Amadeus CRS, no business income liable to tax arises in India. Re: Agency PE The assessing officer, following the orders passed in the earlier years, held that AIPL is a dependent agent of the appellant and agency PE in terms of paragraph 5(4) of the DTAA, which is disputed for the reasons stated as under: As per paragraph 4 of Article 5 of DTAA between India and Spain, the so-called dependent agent may be deemed a permanent establishment if such agent has and habitually exercises authority to conclude contracts on behalf of the Spanish entity. It is to be appreciated that AIPL/ ResBirddoes not enter into any agreement with the travel agents on behalf of the appellant. In fact, the agreement has to be read along with the admitted understanding between AIPL/ ResBird, the appellant and the travel agents that no consideration will pass from the travel agents to AIPL/ ResBirdor for that matter to the appellant on account of the agreement. There is, therefore, no question of AIPL/ ResBirdhaving any authority to conclude contracts on behalf of the appellant. There can be no question of exercising such authority when there is no contract(s) which binds the appellant.

The product that is the services of the Airline exists outside India. The information conveyed from the use of the CRS exists outside India. The travel agents are not the customers of the information provider. They are users of the information and customers of the Airline. The role of the appellant is to display the information and also through the main server and the processor located in Germany to enable the Airlines customers to access information and act on the same by way of placing an order for the service of the Airline. In such circumstances as aforesaid, no income can be said to arise to the advertising agency, which may be subjected to tax in India. The advertising agency, in this case, the appellant has no permanent establishment in India. It is acting through a distributor who is in the nature of an independent contractor and not an agent of the appellant. The distributing company in India, viz., AIPL/ ResBirdhas no occasion or authority to bind the appellant vis-a-vis the Page | 11

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) subscribers who are customers of the Airlines. It bears repetition that just because the fee for the services rendered by the display agency that is the Amadeus CRS is measured in terms of the responses from India by various travel agents, the same could not be considered as income arising to the appellant from any services rendered in India. The entire activity of the CRS, which generates the income, is outside India. The fact that the appellant enables the travel agents in India through its distributor company to learn to use the information cannot make AIPL/ ResBird a permanent establishment of the appellant or render the appellant‘s income as arising in India. Unfortunately, the assessing officer did not appreciate the transaction in its proper perspective. Reference in this regard is made to the decision of the Authority for Advance Rulings (AAR) in the case of Dassault Systems KK: 322 ITR 125 (AAR), wherein the AAR held as under: ―25. We do not think that the contentions of the Revenue on the existence of an agency PE can be sustained. The business of VARs such as Tata Technologies Ltd. is not confined to the dealings only with the appellant and its products. They are appointed and known as distributors. It is not uncommon that a distributor carries out some functions and obligations similar to those of an agent. Improvement of the business of the appellant, assisting the appellant in formulating its marketing strategies and preventing the misuse of the product supplied to the end-users are all functions which are not extraneous to the distributorship. The business of the VAR is not controlled by the appellant except to the extent necessary to promote its own business. It is beyond dispute that the VAR does not negotiate or conclude contracts with the end-users on behalf of the appellant. As noticed earlier, the acceptance of the order placed by the end-user and procured by VAR is left to the discretion of the appellant. That authority is not delegated to VAR. Moreover, VAR is free to determine its own price while entering into the deal with the end-user on the acceptance of the order by the appellant. It is not possible to accept the contention that arriving at the price is an empty formality and always follows a set pattern. The VAR does not notify or render account to the appellant for the amount collected from the end-user. The VAR cannot claim reimbursement from the appellant for the loss caused to him by reason of VAR's (sic-end-user's) failure to pay the amount. It is difficult to perceive any predominant features which point to the relationship of principal and agent. As regards the obligations cast on the VAR to furnish reports and information, it is clarified by the appellant that they are meant to help the appellant estimate the demand for the product and to ensure that adequate effort is put in by the VAR to increase sales. The customer information is necessitated in order to ensure that the product is not misused and that the service needs of the customers are attended to diligently in case of neglect on the part of VAR. As regards the perusal of the financial statements, the appellant clarifies that it is meant to ensure that the VAR is not selling competing products in violation of the restrictions imposed. The restraints placed on VAR not to market or license competing products subject to certain exceptions is again not a factor that points to the existence of principal and agent relationship. 25.1 On the point whether the criteria laid down in art. 5.7 is satisfied (even assuming that the distributor is an agent), cl. (c) of art. 5.7, if at all, is relevant. Page | 12

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) But, having regard to the fact that indisputably, the VARs deal with other software products of different types and their business activities are not confined to the enterprises of the appellant or its group concerns, there is hardly any scope to apply cl. (c) of art. 5.7. Viewed from any angle, it is not possible to reach the conclusion that the VARs/distributors are the agents much less dependent agents of the appellant and therefore the appellant must be deemed to have a PE in India.‖

Drawing an analogy from the aforementioned case and applying the same to the fact of the appellant‘s case, it will be appreciated that in the case of the appellant the agreement to display information/ products, etc of the airlines through the CRS of the appellant, which enabled the booking of the ticket by the travel agents, was entered into between the appellant and the airlines outside India. Pursuant to the understanding reached at the time of entering into the agreement with the airlines by appellant to provide the aforesaid facility, the appellant entered into distribution/ marketing agreement with an independent entities viz., AIPL/ ResBird. AIPL/ ResBirdcontacted the travel agents and provided them access to the airlines‘ inventory through the appellant‘s mainframe in Germany. This was done only to conclude the commitment of the appellant made outside India while entering into agreement with the airlines. AIPL by entering into subscription agreements with the travel agents was merely executing the last leg of the contact already concluded outside India. AIPL/ ResBirdhaving regard to the ratio laid down in the above case, cannot in such circumstances, be said to be concluding any contract for the appellant so as to be considered as a dependent agent having authority to conclude contract and, therefore, a PE of the appellant in India. In the past, a subscriber‘s agreement was entered into between AIPL/ ResBirdand the travel agents, where under computer hardware, etc. was provided to the travel agents, as an incentive, and certain obligations were cast on the travel agents regarding the use of such computers. However, under the present arrangement, the appellant neither provides computers to the travel agents, nor does it bear cost towards provision of computers provided by AIPL/ ResBird, if any. Thus, even if AIPL/ ResBirdare held to be providing the computers to the travel agents on behalf of the appellant, it would not be considered as having authority to conclude contracts on behalf of the appellant. The contract resulting in accrual of income to the appellant, viz., the agreement with the Airlines, is concluded outside India by the appellant and not by AIPL/ ResBird.

Under the aforesaid circumstances, whether AIPL/ ResBird could be considered a dependent or independent agent has no relevance to the issue under consideration. In view of the above, AIPL cannot be said to be agency PE of the appellant in India. Re: Fixed Place PE

The assessing officer in the assessment orders for the earlier years has equated the computers provided to the travel agents to vending machines and other automotive devices through which sales are conducted and thus fixed place PE in India.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) During the year under consideration, as stated supra, it is very important to note that the appellant has not provided computers to travel agents since the implementation of the Distribution Agreement dated 01.10.2004. It has not been appreciated that the vending machines are selling machines, which collect the money directly for the owner and provide goods/service to the person who pays for the same. Nothing of that kind happens when the computer and CRS facility is utilized by the travel agent for making a booking.

It is to be appreciated that, the analogy of the vending machine does not apply in the present case also for the reason that the computers with the travel agents may be a vending machine in so far as the Airlines are concerned, since the same are instrumental in selling the Airline's products, viz the air tickets, but such computers cannot be said to be the vending machine of the appellant.

In the case of Western Union Financial Services Inc. v. ADIT: 101 TTJ 56, the assessee was a non-resident company registered in USA and was engaged in the business of rendering money transfer services, including transfer of monies across international borders. If a person in USA, wanted money to be transferred to his relative in India, then he would first approach the assessee's outlet in USA and then remit the money in dollars together with the charges. This person would be given a receipt by the assessee along with a computer-generated unique number which is referred to as MTCN (Money Transfer Control Number). The remitter would send the number to his relative in India who would take it to the assessee's representative/agent in India. Such representative/agent would access the mainframe computer of the assessee in USA, match the MTCN with the help of software and if the MTCN matches, the representative/agent would honour the transaction and pay the money to the claimant in India. For the aforesaid purpose the assessee had appointed agents in India. One of the issues before the Tribunal was whether the agent‘s premises-cum-software was PE of the assessee. It was argued on the behalf of Revenue that there is a fixed place of business in the form of various systems installed at the premises of various agents through which the business is carried on. The Tribunal, however, rejected the contention of the Revenue and observed as under: ―26. The department has made out a case that the software, which affords access to the agents to the assessee's mainframe computers in USA for the purpose of finding out the matching of the MTCN numbers, has been installed in the premises of the agents and hence taken together with the premises constitutes the PE. The premises of the agents are either owned or hired by them. There is no evidence to show that the assessee can as a matter of right enter and make use of the premises for the purpose of its business. The software is the property of the assessee and it has not parted with its copyright therein in favour of the agents. The agents have only been allowed the use of the software in order to gain access to the mainframe computers in the USA. Mere use of the software for the purpose from the premises of the agents cannot in our opinion lead to the decision that the premises-cum-software will be the PE of the assessee in India. Under Art. 5.2(j) and installation may amount to a PE provided it is used for the exploration of natural resources. Therefore, even if the software is to be considered as an installation, since it is not used for exploration or Page | 14

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) exploitation of natural resources it cannot per se be treated as a PE.‖ (emphasis supplied)

In the case of the appellant too, the travel agents were, in the past years, provided the computers/software to access the host mainframe computer of the appellant at Erding, Germany, for obtaining information about the airlines. The computers at the premises of the said travel agents being dumb terminals were not capable of processing any transaction or making any booking on their own. The appellant is also providing leased connection to the travel agents to enable them to have access/connectivity to the CRS host in Germany for which the appellant has entered into contract with third partyproviders. Thus, neither AIPL nor the computers, electronic hardware together with the third partynode located in India constituted PE of the appellant in India. It is to be appreciated that the travel agents use the computer only to establish contacts with the foreign Airline host computer mainframe and merely as substitute for the old ABC manual and telephone/telex connection. The travel agents cannot make bookings in their own computer as the data regarding availability of seats on a particular Airline at a particular time and a particular flight are not stored in travel agent‘s computer. It is an erroneous statement in the earlier assessment and appellate orders that the computer hardware at the travel agent‘s desk is an extension of the mainframe at Erding and at the Airlines offices. Technically, Airlines host computer mainframe is an independent facility which has been created to store data, process data and provide information about the availability or non-availability of a seat pursuant to a booking request – an enquiry originating from a travel agent. Further, it may be pointed out that there is a certain time lag in making a request by the travel agent and its processing by the mainframe and the display of the information on the computer screen of the travel agent in India. Thus, for example where simultaneously two or more travel agents make a booking for a same sector and there is say only one seat available on such sector, a queue is certainly formed as only one travel agent will be able to get the booking depending upon who is first in the queue.

Also, if the theory of the time and space collapsing and the mainframe of the appellant coalescing with the computers of the travel agent is accepted, it would have far reaching consequences in as much as the computer of any person in India accessing a web site (located on any server anywhere in the world), would become a PE of such website in India.

Though it is true that the laws have not kept pace with the advancement made in the technology, yet till such time the laws are amended, the prevailing law has to be applied. In our respectful submission, the computers with the travel agents cannot be treated as PE of the appellant in India having regard to the prevailing definition of PE as per the Treaty

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) In view of the aforesaid, it cannot, in our respectful submission, be said that the computer hardware/software used by the travel agents to gain access to the mainframe of the appellant in Germany constitutes PE of the appellant in India.

The appellant does not have a fixed place of business in India and no income accrues or arises to it in India and it is not liable to tax in India. In view of the aforesaid, in our respectful submission, the action of the assessing officer in holding that the appellant has a PE in India, calls for being deleted, particularly in the changed scenario, wherein the travel agents independently procure computers.

Further, the assessing officer has held the offices of AIPL to constitute PE of the appellant in India. The assessing officer has, however, not pointed out how and under which paragraph of Article 5 do the offices of AIPL constitute PE of the appellant in India.

In terms of Article 5(1) of the Treaty, the term PE is defined as a fixed place of business through which the business of an enterprise is ‗wholly‘ or ‗partly‘ carried on. The term PE is further defined under Article 5(2) to include, inter alia, a place of management, a branch, an office, etc. A bare perusal of the definition of the term PE leaves no doubt that the mere existence of an office, place of management would not, by itself, constitute PE unless the business of the non-resident is carried on in India through such office, place of management, etc. Further, the OECD Commentary on Article 5 of the OECD Model Convention requires the following conditions to be satisfied in order to constitute fixed place PE: (a) the existence of a ‗place of business‘ at the disposal of the foreign enterprise, (b) the place of business must be fixed, and (c) the business of the foreign enterprise must be wholly or partly carried on through the enterprise

In this regard, reference is made to the decision of the Supreme Court in the case of Formula One World Championship Ltd. vs. CIT: 80 taxmann.com 347 (SC) wherein the Court after referring to the OECD Model Tax Convention, Commentaries by Professor Philip Baker and Professor Klaus Vogel, international tax jurisprudence observed that in terms of Article 5(1) of the India-UK Tax Treaty, a fixed place PE is constituted in India, if twin conditions are satisfied viz, (i) Existence of a fixed place of business at the disposal of the foreign enterprise in India; (ii) through which the business of the foreign enterprise is wholly or partly carried on. Further, the Delhi High court in the case of CIT vs. eFunds IT Solution and Ors.: 364 ITR 256 while deciding the issue as to whether outsourcing of services to an Indian affiliate results in a PE in India for the foreign company under the provisions of the India-US Tax Treaty held that for the purposes of existence of fixed place PE under Article 5(1), there must be a fixed place of business at the disposal of the enterprise. The subsidiary constitutes an independent legal entity for taxation purposes, and hence the relationship of holding-subsidiary or control exercised by the parent on its subsidiary by itself does not result in PE of the foreign company in India. Page | 16

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

Reference is also made to the decision of the Delhi High Court in the case of Adobe Systems Incorporated vs. ADIT: 292 CTR 407 wherein the Court relied upon the decision in the case of efunds (supra) observed as under:

"Para (1) of Article 5 defines a PE to mean a fixed place of business through which the business of an enterprise is wholly or partly carried on. The term 'fixed place of business' includes premises, facilities, offices which are used by an enterprise for carrying on its business. The fixed place must be at the disposal of an enterprise through which it carries on its business wholly or partly. Although, the word 'through' has been interpreted liberally but the very least, it indicates that the particular location should be at the disposal of an Assessee for it to carry on its business through it. These attributes of a PE under Article 5(1) of the Indo-US DTAA were elucidated by the Supreme Court in Morgan Stanley & Co. Ltd. (supra). In a recent decision, a Division Bench of this Court in DIT v. E-Funds IT Solution [2014] 364 ITR 256/226 Taxman 44/42 taxmann.com 50 (Delhi) reiterated the above- stated attributes; after quoting from various authors, this Court held that "The term 'through' postulates that the taxpayer should have the power or liberty to control the place and, hence, the right to determine the conditions according to its needs".

Reference is further made to the decision of the Delhi High Court in the case of National Petroleum Construction Companyvs. DIT: 383 ITR 648wherein the Court observed as under: Paragraph 1 of Article 5 provides an overarching general definition of the expression 'Permanent Establishment' (PE). It defines a PE to mean a fixed place of business through which the business of an enterprise is wholly or partially carried on. It is clear from the aforesaid definition that the expression 'Permanent Establishment' entails (a) a fixed place of business; and (b) business of the enterprise being carried on wholly or partially through the said fixed place of business. These two conditions must necessarily be satisfied for the existence of a PE. In addition, the word permanent in the term 'Permanent Establishment' indicates that there should be some degree of permanency attached to the fixed place of business before the same can be construed as a PE of an enterprise. The word permanent does not imply for all times to come but merely indicates a place which is not temporary, interim, short-lived or transitory The Andhra Pradesh High Court in the case of CIT vs. Visakhapatnam Port Trust [(1983)144 ITR 146],on the matter of permanency, has observed as under: ―In our opinion, the words ―permanent establishment‖ postulate the existence of substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of Page | 17

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) business in that country. It should be of such a nature that it would amount to a virtual projection of the foreign enterprise of one country into the soil of another country‖.

Attention in this regard is invited to the following observations of the Special Bench of the Tribunal in the case of Motorola &Ors. v. DIT: 95 ITD 269 (SB) (Del), wherein the Tribunal held that unless the office was at the disposal of the non- resident assessee, it could not be held to be constituting PE:

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) had a PE in Belgium as he had an office 3 m by 6 m at his disposal on the premises of his principal supplier in Belgium, together with telephone and telex, where the German and his tour employees worked (KH v. Belgium [1995] 3 R.G.F. 100). The assessee's case is akin to that of the German travel agency in the first mentioned case and not to the German resident in the second mentioned case. Therefore, in the light of this discussion, it cannot be said that the assessee had a PE in India as envisaged in Article 5.1 of the DTAA.‖[Emphasis supplied]

From the aforesaid discussions, it would emerge that in order to constitute a fixed place of business, there has to be right to use the premises for carrying out its own business by the enterprise and not for the purpose of business of the owner of the premises. Further, the premises or part thereof should be available at the constant disposal of the enterprise notwithstanding that the same is situated in the business facilities of another enterprise.

The assessing officer has, on the basis of evidence collected from the website of the appellant, alleged that the offices of Amadeus India constitute PE of the appellant in India. In this regard, it is respectfully submitted that the offices mentioned on the website of the appellant clearly state that the offices earmarked as ‗registered office‘, technical support‘ office, ‗corporate headquarters‘, ‗customer support‘ office, ‗training department‘, etc. under the heading ―contact us‖ are all offices of AIPL. Nowhere does the website state that these offices belong to the appellant. In fact, by no stretch of imagination can the appellant‘s registered office and corporateheadquarters have an Indian address. Even on appraisal of the information reproduced by the assessing officer on pages 5 and 6 of the draft order, it does not follow how the said offices are at the disposal of the appellant, or even how the business of the appellant is carried on through the said offices. It cannot, therefore, be said that the offices of AIPL constituted office of the appellant and the appellant had fixed place PE in India through such offices.

It is to be appreciated that AIPL is in terms of the Distribution Agreement entered into with the appellant, required to provide technical support, help desk services, training, etc. to the travel agents and purely for the purpose of information of the travel agents that the address of the AIPL has been given on the website of the appellant, so that they know whom and where to contact, if they face any problem or require support in relation to the CRS system. Reference is made to the decision of the Delhi Bench of the Tribunal in the case of R&B Falcon Offshore Limited vs. ACIT: 42 SOT 432,wherein the Tribunal held that it has to be shown from the facts on record that business of the non-resident appellant is wholly or partly carried on through the office in order to hold such office to be constituting PE of the non-resident appellant. The existence of an office, per se, would not constitute PE of the assessee in India.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Kind attention, in this regard, is also invited to the recent decision of the Mumbai Bench of the Tribunal in the case of Delmas France v. ADIT: 144 TTJ 273, wherein the Tribunal, while referring to the decision of the Special Bench of the Tribunal in Motorola Inc. (supra), held that that the onus is on the Revenue todemonstrate that PE of the foreign enterprise exists in India. The relevant observations of the Tribunal are as under: ―…..As held by a coordinate bench of this Tribunal, in the case of Airlines Rotables Ltd Vs DDIT8, ―It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. that the onus is on the Revenue to demonstrate that a PE of the foreign enterprise exists in India‖. In the present case, i.e. in the case of DAPE in accordance with provisions of Indo French DTAA, the onus is even greater inasmuch the very foundation of DAPE rests on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. ―if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions‖. Unless this negative finding is on record, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolution Panel. Even in the proceedings before us, no material has been brought on record which at least prima facie demonstrates, or even indicates, that the transactions between the principal and agent are not under arm‘s length conditions. Once this onus is not discharged by the revenue authorities at any of these stages, and in accordance with the law laid down by Special Bench decision in the case of Motorola Inc10, we have to hold that the assessee did not have any PE in India.‖ In that view of the matter, the assessing officer having failed in establishing that the appellant had control over the offices of AIPL, or the business of the appellant was being carried through such offices of AIPL, such offices do not constitute place of business/ PE of the appellant in India. Point wise rebuttal to the allegations of the AO

a) The assessing officer has (on page 4 of the order) alleged that the travel agents in India are directly connected to the CRS and not through AIPL and even if the server of AIPL is not in operation, the travel agents can still continue to access the CRS.

The aforesaid findings is based on improper and incorrect appreciation of facts and based on conjectures and surmises. It is submitted that the connectivity is provided to travel agents through the AIPL servers and no travel agents can access the CRS if AIPL‘s server is not functioning. This is also inconsistent with the findings of the Tribunal in the case of the appellant as well as Amadeus India. In fact, if the finding of the AO is accepted, then even less than 15% of revenues (as done by the Tribunal) can be attributed since in such a case, AIPL is not providing connectivity for which the Tribunal has partly attributed revenues to the PE in India. Page | 20

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

b) The assessing officer (on page 21 of the order) has stated that the source of income for the airlines, the assessee, AIPL and the travel agents is the money coming from the traveler and since the traveler is in India, the source of income for the appellant is in India.

It is submitted that the source of income for the assessee is the airlines and not the traveler in India. For example, a traveler domiciled in UK, wanting to travel from UK to Sri Lanka may book a ticket from London to New Delhi and from New Delhi to Colombo. However, for effecting the said bookings, he may use the services of an Indian travel agent, who is hooked on to the appellant‘s CRS. In the aforesaid example, the bookings made from India would give rise to booking fee relating to Indian distribution activity, but the traveler may not be in India. It is, therefore, an incorrect assumption drawn by the assessing officer that the source of income for the assessee is the traveler in India.

c) The assessing officer (on page 21 of the order) has further alleged that the transaction is initiated in India, the CRS is used in India and transaction is completed in India and, therefore, the source of income of the appellant is in India.

It has not been appreciated that only certain instructions/commands are sent through the computers of the travel agents in India. The booking gets completed outside India in the Airline host system and the only the result thereof is communicated back to the travel agent.

d) The assessing officer has (on pages 12 and 31 of the order) alleged that all foreign airlines have permanent establishment / branch office in India on the basis that the TDS certificates issued by such airlines bear an Indian address.

It is submitted that the aforesaid findings of the assessing officer is purely based on conjectures and surmises without even indicating the source of such information and the basis for arriving at such a conclusion. As regards the TDS certificates bearing Indian address, it is common knowledge that any non-resident making a tax deduction is compulsorily required to obtain a TAN and furnish an Indian address. The presence of an Indian address cannot in such circumstance, by any stretch of the imagination, lead to the conclusion that such foreign airlines have permanent establishment or a branch office in India. The foreign airlines, infact, it is common knowledge are assessed in the status of non-resident in India.

e) The assessing officer has (on page 21 of the order) also alleged that the main frame of the appellant located at Erding, Germany is emulated in India with the help of the Emulation Software and the travel agent virtually works on the main frame of the appellant.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) It is submitted that no such emulation of the mainframe takes place in India and it is unclear as to on what basis the assessing officer has reached the aforesaid findings. Merely because the software is named as emulation software, that by itself does not mean that the purpose of the software is to emulate the main frame of the appellant in India. The said software is required to configure the travel agent‘s computer and make it compatible with the mainframe in Germany, so that the two computers can recognize each other. Thus, an unauthorized user can be immediately identified and the access to the mainframe can be blocked.

f) The assessing officer has repeatedly held that the ultimate source of income for the appellant is the traveler in India and, therefore, income accrues/arises to the appellant from India.

It is respectfully reiterated that it is not necessary that the traveler should be situated in India for the booking to be captured in the profitability analysis of India. The only requirement is that the travel agent is located in India. No doubt the genesis of the payment is the traveler but the traveler is the source of income for the travel agents or the airlines but not the source of income for the appellant. For the appellant, the source of income is the Airlines and no one else. It is like saying the source of salary paid to Government officers is the tax payer and not the Government. Information submitted by Amadeus India Pvt. Ltd. 1) The assessing officer has relied upon Form 3CEB submitted by Amadeus India to hold that no compensation for marketing support services was paid by the appellant to Amadeus India. Such report was never confronted to the appellant and therefore, no cognizance can be taken of the said report. 2) Similarly, the assessing officer has, on the basis of transfer pricing report submitted by Amadeus India, held that Amadeus India is a PE of the appellant in India. The said report, was never confronted to the appellant and, therefore, cannot be relied upon to draw an adverse inference against the appellant. 3) The assessing officer has also relied on letters, dated 8.12.08 and 16.12.08, written by Amadeus India to the assessing officer to hold that no compensation for marketing activity was paid by the appellant to Amadeus India. In this regard, too, it is respectfully submitted that the said letters were never confronted to the appellant and, therefore, no cognizance can be taken of the said letters. Information collected at the back of the assessee – not confronted – Pages 4 and 5 and 8-10 of the order

 Information submitted by NACIL (Air India) Page | 22

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

The assessing officer has also relied on letter, dated 28.11.08 written by Air India to the assessing officer, which has not been confronted to the appellant and, therefore, no cognizance can be taken of the said letter.However, the inference the assessing officer seeks to draw from the above agreement is not spelt out.

 Information submitted by Cox & Kings India Pvt. Ltd., FCM Travel Solutions (India) Pvt. Ltd. and Travel Corporation (India) Ltd.

The assessing officer has also referred to some information allegedly submitted by Cox & Kings India Pvt. Ltd., FCM Travel Solutions (India) Pvt. Ltd. and Travel Corporation (India) Ltd., which has not been confronted to the appellant and, therefore, no cognizance can be taken of the said information.In any case, the inference the assessing officer seeks to draw from the above agreement is not spelt out.

Information allegedly not submitted by the appellant The assessing officer on page 28 of the assessment order, under a separate head titled ―Information not submitted by the Appellant‖ alleged that the appellant has not furnished the desired information during the course of the assessment proceedings. The appellant has provided voluminous information/details/replies to the various queries raised by the assessing officer within a very short span of time. Only some information/details which either related to third parties and was not in possession of the appellant or which was not readily available in view of paucity of time, may not have been furnished. Further, no adverse inference can be drawn from the fact that some of the information could not be submitted, since all the necessary information/details required for the purposes of assessment were available with the assessing officer and the assessing officer had, in fact, got the information/details from third parties. The assessing officer has also not appreciated that the appellant is being assessed since the assessment year 1996-97 and has always cooperated andfiled the details/information called for by the assessing officer/appellate authorities in the earlier years and it has never been alleged that the appellant has been evasive in his replies or has not filed details/information. It has also not been appreciated that the appellant is a tax resident of Spain and has no office or place of business in India and cannot be expected to provide every information/detail in a short-span of time and cannot be put to enormous compliance burden. No cognizance can be taken of the adverse inference drawn by the assessing officer on the basis of the aforesaid evidence collected by the assessing officer under section 133(6) from AIPL and other entities which was never confronted to the appellant and the information/details alleged to have not been filed and the impugned assessment order framed in violation of the principles of natural justice, is bad in law and liable to be set aside. Page | 23

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Re: Ground of Appeal Nos. 6, 11, 12, 13, 14 - Attribution of profits

Without prejudice to the submissions that the appellant has no PE in India, it is respectfully submitted, that no income liable to tax arises to the appellant for reasons given hereunder:

It is to be appreciated that the appellant‘s server, mainframe, hardware, software, the Amadeus host, Amadeus data center and the airline hosts are all located outside India. The connectivity is provided by third partyproviders, using in India the DOT, MTNL or VSNL leased lines. The appellant is not engaged in any business in India. The revenues of the appellant are not generated from the passenger in India or the travel agent in India or the hardware with which the travel agent operates or the line through which the communication travels. The revenue is generated by the appellant providing to the airlines the facility of display of airlines data information on the appellant‘s CRS. The fact that the payment to the appellant for the services rendered to the airlines outside India is expressed in terms of the responses received by the airlines based on the use of the CRS display by the travel agents, wherever they might be, does not mean that the services are rendered by the CRS in the respective countries.

Thus, all the major functions like CRS software/feature development, data processing, etc., which are instrumental in fructifying the booking, take place outside India, all the sophisticated machinery, etc. was located at Erding Germany and the value of computers used by the travel agents were a small fraction of the total value of plant and machinery situated abroad. Further, all the risk was that of the appellant and that, too, was outside India since the CRS services were to be provided by the appellant to foreign airlines and it is only on account of some error at the appellant‘s mainframe located outside India that any cause of action in case of traveler not being able to travel inspite of holding a valid ticket may arise. It is to be appreciated that activity done in India by AIPL and ResBird, viz., marketing of services of the appellant and providing connectivity to the travel agent through leased communication lines is minuscule as compared to the activities done outside India and the computers installed with the travel agents in India are not capable of performing the activities which are done with the mainframe of the appellant located outside India. The payment made by the appellant to AIPL and ResBird by way of distribution fee, viz., 30% of the net turnover (i.e. without considering other expenses like communication charges, advertisement and promotion, etc.) is much more than the revenues that could be attributed to the activity performed by AIPL and ResBird, considering AIPL to be a PE of the appellant. Therefore, the issue of any further income being taxed in the hands of the alleged PE of the appellant does not arise.

It may be pertinent to point out that the Delhi Bench of the Tribunal in the case of the appellant for the assessment years 1996-97 to 1998-99, after considering the extent of activities in India and abroad, the assets employed and risks assumed, held 15% of the revenues relating to the bookings made from India as attributable to the Page | 24

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) appellant‘s PE in India. Since, the distribution fee paid in those years 33% (approx) of the booking fee per segment, i.e, more than twice the revenue attributed to the alleged PE, no income was held to be liable to tax India in the Tribunal.

The assessing officer has grossly erred in not following the order of the Delhi Bench of Tribunal in the appellant‘s case for the assessment year 1996-97 to 1998-99. It may be pertinent to point out that the ITAT, vide order dated 16.11.2016 passed for assessment years 1999-00 and 2000-01, following the order for the assessment years 1996-97 to 1998-99, held that 15% of the revenues earned by Amadeus from its activities in India shall be attributable to the PE. It may also be pertinent to point out that the ITAT, vide order dated 24.04.2009, in MA Nos. 212 to 213/D/2008, filed by the Department against the order dated 30.11.2007 relating to AY 1997-98 and 1998-99, categorically held that revenues of 15% attributed by it to the PE were in relation to activity of the PE as a whole, i.e., considering the agency and as well as fixed place of business functions. Infact, in assessment year 1996-97, the appellant was held to have ‗business connection‘ (a much wider concept than a PE and encompassing all business related activities in India of a non-resident) and revenues to the extent of 15% of booking fee were attributed to such business connection. Thus, in no case more than 15% of the booking fee can be attributed to the activities of the alleged agency and fixed place PEs of the appellant in India.

Further, the assessing officer had not appreciated that the Tribunal had attributed the profit to the PE of the appellant in India by first determining the revenue attributable to such PE and thereafter reducing therefrom the expenses incurred in relation to earning such revenue and since the expenses were more than the revenue relatable to the activities of the PE, no income was held liable to tax in India by the Tribunal. The aforesaid is an accepted method of profit attribution and the same ought to have been followed by the assessing officer. It is further respectfully submitted, that the same method of attribution was also adopted by the Tribunal in the case of Galileo International, a company in the same line of business as the appellant. In appellant‘s own case, the Hon‘ble Delhi High Court following its decision in the case of DIT v. Galileo International: 224 CTR 251, has affirmed the orders of the Tribunal passed for assessment years 1996-97 to 2005-06. It is further submitted, that the facts of the case as obtaining in the relevant previous year and as prevailing in the assessment years decided by the Tribunal remain the same and the difference in facts sought to be made by the assessing officer in assessment year 2005-06, which has been followed in the impugned assessment, is based on conjecture, surmises and assumptions without appreciating the real nature of the activity carried out by the appellant in India. It is further respectfully submitted, that the assessing officer had, in the assessment order for assessment year 2005-06, sought to distinguish the decision of the Tribunal in appellant‘s own case for assessment year 1996-97 to 1998-99 on similar grounds. However, the CIT(A), vide order dated 25.02.2010, allowed the appeal of the appellant holding that no more than 15% of the revenues generated from India Page | 25

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) could be attributed to the alleged PE of the appellant in India and since the payment to the agent in India exceeded those revenues, no further income of the appellant could be brought to tax in India. The aforesaid order passed by the CIT(A) for assessment year 2005-06 has been confirmed by the ITAT, vide order dated 29.10.2010 and the High Court vide order dated 31.05.2011 (Revenue appeal) and 13.08.2013 (Assessee appeal). It has not been appreciated that AIPL continued to provide to the appellant the same services in the relevant previous year as were being provided in the earlier assessment year and only the basis of remuneration for a part of the relevant previous year was changed pursuant to the new distribution agreement entered into between the appellant and the AIPL. It is further respectfully submitted that as per the Distribution Agreement, AIPL was providing software development support services and marketing support services, as part of the CRS distribution function performed by it and the remuneration paid by the appellant to AIPL was for both the aforesaid activities. The assessing officer had, in the assessment framed, solely on the basis that AIPL has claimed deduction under section 80HHE of the Act in respect of the compensation received from the appellant alleged that no compensation has been paid for the marketing support function performed by AIPL and, therefore, held that income, in addition to the amount paid by the appellant to AIPL, needed to be attributed to the alleged PE in India. It is respectfully submitted, that the aforesaid argument and the decision in the case of Amadeus India (P.) Ltd. (supra) had already been considered by the Tribunal in appellant‘s own case for assessment year 1996-97 to 1998-99 and after considering the said decision, the Tribunal, in appellant‘s case concluded that for all the activities (software development, marketing etc.) performed by AIPL and the computers etc. in India, which has been considered to be the alleged PE of the appellant, the revenues attributable to the same are 15% of the booking fee. At this juncture, it would be pertinent to highlight that under the present arrangement which has been in force since 01.10.2004, when the new distribution agreement was signed with AIPL, the appellant no more provides computers to travel agents in India, which is the main premise on which the appellant is held to have a Fixed place PE in India.

The assessing officerhad also placed reliance upon the decision of the Supreme Court in the case of DIT v. Morgan Stanley & Co. Inc: 292 ITR 416, to contend that if the activities of the non-resident are not wholly channeled through the agent in India and agent‘s remuneration does not take into account all the risk functions performed in India, then Circular No. 23 of 1969, would not apply and further attribution of income can be made in the hands of the PE of the non-resident in India. It is respectfully submitted, that the aforesaid decision has no application to the facts of the present case, since (a) we understand the distribution fee paid by the appellant to AIPL has been held in AIPL‘s case to be at arm‘s length, (b) the appellant‘s Page | 26

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) activities are wholly channeled through AIPL and very recently through ResBird in India and no other entity is involved, and (c) the appellant‘s claim is not entirely based on Circular No. 23 of 1969. It may be pertinent to point out that the Tribunal in appellant‘s case for AY 1997-98 & 1998-99 interpreted the provisions of law independently after taking into account similar contention of the Revenue.

Without prejudice to the aforesaid, even if the basis of computation followed by the Tribunal in the appellant‘s own case is to be ignored for some reason, then too, only a small part of such profits could, if at all, be attributed to the alleged PE of the appellant in India can be brought to tax in India as substantial and substantive part of the appellant‘s activities are carried outside India.

The principle of attribution has been upheld by the Hon‘bleSupreme Court of India in the case of CIT Vs AhmedbhaiUmarbhai& Co.: 18 ITR 472. The Court observed that where a person is carrying on manufacture and sale, the profits received relate firstly to his business as manufacturer and secondly, to his trading operations. Profit or loss has to be apportioned in a business-like manner and according to well established principles of accountancy. In such cases, the Court held that it will be doing no violence to the meaning of the words ‗accrue or arise‘ if the profits attributable to the manufacturing business are said to arise or accrue at the place where the manufacture is being done and the profits which arise by reason of sale are said to arise at the place where the sales are made.

The aforesaid view was reiterated by the Hon‘ble Supreme Court in the case of The Anglo-French Textile Co Ltd. v. CIT: 25 ITR 27. It was observed in the aforesaid case that though profits may not be realized until the manufactured article is sold, profits are not wholly made by the act of sale and do not necessarily accrue at the place of sale. It was further observed that to the extent profits are attributable to the manufacturing operations, profits accrue at the place where the business operations are carried on. The question whether a particular part of income, profit or gain arose or accrued within the taxable territories or without the taxable territories would have to be decided having regard to the general principles as to where the income, profit or gain could be said to arose or accrue, the Court held. In the aforesaid case, the assessee company incorporated in the United Kingdom and having its registered office in London manufactured yarn and cloth in their mill at Pondicherry. The assessee had appointed a company in Madras at their agents. The manufactured goods were sold mostly in British India and partly outside British India. All the contracts in respect of the sales in British India were entered into in British India and deliveries were made and payments were received in British India. In regard to sales outside British India also, payments in respect of such sales were received in Madras through the agents.

The assessee had shown the total world income for the year ended 30.12.1941 at Rs.10,23,807. Profit at 10 per cent on British Indian sales which aggregated to Rs.57,07,431 was shown at Rs.5,70,743 and after deduction of the proportionate expenses relating to sales in British India and sundry charges was put down at the net Page | 27

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) figure of Rs.4,58,026 which was shown as the British Indian income. It was, thus contended that the income arising in British India in the year of account did not exceed its income arising without British India and that therefore the assessee was non-resident in British India. This calculation of profits, at the rate of 10 per cent on British Indian sales did not make any allocation between manufacturing profits and merchanting profits and all the profits arising out of British Indian sales were shown in one lump sum.

It was held on the aforesaid facts, that the income received in British India could not be said to wholly arise in British India and that there should be allocation of income between the various business operations of the assessee demarcating the income arising in the taxable territories in the particular year from the income arising without the taxable territories in that year. The Madras High Court in the case of Annamalais Timber Trust and Co. Vs CIT: 41 ITR 781, held that the apportionment of profits under the above provisions should not be arbitrary but on a rational basis. Where the only operation within the taxable territory was the negotiation and conclusion of the contract, there was no justification for apportioning 50% of the profits to the operation carried out within the taxable territory. The Court held that there was justification only for apportioning 10% of the assessee‘s share of the profits to the trading operations carried out in the taxable territory. The decision of the Calcutta High Court in the case of CIT Vs Bertrams Scotts Ltd.: 31 Taxman 444, where the Court upheld the order of the Tribunal is directly to the point under consideration. In that case the Tribunal had noted that a large number of services were to be performed outside India as compared to the comparatively fewer services rendered in India. The Court upheld the estimated 10% of the net profits as income accruing or arising in India.

Your Honour‘s kind attention in this regard is further invited to decision of the Special Bench of the Tribunal in the case of Nokia Networks: 95 ITD 269, wherein the Tribunal elaborated the manner in which the profit attributable to the PE, are to be computed.

In that case, the assessee engaged in the business of telecom equipment supply and erection, was held to have a PE in India, through which the activities relating to telecom network planning, negotiations relating to sale of equipment and signing of supply and installation contracts with Indian customers, were carried out in India. The issue before the Special Bench was, as to what was the income attributable to the PE of the assessee in India. The Special Bench found that the assessee made global net profit of 10.8%. The aforesaid percentage was applied to the sales made to the Indian customer, and the resultant figure was held to be net profit arising in respect of the Indian sale. Having regard to the activities of the PE in India, 20% of the net profit in respect of the Indian sale was held to be income attributable to the PE in India.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Reliance is further placed on the recent decision of the Uttarakhand High Court in the case of Samsung Heavy Industries Co. Ltd. vs. DIT: ITA No. 01 of 2012 in judgment dated 27.12.2013. The observation of the Court on the issue of attribution of income reads as under: ―4. In paragraph 1 of Article 7 of the said Agreement, it has been provided that profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. It, therefore, recognizes two tax identities of an enterprise. The said paragraph makes it clear that the profits of the enterprise may be taxed in the other State only so much of the same which is attributable to that permanent establishment.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Agreement. In terms of paragraph 1 of Article 7, appellant will acquire its tax identity in India only when it carries on business in India through a permanent establishment situated in India. By submitting the return, appellant has held out that it is carrying on business in India through a permanent establishment situated in India. In the circumstances, the contention of the appellant, whether the Project Office of the appellant opened at Mumbai can be, or cannot be said to be a permanent establishment within the meaning of the said Agreement is of no consequence. In terms of the said Agreement, as it appears to us, if an enterprise does not have a tax identity in India in the form of a permanent establishment, it has no obligation to either submit any tax return with, or pay any tax to India. The question still remains, whether it was right on the part of the Taxing Authority to assess income-tax liability of the appellant as was assessed in the instant case. In other words, can it be said that the Agreement permitted the Indian Taxing Authority to arbitrarily fix a part of the revenue to the permanent establishment of the appellant in India? As aforesaid, appellant held out that a part of the revenue was received by it for doing certain work in India. It did not contend that even those works were done by or through its Project Office at Mumbai. On the other hand, there is not even a finding that 25 per cent of the gross revenue of the appellant was attributable to the business carried out by the Project Office of the appellant. One has to read Article 5 of the Agreement in order to understand what a permanent establishment is, in terms whereof ―permanent establishment‖ means a fixed place of business through which business of an enterprise is wholly or partly carried on. In the instant case, according to the revenue, the Project Office of the appellant in Mumbai is the ―permanent establishment‖ of the appellant in India through which it carried on business during the relevant assessment year and 25 per cent of the gross receipt is attributable to the said business. Neither the Assessing Officer, nor the Tribunal has made any effort to bring on record any evidence to justify the same. 10. That being the situation, we allow the appeal, set aside the judgment and order under appeal as well as the assessment order in so far as the same relates to imposition of tax liability on the 25 per cent of the gross receipt upon the appellant in the circumstances mentioned above, and observe that the questions of law formulated by us, while admitting the appeal, have not, in fact, arisen on the facts and circumstances of the case, but the real question was, whether the tax liability could be fastened without establishing that the same is attributable to the tax identity or permanent establishment of the enterprise situate in India and the same, we think, is answered in the negative and in favour of the appellant.‖ (emphasis supplied)

Reliance in this regard is placed on the decision of the Delhi Bench of the Tribunal in the recent case of Convergys Customer Management Group Inc. vs. ADIT: ITA Nos. 1443/Del/2012 & 5243/Del/2011. In that case, the assessee was an American company engaged in providing IT enabled customer management services. The assessee had established a subsidiary in India which provided back office/call centre services to the assessee to services its customers in India. The Tribunal held that the Indian company constituted PE of the assessee in India since the assessee exercised Page | 30

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) substantial control and influence in the functional matters as is evident from the frequent and extensive visits of assessee‘s employees to India, secondment of assessee‘s employees to the key position in the Indian company and considering that the Indian company did not bear any substantial risk in relation to the functions carried out by in India. The Hon‘ble Tribunal while explaining the approach of computing profits attributable to such permanent establishment, held as under: ―11.17. In view of the above facts, circumstances, case law, CBDT circulars and various articles of India-USA DTAA, following conclusions are arrived at: A. xxx xxx xxx F. In our considered opinion, the correct approach to arrive at the profits attributable to the PE should be as under: Step 1: Compute Global operating Income percentage of the customer care business as per annual report/10K of the company. Step 2: This percentage should be applied to the end-customer revenue with regard to contracts/projects where services were procured from CIS. The amount arrived at is the Operating Income from Indian operations. Step 3: The operating income from India operations is to be reduced by the profit before tax of CIS. This residual is now attributable between US and India Step 4: The profit attributable to the PE should be estimated on residual profits as determined under Step 3 above. The attribution of India profit shall be worked out as under, mentioned after the table: 11.18. In the computation based on the above approach for the assessment year 2006-07, the profits attributable to India comes as under: Particulars Amount (in USD) 1,663,600,000 Total Revenue of CMG as per the Annual Report (A) Operating Income of CMG as per the Annual Report 175,500,000 (B) Operating Income as a percentage of revenue earned 10.55% (C = B/A) 138,900,000 End-customer revenue from Indian operations (D) 14,653,950 Operating Income from Indian operations (E = C * D) Operating Income of CIS (Profit before tax of CIS) 13,800,000 (F) Profit retained by CMG in the US (G = E – F) 853,950 Placitum ‗X‘

11.19. As per this working, the worldwide profit earned by CMG for A.Y. 2006-07 comes to USD 853950. This by and large tallies with the submission of the assessee dated 26-12-2010 to the assessing officer in which it has been Page | 31

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) submitted that the approximate operating profits of CMG in USD come to 0.8 million. Now the important question that arises is as to how much of the profits shall be attributable to CMG‘s Indian PE over and above the profits declared by its subsidiary CIS.

11.20. Apropos TPO‘s estimation, we are of the view that the same is not justified as it involves a very unrealistic method of counting the worldwide number of employees and dividing it with CMG‘s global revenue without considering the relevant aspects. The finer and material aspects about the status, capacity of the employees are over looked and result become very vague and distorted. Therefore, the method adopted by assessing officer cannot be relied on as most appropriate method. 11.21. Apropos CIT(A)‘s estimate about attribution, though he accepted the proposition that there cannot be notional addition to India revenue, however, CIT(A)‘s method also does not become a rational inasmuch as the various expenditures incurred by CMG i.e. research & development, depreciation, amortization etc. have not been considered and 50% of selling, general and administrative expenses have been ignored along with other expenses incurred by CMG outside India for earning the revenue from end customers. In our considered view, this approach is also not viable and appropriate. 11.22. As the methods for calculating the attribution profit as adopted by TPO and CIT(A) are not reliable. Ld. Counsel has further demonstrated that if both the methods are harmoniously applied, this leads to a situation where no further attribution to the assessee‘s income can be made. Thus a harmonious intermixed rationalization of TPO and CIT(A) method results into no further attribution of profits to Indian PE.

11.23. In this backdrop we are reminded of two case laws decided by Hon‘ble Supreme Court which have dealt with attribution of the profits to the Indian PEs: (i) Anglo French Textile Company Ltd. vs CIT 23 ITR 101 (SC), in which 10% attribution has been held to be reasonable. (ii) Hukum Chand Mills Ltd. vs. CIT 103 ITR 548 (SC), in which 15% attribution has been held to be reasonable. 11.24. These cases decided by the Apex Court though are old, but they still hold the field as they have not been tinkered with. In our considered view, the adoption of higher figure of 15% as held by Hon‘ble Supreme Court in the Hukum Chand Mills Ltd. (supra), for attribution of assessee‘s Indian PE operations will meet the ends of justice. Thus, the attribution of Indian PE income should be made at 15% of profit retained by CMG in the US. 11.25. In other words 15% of the placitum ‗X‘ (result of G=E-F) in the chart at para 11.18, as mentioned above as a reasonable attribution of profit of India PE, will meet the ends of justice. Thus, assessing officer will work out the profits attributable to Indian PE on this method for A.Y. 2006-07.‖ (emphasis supplied) Page | 32

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

Applying the ratio of the aforesaid decisions to the facts of the appellant‘s case, it will be appreciated that the net result of the period as per the audited profitability analysis for the India distribution activity, only represents the net profit relatable to the bookings made from India, i.e., the Indian sales. The same is not, however, the income attributable to the alleged PE of the appellant in India. Only a part of the aforesaid net profit can be attributed to the alleged PE in India since all the activities resulting in generation of such profits are not performed in India. In fact, a major part of such activities are performed outside India. Thus, at best, without prejudice, 15% of the net results as per the aforesaid audited profitability analysis can be brought to tax in India. Re: Ground of Appeal Nos. 6 to 10: Submission on disallowance of expenses In addition to holding that 75% of the net results of the Indian distribution activity is attributable to the alleged PE, the assessing officer while computing such net result for the year under consideration, has disallowed almost the entire expenses incurred for earning revenue from bookings made from India. The action of the assessing officeris patently erroneous and legally unsustainable for the reasons elaborated hereunder:

a) Re: Disallowance of distribution fees While computing the income of the alleged PE in the preceding assessment years, the AO disallowed deduction for distribution fee on the ground that as per the invoices raised by AIPL, the description of services is ―Export of Processed Data/ software‖ and not ‗Distribution fee‘. In this regard it is respectfully submitted that AIPL is required to seek subscribers (normally travel agents) and enter into agreements with them whereby AIPL provides the subscribers with appropriate access to the CRS host and to the Airline‘s inventory base. Once a travel agent subscribes to the CRS, a personnel from AIPL‘s staff, creates a specific segment for the travel agent in the CRS from where the ticket booking from travel agency will be initiated on the Amadeus‘s CRS. This includes information like Agency name, location address and access permissions forthat location. AIPL also creates user name and passwords per terminal/segment created by it. Further, a lot of times, travel agents are not able to price the fare correctly leading to data discrepancy in the PNR for fare discrepancy related to airline fare/taxes/commission and hence the booking does not get concluded on the CRS. The fares and support department of AIPL ensures that the travel agent's PNR is correct as per the fare filed by the Airline with the regulatory authorities and what is visible on the CRS. The aforesaid services are integral to the marketing of CRS and providing connectivity to the travel agents, for which AIPL has been engaged. The appellant remunerates AIPL under the Distribution Agreement and even though the payments are described as ‗export of data processed/software‘, the said payments include all charges to be paid by the appellant to AIPL. The invoices raised by AIPL are, in fact, for the distribution activity undertaken by the latter as per the Distribution Agreement dated 01.10.2004. Page | 33

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

In the letter dated 08.12.2008 furnished by AIPL, the latter has confirmed that it had provided access to the subscribers of Amadeus in India and the distribution fee for the same as per the Distribution Agreement is collected by AIPL by raising a monthly invoice to the appellant which bears the description of ―charges for export of processed data/software‖. AIPL has further, vide letter dated 16.12.2008, once again not only confirmed that the distribution fee for the services rendered to the appellant as per the Distribution Agreement is collected by AIPL by raising a monthly invoice on the appellant which bears the description of ―charges for export of processed data/software‖, but also confirmed that the nature of services in this regard have not undergone any change as compared to the earlier years. AIPL has also confirmed that the invoice value and the underlying computation are based on the number of segments in accordance with the Distribution Agreement. In that view of the matter, it is respectfully submitted that in the preceding years, deduction for distribution fees has erroneously been denied to the appellant. It would be appreciated that the nomenclature used in the invoice is not determinative of the nature of payments. It is settled law that the nature of payment/expense is to be judged in light of the intention of parties and the substance of the transaction rather than the nomenclature used in the agreement/invoice for such payment. Reliance in this regard is placed on the following decisions:  Bhopal Sugar Industries vs. Sales Tax Officer: 3 SCC 147 (1977)  Assam Small Scale Ind. Dev. Corp. Ltd. and Ors. v. J.D. Pharmaceuticals and Anr.: (2005) 13 SCC 19 (SC)  CIT vs. The Panbari Tea Co. Ltd.: 57 ITR 422 (Kar HC) The fact of the matter is that the aforesaid expenditure has been actually incurred and gone out of the coffers of the appellant and has been received by AIPL towards services rendered by AIPL as per the distribution agreement which involved marketing of the CRS including software development. In fact, the CIT(A) while completing the assessment for the assessment year 2005-06, himself held that the said expenditure had been incurred for the purposes of business carried on by the appellant in India. The fact that AIPL has claimed deduction under section 80HHE of the Act in relation to the distribution fee paid by the appellant is no ground for disallowing the said payment in the hands of the appellant. The assessing officer, in the preceding years, has not appreciated that had the appellant not made payment of distribution fee, the revenue from booking fee, subjected to tax would not have arisen in the first place, since there would have not been any connectivity provided to the travel agent and consequently, no bookings made by them. Even if the aforesaid expenses are considered as towards data processing, the same has to be considered for deduction while computing the income attributable to the alleged PE.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) It would, thus, be apparent that the aforesaid expenditure having been incurred wholly and exclusively for the purposes of the business of the appellant, is allowable deduction irrespective of the nomenclature used on the invoice.

It may be pertinent to note that similar expenditure has been allowed deduction since inception, i.e., assessment year 1996-97 until 2005-06 and in view of there being no change in facts or law, no disallowance is unwarranted in the present year too.

b) Re: Disallowance of development cost The assessing officer has, following preceding year‘s orders, also not allowed deduction for development cost of Euro 41,67,000/-.

In this regard, it is respectfully submitted, that the development costs mainly relate to product planning activities, functional support, design analysis, problem solving, regression testing, practice training programme organization, online help data maintenance, user documentation, etc. The product development consists of the development of new products, features to be used by users of Amadeus system in order to facilitate their access to such system and product positioning and evaluation. The aforesaid services are provided by an Amadeus affiliated company established in France. The range of products is constantly under review and Amadeus actively seeks opportunities to develop new products for the travel industry.

The aforesaid expenses which are common expenses incurred for the appellant‘s CRS, which is used worldwide, were allocated to the Indian territory on the basis of a formula, which multiplies the total expenses incurred worldwide by the number of bookings in India divided by the total number of bookings worldwide. It is to be appreciated that the development costs relate to design and development of the CRS as a whole and is not market specific. It is to be further appreciated, that whatever product/feature is developed, it is displayed and is available for use to the travel agents the world over, including India, being common to the CRS as a whole. The travel agents are thus enabled to provide more efficient and wide ranging options/services to the passengers by use of new/improved features. The development activities included development of corporate products like, corporate traveler, corporate traveler management, zoom, etc. and development of on-line web-booking facility. Since the aforesaid product development was for the CRS as a whole and could be used by the travel agent in India, a part of development expenditure is attributable to the earning of the booking fee in respect of segments booked from India. It cannot be said that the aforesaid expenses have not been incurred in connection with the Indian PE/Indian customers merely because the products developed are not India specific. Since the travel agents in India use the products, which are developed on a Page | 35

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) continuous basis, the introduction of new features results in generation of higher revenues due to larger number of segments being booked through the use of the appellant‘s CRS vis-à-vis competitor‘s CRS in India as well. The aforesaid expenses, it will be appreciated, have a nexus with the earning of fee from bookings, made from India and the same are allowable deduction.

Re: Ground of Appeal No. 15 - CRS income – Royalty Alternatively, the assessing officer has held that consideration of Euro 4,90,13,000 is taxable in India as royalty both under section 9(1)(vi) of the Act and Article 13 of the Indo-Spain DTAA (―the Treaty‖) by holding hold that the ‗booking fee‘ received by the appellant from various airlines is payment for use of process and scientific equipment and therefore, taxable as royalty under section 9(1)(vi) of the Act. In this regard, our submission is as under:

The term ―royalty‖ is defined in Explanation 2 to section 9(1)(vi) of the Act as ―consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) the use or right to use any industrial, commercial or scientific equipments but not including the amount referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).‖ Further, Explanation 4 has been inserted in section 9(1)(vi) of the Act, with retrospective effect, from 01.06.1976 by the Finance Act, 2012, which reads as under: ―Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.‖ Page | 36

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

The Memorandum explaining the provisions of Finance Bill, 2012, explained the rationale/reasons behind the proposed amendment to section 9(1)(vi) of the Act, as follows: ―Section 9(1)(vi) provides that any income payable by way of royalty in respect of any right, property or information is deemed to be accruing or arising in India. The term ―royalty‖ has been defined in Explanation 2 which means consideration received or receivable for transfer of all or any right in respect of certain rights, property or information. Some judicial decisions have interpreted this definition in a manner which has raised doubts as to whether consideration for use of computer software is royalty or not; whether the right, property or information has to be used directly by the payer or is to be located in India or control or possession of it has to be with the payer. Similarly, doubts have been raised regarding the meaning of the term process. Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:- (i) To amend section 9(1)(vi) to clarify that the consideration for use or right to use of computer software is royaltyby clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. sxx xxx xxx These amendments will take effect retrospectively from 1st June, 1976 and will accordingly apply in relation to the assessment year 1977-78 and subsequent assessment years.‖ The definition of ‗royalty‘, as contained in Explanation 2 to section 9(1)(vi) of the Act, includes consideration for transfer of all or any rights in respect of any copyright. It is further clarified in Explanation 4 that transfer of all or any rights in respect of any right, property or information includes transfer of all or any right for use or right to use computer software including the grant of license. In view of the aforesaid, in terms of definition of royalty, provided in Explanation 2 read with Explanation 4 to section 9(1)(vi) of the Act, transfer of all or any right to use computer software (including software license) would be characterized as royalty and the payment thereof by a resident to a non-resident would be chargeable to tax in India as per the source rule provided in section 9(1)(vi) of the Act. The aforesaid Explanation 4, inserted with retrospective effect from 01-06-1976, in section 9(1)(vi) of the Act, has sought to clarify the position under the Act that payment for standard or specialized software, whether embedded in hardware or not, would constitute royalty under the Act. Section 90(2) of the Act, inter-alia, provides that where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, then, in Page | 37

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent the same are more beneficial to that assessee. Section 90 of the Act reads as under: ―(1) The Central Government may enter into an agreement with the Government of any country outside India or specified territory outside India,—

(a) for the granting of relief in respect of— (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or xxxxxxxxx,

(3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. Explanation 1………………….

Explanation 3:- For the removal of doubts, it is hereby declared that where any term is used in any agreement entered into under sub-section (1) and not defined under the said agreement or the Act, but is assigned a meaning to it in the notification issued under sub-section (3) and the notification issued thereunder being in force, then, the meaning assigned to such term shall be deemed to have effect from the date on which the said agreement came into force‖ As the appellant, being a resident of Spain, has the option in law to apply the provision of the Act or the Treaty, the taxability of the appellant‘s income in relation to the CRS, has been discussed hereinbelow with reference to the Treaty provisions.

Article 13 of the Double Taxation Avoidance Agreement between India and Spain (‗the Treaty‘) deals with taxation of 'royalties and fees for technical services'. Article 13(3) defines ‗royalties‘ to mean payments of any kind received as a consideration for the ―use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific Page | 38

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) equipment, or for information concerning industrial, commercial or scientific experience.‖

It would be observed that the definition of royalty under the treaty is much narrower in scope than the definition under the Act, wherein the term ‗royalty‘ is defined to include, inter alia, consideration for use of or right to use any copyright of literary / scientific work, etc. Further, there is no provision like Explanation 4 to section 9(1)(vi)(b) in the Tax Treaty, which artificially expands the scope of the term ‗royalty‘ by providing that transfer of all or any rights in respect of any right, property or information includes transfer of all or any right for use or right to use computer software including the grant of license. It is trite that any subsequent unilateral amendment to the provisions of the Act should not be construed to override the meaning of the term ‗royalty‘ referred to under the India Spain Tax Treaty. It is pertinent to mention here that the Finance Minister, in the speech made on the floor of the Parliament clarified that retrospective clarification amendments enacted by Finance Act, 2012, do not override the provisions of the Treaty. Relevant extracts of the Finance Minister‘s speech are as under: ―…………………I would like to confirm that clarificatory amendments do not override the provisions of Double Taxation Avoidance Agreement (DTAA) which India has with 82 countries. It would impact those cases where the transaction has been routed through low tax or no tax countries with whom India does not have a DTAA.‖ Further, reference is made to the decision of the Mumbai High Court in the case of CIT vs. Siemens Aktiongesellschaft: 310 ITR 320, wherein it was held that by an unilateral amendment it is not possible for one nation to tax income which otherwise was not subject to tax under the relevant Tax Treaty.

Further, the Delhi High Court in the case of DIT vs. Nokia Network OY: ITA No. 359 of 2005, after considering the retrospective amendment to section 9(1)(vi) of the Act by Finance Act, 2012, observed that by virtue of such amendment, there was no change in the Tax Treaty and following the decision in the case of DIT vs. Ericsson A.B: 246 CTR 422, held that payment for a copyrighted article does not constitute royalty under Indo-Finland Treaty. Relevant extracts of the ruling are as under: He, thus submitted that the question of "copyrighted article" or actual copyright does not arise in the context of software both in the DTAA and in the IT Act since the right to use simpliciter of a software program itself is a part of the copyright in the software irrespective of whether or not a further right to make copies is granted. The decision of the Delhi Bench of the Tribunal has dealt with this aspect in its judgment in Gracemac Corporation vs. Asstt. Director of IT (International Taxation) (2010) 134 TTJ (Del) 257 : (2010) 47 DTR (Del)(Trib) 65 pointing out that even software bought off the shelf does not constitute a "copyrighted article" as sought to be made out by the Special Page | 39

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Bench of the Tribunal in the present case. However, the above argument misses the vital point namely, the assessee has opted to be governed by the treaty and the language of the said treaty differs from the amended s. 9 of the Act. It is categorically held in CIT vs. Siemens Aktiongesellschaft (2008) 220 CTR (Bom) 425 : (2008) 15 DTR (Bom) 233 : (2009) 310 ITR 320 (Bom) that the amendments cannot be read into the treaty. On the wording of the treaty, we have already held in Ericsson (supra) that a copyrighted article does not fall within the purview of royalty.‖ (emphasis supplied) To the same effect are the following decisions:  B4U International Holdings Ltd. v. DCIT: 346 ITR 62 (Mumbai)  Convergys Customer Management vs. ADIT [ITA Nos.1443/Del/2012 & 5243/Del/2011 (Delhi)  WNS North America Inc. vs. ADIT: 152 TTJ 145 (Mumbai)  ADIT vs. Antwerp Diamond Bank NV Engineering Centre:44 taxmann.com 175 Further, in the case of DIT vs. Ericsson A.B., Ericsson Radio System A.B. and Metapath Software International Ltd. 343 ITR 470 (Del), the High Court observed that when the provisions under the Tax Treaty expressly state that the payment in issue is not ―royalty‖, there is no requirement to examine the amended provisions under the Act. Reliance is further placed on the decision of the Canadian Supreme Court in the case of Her Majesty The Queen and Melford Developments Inc (1982) (2 SCR 504). In the said case, the issue under consideration was whether amendment to the provisions of the domestic tax laws of Canada, deeming payments by way of guarantee fees to be payment of interest attempts to override the provisions of Canada-Germany Tax Treaty. In the said context, the Canadian Supreme Court, while considering the expression ‗laws in force in Canada‘, held as follows:

―Laws enacted by Canada to redefine taxation procedures and mechanism with reference to income not subjected to taxation by the Agreement are not, in my view, incorporated in the expression ―laws in force‖ in Canada as employed by the Agreement. To read this section otherwise would be to feed the argument of the Appellant, which in my view is without foundation in laws, that subs (2) authorises Canada or Germany to unilaterally amend the Tax Treaty from time to time as their domestic needs may dictate.‖ The above decision has been relied on by the Mumbai High Court in the case of CIT vs. Siemens Aktiongesellschaft (supra). The assessing officer held that the payment made by the Airlines to the appellant constitute ‗royalty‘ since the same involves use of or right to use a computer software or use of process and/or equipment.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) In the present case, the payment by the various Airlines to the appellant under agreement with the airlines, is for facilitating display of airlines information on the computer screen of the travel agents to enable them to obtain airlines information and make reservations. It is a static display used to communicate to the travel agents certain information pertaining to the participating airlines including but not limited to instructions for pricing support, marketing information, special request procedures and briefings. Any computer can be used to access the information and avail the aforesaid services once the connectivity is provided. The appellant uses sophisticated technology/software in the course of providing service but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use by the participating airlines. Further, it is a matter of record that no fee is charged for the computers provided to the travel agents by the appellant as an incentive. The appellant has only provided a service to the airlines by using its process and equipments.

Position under OECD Model Commentary Article 12(2) of the OECD Model Convention, too, defines ―royalties‖ to mean, ―payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work……‖. Following a survey in the Member States, the OECD amended the Model Commentary to Article 12 in the version of the Model Convention released in 1992. The Committee of Fiscal Affairs of the OECD presented a draft amendment to the OECD Model Commentary to Article 12 (paras 12 to 17) which were a refinement of the approach set forth in the 1992 text and further elaborate on the criteria for the characterization of software payments. The amendments were incorporated in the version of the Model Commentary released in the year 2000.

The said Commentary focuses on the distinction between ―the copyright in the program and software which incorporates a copy of the copyrighted program‖: the right (intellectual property) is distinguished from the product in which such right is embodied (copyrighted article).The characterization as a transfer of a copyrighted article implies that income arising therefrom is regarded as income from transaction of sale rather than income from royalty.

The OECD Commentary on Article 12 in the version of Model Convention released in 2010 analyses types of software transfers. Relevant extracts have been reproduced below:

―13.1 Payments made for the acquisition of partial rights in the copyright (without the transferor fully alienating the copyright rights) will represent a royalty where the consideration is for granting of rights to use the program in a manner that would, without such license, constitute and infringement Page | 41

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) of copyright. Examples of such arrangements include licenses to reproduce and distribute to the public software incorporating the copyrighted program, or to modify and publicly display the program. In these circumstances, the payments are for the right to use the copyright in the program (i.e., to exploit the rights that would otherwise be the sole prerogative of the copyright holder). It would be noted that where a software payment is properly to be regarded as a royalty there may be difficulties in applying the copyright provisions of the Article to software payments since paragraph 2 requires that software be classified as a literary, artistic or scientific work. None of these categories seems entirely apt. The copyright laws of many countries deal with this problem by specifically classifying software as a literary or scientific work. For other countries treatment as a scientific work might be the most realistic approach. Countries for which it is not possible to attach software to any of these categories might be justified in adopting in their bilateral treaties an amended version of paragraph 2 which either omits all references to the nature of the copyrights or refers specifically to software. 14. In other types of transactions, the rights acquired in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. This would be the common situation in transactions for the acquisition of a program. This would be the common situation in transactions for the acquisition of a program copy. The rights transferred in these cases are specific to the nature of computer programs. They allow the user to copy the program, for example onto the user‘s computer hard drive or for archival purposes. In this context, it is important to note that the protection afforded in relation to computer programs under copyright law may differ from country to country. In some countries the act of copying the program onto the hard drive or random access memory of a computer would, without a license, constitute a breach of copyright. However, the copyright laws of many countries automatically grant this right to the owner of software which incorporates a computer program. Regardless of whether this right is granted under law or under a license agreement with the copyright holder, copying the program onto the computer‘s hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as commercial income in accordance wi6th Article 7. 14.1 The method of transferring the computer program to the transferee is not relevant. For example, it does not matter whether the transferee acquires a computer disk containing a copy of the program or directly receives a copy on the hard disk of her computer via a modem connection. It is also of no relevance that there may be restrictions on the use to which the transferee can put the software. 14.2 The ease of reproducing computer programs has resulted in distribution arrangements in which the transferee obtains right to make Page | 42

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) multiple copies of the program for operation only within its own business. Such arrangements are commonly referred to as ―site licenses‖, ―enterprise licenses‖, or ―network licenses‖. Although these arrangements permit the making of multiple copies of the program, such rights are generally limited to those necessary for the purpose of enabling the operation of the program on the licensee‘s computers or network, and reproduction for any other purpose is not permitted under the license. Payments under such arrangements will in most cases be dealt with as business profits in accordance with Article 7.‖ (emphasis supplied) As per the OECD Model Commentary to Article 12, not all transfers of copyright rights generate royalties; distinction is made between the transfer of partial rights and the transfer of the full copyright rights. Where under a transaction, rights acquired in relation to the copyright are limited to enable the user only to operate the program, such transaction would be dealt as a commercial income in accordance with Article 7 (Business Profits). It has also been clarified that where the transferee, obtains rights to make multiple copies of the program for operation only within its own business, referred to as ―enterprise licenses‖ or ―network licenses‖, payments under such arrangements would also be dealt as business profits under Article 7.

Position under the Indian Copyright Act, 1957: In view of the above, in terms of the definition of ‗royalty‘ under Article 13 of the treaty, unless any of the rights mentioned in section 14 of the Copyright Act, 1957 are transferred, it cannot be said that there is a transfer of all or any rights in a copyright, the consideration for which could be described as ‗royalty‘. In order to ascertain whether the consideration received by Amadeus from various airlines for use of CRS would be construed as consideration for use of or right to use any copyright, it would be necessary to ascertain its characterization in terms of the Copyright Act, 1957. The Copyright Act, 1957 defines computer program as a set of instructions expressed in words, codes, schemes, or any other form including a machine readable medium capable of causing a computer to perform a particular task or achieve a particular result. The Copyright Act further defines the term ―literary work‖ as including computer programs, table compilation including computer databases. The Copyright Act defines ‗copyright‘ in case of a ‗computer program‘ as certain exclusive rights (which are primarily granted in case of literary works), to reproduce the work, to issue copies of the work to the public, to make any translation or adaptation etc. Those rights attached to copyright are enumerated in Section 14 of the Copyright Act, 1957 as under:

―14. Meaning of copyright For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely,-

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make any adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi); (b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a); (ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme: PROVIDED that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.] Explanation: For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation.‖

In view of the above, it emerges that in terms of the definition of ‗royalty‘ under Article 13 of the Treaty, unless any of the rights mentioned in section 14 of the Copyright Act, 1957 are transferred, it cannot be said that there is a transfer of all or any rights in a copyright, the consideration for which could be described as ‗royalty‘. In terms of section 14 of the Copyright Act, ―copyright‖ means the exclusive right to reproduce including storing in any medium by electronic mean, to issue copies to make any adaptation, etc. in relation to a literary work. In relation to a computer programme, clause (b) of section 14 of the Copyright Act further provides that the ―copyright‖ means exclusive right to do, inter alia, aforesaid acts, namely, to reproduce including storing in any medium by an electronic means, to issue copies, to make any adaptation, etc. and also to sell or give on commercial rental any copy of the computer program. In other words, to be regarded as copyright within the meaning of the Copyright Act, there should result provision or transfer of exclusive

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) right to reproduce or to issue copies or to adapt, or to sell or give on commercial rental the computer program. In the present case, the payment by the various airlines to the appellant under agreement with the airlines, is for facilitating display of airlines information on the computer screen of the travel agents to enable them to obtain airlines information and make reservations. It is a static display used to communicate to the travel agents certain information pertaining to the participating airlines including but not limited to instructions for pricing support, marketing information, special request procedures and briefings. Any computer can be used to access the information and avail the aforesaid services once the connectivity is provided. The appellant uses sophisticated technology/software in the course of providing service but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use by the participating airlines. Further, it is a matter of record that no fee is charged for the computers provided to the travel agents by the appellant as an incentive. The appellant has only provided a service to the airlines by using its process and equipments.

Legal position: Reliance, in this regard, is placed on the decision of Delhi High Court in the case of DIT v. Infrasoft Ltd.: 220 Taxman 274. In this case,the assessee, an international software marketing and development company of an international group, had claimed that amount received by it under license agreement for allowing use of software was not taxable as royalty. The Delhi High Court upheld the order of the Tribunal that amount received by the assessee under the license agreement for allowing the use of the software would not be royalty under the DTAA since what was transferred was neither the copyright in the software nor the use of the copyright in the software, but what was transferred was the right to use the copyrighted material or article which was distinguishable from the rights in a copyright. Accordingly, payments received by the assessee in this regard would be taxable as business income. ―97. What is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be business income. 98. We are not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business Page | 45

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 99. In view of the above we accordingly hold that what has been transferred is not copyright or the right to use copyright but a limited right to use the copyrighted material and does not give rise to any royalty income. 100. The question of law is thus answered in favour of the Assessee and against the Revenue that the Income-tax Appellate Tribunal was right in holding that the consideration received by the respondent Assessee on grant of licences for use of software is not royalty within the meaning of Article 12(3) of the Double Taxation Avoidance Agreement between India and the United States of America.‖ It may be pertinent to note that the Delhi High Court in the aforesaid decision has distinguished the ratio decidendi laid down by the Karnataka High Court in the case of CIT v. Samsung Electronics Co. Ltd.: 345 ITR 494. Accordingly, the reliance placed by the assessing officer on the decision of Samsung Electronics (supra) is misplaced. The Delhi High Court in the case of Ericsson AB v. DIT: 343 ITR 470 (Del), while interpreting the definition of royalty under India Sweden Treaty, held that grant of right to use a software had to be distinguished from the grant of rights in a copyright. Consideration for the latter was to be treated royalty; whereas consideration for the former could only be treated as business profits, not taxable in India in the hands of the non-resident in the absence of a permanent establishment of such non-resident in India. The Court held that the consideration paid for software purchase was not royalty since the purchaser has not been given any of the seven rights under Section 14 (a) (i) to (vii) of the Copyright Act, 1957 and, therefore what is transferred is not a copyright but actually a copyrighted article. Further, since the purchaser cannot commercially exploit the software, therefore a copyright is not transferred. In the case of Alcatel Lucent Canada v. CIT: 372 ITR 476 (Delhi), the assessee a French company was engaged in the manufacture, trade and supply equipments and services for GSM Cellular Radio Telephones Systems. The assessee had supplied hardware and software to various entities in India. Software licenced by the assessee embodied the process which was required to control and manage the specific set of activities involved in the business use of its customers. The AO alleged that the consideration of supply of software was taxable as royalty under section 9(1)(vi) of the Act. The High Court relied upon the rulings of Jurisdictional High Court in the case of DIT v. Ericsson A.A (supra) and DIT v. Nokia Networks, OY [2013] 358 ITR 259 and held that consideration paid towards supply of software along with hardware i.e. software embedded in the hardware was taxable as business income and not as royalty. Page | 46

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

Reliance, is further placed on the decision of the Authority of Advance Ruling (‗AAR‘) in the case of Dassault Systems KK: 322 ITR 125, wherein the Authority held that consideration for transfer/sale of a computer programme (copyrighted article) is not ‗royalty‘ either under the provisions of the Act or the relevant Double Tax Avoidance Treaty, in the absence of transfer of the ‗copyright‘ in the said software. The applicant therein was a company incorporated under the laws of Japan, engaged in the business of providing software solutions, applications and related services. The applicant appointed various distributors called ‗Value Added Resellers‘ (VAR) through which its licensed software (product) were marketed and sold. The VARs were independent, third party resellers with no authority to bind the applicant. The modus operandi of transaction was as follows: a) The applicant entered into a General VAR Agreement with the distributor/reseller/VAR under which the product was sold by the applicant to VAR for consideration based on standard price list less discount. b) The VAR, in turn, sold the product to the end users at an independent price negotiated by VAR with the end users. It was the end users, however, who would enter into End Users License Agreement (EULA) with the applicant for the products supplied. c) The VAR received the order from the end users and placed back to back orders on the applicant, and on the acceptance of the order by the applicant, a license key was provided to the customer by the applicant directly via email.

In the aforesaid facts, the applicant sought ruling from the Authority on the question whether the payment received by the applicant from the sale of software to independent third party resellers (VAR) would be business profits under Article 7 of the Indo-Japan DTAA or would constitute ‗royalty‘ as defined under Article 12 of the Indo-Japan DTAA. The Authority, after elaborately discussing the concept of ―copyright‖ generally and explaining its scope and meaning specifically with reference to the provisions of the Indian Copyright Act, 1957, held that in order to bring a particular consideration within the definition of the term ‗royalty‘ under the Act or the DTAA, it was necessary that the ‗copyright‘ is actually transferred. Mere transfer of the end product embodying such copyright would not suffice. The Authority explained that copyright, in essence, is a negative right and restricts others from doing certain acts to the exclusive ownership of the copyright holder, the emphasis being on the word ‗exclusive‘. The Authority also highlighted the fact that ownership in copyright is different from ownership of the physical material or the product in which the copyright work may happen to be computed. It is only in a case where the copyright itself is made available to the other person, could it be said that there was a transfer of right to use the ‗copyright‘. However, where the product which embodies the copyright is sold or transferred the same would not amount to transfer of a copyright and the consideration therein would not come within the realm of ‗royalty‘ under the Page | 47

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Act/DTAA. The Authority, in this regard, quoted with approval the decision of the Special Bench of the Delhi Tribunal in the case of Motorola Inc: 95 ITD 269 and the OCED Commentary on Article 12 regarding characterization of software payment. The distinction made therein between payment for ‗copyrighted right‘ (which results in royalty) and ‗copyrighted article‘ (which does not result in royalty) was appreciated by the Authority. The following observations of the Authority are instructive: ―The enjoyment of some or all the rights which the copyright owner has, is necessary to trigger the royalty definition. … a non-exclusive and non- transferable license enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in a copyright.‖ On the basis of the aforesaid legal principles and the facts of the case, the Authority came to the conclusion that there was no transfer of the ‗copyright‘ in the software to the end users or the VAR/reseller so as to bring the transaction within the ambit of the definition of ‗royalty‘. The aforesaid principle has been affirmed by the AAR in the case of Geoquest Systems B.V. vs. DIT [2010] 327 ITR 1, where it has been held that mere use of computer software without conferment of the right to use the copyright does not fall within the ambit of the royalty. The observations of the AAR are extracted as under: ―9. The crucial clauses in the Agreement concerning Dassault Systems K.K.‘s case (supra) are substantially similar to the clauses in the agreement relevant to the present case. In Dassault Systems K.K.‘s case (supra), the product was to be hosted on a server located outside India and the end-user in India will electronically download the same by accessing the weblink directly on its computer system. In the applicant‘s case, the title to the tangible media containing the software has been delivered to the customer in the country of origin. Though the facts vary to this extent, the principles laid down equally apply to the instant case. The clauses relating to the grant of non-exclusive, non-transferable licence to use software, the limitation as to user, viz., that it shall be limited to the processing of information and the process of copying, recording, transcribing software coupled with the restriction on modifying the software, creating derivative versions, reverse assembling, compiling and engineering or distributing it to other parties or making it available for any use, directly or indirectly, by another are almost the same as in Dassault Systems K.K.‘s case (supra). There is also a specific provision in both the Agreements that Intellectual Property Rights would always remain with the owner of the product or the licensor. Such restrictions placed on the user of software and the fact that the licensee/customer had no right to interfere with source code and that the licensed product cannot be commercially exploited by the licensee/customer are inconsistent with the inference that the rights in respect of copyright or the right to use the copyright of the computer programme have been conveyed to the customer. Further, there is nothing in the Agreement to suggest that the underlying technical knowledge in developing the software has been transferred. Notwithstanding the grant Page | 48

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) of authority to use the licence (on non-exclusive and non-transferable basis), the copyright imbedded in the software remains with the owner in tact. ……….. 15. In the light of the foregoing discussion, we answer question No. 2 in the negative by holding that the amount payable under SLTC contract to the applicant does not amount to ‗royalty‘ within the meaning of Article 12.4 of DTAA (Tax Treaty) between India and The Netherlands, nor can it be treated as ‗fees for technical services‘, as contended by the revenue.‖ In the case of Aspect Software Inc. and Ors vs. ADIT: 172 TTJ (Delhi) 1, the assessee was engaged in the business of providing hardware, software and rendering of support services that enable call centre companies, to better manage customer interactions via voice, email, web and fax. The assessee derived its revenue from supply of "contact solutions", software license and provision of services including, installation, maintenance and professional services. The assessee also provided installation/implementation and maintenance of the supplied hardware and software. The AO alleged that the consideration of supply of software was taxable as royalty under section 9(1)(vi) of the Act. The High Court following the principles laid down in the case of Ericsson A.B. (supra) held that the consideration received by the assessee for supply of product along with license of software to end user is not taxable as royalty under Article 12 of the Tax Treaty. The Court further held that even where the software is separately licensed without supply of hardware to the end users then also, as held by the High Court in the case of Infrasoft (supra), there is no transfer of any right in respect of copyright by the assessee and it was a case of mere transfer of a copyrighted article. Accordingly, payment for such software is not in the nature of royalty under Article 12 of the Tax Treaty and would constitute business income. Reliance is also placed on the decision of the Bangalore Tribunal in the case of Lucent Technologies Hindustan Ltd. vs. ITO: 92 ITD 366, which examined taxability of payment for import of application software purchased along with related hardware. The relevant observations of the Tribunal in that case are as follows:

The acquisition of software was inextricably linked to the acquisition of hardware and one could not function without the other, i.e., the transaction was for integrated equipment consisting of both hardware as well as software and the Revenue authorities were not justified in bifurcating the transactions as one of supply of hardware and other of software and treating the software as part of royalty (in terms of the treaty as well as the Act). The software was customer specific and could not be reused or duplicated. The distinction between the payment made for copyrighted right and copyrighted article as made in the OECD commentary on Article 12, was appreciated by the Tribunal. The assessee acquired a Copyrighted article and not Copyright of the rights, i.e, there was no acquisition of rights in the Copyrighted program which could be exploited commercially.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) The Tribunal, therefore, concluded that the payment for the aforesaid software was not liable to tax in India and the assessee was not required to deduct tax at source under section 195 of the Act in respect of the aforesaid payment. In the case of Motorola Inc. vs. DCIT: 95 ITD 269 (SB) (Del) the assessee was the leading supplier of telecommunication equipments comprising of both hardware and software. They had entered into supply agreements with cellular operators in India for supply of hardware and software during the relevant assessment years and received payments therefore. The assessee had no permanent establishment in India and, therefore, payments received by it could not be taxed as business profits under article 7 of the DTAA. However, the Commissioner (Appeals) held it to be taxable under article 13 of the DTAA as royalty. The bottom line of the issue was whether the payment was for a copyright or for a copyrighted article. If it was for copyright, it should be classified as royalty both under the Income-tax Act and under the DTAA and it would be taxable in the hands of the assessee on that basis. If the payment was really for a copyrighted article, then it only represented the purchase price of the article and, therefore, could not be considered as royalty either under the Act or under the DTAA. If any of the cellular operators did not have any of the rights mentioned in clauses (a) and (b) of section 14 of the Copyrights Act, 1957, it would mean that it did not have any right in a copy right. In that case, the payment made by the cellular operator could not be characterized as royalty either under the Act or under the DTAA. After analysis of the terms of the contract, the Hon‘ble Special Bench held as follows:

―A conjoint reading of the terms of the supply contract and the provisions of the 1957 Act, clearly showed that the cellular operator could not exploit the computer software commercially which was the very essence of a copyright. In other words, a holder of a copyright is permitted to exploit the copyright commercially and if he is not permitted to do so then what he had acquired could not be considered as a copyright. In that case, it could not be said that he had acquired a copyrighted article. One cannot have the copyright without the copyrighted article but at the same time just because one has the copyrighted article, it does not follow that one has also the copyright in it. Therefore, the payment by the cellular operator was not for any copyright in the software but was only for the software as such as a copyrighted article. It followed that the payment could not be considered as royalty within the meaning of Explanation 2 below section 9(1) or article 13.3 of the DTAA with Sweden.‖

To the same effect are the following cases, wherein it has been similarly held that consideration for use of software, in the absence of transfer of copyright therein, would not constitute royalty:  DIT vs. Nokia Network OY: ITA No. 359 of 2005  CIT v. Dynamic Vertical Software India P. Ltd.: 332 ITR 222 (Del)  Convergys Customer Management Group Inc. v. ADIT: 26 ITR(T) 443 (Delhi - Trib.)

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)  ADIT (IT) v. First Advantage (P.) Ltd.: ITA No.3031 & 3032/Mum/2010 (Mum)  ADIT(IT) v. Baan Global BV: 49 ITR(T) 73 (Mum)  Factset Research: 317 ITR 169 (AAR)  DDIT vs. Solid Works: (2012) 51 SOT 34 (Mum)  Kansai Nerolac Paints Ltd.: 134 TTJ 342 (ITAT Mum)  DDIT v. Alcatel USA International: 43 SOT 31 (Mum) (URO)  DDIT vs Reliance Industries Ltd.: (2011) 43 SOT 506 (ITAT Mum)  Novel Inc. v DDIT [2011] 16 taxmann.com 186 (Mum.)  ADIT vs TII Team Telecom International Private Limited (2011) 140 TTJ (Mum) 649  ADIT vs Siemens Aktiongesellschaft [2012] 19 ITR (Trib) 336 (Mum)  WNS North America Inc. vs ADIT (2012) 152 TTJ (Mum) 145  Channel Guide India Ltd. vs ACIT (2012) 153 TTJ (Mum) 432  Allianz SE vs ADIT ITA No. 1569/Pune/ 2008  Daimler Chrysler India (P.) Ltd. vs Dy.CIT [2009] 29 SOT 202 (Pune)  DCIT v.Metapath Software International Ltd. [2006] 9 SOT 305 (Del)  Mphasis BFL Ltd. vs ITO [2006] 9 SOT 756 (Bang)  Sonata Information Technology Ltd v ACIT [2006] 103 ITD 324 (Bang)  Velankani Mauritius Ltd v DDIT [2010] 40 SOT 33 (Bang)(URO)  ACIT v.Dassault Systems Simulia Pvt. Ltd.: ITA No. 323/Mds/2012 (Chennai)

Further, attention is invited to the decision of the Delhi High Court in the case of DIT vs. New Skies Satellite 382 ITR 114, wherein the court held that payment made to the assessee for data transmission services was not taxable as ―royalty‖ under Article 12 of the relevant Tax Treaty. Further, attention, in this regard, is invited to the ruling of the Advance Authority Ruling (‗AAR‘) in the case of Dell International Services India (P) Ltd. v. CIT: 305 ITR 37, wherein the Authority held that fee paid by the assessee for bandwith services rendered by the foreign corporation were not in the nature of ―royalty‖ under the Act or the Treaty because no ―right to use‖ was transferred by the foreign corporation to the assessee. The AAR further observed that if in the process of rendering a service, the assessee uses some sophisticated technology itself without transferring the ―right to use‖ of such technology/equipment, the fee received for rendering such services would not constitute ―royalty‖. The relevant observations of the AAR are as under: ―12.5 It seems to us that the two expressions 'use' and 'right to use' are employed to bring within the net of taxation the consideration paid not merely for the usage of equipment in praesenti but also for the right given to make use of the equipment at future point of time. There may not be actual use of equipment in praesenti but under a contract. the right is derived to use the equipment in future. In both the situations, the royalty clause is invokable. The learned senior counsel for the appellant sought to contend, relying on the decision of Andhra Pradesh High Court in the case of RashtriyaIspat Nigam Ltd. v. CTO [1990] 77 STC 182 which was affirmed by the Supreme Court, that mere custody or possession of equipment without effective control can Page | 51

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) only result in use of the equipment whereas a right to use the equipment implies control over the equipment. We do not think that such distinction has any legal basis. In the case of RashtriyaIspat Nigam Ltd., what fell for consideration was the expression "transfer of right to use any goods" occurring in a sales-tax enactment. Obviously, where there is a transfer, all the possessory rights including control over the goods delivered will pass on to the transferee. It was in that context, emphasis was laid on 'control'. The Supreme Court affirmed the conclusion of the High Court that the effective control of machinery even while the machinery was in use of the contractor remained with RIN Ltd. which lent the machinery. The distincti0n between physical use of machinery (which was with the contractor) and control of the machinery was highlighted. The ratio of that decision cannot be pressed into service to conclude that the right of usage of equipment does not carry with it the right of control and direction whereas the phrase 'right to use' implies the existence of such control. Even in a case where the customer is authorized to use the equipment of which he is put in possession, it cannot be said that such right is bereft of the element of control. We may clarify here that notwithstanding the above submission, it is the case of appellant that, it has neither possession nor control of any equipment of BTA. 12.6 The other case cited by the learned counsel for appellant to explain the meaning of expressions 'use' and 'right to use' is that of BSNL v. UOI [2006] 3 STT 245 (SC). Even that case turned on the interpretation of the words "transfer of right to use the goods" in the context of sales-tax Acts and the expanded definition of sale contained in clause (29A) of section 366 of the Constitution. The question arose whether a transaction of providing mobile phone service or telephone connection amounted to sale of goods in the special sense of transfer of right to use the goods. It was answered in the negative. The underlying basis of the decision is that there was no delivery of goods and the subscriber to a telephone service could not have intended to purchase or obtain any right to use electro-magnetic waves, At the most, the concept of sale in any subscriber's mind would be limited to the handset that might have been purchased at the time of getting the telephone connection. It was clarified that a telephone service is nothing but a service and there was no sale element apart from the obvious one relating to the handset, if any. This judgment, in our view, does not have much of bearing on the issue that arises in the present application. However, it is worthy of note that the conclusion was reached on the application of the well-known test of dominant intention of the parties and the essence of the transaction. The word 'use' - what it means: 12.7 Let us now explore the meaning of the keyword 'use'. The expression 'use' has a variety of meanings and is often employed in a very wide sense, but the particular meaning appropriate to the context should be chosen. In S.M. Ram Lal & Co. v. Secretary to Government of Punjab [1998] 5 SCC 574, the Supreme Court noted that 'in its ordinary meaning', "the word 'use' as a noun, is the act of employing a thing; putting into action or service, employing for or applying to a given purpose". In the New Shorter Oxford Dictionary, more or less the same meaning is given. The very first meaning noted there is: "the action of using something; the fact or state of being used; application or Page | 52

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) conversion to some purpose". Another meaning given is "Make use of (a thing), especially for a particular end or purpose; utilize, turn to account... cause (an implement, instrument etc.) to work especially for a particular purpose; manipulate, operate". The various shades of meanings given in the decided cases in America are referred to in Words and Phrases, Permanent Edition Vol. 43A. Some of them are quoted below: "The word 'use' means to make use of; convert to one's service; to avail oneself of; to employ". (Miller v. Franklin County) "The word 'use' means the purpose served, a purpose, object or end for useful or advantageous nature". (Brown v. Kennedy) "'Use' means to employ for any purpose, to employ for attainment of some purpose or end, to convert to one's service or to put to one's use or benefit." (Beach v. Liningston) "'Use', as a noun, is synonymous with benefit and employment and as a verb has meaning to employ for any purpose, to employ for attainment of some purpose or end, to avail one's self, to convert to one's service or to put to one's use or benefit." (Esfeld Trucking Inc. v. Metropolitan Insurance Co.) 12.8 The word 'use' in relation to equipment occurring in clause (iva) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions 'use' and 'right to use' followed by the word "equipment" suggests that there must be some positive act of utilization, application or employment of equipment for the desired purpose. H an advantage is taken from sophisticated equipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. 13. It is the contention of the revenue that dedicated private circuits have been provided by BTA through its network for the use of the appellant. The utilization of bandwidth upto the requisite capacity is assured all. account of this. The electronic circuits being 'equipment' are made available for constant use by the appellant for transmission of data. The access line is installed for the benefit of the appellant. Therefore, the consideration paid is towards rent for circuits and the physical components that go into the system. It is further contended that rendition of service by way of maintenance and fault repairs is only incidental to the dominant object of renting the automated telecommunication network. 13.1 There is no doubt that the entire network consisting of under-sea cables, domestic access lines and the BT equipment - whichever is kept at the connecting point, is for providing a service to facilitate the transmission of voice and data across the globe. One of the many circuits forming part of the network is devoted and earmarked to the appellant. Part of the bandwidth capacity is utilised by the appellant. From that, it does not follow that the entire equipment and components constituting the network is rented out to the Page | 53

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) appellant or that the consideration in the form of monthly charges is intended for the use of equipment owned and installed by BTA. The questions to be asked and answered are: Does the availment of service involve user of equipment belonging to BT or its agent by the appellant? Is the appellant required to do some positive act in relation to the equipment such as operation and control of the same in order to utilize the service or facility? Does the appellant deal with any BT equipment for adapting it to its use? Unless the answer is 'yes', the payment made by the appellant to BTA cannot be brought within the royalty clause (iva). In our view, the answer cannot be in the affirmative. Assuming that circuit is equipment, it cannot be said that the appellant uses that equipment in any real sense. By availing of the facility provided by BTA through its network/circuits, there is no usage of equipment by the appellant except in a very loose sense such as using a road bridge or a telephone connection. The user of BT's equipment as such would not have figured in the minds of parties. As stated earlier, the expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its own network. What is contemplated by the word 'use' in clause (iva) is that the customer comes face to face with the equipment, operates it or controls its functioning in some manner, but, if it does nothing to or with the equipment (in this case, it is circuit, according to the revenue) and does not exercise any possessory rights in relation thereto, it only makes use of the facility created by the service provider who is the owner of entire network and related equipment. There is no scope to invoke clause (iva) in such a case because the element of service predominates. 13.2 Usage of equipment connotes that the grantee of right has possession and control over the equipment and the equipment is virtually at his disposal. But, there is nothing in any part of the agreement which could lead to a reasonable inference that the possession or control or both has been given to the appellant under the terms of the agreement in the course of offering the facility. The appellant is not concerned with the infrastructure or the access line installed by BTA or its agent or the components embedded in it. The operation, control and maintenance of the so-called equipment, solely rests with BTA or its agent being the domestic service provider. The appellant does not in any sense possess nor does it have access to the equipment belonging to BTA. No right to modify or deal with the equipment vests with the appellant. In sum and substance, it is a case of BTA utilizing its own network and providing a service that enables the appellant to transmit voice and data through the media of telecom bandwidth. The predominant features and underlying object of the entire agreement unerringly emphasize the concept of service. The consideration paid is relatable to the upkeep and maintenance of specific facility offered to the appellant through the BTA's network and infrastructure so that the required bandwidth is always available to the appellant. The fact that the international circuit as well as the access line is not meant to offer the facility to the appellant alone but it enures to the benefit of various other customers is another pointer that the appellant cannot be said to be the user of equipment or the grantee of any right to use it. May be, a fraction of the equipment in visible form may find its place at the appellant's premises for the purpose of establishing connectivity or otherwise. But, it Page | 54

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment. 13.3 In cases where the customers make use of standard facility like telephone connection offered by the service provider, it does not admit of any doubt that the customer does not use the network or equipment of the service provider. But, where the service provider, for the purpose of affording the facility, has provided special infrastructure/network such as a dedicated circuit (as in the instant case), controversies may arise as to the nature of payment received by the service provider because it may not stand on the same footing as standard facility. However, even where an earmarked circuit is provided for offering the facility, unless there is material to establish that the circuit/equipment could be accessed and put to use by the customer by means of positive acts, it does not fall under the category of 'royalty' in clause (iva) of Explanation 2.‖ (emphasis supplied)

Kind attention is further invited to the decision of the Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT: 251 ITR 53. In that case, the Court, in the context of section 9(1)(vii) of the Act dealing with ‗fees for technical services‘, held that rendering of a service which involves use of technical/sophisticated equipment would not ipso facto lead to the conclusion that the payment is for rendering of a ―technical‖ service. The relevant observations of the Court are as under: ―Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber.The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act. Page | 55

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)

The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriberregarded as being obliged to deduct tax at source on the payment made to the internet service provider… …. ….. ….. "Technical service" referred in section 9(1)(vii) contemplates rendering of a "service" to the payer of the fee. Mere collection of a "fee" for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services.‖ [Emphasis supplied] It is further submitted that the reliance placed upon by the assessing officer on the decision of the Delhi Bench of the Tribunal is entirely misplaced. Reference in this regard made to the recent decision of the Authority for Advance Rulings in the case of Dassault Systems KK [AAR 821/2009] wherein the Authority negated the contention of the Revenue that the consideration paid to the owner of the software license by the software distributors/end user (licencees) was for the use of process in the software. The Authority held that since the essence of the transaction was not to make the use of process available to the end user or the reseller but limited to the sale and supply of the software, the consideration arising therefrom could not be held to be ‗royalty‘. The Authority further held that the process in the software was never made available to the end user or the distributor. The following observations of the Authority make in clear that in its view the process has to be secret, in order that the payment for its use could be said to constitute royalty: 22. The Revenue has contended alternatively that the payments received by the appellant must be regarded as consideration for the use of or right to use the ‗process‘ or the transfer of rights in respect of a process developed by the appellant. The Revenue‘s representative has drawn our attention to the recent order of the Special Bench of ITAT Principal Bench in the case of New Skies Satellite Telecommunications Ltd. (ITA no.5385/DEL/2004). After referring to the dictionary meaning which defines ‗process‘ as a series of actions or steps towards achieving a particular end, the learned members of the Tribunal held ―that a process is involved in the transponder through which the telecasting companies are able to uplink the desired images/data and downlink the same in the desired area which inter alia covers Indian territory‖ and that the consideration paid by the telecasting companies is a consideration for user of the process. It was further pointed out that it is not necessary that the process in respect of which the consideration is paid should be a secret process. ―The simple process, even if unprotected intellectual property, will fall within the ambit of royalty.‖ It was observed that as per the Agreement, the use of process was provided by the Satellite Companies to the telecasting Companies whereby the telecasting companies were enabled to telecast their programmes by uplinking and downlinking the same with the help of that process. The Page | 56

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) assessee in that case is a non-resident company engaged in the business of providing satellite transponders to the telecasting and telecom companies in the Asian region. The payments received by the assessee were held to be royalty within the meaning of the Act as well as DTAA. We do not think that on the same analogy and reasoning, the payment received by the appellant from VAR can be treated as royalty income. We are unable to hold that the analogy of use of process in a transponder can be invoked in the present case. The nature of operations involved therein is different and not comparable to the software product with which we are concerned. We do not think that the right of using the process involved in the software has been conveyed to the end-user in the instant case. Usage of process contained in the software or acquisition of rights in that process is not the real nature and substance of the transaction. The ‗process‘ contemplated by the definition clause is broadly referable to know-how. The scope of preceding expression ‗formula‘ too belongs to the same genus. By making use of or having access to the computer programs embedded in the software, it cannot be said that the customer is using the process that has gone into the end-product or that he acquired any rights in relation to the process as such. Nor can it be said that following the series of instructions so as to be able to effectively make use of the programs contained in the software amounts to the use of process or acquisition of any rights in relation thereto. The Revenue‘s contention on this score therefore fails. [Emphasis supplied]

In the present case, too, as submitted hereinabove, the appellant uses sophisticated technology/software in the course of providing a service/facility but the appellant does not divulge any process involved in the technology/software to the user of the CRS. The appellant does not make available to the participating airlines any secret formula or process. Also, no equipment is provided by the appellant for use to the participating airlines. Further, no payment is made by the subscribers, viz., the travel agents to the appellant, unlike the aforesaid case. In that view of the matter, the booking fee received by the appellant from the participating airlines does not answer the description of ‗royalty‘ and, thus, is not chargeable to tax in India. Without prejudice to the aforesaid, even if the aforesaid payments could somehow be regarded as ―royalty‖, the same are not liable to tax in India for reasons enumerated below: The assessing officer has stated that the source of income for the airlines the appellant, AIPL and the travel agents is the money coming from the traveler and since the traveler is in India, the source of income for the appellant is in India. It is respectfully submitted that the source of income for the appellant is the airlines and not the traveler in India. For example, a traveler domiciled in UK, wanting to travel from UK to Sri Lanka may book a ticket from London to New Delhi and from New Delhi to Colombo. However, for effecting the said bookings, he may use the services of an Indian travel agent, who is hooked on to the appellant‘s CRS. In the aforesaid example, the bookings made from India would give rise to booking fee relating to Indian distribution activity, but the traveler may not be in India. No doubt the genesis Page | 57

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) of the payment is the traveler but the traveler is the source of income for the travel agents or the airlines but not the source of income for the appellant. For the appellant, the source of income is the Airlines and no one else. It is like saying the source of salary paid to Government officers is the tax payer and not the Government. It is, therefore, an incorrect assumption drawn by the assessing officer that the source of income for the assessee is the traveler in India. The assessing officer has further alleged that the transaction is initiated in India, the CRS is used in India and transaction is completed in India and, therefore, the source of income of the appellant is in India. It has not been appreciated that only certain instructions/commands are sent through the computers of the travel agents in India. The booking gets completed outside India in the Airline host system and the only the result thereof is communicated back to the travel agent. Paragraph (6) of Article 13 of the Treaty provides the source rule regarding royalties. It states that royalties shall be deemed to arise in the Contracting State when the payer is a resident of that State. Subject to other considerations, therefore, if the receipts of the appellant under consideration are treated as of the nature of royalties, the booking fee paid by non-resident airlines cannot be deemed to arise in India. However, the said paragraph (6) further provides that if the payer has in a Contracting State a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred and such royalties are borne by such permanent establishment or fixed base, then, such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated, irrespective of whether the person paying the royalties is a resident of that Contracting State or not. Kind attention in this regard is invited to the decision of the Mumbai Bench of the Tribunal in the case of Set Satellite (Singapore) Pte. Ltd. v. Addl. DIT: (2010) 132 TTJ 459 (Mum), wherein an identical question had arisen before the Tribunal. In that case the assessee was a Singapore based company engaged in the business of acquiring television programs, motion pictures and sports events and exhibiting the same on its television channels from Singapore. It had entered into an agreement with Global Cricket Corpn. Pte Ltd (GCC) (also a tax resident of Singapore under the Treaty). Under the agreement, GCC has granted 'rights' to the assessee throughout the licensed territory. The term 'rights' under Sch-I to the agreement has been defined as the right to transmit, broadcast, exhibit, perform, include in cable programs and/or otherwise distribute, make available to the public any moving visual or audio visual representations and/or images of matches, players or play in any event, the feed, the highlights, package and any recording and other material by means of any media. It was, inter alia, contended that the income does not accrue in India as per Article 12(7) of the Indo-Singapore Tax Treaty, which is similarly worded as Article 12(6) of the Indo-Spain Tax Treaty. Page | 58

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) The assessing officer held that the payments made by the assessee to GCC were in the nature of 'Royalty' as defined in Explanation 2 to section 9(1)(vi) of the Act, which were deemed to arise in India and hence taxable in India. Aggrieved by the order of assessing officer, assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A), while disposing off the appeal in respect of the aforesaid issue observed as under: ―I have considered the submissions of the appellant as well as the submissions made by the ADIT. There are two aspects of the matter. Whether payment for live cricket event rights constitutes Royalty within the meaning of Article 12(3) of the Tax Treaty. Assuming that the answer to the above is in the affirmative, whether such a Royalty arises in India within the meaning of provisions of Article 12(7) of the Tax Treaty. As is apparent, if my answer to the second issue viz., that the Royalty does not arise in India is in the affirmative, my answer to question No. 1 would become redundant. Accordingly, while I find substantial merit in the arguments canvassed by the appellant that the payment for live feed rights does not constitute Royalty, I do not consider it necessary to decide on this issue. This is because I am in full agreement with the contention of the appellant that even if one assumed that the payment was in the nature of Royalty, such a Royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty. I concur with the opinion of Mr. Phillip Baker on the subject and hold that unless there is a direct nexus with the activities of the PE and the incurring of the said expenditure, the Royalty cannot be said to arise in India. Since there is no such nexus in this case, I hold that the payment to GCC cannot be said to arise in India with the meaning of Article 12(7) of the Treaty.‖

Aggrieved by the order of CIT(A), the Revenue filed an appeal before the Tribunal. The Tribunal, while dismissing the appeal of the Revenue held that the mere existence of a PE in India cannot lead to a conclusion that royalties arise in India. In addition to the existence of PE, for royalties to arise in India under Article 12 of the Treaty, it is essential that liability to pay such royalties has been "incurred in connection with" and is "borne by" the PE of the payer in India. The relevant observations of the Tribunal are as under: ―17. We heard both the parties. We find no infirmity in the order of the LdCIT(A). The payment made by the assessee to GCC cannot be said to arise in India under Article 12(7) of the Treaty since the payer (i.e. assessee) is not a resident of India. As per the first limb of Article 12(7) of the Treaty, royalties cannot arise in India, since the payer is not a resident of India. Such royalties under the first limb of Article 12(7) of the Treaty arise in Singapore since the payer (i.e. the assessee) is a resident of Singapore. The second limb of Article 12(7) of the Treaty deals with a scenario where the payments are made by a Page | 59

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) nonresident, where such non-resident has a PE in India. However, a mere existence of a PE in India cannot lead to a conclusion that royalties arise in India. In addition to the existence of PE, for royalties to arise in India under Article 12(7) of the Treaty, it is essential that liability to pay such royalties has been "incurred in connection with" and is "borne by" the PE of the payer in India. 18. Based on an analogy from paragraph 26 and 27 of the OECD Commentary on Article 11, it is clearly evident that for royalties to arise in India, an existence of an economic link between the liability for payment of such royalties and PE is necessary. However, in the present case there is no economic link between the payment of royalties and the alleged PE of the assessee in India (i.e. SET India), the economic link is entirely with the assessee's head office in Singapore. Thus, the payments to GCC cannot be said to have been incurred "in connection" with the appellant's PE in India (i.e. SET India). Further, the alleged PE in India (i.e. SET India) was also not involved in any way with the acquisition of the right to broadcast the cricket matches, nor did the PE bear the cost of payments to GCC. Thus the payments to GCC cannot be said to have been "borne by" the assessee's PE in India (i.e. SET India). 19. We find that the case laws cited by the Ld. Counsel for the assessee also supports the assessee's case. In the case of Stanley Keith Kinnett vs CIT 278 ITR 155 and cit vs Elitos S.P.A and Others 280 ITR 495 in which it has been held that when the burden of payment is not borne by PE or fixed base , trade or business located in India, the amount is not taxable in India. Further on going through Schedule-XV, we find that SET Satellite Singapore has not recovered any amount from the Indian PE, In the Royalty to arise in India as envisaged under Article 12(7) of the Treaty, the condition which reads as follows:- "Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub- division, a local authority, a statutory body or a resident of t. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated." 20. Firstly the payer is not a resident of India. Secondly the liability to pay such Royalty has not been incurred in connection with and does not borne by the PE of the payer in India. Therefore there being no economic link between the payment of Royalty and SET India hence the royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty. Hence even if it is assumed that the payment for broadcasting cricket constitutes Royalty, in our opinion such royalty does not arise in India within Page | 60

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) the meaning of provisions of Article 12(7) of the Tax Treaty and hence the second ground No. 3 raised by the revenue is dismissed.‖[Emphasis supplied]

In the present case too, the non-resident airlines as per the understanding and information of the appellant, have no permanent establishment or fixed base in India in connection with which the liability to pay the consideration, which is subject matter of dispute in India, is incurred by such non-resident airlines. We are also informed that the ‗booking fees‘ paid by the respective airlines is borne by the head office of the said airlines which are located outside India. Therefore, unless the Revenue is able to demonstrate, with evidence, that the airlines making payment of ‗booking fee‘ have a PE in India and the payment is borne by such PE, no income can be said to accrue or arise to Amadeus in India in respect of the ‗booking fees‘. The Revenue has totally failed to discharge the above onus. Existence of PE is a fact, which has to be established with evidence and not assumed in a casual manner. Further, the assessing officer has not stated anything regarding the requirement of booking fee being borne by the airline offices in India assuming that the same constituted PE of the airlines in India, which has not been fulfilled leave aside leading any evidence in this regard. In view of the aforesaid, it is respectfully submitted that booking fee received by the appellant from the participating airlines for display of airlines information on the computer screen of the user cannot be characterized as ―royalty‖ either under the Act or under the Treaty and in any case does not have its source in India and hence, the aforesaid action of the assessing officer is not sustainable.

Without prejudice, it is respectfully submitted that after having held the appellant to have permanent establishment in India, even if the ‗booking fees‘ received by the appellant from the airlines is held to in the nature of ‗royalty‘, the assessing officer could tax such income only as business income as per the mandate of section 44DA of the Act and Article 13(5) of the Treaty. Reliance in this regard is placed on the following decisions: Article 13(5) of the Treaty provides as under: ―5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15, as the case may be, shall apply.‖

Similarly, section 44DA of the Act, reads as under:

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 1. The income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Govern- ment or the Indian concern after the 31st day of March, 2003, where such non-resident (not being a company) or a foreign company carries on business in India through a permanent establishment situated therein, or performs professional services from a fixed place of profession situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession, as the case may be, shall be computed under the head ―Profits and gains of business or profession‖ in accordance with the provisions of this Act. In terms of the aforesaid provision of the Act and the Treaty, income in the nature of royalty income which is effectively connected with the PE of the non-resident is required to be taxed as business income. Such income is required to be computed on net basis, i.e., considering the expenses incurred to earn the income. The said income cannot be brought to tax in India on gross basis, and the assessing officer bringing to tax such income on gross basis has no legal sanction. Reference is made in this regard to the recent decision of the Delhi High Court in the case of DIT v. Rio Tinto Technical Services: 340 ITR 507, wherein the High Court held that payments in the nature of FTS, received by a non-resident assessee would still be taxable as business profits under Article 7 of the India-Australia DTAA since they were connected to assessee‘s PE in India. The relevant observations of the Court are as under: ―10. Paragraph 4 of Article 12 states that paragraphs 1 and 2 of Article 12 will not apply if "royalty" arises through a PE situated in the contracting State where business is carried on, of which the assessee is not a resident. Paragraph 4 states that in such cases Article 7 or 14 would apply. Tribunal is, therefore, right in holding that Article 12 of DTAA is not applicable but the reason is paragraph 4 of Article 12. Once an assessee has a PE in the contracting state of which he is not resident, then paragraphs 1 and 2 of the said Article do not apply. 11. Thus, for the reasons different than those, mentioned by the tribunal we hold that Article 12 of the DTAA is not applicable. Sequitor is Article 7 of the DTAA is applicable. Interpretation and provisions of Article 7 have been examined while answering question No.3. Question Nos. 1 and 2 are accordingly answered. 12. Article 7 deals with business profits and will apply, once it is held that Article 12 is not applicable. Paragraph 3 of Article 7 is the edifice which is to be examined to answer the substantial question No.3 mentioned above. A careful examination of the said paragraph shows that to determine the profits of a PE, the assessee is to be allowed deductions "in accordance with and subject to limitations of the law" relating to tax in the contracting State, i.e., in the present case Income Tax Act in India. It further stipulates that expenses incurred for the purpose of the business of a PE would include executive and Page | 62

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) general administrative expenses so incurred regardless whether they have incurred in any contracting State, i.e., India/Australia or elsewhere. However, the material words in paragraph 3 of Article 7 are "the assessee shall be allowed as deduction, in accordance with and subject to limitation of the law relating to tax (i.e., the Income Tax Act, 1961) in the contracting State (i.e., India) in which the permanent establishment is situated". What is stipulated and stated in paragraph 3 of Article 7 is that the expenses incurred by the assessee can be claimed as a deduction but only in accordance with and subject to limitation stipulated in the Act. The provisions of the Act, therefore, relating to deduction of expenditure, become applicable for computing business profits under Article 7(3). The limitations and conditions stated and stipulated in the Act with regard to deductions accordingly get attracted and retain their supremacy and are not obliterated/diluted in view of paragraph 3 of Article 7. In other words, paragraph 3 of Article 7 gives paramouncy and accepts that the deductions can be only claimed in accordance with and subject to limitations of the Act and not otherwise.‖ It has been held likewise in the following cases:  ADIT vs. Bunge Agribusiness Singapore Pte Ltd: 147 TTJ 507 (Mum)  DDIT (IT) v. AP Moller : 158 TTJ 537 (Mum)  Areva T&D India Ltd.: 346 ITR 456 (AAR)  CGG Marine SAS v. ADIT: 153 ITD 470 (Del) Therefore, even if the aforesaid booking fee was held to be in the nature of royalty for any reason, the same is relatable to the alleged PE of the appellant in India and, therefore, if at all, taxable as business income on net basis. For the reasons given hereinabove in relation to the attribution of income to the PE, no part of the aforesaid amount is liable to tax in India having regard to the decision of the Tribunal in appellant‘s own case for assessment years 1996-97 to 1998-99 and 2003-04 to 2005-06, which have been confirmed by the High Court. Without prejudice, even if the aforesaid booking fee was held to be in the nature of royalty for any reason, only that part of the income which relates to activities allegedly undertaken by the appellant in India could be brought to tax in India.

As already submitted hereinabove, in the context of attribution of income to the alleged PE of the appellant in India, which submissions are relied upon and not being repeated for the sake of brevity, it is respectfully reiterated that a major part of the CRS activities are performed outside India and, thus, at best, only 10% of the booking fee can be brought to tax in India as ‗royalty‘.

Even otherwise, it is submitted that the Revenue has to come to a firm conclusion whether the booking fee received by the appellant is taxable as income of the PE or as royalty. The flip-flop attitude adopted by the assessing officer clearly demonstrates that he was not sure about the nature of income and its taxability in India.The assessment order, in our respectful submission, it vitiated for the above reason too. Re: Ground of Appeal No. 16 – Non grant of TDS

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) The AO be directed to grant credit of TDS of Rs. 5,66,93,368

Re: Ground of Appeal No: 17 -No interest chargeable under section 234B of the Act

At the outset it is submitted that the revenues receivable by the applicant non-resident company are subject to deduction of tax at source. Accordingly, the question of payment of advance tax and consequent levy of interest under section 234B of the Act for shortfall in payment of advance tax does not arise.In that view of the matter, levy of interest under section 234B of the Act is liable to be deleted for the following reasons:

As per the provisions of section 234B of the Act, an assessee who is liable to pay advance tax under section 208 will be liable to interest under section 234B of the Act, if he fails to pay such tax, or the advance tax paid by him falls short of 90 percent of the assessed tax. Accordingly, in order to be liable to pay interest under section 234B of the Act, an assessee must first be liable to pay advance tax under the provisions of section 208 of the Act.

As per the provisions of section 208 read with section 209(1)(d) of the Act, advance tax payable has to be computed after reducing from the estimated tax liability the amount of tax deductible/ collectible at source on income which is included in computing the estimated tax liability. Such balance tax liability is the advance tax payable under section 208 of the Act. It should be noted that the words used in section 209(1)(d) of the Act are 'tax deductible at source' and not 'tax deducted at source'.

Under section 195 of the Act, tax is deductible at source from payments made to non- residents. Applicant is a non-resident and thus, tax is deductible at source from the payments made to it under section 195 of the Act. Since tax was deductible at source on all the payments made to Applicant, no advance tax was payable as per the provisions of section 208 read with section 209(1)(d) of the Act. In the absence of any liability for payment of advance tax, the provisions of section 234B of the Act cannot apply and the levy of interest under section 234B of the Act should be deleted. Reliance is placed on applicant‘s own case for the assessment years 2008-09 to 2010- 11 ((ITA No. 470/ Del/2013, 815/Del/2014, 107Del/2015) wherein the Hon‘ble Tribunal followed the decision of the Uttarakhand High Court in the case of DIT vs. Maersk Ltd: 334 ITR 79 and held as under: 11. We have carefully considered the arguments of both the sides and perused the material placed before us. The ld. CIT-DR (Intl. Tax) has distinguished the decision of Hon‘ble Jurisdictional High Court on the ground that in the case before the Hon‘ble Uttarakhand High Court, the assessee‘s income was chargeable to tax under the head ―salaries‖ on which tax was to be deducted by the employer. In the case of the assesee, it is the business income and not the Page | 64

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) salary income and, moreover, the employees of the assessee-company were looking after the accounts of the payers i.e. BGEPIL. She further submitted that even while raising the bill, the assessee used to mention the amount of the TDS and thus, the rate of TDS was determined by the assessee and not by the payers i.e. BGEPIL. In support of her contention, she has relied upon the decisions of Hon‘ble Delhi High Court in the case of DIT vs. Jacobs Civil Incorporated/Mitsubishi Corporation, 235 CTR 123 (Delhi) and in the case of DIT vs., Alacatel Lucent USA, Inc., 264 CTR 240 (Delhi). After considering the arguments of both the sides and perusing the decisions of Hon‘ble Uttarakhand High Court and Delhi High Court, we are unable to agree with the contention of Ld. CIT-DR (Intl. Tax). The Hon‘ble Jurisdictional High Court in the case of DIT vs. Maersk Co. Ltd., 334 ITR 79, held as under: ―17. Thus, from a combined reading of sections 190, 191, 192, 198, 200, 201, 203 and 204 of the Act, it is clear that as soon as tax is deducted at source by the person responsible to make the payment, the liability of the assessee to pay the tax gets discharged. If the tax is not deducted, it remains payable by the assessee direct as provided under section 191 of the Act. Further, the liability to pay interest under section 201(1A) is on the person who fails to deduct the tax at source is absolute and is upon the person responsible for deducting tax at source till the date it was actually paid. ……..where the assessee‘s income is chargeable under the head "Salaries", the person responsible for paying any income chargeable under the head "Salaries" shall at the time of paying, deduct income-tax at source and failure on his part entails an obligation to pay interest under section 234B of the Act in order to compensate the loss incurred to the revenue and that upon failure on the part of the employer to deduct tax at source, the assessee only becomes liable to pay the tax directly under section 191 of the Act and does not become liable to pay interest under section 234B of the Act. From the above it is clear that the principle laid down by the Hon‘ble Jurisdictional High Court is that when tax is deductible at source, the liability of the assessee to pay the tax gets discharged. While forming this opinion, their Lordships of Hon‘ble Jurisdictional High Court have referred various sections under which tax is required to be deducted like 190, 191,192, 198, 200, 201, 203 and 204. Therefore, the contention of the ld. CIT DR that the above decision would be applicable only where the tax is to be deducted from salary cannot be accepted. The ld. CIT-DR also mentioned that it is the assessee who decided the rate on which tax is to be deducted at source. We are unable to agree with this contention of the Ld. CIT-DR because tax is to be deducted at source as per the rate prescribed under the Income-tax Act. If any assessee wants the deduction, of tax at lower rate than the rate prescribed under the Income-tax Act, such assessee has to apply to the Income Tax Officer and it is the Income Tax Officer who can issue the certificate for deduction of tax at lower rate. It is not the case of the Revenue that the tax deducted at source by BGEPIL was not as per the prescribed rate under the Income-tax Act. Moreover, the Hon;ble Jurisdictional High Court has also taken note of the situation that if the tax is not property deducted by Page | 65

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) payer, then he would be liable to pay interest u/s 201(1A) if he fails to deduct the tax at source. Therefore, in our opinion, the decision of Hon‘ble Jurisdictional High Court in the case of Maersk Co. Ltd. (supra) would be squarely applicable to the case of the assessee. Though the decision of Delhi High Court in the case of Alcatel Lucent USA. Inc. (supra) relied upon by the Ld. CIT-DR, supports the case of the Revenue under certain circumstances, however, when there is a decision of Hon‘ble Jurisdictional High Court, the ITAT is bound by the decision of Hon‘ble Jurisdictional High Court in preference to any other High Courts. We, therefore, respectfully following the above decision of Hon‘ble Jurisdictional High Court, hold that the assessee was not liable to pay interest u/s 234B of the Act. Accordingly, the same is deleted.

Reliance is further placed on decision of the Delhi High Court in the case of DIT v. GE Packaged Power Inc.: 373 ITR 65, wherein the High Court held that no interest under section 234B of the Act can be levied on the assessee-payee on the ground of non-payment of advance tax because the obligation was upon the payer to deduct the tax at source before making remittances to them. The relevant extracts of the decision are reproduced hereunder: ―22. This Court, therefore, holds that Jacabs(supra) applies in such situations; Alcatel Lucent (supra) can be explained as a decision turning upon its facts; its seemingly wide observations, limited to the circumstances of the case. This Court, therefore, holds that the view taken by ITAT was correct; the primary liability of deducting tax (for the period concerned, since the law has undergone a change after the Finance Act, 2012) is that ofthe payer. The payer will be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act. 23. For the above reasons, this Court finds that no interest is leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. The payers were obliged to determine whether the assessees were liable to tax under Section 195(1), and to what extent, by taking recourse to the mechanism provided in Section 195(2) of the Act. The failure of the payers to do so does not leave the Revenue without remedy; the payer may be regarded an assessee-in-default under Section 201, and the consequences delineated in that provision will visit the payer. The appeal of the Revenue is accordingly dismissed without any order as to costs.‖ Further, reliance is placed on the following decisions of the Courts/ Tribunals, wherein it has been held that the interest for non-payment of advance tax could not be levied on the applicant under section 234B of the Act, since all payments made to the applicant were subject to tax deduction at source or and therefore, the applicant was not liable to pay any advance tax, even if the payer had not actually deducted tax at source:  DIT v. Maersk Co. Ltd.: 334 ITR 79 (Uttrakhand HC)(FB)  DIT Vs. Jacabs Civil Incorporated: 330 ITR 578  Motorola Inc. (96 TTJ 1) (Del.)(SB)  Sedco Forex International v. DCIT, Delhi (72 ITD 415)/186 CTR 144 (Del.) Page | 66

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07)  Asia Satellite Ltd. (ITA No.166/Delhi/2001)  Rheinbraun Engineering & Wasser GmbH (1915/Bom/96)

In view of the aforesaid, it is respectfully submitted, that no interest under section 234B of the Act was leviable for the above reason since the entire payment received by Applicant from India, was subject to deduction of tax at source on the said payments. It may be pointed out that the Finance Act, 2012, w.e.f. 1.4.2012 added proviso below section 209(1)(d) of the Act to the following effect: ―Provided that for computing liability for advance tax, income-tax calculated under clause (a) or clause (b) or clause (c) shall not, in each case, be reduced by the aforesaid amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income, if the person responsible for deducting tax has paid or credited such income without deduction of tax or it has been received or debited by the person responsible for collecting tax without collection of such tax.‖ The said proviso is applicable from assessment year 2013-14 and is, therefore, prospective in operation. The insertion of the proviso cannot be construed to have retrospective effect so to expose a non-resident company to levy of interest under section 234B of the Act for assessment years prior to assessment year 2013-14, where tax was deductible at source on the income payable to the non-resident, if such income is held to be chargeable to tax in India.‖ 9. The learned departmental representative vehemently contested the argument of the learned authorised representative and submitted that the order of the tribunal has been confirmed by the Hon‟ble High Court on the issue of attribution of income. It was further submitted that miscellaneous application was filed by the Department on the order of the coordinate bench for assessment year 2005 – 06 to contend that the facts being different; the ITAT‟s decision in assessment year 96-97 to 98-99 has been wrongly applied by the ITAT while adjudicating the issue of attribution of income to the permanent establishment. He further stated that miscellaneous application filed by the Department in MA number 285 – 287/Del/2014 has been dismissed by the coordinate bench as per order dated 28/6/2016. Therefore he submitted that the issue of change in the facts from assessment year 2005 – 06 onwards, pointed out by the assessing officer has been examined by the appellate authorities in that year while arriving at the conclusion that 15% attribution is reasonable, which

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) has been affirmed by the Hon‟ble Delhi High Court in assessee‟s own case. In the present case, the assessing officer has substantially relied on his own findings for the preceding assessment year to hold that revenue to the extent of 75% should be attributed to the appellant‟s Indian operations. Since on similar facts, the Hon‟ble Delhi High Court has confirmed the attribution of 15% of revenue to the alleged PE in assessment year 2005 – 06 the said order is required to be followed in the assessment year under consideration. He also submitted a detailed note on the whole issue which is as under:- “The assessee had signed Distribution Agreement with Amadeus India Private Limited on 9th March 1994. First tax assessment of the assessee in India was for AY 1996-97. The Hon'ble Delhi Bench of the Tribunal by an order dated 30th November 2007 had decided the appeals of the assessee for Assessment Years 1996-97 to 1998-99. Copy of this order is available on pages 269- 313 of the Paper Book filed by the assessee (PB). 2. Based on the facts of the case and Grounds of the Appeal, the Hon'ble Tribunal had framed five questions for its consideration (paragraph 17 on page 297 of the PB). 3. The Hon'ble Tribunal, after considering the provisions in the Income Tax Act and the judicial pronouncements in paragraph 17.1 of the order, had held that there is a direct business connection established in India and hence in terms of s.9 (l)(i) the income in respect of the bookings which take place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India (paragraph 17.2 of the order). The Hon'ble Tribunal has briefly summarized the facts in this paragraph and the Revenue strongly urges the Hon'ble Tribunal to confirm the order of the lower authorities in on this issue for AY 2006-07 for the reasons that all the facts available and considered by the Hon'ble Tribunal in those years not only continue to remain present in this year but the assessee's business presence in India has increased substantially as noted in the assessment order and briefly stated in this note. The issue of PE based on new facts brought on record is discussed in paragraph 8 of the assessment order (page 32 to 37 of the order). 4. The Hon'ble Tribunal in paragraph 23.1 of the said order (page 310 of the PB) had held that the appellant can be said to have established a PE within the meaning of paragraph 1 of Article 5 of Indo- Spain treaty. Further, in paragraphs 23.3 and 23.4 it was held that Amadeus India Private Limited (AIPL) is a dependent agent of the assessee and the assessee had a dependent agent PE in India under clause (a) of paragraph 4 of Article 5 of the treaty. The orders of the Page | 68

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) lower authorities establish that the activities of AIPL during the previous year relevant to AY 2006-07 have increased substantially (in addition to that were carried out in those years) and accordingly, the Revenue requests that the order of the lower authorities be confirmed and the appeal of the assessee dealing with this issue be rejected. 5. The Hon'ble Tribunal in paragraph 18 of the Order, after considering the provisions of Section 9(l)(i) and particularly clause (a) of Explanation 1 to section as applicable to the facts of the case held that we can reasonably attribute 15 percent of the revenue accruing to the assessee in respect of bookings made in India as income accruing or arising and chargeable under section 5(2) r/ws 9(l)(i) of the Act. The Hon'ble Tribunal noted the activities in India are only miniscule portion. For AY 2006-07, the orders of the lower authorities have identified and noted the activities of the assessee in India and the activities and revenue have increased substantially. The extent of activities has been briefly compared later on in this submission. 5. The issue of attribution of profits to the permanent establishment has been considered by the Hon‟ble Tribunal in paragraph 24 (pages 312 and 313 of the PB) of the order. The Hon'ble Tribunal noted that, “Reading of the above Article 7 of the treaty it is clear that the profits of an enterprise will be taxable only to the extent as is attributable to that PE. This is in par material with clause (a) of Explanation 1 to s. 9(1)(i) of the IT Act. Thus where the entire activities of an enterprise are not carried out in a Contracting State where the PE is situated, then only so much of the profit as attributable to the functions carried through the PE can be taxable in such source state". Therefore the income deemed to accrue or arise in India or the profits attributable to the PE depend on the operations of the business carried out in India. This is a question of fact and depends on the activities carried out on a year to year basis may decrease or increase and consequently taxable income will vary accordingly. 6. The Ld AR during the course of the present hearing submitted that the Hon'ble Delhi High Court has dismissed the appeals filed by the assessee. Copy of this Order is available on pages 348 to 350 of the PB for AY 2009-10. With regard to the assessee's appeals whether it is running permanent establishment in India or not, the Hon'ble Court observed that, ' We find that all the Authorities below, caking into consideration various facts, have arrived at the finding of fact that the assessee is having permanent establishment in India. This being a finding of fact, no question of law arises. These appeals are accordingly dismissed'. It appears with regard to the Department's appeals the Hon'ble Court noted that, "The issue raised in these appeals is covered by the judgment in the case of Director of Income Tax Vs. Galileo international Inc." And following that decision, appeals were dismissed. 7. Copy of the decision in the case of Galileo International Inc is available at pages 245-249 of the PB. The questions before the Hon'ble Court were: whether the Tribunal attributed revenue or income to the Page | 69

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Indian operations and whether the payments made to Indian agent is further allowable as expense. The Hon‟ble Court in deciding the appeal referred to the judgment of the Hon'ble Supreme Court in the case of Hukum Chand Mills Limited, 103 ITR 548. In that case, the Supreme Court laid down the principle of apportioning the profits by a non- resident in India in the following terms: "Nothing has been argued either on behalf of the assessee-appellant or on behalf of the revenue- respondent to assail the finding of the Tribunal in the supplementary statement of the case. The question as to what proportion of the profits of the sales in categories (a), (b), (c) and (d) arose or accrued in British India is essentially one of the fact depending upon the circumstances of the case. In the absence of some statutory or other fixed formula, any finding on the question or proportion involves some element of guess work. The endeavour can only be approximate and there cannot in the very nature of things be great precision and exactness the matter. As long as the proportion fixed by the Tribunal is based upon the relevant material, it should not be disturbed". The Hon'ble Delhi High Court then opined that no question of law arises matters which need any further determination by the Court. 8. In view of the above discussions it is abundantly clear that accrual of income or attribution of profits depends on the facts of each case and may vary on year to year basis and this is not at all a question of law as has been held by the Hon'ble High Court. And accordingly, the Ld AR claim that the decision on of the Hon'ble Tribunal for AY 1996-97 to 1998-98 with regard to attribution of profits to PE directly applies is misconceived and not accordance with the law and needs to be rejected out rightly. The attribution of profits depend on the operations carried out in India and the assessment order explicitly mentions the change in operations and accordingly profits have been attributed to the PE and these findings have been confirmed by the Ld CIT(A). Assessment year 2001-02 and 2002-03 On the appeal filed by the assessee, the Hon'ble Delhi Tribunal passed order on 27 April 2009. Ground Nos. 1, 2 and 3 dealing with the liability to tax and permanent establishment were held against -e assessee. Regarding attribution of profit to the PE, the Hon'ble Tribunal, as per paragraph 7, has set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our reservations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observations after giving the assessee an opportunity of being heard. It is not out of place to state that the Hon'ble Tribunal set aside the issue taking into account the order of the Hon'ble Tribunal for AY 1996-97 to 1998-99. Accordingly, the claim of the Ld AR that the method of attribution of profits as given in the order of the Hon'ble Tribunal for AY 1996-97 to 98-99 directly apply is against the law and has not been accepted by the Tribunal for AY 2001-02 and 2002-03. The Hon'ble Delhi High Court vide judgment in Page | 70

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) I.T.A. No.1040 of 2009 dated 24.1.2011 did not interfere in the matter and therefore the order of Hon'ble Tribunal is final. Assessment Years 2003-04 to 2005-06 10. Pages 381 to 390 of the PB contains the order of the Hon'ble Tribunal dated 29.10.2010 in the case of the assessee. In these cases the Revenue was in appeal against the order of the Ld CIT (A) and the assessee had filed cross objections. 11. The Ld AR's arguments are noted at paragraphs 3 to 6 of the Order and it was argued that all the issues are covered by the decision of the Tribunal dated 30.11.2007 in respect of AY 1996-97 to 1998-99. The Order does not refer to the subsequent order of the Tribunal in case of the assessee for AY 2001-02 and 2002-03. As the Order only notes the arguments of the Ld AR therefore the Ld AR in all fairness should have brought to the attention of the Hon'ble Tribunal the fact of setting aside the issue of attribution of profits to the PE. It is necessary to highlight that the issue of attribution of profits to the PE is a question of fact and the Hon'ble Tribunal is not bound to follow the order for AYs 2003-04 to 2005- 06 as that order has been delivered without considering the Decision of the Hon'ble Tribunal in the case of the assessee for immediate preceding year. 12. It is not out of place to mention that the PB of the assessee as well as their arguments was totally about the decision of the Hon'ble Tribunal for AYs 2001-02 and 2002-03. Decision in the case of M/s Galileo Netherlands BV for Assessment Years 2003-04 to 2006-07 The Hon'ble ITAT Delhi Bench has passed an order in the case of Galileo Netherlands BV for AY 1103-04 to 2006-07 on 29.06.2012 deciding similar issues. The appeal was filed by the Revenue and the assessee had filed cross-objections. A copy of this order is being filed. The Hon'ble Tribunal had dismissed the Cross Objections of the assessee in regard to the confirmation of the existence of PE and -on- adjudication on deductions for certain India related expenses by following the earlier orders. In regard to the Revenue appeal concerning the attribution of profits the matter has been remitted back to :ne file of the Assessing Officer for fresh consideration by adopting a reasonable and commercial test for estimation of business profits attributable to India and net taxable income which could have been said to have accrued to the appellant due to bookings from India (Reference paragraph 19 of the Order). PRESENT APPEAL OF THE ASSESSEE 14. The attribution of profits to the PE, as per Article 7 of the treaty between India and Spain (page 231 of the PB) depends on the activities carried by the assessee through the PE and also direct activities of the assessee. The income deemed to accrue or arise in India depends on the operations carried out by the assessee in India. Therefore, Page | 71

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) attribution of profits depends on the facts and circumstances in each year. Each year is a separate unit of assessment and income tax proceedings are applicable from year to year depending upon facts of each year and the principle of res judicata do not apply to income tax proceedings and therefore the facts in the case of the assessee for AY 1996-96 being the start of the business of the assessee cannot be relied for the year under appeal. Attribution of profits needs to be based on the facts and circumstances for the relevant year. 15. The claim of Ld AR that there is no change in activities in comparison to the year corresponding to assessment years 1996-97 to 1998-99 is baseless and facts are contrary and speak for itself. During the year there has been significant increase in the business of the assessee in India in comparison to the years 1995-96 to 1997-98 earlier decided by the Hon'ble Tribunal. This has been explicitly brought out in the assessment order and those findings stand confirmed by the Ld CIT (A). Accordingly it is prayed that the order of the lower authorities be confirmed and the appeal of the assessee be dismissed. 16. Paragraph 3 of the assessment order states that the facts referred in the order of the Hon'ble ITAT have undergone changes. The assessing officer has collected information from third parties also. The changed facts are discussed on pages 9 to A brief of facts that changed during the year in comparison to AY 1996-97 to AY 98-99 is given below:

Assessment Year 1996-97 to 1998-99 Assessment year 2006-07 There has been a change in the distribution Agreement (paragraph 6 on pages 24 to 28 of the order and summary on pages 27 and 28 of the order). As these were initial years of Total numbers of subscribers as on business, there were not many 31.3.2005 were 4,600 (page 4 of assessment agreements with subscribers. order). The job of AIPL is to canvass the use Amadeus India has not received any of CRS in India and enter into compensation for marketing services contract with the subscribers/travel provided to Amadeus Global (Last agent willing to use CRS for which it paragraph on page 17 and first paragraph receives 'distribution fee' from the on page 18 of the assessment order and also appellant. (Paragraph 5.1 of the ITAT on page 5 of the assessment order). order on page 282 of the PB). The travel agents systems are The subscribers have access to CRS directly connected to AlPL's computer and the and not through Amadeus India servers. The request for information is channelized subscriber can access Amadeus CRS through AlPL's computer. AIPL directly. Therefore, even if Amadeus India identifies/authorizes the travel agents servers are switched off, subscriber can still Page | 72

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) as valid CRS users and processes the access the CRS. Amadeus India servers have request for information into relevant no link with subscribers connectivity to the segment (paragraph 5.1 of the ITAT host. (Page 4 of the assessment order). order on page 282 of the PB). Amadeus India has set up key Amadeus value services in India that consists of toll free numbers for help desk, 24 hours help desk in three cities (Page 4 of the assessment order). There was no hotel reservation Indian Hotels reservation System, a unique service in India. Amadeus reservation service for hotels in the two and three star range. These hotels are widely used in India for the junior and mid- level staff of corporations and by many business travelers for their leisure requirements (Page 4 of the assessment order) Agreement with Cox and kings, an international travel agent in India provides various products andi services by Amadeus India which were not provided in earlier years (Page 4 and 5 of the assessment order).

No bookings for car and hotel segments Booking for car and hotel segment added (Page 5 of the assessment order). This indicates that Amadeus has PCA in India with regard to cars and hotels also No charges have been received from Amadeus is paying a service fee to travel agent subscribers by the assessee or its agent (subscriber) and this is based on productivity namely AIPL for allowing use of CRS( targets (Page 4 and 5 of the assessment order). paragraph 401 on page 282 of the PB) No incentive was paid in those years Travel agents and Airlines in India are being paid incentives (paragraph 7 of the order). Total incentives of EUR 8,755,000 have been paid during the year (page 18 of the assessment order) (This indicates robust business and aggressive marketing in India. Aggressive marketing is also indicated by paying incentive to travel agents for their agreeing to use only Amadeus system (Page 8 of the assessment order). Started providing satellite ticket printers (page Page | 73

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 8 of the assessment order). Total assets in India increased to EUR 12,508,073 (Page 21 of the order). The use of emulation software has changed the use of CRS (Page 21 of the order). Approximately 60% of all incoming flights to India are made by Amadeus System user airlines. AIPL does not enter into any contracts in The agreement with Air India was in practical India with the airlines (paragraph before terms negotiated by Amadeus India 13.4 of the ITAT Order on page 295 of the (Paragraph 4 on page 22 of the assessment PB). order). Amadeus India is now authorised to negotiate and enter into contracts with the airlines, hotel, car rental company etc. (last bullet on page 27 of the order). Kindly also see " Comments" on page 31 of the Order). The services or the product is sold by the Various domestic airlines (India) are now CRS company to the airlines outside India using the Amadeus system not only for (paragraph 14.2 of the order on page 296 international travel but domestic travel. So all of the PB` the elements travelers, ticket agent, airlines are in India. The extent of work in India is only to the Various domestic airlines (Indian) are now extent of generating request and receiving using the Amadeus system not only for end result of the process in India. The international travel but domestic travel. So all major functions like collecting the the elements travelers, ticket agent, airlines database of various airlines and hotels are in India. Therefore, situation has changed which have entered into PCA with the and activities outside India are only miniscule appellant take place outside India. The portion. activities in India are only miniscule portion. The appellant‘s computer in Germany is also responsible for all other functions like keeping data of booking made worldwide and also keeping track of all the airlines/ hotels worldwide who have entered into PCA (Paragraph 18 of the Order on pages 298 and 299 of the PB) Amadeus marketing will pay to Amadeus Compensation basis has changed. India a distribution fee US 0.84 cents for each net segment processed through the Amadeus system by a subscriber located in Amadeus India territory (Appendix A TO distribution agreement on page 280 of the PB)

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) The product that is the services of the Airlines companies of India are the major airlines exists outside India. The revenue source now. information conveyed from the use CRS exists outside India (9th sub –paragraph of paragraph 801 of the ITAT order on page 286 of the PB

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) to preceding assessment year 2005-06. The assessing officer, in the impugned order, relied on these facts to argue that there was change in scale of the operations carried out by the appellant. In our respectful submission, the order of the assessing officer for the assessment year 2005-06 (placed at Pages 447-483 of the PB), wherein, for the first time, the department had put forth its submissions regarding change in facts of the case, was examined by the Commissioner (Appeals) in detail. Reference in this regard may be made to the consolidated order for AY 2003-04 to 2005- 06, dated 25.02.2010, placed at Pages 314-338 @ Pg 331/337/338 of the PB, wherein the Commissioner (Appeals) observed as under: “6. Determination I have carefully considered the appellant‟s submissions, the points raised by the AO in the assessment orders for the years under consideration, judicial precedents relied upon by the appellant and the IT AT Delhi‟s order in the appellant‟s own case for the AYs 1996-97 to 1998-99. Admittedly the facts of the case for the years under consideration are similar to the facts for the AYs 1996-97 to 1998-99. However. in the A.Y. 2005-06, the AO has stated that the facts of this assessment year are different from the facts of the earlier assessment years. The principle of res-judicata is not applicable in income-tax proceedings. Each year is a separate and distinct year and a different view can be taken in an assessment year based on the facts of the case. Keeping in view the above facts, discussion of various issues and the Hon‟ble ITAT Delhi‟s decision in appellant‟s own case it is held as under: 1…………. 2. Keeping in view the facts of the appellant‟s case for the years under consideration and the FAR analysis carried out in its case by the Hon‟ble ITAT for AYs 1996-97 to 1998- 99, (the facts of the years under consideration being identical), 15% of the revenue accruing or arisine to it in India is held as a reasonable attribution as income accruing or arising to the appellant in India and chargeable under section 5(2) read with section 9(1 )(i) of the Act. …………. 6. As already held above, 15% of the revenue generated for the bookings made within India is the profit attributable to the PE. Further sine the payment to the agent in India is more than what is the income attributable to the PE in India, it extinguishes the assessment as no further income is taxable in India. ” Thereafter, the Income tax Appellate Tribunal, following its order for AY 1996-97 to 1998-99, vide order dated 29.10.2010, attributed 15% of the revenues from booking made from India to the alleged PE of the Page | 76

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) appellant in India but since the payment of compensation to the Indian distributor was more than the revenues attributed to the PE, no part of the income of the appellant was held taxable in India. Refer pages 381- 390@ Pg 385-386 of the PB for copy of the order. The aforesaid order of the Tribunal has been confirmed by the High Court vide order dated 31.05.2011, dismissing Revenue‟s appeal on the issue of attribution of income. Refer page 8 of the case law compilation dated 08.01.2014 filed by the appellant for copy of the High Court Order. It may be pointed out that MA was filed by the Department against the IT AT order for AY 2005- 06 to contend that the facts being different, the ITAT‟s decision in AY 1996-97 to 1998-99 has been wrongly applied by the IT AT while adjudicating the issue of attribution of income to the PE. The MA filed by the department in MA No. 285 to 287/Del/2014 has been dismissed by the ITAT vide order dated 28.06.2016 In light of the above, it is respectfully submitted, that the issue of change in facts from assessment year 2005-06 onwards, pointed out by the assessing officer, has been examined by the Appellate authorities in that year while arriving at the conclusion that 15% attribution is reasonable, which has been affirmed by the Hon‟ble High Court of Delhi in appellant‟s own case. In the assessment year under consideration, the assessing officer has substantially relied on his own findings for the preceding assessment year to hold that the revenues to the extent of 75% should be attributed to appellant‟s Indian operations. Since, on similar facts, the Hon‟ble High Court has confirmed attribution of 15% of revenues to the alleged PE in assessment year 2005-06, in our humble submission, the said order is required to be followed in the assessment year under consideration. 2. Assessment Years 2001-02 and 2002-03 9. On the appeal filed by the assessee, the Hon'ble Delhi Tribunal passed order on 27 April 2009. Ground Nos. 1, 2 and 3 dealing with the liability to tax and permanent establishment were held against the assessee. Regarding attribution of profit to the PE, the Hon'ble Tribunal, as per paragraph 7, has set aside the issue about estimate of taxability of Indian PE back to the file of AO to consider our observations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observations after giving the assessee an opportunity of being heard. It is not out of place to state that the Hon 'ble Tribunal set aside the issue taking into account the order of the Hon'ble Tribunal for AY 1996-97 to 1998-99. Accordingly, the claim of the LdAR that the method of attribution of profits as given in the order of the Hon 'ble Tribunal for AY 1996-97 to 98- 99 directly apply is against the law and has not been accepted by the Tribunal for AY 2001-02 and 2002-03. The Hon 'ble Delhi Page | 77

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) High Court vide judgment in IT.A. No. 1040 of2009 dated 24.1.2011 did not interfere in the matter and therefore the order of Hon 'ble Tribunal is final. Reply: The order of the Hon‟ble High Court for AY 2001-02 and 2002-03, in ITA Nos. 1040, 1041/ 2009, dated 24.01.2011 (placed at Pg 5-6 of the case law compilation dated 08.01.2014), it is respectfully submitted, has been misinterpreted by the Ld. CIT DR. The Hon‟ble High Court, it is submitted as, in fact, interfered with the findings of the Tribunal by clarifying the same. The relevant findings of the Court are reproduced below: “However limited grievance of the Learned counsel for the appellant is that even when Income Tax Appellate Tribunal has accepted that the income chargeable to tax shall be 15% of the income earned in India, in Para 6 of the impugned order, the ITAT has sent the matter back to the assessing officer to consider the question of apportionment of the expenses. Para 6 read as under: 6. Apropos the other issues i.e., estimates about expenditure ofprofit of PE in India, we are unable to accept the contention of learned counsel that the issue is covered in its favor, in as much as the Tribunal gave the above decision on the peculiar facts of that year. Looking at the globalization, the share of Indian travelers in term of bookings has increased considerably besides the extent of assessee ‟s expenses is not known; it has been informed that such expenditure cannot be apportioned summarily. In view thereof we are inclined to set aside the issue about estimate of taxability of Indian PE back to the file of the assessing officer to consider our observations and above ITAT and High Court judgment to decide the same afresh in accordance with law and above observation after giving the assessee an opportunity of being heard. It is not in dispute that as per the judgment of this Court in the case of Director of Income tax vs. Galileo International Inc: 224 CTR 251, the income to the extent of 15% of the revenues in India is to be charged to tax. This income is subject to the deduction of expenditure. We clarify that it is that expenditure which the Tribunal has referred to and not the issue of 15% of the charseable tax. With the aforesaid clarification, these appeals are disposed of. ” The penultimate paragraph of the High Court order, it is respectfully submitted, clarifies that attribution of income could only be limited to 15% of revenues and that remand by the Tribunal in assessment years 2001-02 and 2002-03, was limited to examination of expenditure incurred by the appellant and not the issue of attribution of revenue. Thus, the assessing officer in terms of the aforesaid decision of the Page | 78

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Tribunal (as modified by the High Court) is only required to determine the expenses allowable against 15% of the revenues from Indian bookings while computing the income attributable to the PE of the appellant in assessment years 2001-02 and 2002-03. The assessing officer in terms of the aforesaid order of the Delhi High Court cannot tinker with the percentage (15%) of the revenues which is to be attributed to the activities of the alleged PE of the appellant in India in computing the income attributable to the PE in India. The Ld. CIT DR, has thus misread the findings of the Hon‟ble High Court. In fact, the department, in the Special Leave Petition No. 32062 of 2011, for assessment year 2001-02 (and similarly in assessment year 2002-03) has agitated the issue of attribution of revenue and not the issue of taxability of the permanent establishment in entirety, which demonstrates that the Revenue has accepted the modification made by the Hon‟ble High Court. 3. “Assessment Years 2003-04 to 2005-06 ………………. 11. The Ld AR's arguments are noted at paragraphs 3 to 6 of the Order and it was argued that all the issues are covered by the decision of the Tribunal dated 30.11.2007 in respect of AY 1996-97 to 1998-99. The Order does not refer to the subsequent order of the Tribunal in case of the assessee for AY 2001-02 and 2002-03. As the Order only notes the arguments of the Ld AR therefore the Ld AR in all fairness should have brought to the attention of the Hon 'ble Tribunal the fact of setting aside the issue of attribution of profits to the PE. It is necessary to highlight that the issue of attribution ofprofits to the PE is a question of fact and the Hon 'ble Tribunal is not bound to follow the order for AYs 2003-04 to 2005-06 as that order has been delivered without considering the Decision of the Hon 'ble Tribunal in the case of the assessee for immediate preceding year. 12. It is not out of place to mention that the PB of the assessee as well as their arguments was totally silent about the decision of the Hon'ble Tribunal for AYs 2001-02 and 2002-

Reply: In this regard, it is respectfully submitted as under: (i) As submitted above, the decision of Hon‟ble Tribunal for AY 2001-02 and 2002-03, as modifed by the Delhi High Court, does not have any bearing insofar as the percentage of revenues attributable to the alleged PE of the appellant in India is concerned. (ii) Though it is factually correct that in the Tribunal‟s order for AYs 2003-04 to 2005-06, dated 29.10.2010, the Tribunal has not discussed the findings for AY 2001-02 and 2002-03, however, for the following

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) reasons, this fact does not warrant deviation from the findings for those years: (a) The Revenue, in the course of proceedings before the Tribunal for assessment years 2002-03 to 2005-06, was not prevented from filing the Tribunal‟s order for the preceding year. In any case MA was filed by the Department against the IT AT order for AY 2005-06 to contend that the facts being different has already been dismissed by the ITAT. (b) There is no averment in assessment order for assessment years 2003-04 and 2004-05, of there being any change in facts as compared to the earlier years. (c) Reliance is also placed on the decision of the Delhi Bench of the Tribunal in the case of Sabre Inc. vs DDIT and DCIT: ITA Nos. 1215 and 1216/Del/2005, which is in the same business as the appellant, wherein the Tribunal took cognizance of the fact that the ratio of attribution fixed on the basis of relevant material should not be arbitrarily disturbed. The relevant observations of the Tribunal read as under: “6. High Court upheld the approach adopted by the Tribunal to first arrive at the figure relating to the revenue generated in India and abroad and concluding that out of the revenue accrued to the assessee in respect of these bookings 15% thereof should be attributed to India, which was keeping in view a very minor portion of the activity being carried out outside India. It also so observed that the Tribunal focused its discussion to the relevant consideration namely how much out of the aforesaid would be attributable "profits”. The High Court concluded that the Tribunal addressed itself to the issue of profit that while giving a finding of fact that 15% of the revenue can be attributed to the activities in India, the Tribunal had not taken into consideration the commission paid to Interglobe and answered the question. The High Court in the ultimate analysis following the decision of Supreme Court in the case of Hukam Chand Mills Ltd. vs. C1T, Bombay 103 ITR 548 observed that in the absence of some statutory or other fixed formula, any finding on the question or proportion involves some element of guess work. The endeavour can only be approximate and there cannot be in the very nature of things be precision and exactness in the manner. As Ions as the proportion fixed by the Tribunal is based upon the relevant material, it should not be disturbed and the appeal of the revenue was dismissed. ” The aforesaid order was followed by the Tribunal in Sabre‟s case for assessment years 1999- 00 to 2005-06 (i.e., for seven subsequent assessment years) in ITA Nos. 2493 to Page | 80

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 2499/Del/2008. Thus, the ITAT in Sabre‟s case took a consistent view from AY 1996-97 to 2005-06, as regards revenue attributable to the PE of Sabre in India, notwithstanding that there was growth in its business and bookings from India over the years. 4. Decision in the case of M/s Galileo Netherlands BV for Assessment Years 2003-04 to 2006-07 13. The Hon'ble ITAT Delhi Bench has passed an order in the case of Galileo Netherlands BV for AY 2003-04 to 2006-07 on 29.06.2012 deciding similar issues. The appeal was filed by the Revenue and the assessee hadfiled cross-objections. A copy of this order is being filed. The Hon'ble Tribunal had dismissed the Cross Objections of the assessee in regard to the confirmation of the existence of PE and non-adjudication on deductions for certain India related expenses by following the earlier orders. In regard to the Revenue appeal concerning the attribution of profits the matter has been remitted back to the file of the Assessing Officer for fresh consideration by adopting a reasonable and commercial test for estimation of business profits attributable to India and net taxable income which could have been said to have accrued to the appellant due to bookings from India (Reference paragraph 19 of the Order). Reply: In this regard, it is respectfully submitted as under: The Delhi Bench of the Tribunal in the aforesaid case of Galileo, set aside the matter of determination of income attributable to the PE to file of the assessing officer based on the Tribunal‟s order in appellant‟s own case for assessment year 2001-02 and 2002-03. However, the Delhi High Court‟s order modifying the aforesaid order of the ITAT in appellant‟s own case for assessment year 2001-02 and 2002-03 was not brought to the notice of the Tribunal by the Department and was hence not considered by the ITAT in Galileo‟s case. The aforesaid order of the Tribunal in Galileo‟s case, therefore, has no precedent value, having been rendered without considering the decision of the Hon‟ble High Court modifying the decision of the co-ordinate Bench of the Tribunal followed in the case of Galileo. In any case the decision of the ITAT has been set aside by the Delhi High Court in 224 CTR 251. 5. 15. The claim of Ld AR that there is no change in activities in comparison to the year corresponding to assessment years 1996-97 to 1998-99 is baseless and facts are contrary and speak for itself. During the year there has been significant increase in the business of the assessee in India in comparison to the years 1995-96 to 1997-98 earlier decided by the Hon'ble Tribunal. This has been explicitly brought out in the assessment order and those findings stand confirmed by the Ld C1T (A). Page | 81

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Accordingly it is prayed that the order of the lower authorities be confirmed and the appeal of the assessee be dismissed. Reply: We rely on the rebuttal filed for Point 1 above.

Assessment Years Assessment year 2006-07 Appellant‘s Rebuttal 1996-97 to 1998- 99 There has been a change in the Distribution Agreement was revised distribution Agreement (paragraph on 01.10.2004, which was dealt in 6 on pages 24 to 28 of the order assessment proceedings for AY 2005- and summary on pages 27 and 28 06. The appellate orders for AYs of the order). 1996-97 to 1998-99 have been followed in that year and the matter is now pending adjudication before the Hon‘ble Supreme Court. The new distribution agreement does not change the basic business model or the range of services provided by the Indian distributor, only the manner of computation of fee payable to the distributor has changed. As these were Total numbers of subscribers as on The source of revenue/ income for the initial years of 31.3.2005 were 4,600 (page 4 of appellant is the Airlines. The business, there assessment order), subscribers are not the source of were not many revenue for the appellant. agreements with The revenue per booking received by subscribers. the appellant does not change due to the increase in the number of bookings due to more number of subscribers. The nature and scope of services to be provided by Indian distributor has not changed and so also his contribution in the revepue per booking arising to the appellant. In fact, the revenue per booking may decrease with more subscribers, as airlines are often given volume discounts.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Therefore, increase in number of subscribers is of little consequence. The job of AIPL is Amadeus India has not received any A. Position of appellant accepted to canvass the use compensation for marketing in AY 2005-06 of CRS in India services provided to Amadeus In AY 2005-06, the same assessing and enter into Global (Last paragraph on page 17 officer held that Amadeus Global is contract with the and first paragraph on page 18 of paying no compensation to Amadeus subscribers/travel the assessment order and also on India for the main activity of agent willing to use page 5 of the assessment order). marketing the CRS and providing the CRS for which it support to travel agents, therefore a receives profit is required to be attributed 'distribution fee' (refer pg 461/ 471-473 of the PB). from the appellant. (Paragraph 5.1 of The CIT(A), in that year, after the ITAT order on examining the Distribution Agreement page 282 of the (refer Pg 334- 337 of the PB) held that PB). ―payment to Amadeus India is being made for all the services being performed by it in India including distribution/ marketing of Amadeus Products in India, training to personnel of subscribers, maintenance of computer hardware and software at the subscribers‘ locations and providing access to subscribers to the Amadeus CRS. The aforesaid order has been confirmed by the Tribunal and the Hon‘ble High Court. Further, in AY 1996-97, the appellant was held to have ‗business connection‘ under section 9(1 )(i) of the Act on account of the Indian distributor, who was under the distribution agreement required to market/ distribute the CRS amongst travel agents and provide them connectivity to the appellant‘s CRS. The scope of services to be provided by the Indian distributor under the distributor agreement applicable from assessment years 1996-97 to 2004-05, has not undergone any change under the new distribution agreement, which was examined in assessment year Page | 83

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 2005-06. Considering the entire gamut of services rendered by the Indian distributor, and the fact that business connection is a much wider term than ‗PE‘, only 15% of the revenues were held by the Tribunal to be attributable to the ‗business connection‘ of the appellant in India in assessment year 1996-97. B. Letter of Amadeus India obtained by the assessing officer in impugned assessment proceedings.

Vide letter dated 08.12.2008, the assessing officer raised various queries to Amadeus India, which have been reproduced by the assessing officer on Pg 16-17 of his order, which makes reference to the monthly invoice issued to the appellant which bears the description of ―charges for export of processed data/software‖. Amadeus India in response, vide letter dated 16.12.2008 (reproduced at Pg 17 of the assessment order), confirmed that the distribution fee was received for all the services rendered to the appellant as per the Distribution Agreement and that the nature of services in this regard have not undergone any change as compared to the earlier years. Amadeus India has also confirmed that the invoice value and the underlying computation are based on the number of segments in accordance with the Distribution Agreement. The travel agents The subscribers have access to The role of Amadeus India is to systems are CRS directly and not through define the access rights for connected to Amadeus India servers. The subscribers through the web AIPL's computer subscriber can access Amadeus configurator. Amadeus web Page | 84

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) and the request for CRS directly. Therefore, even if configurator is the Amadeus‘ information is Amadeus India servers are software distribution tool. The front channelized switched off, subscriber can still end is a web site for Amadeus India through AIPL's access the CRS. Amadeus India to use when defining the access rights computer. AIPL servers have no link with of a travel agency. identifies/authorize subscribers connectivity to the s the travel agents host. (Page 4 of the assessment as valid CRS users order). and processes the request for information into relevant segment (paragraph 5.1 of the ITAT order on page 282 of the PB).

Without prejudice, if the DR‘s contention is that the Indian distributor is not involved in any software/data export, then the assessing officer‘s submission that the ITAT in earlier years did not attribute any income to the marketing/distributor activity carried on by the appellant and, therefore, Amadeus India has set up key These services supports the existing more than 15% of the revenues need Amadeus value services in India business of the appellant carried out to be allocated to the alleged PE in that consists of toll free numbers in India and does not, in any way, India has no basis. for help desk, 24 hours help desk suggest an additional scope of in three cities (Page 4 of the service carried out for the appellant assessment order). in India. There was no hotel Indian Hotels reservation System, The hotels are additional content reservation service a unique Amadeus reservation added to the existing Global in India. service for hotels in the two and Distribution System [―GDS‖] in the three star range. These hotels are same way that new airline content is widely used in India for the junior constantly added to the existing GDS, and mid-level staff of corporations and Amadeus India performs no and by many business travelers for services aimed at adding such content their leisure requirements (Page 4 to the system. of the assessment order)

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Agreement with Cox and Kings, an Cox and Kings is one of the international travel agent in India additional subscribers which have provides various products and been added to the list of subscribers services by Amadeus India which over a period of time. The were not provided in earlier years subscribers with whom the Amadeus (Page 4 and 5 of the assessment India contracts have changed from order). time to time and it is practically impossible as well as illogical to presume that Amadeus India would have contracted with the same set of subscribers from the year 1996 to 2005. No bookings for Booking for car and hotel segment As submitted above, the car and hotel car and hotel added (Page 5 of the assessment segment are additional content added order). This indicates that to the existing GDS in the same way segments. Amadeus has PCA in India with that new airline content is constantly regard to cars and hotels also. added to the existing GDS, and Amadeus India performs no services aimed at adding such content to the system. Further, it is not necessary that new PCAs/providers are appointed in India. These are mostly PCAs/providers from abroad, as per existing business. No charges have Amadeus is paying a service fee to This change in financial flows/ been recovered travel agent (subscriber) and this business model is due to changing from subscribers is based on productivity targets market realities, and not because of a by the assessee or (Page 4 and 5 of the assessment change in the scope of business its agent namely order). carried out by the appellant. AIPL for allowing use of CRS (paragraph 4.1 on page 282 of the PB). No incentive was Travel agents and Airlines in India With respect to incentives paid to paid in those years. are being paid incentives Travel agents, it is submitted that the (paragraph 7 of the order). Total appellant is absorbing such cost of incentives of EUR 8,755,000 have incentive due to changing market been paid during the year (page 18 realities/ business conditions, which of the assessment order) (This should not be confused with the scope indicates robust business and of distributor‘s services. aggressive marketing in India.) Regarding incentives to Airlines, it is submitted that the Airlines are given discounts/rebates and are not paid Page | 86

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) any incentive. Further, it would be pertinent to point out that not all the Indian airlines receive such discounts.

As regards the submissions of the Ld. CIR DR that payment of incentives by the appellant indicates aggressive marketing in India, it is submitted that payment of incentive(s) and offering of discount(s) is a common business tactic and such offerings are commensurate with growth in the Indian travel market, which should not be looked at as an expansion of scope of business activities. Aggressive marketing is also Same as above indicated by paying incentive to travel agents for their agreeing to use only Amadeus system (Page 8 of the assessment order). Started providing satellite ticket Providing satellite ticket printers is printers (page 8 of the assessment simply a use of newer technology to order). Total assets in India support the existing businesses increased to EUR 12,508,073 effectively. (Page 21 of the order). The use of emulation software has The CRS technology keeps improving/ changed the use of CRS (Page 21 evolving and new products/features of the order). are added from time to time pursuant to the development activity carried out by the appellant outside India. This has nothing got to do with the distribution activity carried on in India by the Indian distributor. The new technology/features developed by the appellant enables the Indian distributor to attract more subscribers and the increase in revenue in booking revenue is primarily attributable to such activities carried outside India.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Approximately 60% of all Firstly, it is requested that the incoming flights to India are made Ld. CIR DR/ assessing by Amadeus System user airlines. authorities may kindly point out the basis of arriving at this conclusion. In fact, appellant‘s CRS users would also have been significantly used back in 1996 as there were not many players in the travel industry catering to travel needs of the travelers at that time. AIPL does not The agreement with Air India was This is not correct and there is enter into any in practical terms negotiated by no evidence brought by the contracts in India Amadeus India (Paragraph 4 on Revenue to substantiate this with the airlines page 22 of the assessment order). allegation. (paragraph before Amadeus India is now authorised 13.4 of the ITAT to negotiate and enter into Order on page 295 contracts with the airlines, hotel, car rental company etc. (last bullet of the PB). on page 27 of the order). Kindly also see "Comments" on page 31 of the Order). The services or the Various domestic airlines (Indian) Even for domestic travel, all product is sold by are now using the Amadeus system elements are not in India. It is the CRS company not only for international travel respectfully submitted that the to the airlines but domestic travel. So all the servers, databases, system, outside India elements travelers, ticket agent, foreign travelers, foreign TAs, (paragraph 14.2 of airlines are in India. etc. are all situated outside India. the Order on page 296 of the PB). The extent of work Various domestic airlines (Indian) Same as above. Further, it is to in India is only to are now using the Amadeus system be appreciated that substantial the extent of not only for international travel efforts/ investment is made and generating request but domestic travel. So all the expenditure is incurred by the and receiving end- elements travelers, ticket agent, appellant outside India on an result of the airlines are in India. Therefore, ongoing basis to develop new process in India. situation has changed and products, adding new The major activities outside India are ONLY international airline content to functions like the CRS, improving the existing MINISCULE PORTION. collecting the CRS, upgrading the huge and database of various airlines and hotels which have entered into PCA with the Page | 88

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) appellant take place outside India. The activities in India are only miniscule portion. The appellant's

computer in sophisticated infrastructure so as Germany is also to be ahead of competition and in responsible for all order to make its CRS appeal other functions like more to the subscribers. keeping data of The marketing/ distribution booking made activity carried out in India by worldwide and the Indian distributor is neither also keeping track sophisticated nor cerebral and of all the does not require intellectual airlines/hotels involvement of the level/kind worldwide who exercised at appellant‘s end have entered into abroad. In fact, attribution of PCA (Paragraph 15% of revenues to the marketing 18 of the Order on activities in India is more than pages 298 and 299 adequate compensation for such of the PB). services. Major portion of the revenue is in fact to be attributed to the technical activities carried out outside India by the appellant, as the contribution to the increase in revenues of such activities is much more substantial. Amadeus Compensation Basis has changed. The form of compensation has marketing will pay changed due to change in market to Amadeus India a conditions, which should not be distribution fee of misconstrued with increase in USD 0.84 cents for scope of appellant‘s business or each net segment services of Indian distributor. processed through Further, it would be pertinent to the Amadeus point out that the change in form System by a of compensation, from ‗fixed fee‘ subscriber located to ‗variable fees‘, was a business in Amadeus India decision to hedge against territory (Appendix revenue volatility. A to Distribution Agreement on page

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 280 of the PB). The product that is Airlines companies of India are Perusal of Page 12 of the the services of the the major revenue source now. assessment order would show airline exists that during the year under outside India. The consideration, only out of 23 information Airlines flying in/ out of India conveyed from the were Indian. use of CRS exists outside India (9th Sub-paragraph of paragraph 801 of the ITAT order on page 286 of the PB)

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) booking, and printing confirmed ticket. The computers installed at the premises of travel agents are not equipped or configured for any other function. In the basis of FAR analysis carried out by the Tribunal while disposing of the appeal for assessment years 1995-96 to 1997-98, the Tribunal came to a finding of fact that 15% of the revenue were attributable to operations carried out in India and, therefore, such proportion of income only could be attributed to the fixed place / dependent agent permanent establishment in India. As stated earlier, the nature of business activity has not undergone any change. Even though the volume of travel and bookings generated from India has increased over the years, the operations / activities carried out by the travel agents in India remain the same, viz., initiation of request for booking, which is processed in the appellant‘s main frame located at Erding, Germany and finally generating the ticket for a confirmed reservation. The 15% of the revenue attributed to operations carried out in India takes care of increase in volume of bookings since the 15% would correspondingly increase with the increase in revenues. In that view of the matter, there is no basis or warrant to deviate from the finding of fact recorded by the Tribunal in earlier years, which have been duly affirmed by the Hon‘ble High Court.‖

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) profits to the permanent establishment of the assessee. The ld CIT(A) held that as he has already held that assessee has a permanent establishment in India therefore, he did not decide the issue of alternative taxation of royalty. 13. Now the above issue is already been decided by the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 in ITA No. 2424, 2425, 2426/Del/2010 as per order dated 29/10/2010 wherein, the whole issue is considered as under:- “7. We have heard both the parties on this issue. So as it relates to the attribution of income arising to assessee in India, the issue is covered by para 18 of the aforementioned order of the Tribunal dated 30.11.2007. The said para is reproduced below:- "18. The next question therefore, arises is whether having held that there is business connection in India, how much income is chargeable to tax in India. As per s.9(1)(i) of the Act, income accruing or arising whether directly or indirectly through or from any business connection in India shall be deemed to accrue or arise in India. As per cl.(a) of Expln. 1 to s. 9(1)(i) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Thus in a given case if all the operations are not carried out in India, the income has to be apportioned between the income accruing in India and income accruing outside India. 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 Erding in Germany 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 takes place outside India. The computers at the desk of travel agent in India are merely connected or configured to the extent that they 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 is processed at the host computer in Erding in Germany. 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 who 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, Page | 92

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 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 risk in this regard entirely rests with the appellant and that is in Spain, 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 s. 5(2) r/w s.9(1)(i) of the Act." 8. Therefore, after hearing both the parties, we found that the appeals of the department are covered by the aforementioned observations of the Tribunal. Respectfully following the same, we found no merit in departmental appeals and they are dismissed. 9. So as it relates to cross-objections filed by the assessee, the issue is covered by the following observations of the Tribunal in the aforementioned order dated 30.11.2007:- "17.1 The first question before us is whether there is any business connection in India within the meaning of s.9(1)(i) of the Act. The scope of total income is described in s.5 of the IT Act. As per s.5(2), the total income of a person, who is a non-resident to the extent which is received or deemed to be received in India, or accrues or arises or deemed to accrue or arise in India is taxable in India. As per s.9(1)(i) of the Act, all income accruing or arising whether directly or indirectly through or from any business connection in India shall be deemed to accrue or arise in India. As per cl.(a) of Expln.1, in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be such part of the income as is reasonably attributable to the operations carried out in India. Thus, as per the conjoint reading of s.5(2) and s.9(1)(i) of the Act, only if the income is arising directly or indirectly through or from any business connection in India, can be taxed in India. The expression 'business connection' was earlier not defined in the Act. The Finance Act, 2003 w.e.f. 1st April, 2004 i.e. as applicable to asst. yr. 2004-05 and onwards has inserted two new Explanations to cl.(i) of s. 9(1) clarifying that expression 'business connection' will include a person acting on behalf of non- resident and who carried on certain activities. However, for the purpose of our Page | 93

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) present discussion, the amended provisions have no relevance as the same are w.e.f. asst.yr. 2004-05 onwards. Since these appeals are for the years prior thereto, we shall discuss only the unamended provisions. The expression 'business connection' has a wide though uncertain meaning. It admits of no precise definition and the solution to the question must depend upon the particular facts of each case. Even the amended definition will not determine as to what constitutes business connection as the same is not an exhaustive definition but is a definition which also includes some of the activities to be termed as business connection. We shall, therefore, revert to some of the judicial pronouncements in this regard. Hon'ble Supreme Court in the case of CIT vs. R.D. Agarwal & Co. (supra) held thus: "The expression business connection undoubtedly means something more than business. A business connection in s. 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicated an element of continuity between the business of the non- resident and the activity in the taxable territories, a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms. It may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent or it may merely be a relation between the business of the non-resident and the activity in the taxable territories, which facilitates or assists the carrying on of that business. In each case, the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non- resident must be determined upon the facts and circumstances of the case." "A relation to be a business connection must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the non-resident. But it must in all cases be remembered that by s.42, income, profit or gain which accrues or arises to a non- resident outside the taxable territories is sought to be brought within the net of the IT law, and not income, profit or gain which accrues or arises or is deemed to accrue or arise within the taxable territories. Income received or deemed to be received, or accruing or arising or deemed to be accruing or arising within the taxable territories in the previous year is taxable by s.4(1)(a) and (c) of the Act, whether the person earning is a resident or non-resident. If the agent of a non- resident receives that income or is entitled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in s. 40(2). Income not taxable under s. 4 of the Act of a non- resident becomes taxable under s.42(1) if there subsists a connection between the activity in the taxable territories."

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) Hon'ble Bombay High Court in the case of Blue Star Engineering Co. (Bombay)(P) Ltd. vs. CIT (1969) 73 ITR 283 (Bom) at p.291, after referring to the decision of R.D. Aggarwal & Co. (supra) held as under: "It would thus be seen that in order to constitute a 'business connection' as contemplated by s.42, there must be an activity of the non-resident and contributing to the earning of profits by the non-resident in his business. The business connection must undoubtedly be a commercial connection but all commercial connections will not necessarily constitute business connection within the meaning of the concept unless the commercial connection is really and intimately connected with the business activity of the non-resident in the taxable territories and is contributory to the earning of profits in the said trading activity." 17.2 In the light of the above provisions of the IT Act and the judicial pronouncements, we may appreciate the facts and deal within the issue. The appellant has developed a fully automatic reservation and distribution system known as Amadeus system with ability to perform comprehensive information, communication, reservation, ticketing distribution and related functions on a worldwide basis. Through this Amadeus system, the appellant provides service to various participants i.e. airlines and hotels, etc. whereby the subscribers who are enrolled through the efforts of NMC can perform the functions of reservations and ticketing etc. Thus the Amadeus system or the CRS is capable of not only processing the information of various airlines for display at one seamless system originating from the desk of the subscriber's computer which may or may not be provided by the appellant but which in all cases is configured and connected to such an extent that such computers can initiate or generate a request for reservation and also receive the information in this regard so as to enable the subscriber to book the airlines seat or hotel room. The request which originated from the subscriber's computer ended at the subscriber's computer and on the basis of information made available to the subscriber, reservations were also possible. It is to be noted that all the subscribers in respect of which income is held taxable are situated in India. The equipment i.e. computer in some cases and the connectivity as well as configuration of the computer in all the cases are provided by the appellant. The booking takes place in India on the basis of the presence of such seamless CRS system. On the basis of booking made by the travel agent in India, the income generates to the appellant. But for the booking no income accrues to the appellant. Time and again it is contended that the whole of the processing work is carried out at host computer situated at Erding in Germany and only the display of information is in India for the proposition that there is no business connection in India. We are unable to agree with such proposition. The CRS extends to Indian territory also in the form of connectivity in India. But for the request generated from the subscriber's computer's situate in India, the booking is not possible which is the source of revenue to the appellant. The assessee is not to receive the payment only for Page | 95

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) display of information but the income will accrue only when the booking is completed at the desk of the subscriber's computer. In such a situation, there is a continuous seamless process involved, at least part of which is in India and hence, there is a business connection in India. The computers at the subscriber's desk are not dumb or are in the nature of kiosk incapable of performing any function. The computers along with the configuration have been supplied either by the appellant or through its agent AIPL and the connectivity being provided by the appellant enables the subscribers to access the CRS and perform the ticketing and booking functions. Thus there is a direct business connection established in India and hence in terms of s. 9(1)(i) the income in respect of the booking which takes place from the equipment in India can be deemed to accrue or arise in India and hence taxable in India." 10. Therefore, the cross-objections filed by the assessee with respect to the years under consideration are covered by the aforementioned observations of the Tribunal and we hold that CIT(A) has correctly held that assessee has PE in India and his findings in this regard are in accordance with the aforementioned order of the Tribunal dated 30.11.2007. We dismiss the cross-objections filed by the assessee. 11. In the result, the appeals filed by the department as well as cross- objections of the assessee both are dismissed.” 14. Aggrieved with the above order the revenue filed miscellaneous application on 21.02.2014 which was further revised on 03.03.2014. On this miscellaneous application the coordinate bench passed an order and dismissed the applications of the revenue. 15. The matter reached the Hon‟ble Delhi High Court in assessee‟s own case which was dismissed holding that the issues raised in this appeal has arisen in the assessment orders in the case of the assessee and such appeals have already been disposed off in ITA No. 900-905/2008 and 689/2011 dismissing the appeal. In view of this it is apparent that the order of the coordinate bench in assessee‟s own case for AY 2003-04 to 2005-06 squarely covers the points raised by the revenue. 16. Further, the appellant also challenged the order of the coordinate bench for AY 2003-04 to 2005-06 before the Hon‟ble Delhi High Court which was also dismissed as it was delayed. In view of this the issues are squarely covered by the decision of the Hon‟ble jurisdictional High Court in assessee‟s own case up to AY 2005-06.

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) 17. In view of this respectfully following the decision of the coordinate bench we also hold that assessee has a permanent establishment in India. Now we come to the issue of attribution of profit where in the current year the CIT(A) has upheld the attribution of the profit @75% whereas, in earlier years the tribunal has upheld the attribution @15% of the revenue as income arising in India. In view of this respectfully following the decision of the coordinate bench in assessee‟s own case for earlier years, we also reverse the order of the ld CIT(A) in upholding the attribution of profit @75% and direct the ld AO to attribute the income @15%. Accordingly, the appeals of the assessee as per Ground Nos. 2 to 5, 6, 11, 12, 13, 14 and 15 of the appeal are partly allowed. 18. Ground number 16 of the appeal is with respect to the non-granting of credit of tax deduction at source of INR 5 6693368 to the assessee. The learned authorised representative submitted that the assessee should be granted the credit of the tax deduction at source. The learned departmental representative also agreed to the issue that if the certificates issued to the assessee are proper and in order then same may be granted. Accordingly we direct the learned assessing officer to grant the credit of the tax deduction at source of INR 5 6693368 to the assessee if the proper certificates are placed before the assessing officer. The learned AO may verify the same and grant credit for the same if in order. Accordingly ground number 16 of the appeal of the assessee is allowed with above direction. 19. Ground number 17 is with respect to the charge of the interest u/s 234B of the income tax act. The claim of the learned authorised representative is that no interest u/s 234B of the income tax act was chargeable since the entire payment received by the assessee from India was subject to deduction of tax at source on the above payment. The learned departmental representative payment objected to the same and submitted that charge of interest u/s 234B of the act is not dependent on the deductibility of the tax by the payer. We have carefully considered the rival contention and perused the orders of the lower authorities the issue squarely covered in favour of the assessee by the decision of the honourable Delhi High Court in case of Page | 97

Amadeus Global Travel Distribution SA Vs. ADIT ITA No. 1494/Del/2011 (Assessment Year: 2006-07) the DIT vs GE packaged power incorporation 373 ITR 65. The amendment brought into the act by the finance act 2012 is applicable with effect from the fund for 2012 and is applicable from assessment year 2013 – 14. In view of this we direct the learned assessing officer to not to charge interest u/s 234B of the income tax act for the above reasons. Accordingly ground number 17 of the appeal of the assessee is allowed. 20. Accordingly, appeal of the assessee is partly allowed. Order pronounced in the open court on 18/07/2019. -Sd/- -Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18/07/2019 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi