Travelport International Operations Limited, United Kingdom V. ACIT Circle- 3(1)(1) International taxation, New Delhi

ITA 163/DEL/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4848 (ITAT-DELHI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2017-2018
• Appeal Filed On: 26-02-2021
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Double taxation relief; Permanent establishment; Question of law; Tax effect; TDS; FORM 26AS
• Section: 5(2); 234B; 40(a)(ia); 251; 254(2); 40a(ia); 13; 22; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 163/DEL/2021 : ASSTT. YEAR : 2017-18 TRAVELPORT INTERNATIONAL OPERATIONS LTD., AXIS ONE, AXIS PARK, 10, HURRICANE WAY LANGLEY, UNITED KINGDOM, UNITED KINQDOM VS ACIT, CIRCLE-3(1)(1), INTL. TAXATION, NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AAFCT4788G ASSESSEE BY : SH. AJIT KUMAR JAIN, CA REVENUE BY : SH. UMESH TAKYAR, SR. DR DATE OF HEAR ING: 08 . 0 7 .20 2 1 DATE OF PRONOUNCEMENT: 27 .0 9 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 30.01.2021 PASSED BY THE AO U/S 143 (3) R.W.S. 1440(13) OF THE INCOME TAX ACT, 1961. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: '1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER HAS ERRED IN COMPLETI NG THE ASSESSMENT AT THE TOTAL INCOME OF INR 213,13,12,965 AS AGAINST 'NIL' INCOME DECLARED. 2. THAT THE ASSESSING OFFICER AND THE DISPUTE RESOL UTION PANEL ('DRP') OUGHT TO HAVE HELD THAT THE APPELLANT HAS NO INCOME CHARGEABLE TO TAX IN INDIA EITHER UNDER T HE ACT OR UNDER THE PROVISIONS OF THE DOUBLE TAXATION ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 2 AVOIDANCE AGREEMENT BETWEEN INDIA AND THE UNITED KINGDOM ('DTAA'). 3. THAT THE ASSESSING OFFICER AND THE DRP OUGHT TO HAVE HELD THAT NO INCOME HAD ACCRUED OR DEEMED TO ACCRUE OR RECEIVED OR DEEMED TO HAVE RECEIVED BY TH E APPELLANT IN INDIA. 4. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN HOLDING THAT THE APPELLANT HAS BUSINESS CONNECTION IN INDIA AND AS SUCH IS LIABLE TO TAX IN INDIA AS PER THE PROVISIONS OF ACT. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, BOTH THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN HOLDING THAT THE APPELLANT HAS: A FIXED PLACE PE IN INDIA UNDER ARTICLE 5(1) OF THE DTAA; AND A DEPENDENT AGENT PE IN INDIA IN THE FORM OF INTERGLOBE TECHNOLOGY QUOTIENT PRIVATE LIMITED ('ITQPL') UNDER ARTICLE 5(5) OF THE DTAA. 5.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN HOLDING THAT THE APPELLANT HAS A PE IN IND IA BASED ON INTER- ALIA FOLLOWING ALLEGATIONS: AUTHORITY HAS BEEN DELEGATED TO ITQPL TO CONCLUDE CONTRACTS ON APPELLANT'S BEHALF ITQPL IS WHOLLY DEPENDENT ON APPELLANT FOR ARRANGING THE COMMUNICATION SERVICES FROM SITA IN INDIA ITQPL IS AN EXCLUSIVE DISTRIBUTOR OF INDIA MODEL AGREEMENTS SHARED BY APPELLANT WITH ITQPL WHICH IS TO BE COMPULSORILY USED IN THE AGREEMENTS ENTERED INTO BY ITQPL WITH VARIOUS SUBSCRIBERS BUSINESS OF THE APPELLANT CONTINUES TO BE CARRIED OUT ON THE COMPUTER TERMINALS OF THE TRAVEL AGENTS ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 3 5.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN HOLDING THAT THE DISTRIBUTOR IS FULLY DEPE NDENT ON THE APPELLANT. 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE ASSESSING OFFICER AND THE DRP HAS ERRED IN ATTRIBUTING 75% OF THE INDIA RELATED NET PROFIT TO THE ALLEGED ACTIVITIES OF THE APPELLANT IN INDIA WHICH IS BEING EXCESSIVE AND UNWARRANTED, BY REFUSING TO TAK E INTO CONSIDERATION THAT THE APPELLANT'S OPERATIONS AND ACTIVITIES ARE CONDUCTED OUTSIDE LNDIA. 6.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN NOT PLACIN G RELIANCE ON THE ORDER OF THE HON'BLE DRP IN APPELLA NT'S PREDECESSORS, (I.E. TRAVELPORT GLOBAL DISTRIBUTION SYSTEM BV) CASE FOR THE AY 2012-13 WHEREIN THE HON'BLE DELHI HIGH COURT'S ORDER DATED AUGUST 25, 2 014 WAS RELIED UPON TO DECIDE THAT THE ATTRIBUTION OF 1 5% OF THE REVENUE TO INDIAN RELATED OPERATIONS AND AFTER A I IOWA NEE OF EXPENSES NO INCOME WAS HELD TO BE CHARGEABLE TO TAX IN INDIA. 7. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN L AW, THE ASSESSING OFFICER AND THE DRP WHILE ATTRIBUTING APPELLANT'S TAXABLE INCOME TO ALLEGED INDIAN PERMAN ENT ESTABLISHMENT ('PE') AS PER INDIA-UK TREATY, HAVE E RRED IN NOT ALLOWING DEDUCTIONS FOR INDIA RELATED EXPENS ES. 7.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND THE DRP HAS ERRED I N NOT ALLOWING DEDUCTION OF DISTRIBUTION FEES AMOUNTI NG TO USD 69,512,742 PAID TO THE DISTRIBUTORS, DESPITE SA ME BEING ALLOWED TO THE APPELLANT'S PREDECESSOR FOR A Y 2015-16. 7.1.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND THE DRP HAS ERRED I N ALLOWING ONLY 70% OF DISTRIBUTION EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT BY ALLEGING THAT: ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 4 DISTRIBUTION FEES IS IN NATURE OF COMMISSION; AN D SINCE TAXES ARE NOT DEDUCTED ON SUCH PAYMENTS, EXPENSES SHOULD BE DISALLOWED UNDER SECTION 40A(IA) OF THE ACT 7.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO AND THE DRP HAS ERRED I S NOT ALLOWING THE DEDUCTION OF APPORTIONMENT OF TECHNOLOGY SERVICE FEES FOR US$ 8,460,978 AND VENDO R COST FOR US$ 164,832 MERELY BY FOLLOWING THE DRP DIRECTIONS FOR AY 2016-17 NOT PROVIDING ANY COGENT REASON FOR DISALLOWING SUCH EXPENSES. 7.3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN NOT ALLOWING THE DEDUCTION OF AMORTIZATION ON ALL INTANGIBLE ASSETS AMOUNTING TO USS 12,293,433, ON THE BASIS OF THE DRP DIRECTIONS FOR AY 2016-17 (PAS SED PURSUANT TO RULE 13), WHEREIN FOLLOWING REASONING W AS ACCORDED BY DRP FOR NOT ALLOWING COMPLETE CLAIM OF DEPRECIATION. A) NO AMORTIZATION/DEPRECIATION ON GOODWILL AND TRADEMARK/TRADENAME HAS BEEN CLAIMED IN THE UK CORPORATE TAX RETURN OF APPELLANT. B) NO AMOUNT IS DEBITED AS DEPRECIATION ON GOODWILL AND TRADEMARK/TRADENAME IN THE GLOBAL ACCOUNTS THEREFORE THERE IS NO BASE TO DETERMINE THE PROPORTIONATE EXPENSES TO BE ALLOWED FOR THE PURPOSE OF COMPUTING THE PROFIT OF THE ALLEGED PE IN INDIA. C) NO REASONING HAS BEEN ACCORDED BY THE DRP FOR DISALLOWING AMORTIZATION/DEPRECIATION ON VENDOR RELATIONSHIP. 7.3.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN DISALLOWING THE DEDUCTION OF THESE EXPENSE S BY INCORRECT APPLICATION OF ARTICLE 7 OF THE INDIA-UK DOUBLE TAXATION AVOIDANCE AGREEMENT. 7.4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER AND THE DRP HAVE ERRED IN NOT ALLOWING THE DEDUCTION OF THE CLAIM ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 5 OF FINANCE COST EXPENDITURE FOR US$ 11,014,744 ON FOLLOWING ALLEGATIONS A) THAT FINANCE COST MAY BE FOR THE PURPOSE OF EXPENSES TOWARDS CAPITAL ACCOUNT AND MAY NOT BE IN NATURE OF REVENUE EXPENSES B) FAILED TO ESTABLISH THAT SUCH EXPENSES HAVE BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. 8. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, TH E ASSESSING OFFICER AND THE DRP HAVE ERRED IN NOT ALLOWING TO APPELLANT, DEDUCTION OF EDUCATION CESS FORMING PART OF SUCH TAX LIABILITY. 9. THE APPELLANT DENIES EACH AND EVERY ALLEGATION AND STATEMENT MADE BY THE ASSESSING OFFICER IN THE IMPUGNED ORDER AND ORDERS RELIED UPON BY HIM, UNLES S THE SAME IS SPECIFICALLY ADMITTED BY THE APPELLANT OR IS OTHERWISE BORNE OUT BY THE RECORD. 10. WITHOUT PREJUDICE TO THE GENERALITY OF THE ABO VE, THE APPELLANT DENIES THE FOLLOWING AMONGST OTHER, INCORRECT ALLEGATIONS OF THE ASSESSING OFFICER THAT : THE APPELLANT HAS A PE IN INDIA IN THE FORM OF FIXED PLACE BUSINESS AND AGENCY PE AND THIS FINDING HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN CASE OF THE APPELLANT'S PREDECESSOR ITSELF ; THE APPELLANT HAS BUSINESS CONNECTION IN INDIA AND IS RECEIVING INCOME FROM THE SOURCES IN INDIA; THE PAYMENTS MADE BY THE APPELLANT TO ITQPL ARE IN THE NATURE OF COMMISSION THE PAYMENTS MADE BY THE APPELLANT TO ITQPL ARE IN THE NATURE OF DATA PROCESSING FEES MAJOR PART OF THE ACTIVITIES OF THE APPELLANT RESULTING TO THE INCOME ARE ATTRIBUTABLE TO ITS ACTIVITIES IN INDIA; ONLY ACTIVITIES CARRIED ON BY THE APPELLANT OUTSIDE INDIA CORRESPOND TO THE SERVICES PROVIDED BY IBM; THE TICKETS ARE BEING BOOKED IN INDIA; ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 6 THE APPELLANT IS HAVING ASSETS IN INDIA; THE APPELLANT IS HAVING ITS SALES TEAM IN INDIA; THE APPELLANT IS PROVIDING TRAINING TO ITS DISTRIBUTORS 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. AO AND THE DRP HAVE ERRED IN MAKING FACTUALLY INCORRECT ALLEGATIONS WITH RESPECT TO THE VARIOUS EXPENSES AND INCOME. 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES BELOW HAVE ERRED I N CHARGING INTEREST UNDER SECTION 234B OF THE ACT.' 3. THE APPELLANT IS A COMPANY INCORPORATED IN THE UNIT ED KINGDOM. THE APPELLANT PROVIDES ELECTRONIC GLOBAL DISTRIBUTION SE RVICES IN THE 'REST OF THE WORLD' TERRITORY (INCLUDING THE INDIAN REGION) FOR THE TRAVEL INDUSTRY, BY UTILIZING A COMPUTER RESERVATION SYSTEM ('CRS'), WHICH IS AN AUTOMATED SYSTEM WHICH PROCESSES BOOKING DATA. THE CRS IS AN AUTOMATED SYSTEM, WHICH PROCESS BOOKING DATA AND OTHER D ATA TO PROVIDE THE FOLLOWING FUNCTIONS: A) THE ABILITY TO DISPLAY FLIGHT SCHEDULE AND SEAT AVAILA BILITY B) THE ABILITY TO DISPLAY AND/OR QUOTE AIRLINE FARE C) THE ABILITY TO MAKE AIRLINE SEAT RESERVATION D) THE ABILITY TO ISSUE AIRLINE TICKETS, ETC. 4. THE APPELLANT APPOINTS DISTRIBUTORS FOR MARKETING ITS CRS SERVICES. IN INDIA, THE AUTHORIZED DISTRIBUTOR IS INTERGLOBE TE CHNOLOGIES QUOTIENT INDIA PRIVATE LIMITED (ITQPL/ 'THE DISTRIBUTOR'). IT QPL IS ENTITLED TO RECEIVE DISTRIBUTION FEES FROM THE APPELLANT FOR EACH SEGMENT B OOKED IN THE INDIAN TERRITORY. THE DISTRIBUTOR/ ITQPL INDEPENDENTLY SIGNS AN AGREEMENT WITH THE TRAVEL AGENT'S, TO PROVIDE BOOKING SERVICES. 5. THE MASTER COMPUTER SYSTEM (MCS) STATIONED IN USA I S CONNECTED TO TRAVEL AGENTS IN INDIA THROUGH A COMMUNICATION NETW ORK OWNED BY SITA ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 7 (THIRD PARTY SERVICE PROVIDER). SITA DOES NOT OWN LOCAL COMMUNICATION LINES WITHIN INDIA AND THE SAME FORMS THE RESPONSIBILITY OF THE DISTRIBUTOR. 6. THE CRS IS CONNECTED TO THE AIRLINE SERVERS TO WHICH DATA REGARDING SEAT REQUESTS, RESERVATIONS, ETC. IS CONSTANTLY SENT AND U PDATED ON A REAL- TIME BASIS. WHEN A CUSTOMER APPROACHES A TRAVEL AGENT WH O IS USING THE CRS TO BOOK A TICKET OR SEEKING INFORMATION LIKE THE FLIGHT SCHEDULE, FLIGHT AVAILABILITY, SEAT AVAILABILITY, FARE ETC., CUSTOMERS' REQUIREMENTS ARE TRANSMITTED BY THE TRAVEL AGENTS TO TRAVELPORT'S MAINF RAME MASTER COMPUTER SERVER ('MCS'). 7. THE MCS, IN TURN, CHECKS THE AVAILABILITY, ETC. FRO M THE AIRLINE SERVER AND COMMUNICATES AVAILABILITY BACK TO THE TRAVEL AGENTS. THE TRAVEL AGENT, ON THE BASIS OF SUCH COMMUNICATION, FINALIZES THE BOOKING REQUIREMENTS, WHICH ARE SENT BACK TO THE CRS BY THE TR AVEL AGENT, THROUGH THE COMMUNICATION NETWORK. 8. IF, AT THE POINT OF TIME SUCH FINALIZED BOOKING R EQUIREMENTS REACH THE AIRLINE SERVER THROUGH THE TRAVELPORT'S MCS IN T HE USA, SUCH SEATS ARE STILL AVAILABLE, THE AIRLINE SERVER ACCEPTS THE TRAVEL AGENT'S REQUEST. IT IS ONLY UPON SUCH ACCEPTANCE THAT THE BOOKING IS COMPLETED AN D THE APPELLANT EARNS ITS BOOKING FEE FROM THE AIRLINE. THE MCS THEN DISPLAYS THE ACCEPTANCE OF THE OFFER BY THE AIRLINE SERVER, WHICH IS COMMUNICATED TO THE TRAVEL AGENT'S COMPUTER SCREEN. HISTORY OF APPELLANT AND ITS PREDECESSOR ENTITIES I .E. GII AND TGDSBV 9. THE CRS WAS EARLIER OWNED AND MANAGED BY GALILEO INTERNATIONAL INC. (GII), WHICH OPERATED WORLDWIDE. THEREAFTER, IN YEAR 2002, THE TERRITORY OF OPERATIONS OF GII WAS SPLIT INTO TWO PAR T: T-1 (USA AND ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 8 CANADA) AND T-2 (REST OF THE WORLD). THE RESPONSIBILIT Y OF CARRYING OUT BUSINESS IN T-2 TERRITORY WAS GIVEN TO THE TGDSBV. TGDS BV WAS A NETHERLAND BASED ENTITY AND CARRIED ON SUCH CRS BUSINESS T ILL 31 DECEMBER 2015. 10. WITH EFFECT FROM 01 JANUARY 2016, THE CRS BUSINE SS OF TGDSBV WAS ASSUMED BY THE APPELLANT AND ACCORDINGLY WAS ASSESSED I N INDIA FOR THE FIRST TIME AS A NEW ENTITY IN AY 2016-17. 11. BASIC STRUCTURE OF THE BUSINESS, RISKS, FUNCTIONALITIE S AND ASSETS REMAIN UNCHANGED AFTER THE ABOVE TERRITORIAL REORGAN IZATION AND SUCH FACT HAS EVEN BEEN ADMITTED, RELIED AND EMPHASIZED BY THE ASSESSING OFFICER (LD. AO) AND DISPUTE RESOLUTION PANEL ('DRP') IN THEI R ORDERS/ DIRECTIONS. 12. FOR AY 2017-18, THE APPELLANT FILED ITS ORIGINA L INCOME TAX RETURN DATED 26 OCTOBER 2017, DECLARING NIL TAXABLE INCOME, A ND CLAIMING A REFUND OF INR 40,22,89,995 ON ACCOUNT OF EXCESS TDS DEDU CTED AND APPEARING IN FORM 26AS. THEREAFTER A REVISED INCOME T AX RETURN WAS FILED ON 28 MARCH 2019, WHEREIN THE CLAIM OF TDS AND REFUND WAS REVISED TO INR 40,55,24,740. 13. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND SUBSEQUEN TLY DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER (LD. AO) REQUIRED THE APPELLANT TO PROVIDE DETAILS OF INCO ME AND EXPENDITURE THAT MAY BE REASONABLE ALLOCATED TO ITS ALLEGED INDIA N OPERATIONS. IT WAS SUBMITTED BEFORE THE AO THAT COMPANY DOES NOT HAVE AN Y BUSINESS OPERATIONS IN INDIA DUE TO LACK OF A BC/PE IN INDIA. 14. WITHOUT PREJUDICE TO THIS FACT, IT WAS FURTHER SU BMITTED THAT EVEN IF IT IS ASSUMED THAT APPELLANT HAS A BC/PE IN INDIA, THE TAXABLE INCOME IS NIL AS ANY ATTRIBUTED REVENUE TO THE ALLEGED PE IS EXTING UISHED BY THE ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 9 EXPENSES DIRECTLY AND INDIRECTLY INCURRED IN CONNECTION W ITH SUCH ALLEGED PE IN INDIA. 15. THE APPELLANT FURNISHED THE FOLLOWING INDIA SPECIF IC PROFITABILITY STATEMENT BEFORE THE AO WHICH IS AS UNDER: INDIA SPECIFIC PROFITABILITY STATEMENT FOR AY 2017- 18 DESCRIPTION AMOUNTS IN USD BOOKING PEES (A) 103,090,523 LESS: SUBSCRIBER FEES PAID TO INTERGLOBE (ITQPL) 69,512,742 LESS: APPORTIONMENT OF TECHNOLOGY SERVICE FEE (INCL IBM), LICENCE FEE 8,460,978 LESS: FINANCE COST 1 1,014,744 LESS: AMORTIZATION OF INTANGIBLES 12,293,433 LESS: R&D COST SHARE 5,173,904 LESS: VENDOR COSTS 164,832 TOTAL EXPENSES (B) 106,620,633 (LOSS) (A) - (B) (3,530,110) 16. DURING THE COURSE OF ASSESSMENT, IT WAS STATED BEFORE THE LD. AO THAT ISSUE OF TAXABILITY IN INDIA IS COMPLETELY AND AD MITTEDLY COVERED IN FAVOUR OF APPELLANT BY SERIES OF JURISDICTIONAL DELHI HI GH COURT DECISIONS IN CASE OF COMPANY'S PREDECESSOR ENTITIES I.E. TGDSBV AND GII . IT WAS HIGHLIGHTED BEFORE THE LD. AO THAT THE HON'BLE DELHI HIGH COURT AND HON'BLE DELHI ITAT IN THOSE DECISIONS HELD THAT CORRECT AT TRIBUTION RATE IS 15% OF GROSS BOOKING FEES AND ONCE DEDUCTION OF SUBSCRIBER FEES/EXPENSES IS GRANTED, NO TAXABILITY REMAINS IN INDI A. 17. THE AO IN CONCLUSION HELD THAT THE ASSESSEE HAS PE IN INDIA HAS A BC AND PE IN INDIA. THE RELEVANT EXTRACT FROM THE FI NAL ASSESSMENT ORDER FOR AY 2017-18 IS RE-PRODUCED AS UNDER: ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 10 (PARA 7.1 ON PAGE 44 AND 9.1 ON PAGE 46 OF THE PAP ERBOOK-L) '7.1 IN PAST ASSESSMENTS OF M/S GALILEO AND/OR TRAVELPO RT GLOBAL DISTRIBUTION SYSTEM BV, IT HAS BEEN CONSISTENTLY HELD TH AT THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA IN THE FO RM OF FIXED PLACE OF BUSINESS PE AND AGENCY PE. IT HAS ALSO BEEN HELD THAT ASSESSEE'S INCOME WAS CHARGEABLE TO TAX IN INDIA UNDER SECTI ON 5(2) OF THE INCOME-TAX ACT AS IT HAD BUSINESS CONNECTION IN IND IA AS PER SECTION 9(1)(I) OF THE SAID ACT AND A PE IN INDIA AND THAT THE REVENUE ACCRUING TO THE RESPONDENT IN RESPECT OF BOOKINGS MADE IN INDIA SHOULD BE TREATED AS INCOME ACCRUING OR ASSESSED IN INDIA AN D CHARGEABLE UNDER SECTION 5(2) READ WITH SECTION 9(1)(I ) OF THE ACT. THIS FINDING HAS ALSO BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN CASE OF ASSESSEE'S PREDECESSOR ENTITIES FOR EARLIER ASSESSMENT YEARS.' '9.1 HERE IS IT AGAIN EMPHASIZED THAT THE HON'BLE DELHI HIGH COURT HAS CATEGORICALLY HELD THAT THE ASSESSEE HAS A PE IN INDIA . IT IS A SETTLED LAW THAT THE DETERMINATION OF A PE IS A MIXE D QUESTION OF FACT AND LAW. ACCORDINGLY, THE HON'BLE DELHI HIGH COURT HAS S ETTLED THE ISSUE AGAINST THE PREDECESSOR ENTITIES OF THE ASSESSEE AND IN FAVOUR OF REVENUE AUTHORITIES. LARGELY, THE PRESENT SET OF FA CTS AND CIRCUMSTANCES ARE SIMILAR IN NATURE. HENCE, RESPECTFULLY, FO LLOWING THE DECISION OF HON'BLE DELHI HIGH COURT IT IS HELD BY T HE UNDERSIGNED THAT ASSESSEE HAS A PE IN INDIA AS A FIXED PLACE PE AND AN AGENCY PE.' 18. HOWEVER, ON THE ISSUES COVERED IN FAVOUR OF THE APPE LLANT BY THE DELHI HIGH COURT DECISIONS I.E. OVERALL TAXABILITY SHOUL D BE NIL, WAS CONVENIENTLY IGNORED BY THE LD. AO HOLDING THAT: ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 11 MAJOR PART OF APPELLANT'S ACTIVITIES IS IN INDIA AND T HEREFORE 75% OF NET PROFIT SHOULD BE ATTRIBUTED TO INDIA OPERATIONS SUBSCRIBER FEES PAID TO INTERGLOBE (ITQPL) IS ALLOWABLE ONLY TO THE EXTENT OF 70% SINCE SUCH PAYMENT IS IN NATURE OF COMMISSI ON AND NO TDS HAS BEEN DEDUCTED BEFORE MAKING SUCH PAYMENT ALL OTHER EXPENSES ARE NOT OF OPERATING NATURE AND TH EREFORE NOT ALLOWED AS DEDUCTION. 19. THUS, WHILE THE LD. AO RELIED UPON THE BC/PE ASP ECT OF THE HON'BLE DELHI HIGH COURT RULING IN CASE OF APPELLANT'S PREDECESSOR ENTITIES I.E. GII AND TGDSBV, IT CHOSE TO CONVENIENTLY IGNORE THE ISSUE OF OVERALL TAXABILITY OF THESE ENTITIES ADJUDICATED IN THESE DECISIONS I.E. ATTR IBUTION RATE SHOULD BE 15% OF GROSS BOOKING FEES AND POST ALLOWANCE OF ALL E XPENSES, NIL TAXABILITY ARISES, DESPITE HERSELF HOLDING THAT PRESENT SET OF FACTS AND CIRCUMSTANCES ARE SIMILAR IN NATURE TO THAT OF APPELLANT' S PREDECESSOR ENTITIES. 20. AGGRIEVED BY THE DRAFT ORDER, THE APPELLANT FI LED OBJECTIONS BEFORE THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ON 20 JAN UARY 2020. THE DRP PASSED ITS DIRECTIONS ON 29 OCTOBER 2020 (RECEIVED ON 01 D ECEMBER 2020) AND PROVIDED ONLY LIMITED RELIEF TO THE COMPANY WHI LE UPHOLDING MAJOR ALLEGATIONS OF LD. AO INCLUDING APPELLANT'S PE/BC IN I NDIA AND ATTRIBUTION RATE AT 75% OF NET PROFITS. 21. THE AO FOLLOWING THE DIRECTIONS OF DRP PASSED THE FINAL ASSESSMENT ORDER ON 30 JANUARY 2021 ASSESSING THE INCOME AT INR 213 ,13,12,965, ALONG WITH A NOTICE OF DEMAND U/S 156 OF THE ACT COMPUT ING A TAX DEMAND OF INR 75,40,62,610. ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 12 GROUND NO. 4 AND 5 ARE RELATED TO APPELLANT'S BUSIN ESS CONNECTION PBO AND PERMANENT ESTABLISHMENT (PE) IN INDIA 22. GROUND NO.4 AND 5 ARE COVERED AGAINST THE APPELLANT BY THE DECISIONS OF HON'BLE DELHI ITAT AND HON'BLE DELHI HIGH CO URT IN CASE OF APPELLANT'S PREDECESSOR ENTITY I.E. GII AND TGDSBV. 23. IN THE FIRST BATCH OF 4 YEARS I.E. FROM AY 1995-9 6 TO 1998-99 IN CASE OF GII, THE HON'BLE DELHI ITAT VIDE ITS DATED 30 N OV. 2007 (19 SOT 257 (DELHI) HELD THAT GII HAS A FIXED PLACE PE AND AGE NCY PE IN FORM OF THE INTERGLOBE IN INDIA. (PAGE 194 TO 251 OF PAPERB OOK PART 1.) THE RELEVANT EXTRACTS FROM THIS ORDER ARE RE-PRODUCED AS UN DER: '17.1 IN THE PRESENT CASE IT IS SEEN THAT THE CRS, WHICH IS THE SOURCE OF REVENUE IS PARTIALLY EXISTENT IN THE MACHINES NAMEL Y VARIOUS COMPUTERS INSTALLED AT THE PREMISES OF THE SUBSCRIBERS. IN SOME CASES, THE APPELLANT ITSELF HAS PLACED THOSE COMPUTERS AND IN AL L THE CASES THE CONNECTIVITY IN THE FORM OF NODES LEASED FROM SITA ARE INSTALLED BY THE APPELLANT THROUGH ITS AGENT. THE COMPUTERS SO CONNECTED A ND CONFIGURED WHICH CAN PERFORM THE FUNCTION OF RESERVATIO N AND TICKETING IS A PART AND PARCEL OF THE ENTIRE CRS. THE COMPUTERS SO INSTALLED REQUIRE FURTHER APPROVAL FROM APPELLANT/INTERGLOBE WHO ALLOWS THE USE OF SUCH COMPUTERS FOR RESERVATION AND TICKETING. WITHOUT THE AUTHORITY OF APPELLANT SUCH COMPUTERS ARE NOT CAPABLE OF PERFORMI NG THE RESERVATION AND TICKETING PART OF THE CRS SYSTEM. THE COMPUTER SO INSTALLED CANNOT BE SHIFTED FROM ONE PLACE TO ANOTHER E VEN WITHIN THE PREMISES OF THE SUBSCRIBER, LEAVE APART THE SHIFTING OF SUCH COMPUTER FROM ONE PERSON TO ANOTHER. THUS, THE APPELLANT EXER CISES COMPLETE CONTROL OVER THE COMPUTERS INSTALLED AT THE PREMISES OF THE SUBSCRIBERS. IN VIEW OF OUR DISCUSSION IN THE IMMEDIATELY PRECEDING P ARAGRAPH, THIS AMOUNTS TO A FIXED PLACE OF BUSINESS FOR CARRYING ON THE BUSINESS OF THE ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 13 ENTERPRISE IN INDIA. BUT FOR THE SUPPLY OF COMPUTERS, THE CONFIGURATION OF COMPUTERS AND CONNECTIVITY WHICH ARE PROVIDED BY THE APPELLANT EITHER DIRECTLY OR THROUGH ITS AGENT INTERGLOBE WILL AMOUNT TO OPERATING PART OF ITS CRS SYSTEM THROUGH SUCH SUBSCRIBERS IN INDIA AN D ACCORDINGLY PE IN THE NATURE OF A FIXED PLACE OF BUSINE SS IN INDIA. THUS THE APPELLANT CAN BE SAID TO HAVE ESTABLISHED A PE WIT HIN THE MEANING OF PARAGRAPH 1 OF ARTICLE 5 OF INDO-SPAIN TREATY.' '17.4 ..THE DEPENDENT AGENT IS NOT TO BE CONSI DERED AS PE UNLESS HE HAS AUTHORITY TO CONCLUDE CONTRACT ON BEHALF OF SUCH ENTERPRISE. THE AUTHORITY TO CONCLUDE CONTRACTS MUST BE I N RESPECT OF CONTRACTS RELATING TO OPERATIONS, WHICH CONSTITUTE THE BU SINESS PROPER OF THE ENTERPRISE. THE APPELLANT IN THE PRESENT CASE IN ORDER TO ENHANCE ITS BUSINESS OPERATIONS HAS APPOINTED INTERGLOBE AS ITS AG ENT WHO PROMOTE THE 'GALILEO SYSTEM' IN INDIA. INTERGLOBE IN ITS TURN HAS APPOINTED VARIOUS SUBSCRIBERS FOR USE OF 'GALILEO SYSTEM' . THOUGH THE REVENUE FLOWS ONLY FROM PARTICIPANTS WHO HAVE ENTERED INTO PGA WITH THE APPELLANT, YET THE REVENUE COULD NOT HAVE BEEN G ENERATED BUT FOR THE SUBSCRIBERS USING THE 'GALILEO SYSTEM'. IN A WAY T HE REVENUE IS GENERATED FROM THE PARTICIPANTS BUT ONLY ON THE BASIS O F USE OF CRS BY THE SUBSCRIBERS. BUT FOR SUCH USE NO REVENUE WOULD ACCRUE TO THE APPELLANT. THUS THE AGREEMENTS ENTERED INTO BY THE IN TERGLOBE WITH THE SUBSCRIBERS UNDER AN AUTHORITY GRANTED TO IT, ARE CONTRA CTS RELATING TO OPERATIONS WHICH CONSTITUTE BUSINESS PROPER AND NOT MEREL Y IN THE NATURE OF INTERNAL OPERATIONS. SUCH CONTRACTS ARE HABITU ALLY EXERCISED AND THERE IS NOTHING ON RECORD TO SUGGEST THAT SUCH AUT HORITY WAS CANCELLED AT ANY POINT OF TIME. WE, THEREFORE, HOLD T HAT INTERGLOBE IS DEPENDENT AGENT OF THE APPELLANT WHO HAS HABITUALLY EXERCISED THE AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE APPELL ANT. TO THAT EXTENT THE APPELLANT HAS A PE IN INDIA. SINCE WE HAVE HELD THAT ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 14 INTERGLOBE IS A DEPENDENT AGENT OF APPELLANT IN INDI A, WE NEED NOT DISCUSS PARA (5) OF ARTICLE 5 OF THE TREATY REGARDING IN DEPENDENT AGENT FORM OF PE.' 24. THE HON'BLE DELHI HIGH COURT VIDE ITS ORDER DATED 25 FEB 2009 (ITA NO. 1048 TO 1055/2008 AND ITA NOS. 17408/2008, 17437 /2008, 17409/2008, 17438/2008, 17473-74/2008, 17469-70/200 8, 17410/2008, 17439/2008 AND 17471/2008 ) IN CASE OF GII FOR SUCH FIR ST BATCH OF 4 YEARS FROM AY 1995-96 TO AY 1998-99 HELD THE ISSUE OF PE/BC AS ACADEMIC AS OVERALL TAXABILITY OF GII WAS HELD TO BE NI L. THE RELEVANT EXTRACTS FROM THIS ORDER ARE RE-PRODUCED AS UNDER: 'THESE APPEALS WERE LISTED ALONG WITH THE APPEALS FILED BY REVENUE AGAINST THE SAME JUDGMENT. THE APPEALS FILED BY REVEN UE HAVE BEEN DISMISSED BY US VIDE OUR ORDERS PASSED IN TODAY'S DATE IN W P(C) NO. 851/2008. IN VIEW OF THIS DISMISSAL OF THOSE APPEALS OF THE REVENU E, LEARNED COUNSEL FOR APPELLANT SUBMITS THAT THE QUESTION RAISED IN THESE APPEALS HAVE BECOME ACADEMIC AND ARE THEREFORE, DISMISSED.' 25. AGAINST THE HON'BLE DELHI HIGH COURT ORDER FOR AY 1995-96 TO AY 1998-99, BOTH THE INCOME-TAX DEPARTMENT AND APPELLAN T'S PREDECESSOR ENTITY I.E. GII FILED AN APPEAL BEFORE HON'BLE SUPRE ME COURT OF INDIA VIDE SLP NO. 6511 TO 6518/2010. THE HON'BLE SUPREME COURT VIDE ITS ORDER DATED 22 NOVEMBER 2019 DISMISSED (AS WITHDRAWN) SLP NOS. 6512 TO 6515/2010 AND 6517 TO 6518/2010 PERTAINING TO AY 19 95-96, 1996-97 AND AY 1998-99 ON ACCOUNT OF LOW TAX EFFECT, IN CONSONAN CE WITH CIRCULAR NO. 17 OF 2019, LEAVING THE QUESTION OF LAWS OPEN. F OR REMAINING SLPS, THE MATTER IS PENDING FOR ADJUDICATION BEFORE THE HON'BLE SUPREME COURT. ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 15 26. IN THE SECOND BATCH OF 4 YEARS I.E. FROM AY 1999-0 0 TO 2002-03 IN CASE OF GII, THE HON'BLE DELHI ITAT VIDE ITS ORDER DATE D 17 TH MARCH 2011 (ITA NO.2971-2974 /DEL/2010) (PAGE 281 TO 284 OF PA PERBOOK PART 1), HELD AS UNDER : '4. REGARDING VARIOUS GROUNDS RAISED BY THE ASSESSEE IN TH E CROSS OBJECTIONS RELATING TO EXISTENCE OF BUSINESS CONNECTIONS IN INDIA AND ACCRUAL AND ARISING OF INCOME IN INDIA AND THE DEEMED A CCRUAL AND DEEMED ARISING OF INCOME IN INDIA AND EXISTENCE OF PE I N INDIA ETC., IT WAS SUBMITTED THAT THESE ISSUES WERE DECIDED BY THE TRIBUN AL AGAINST THE ASSESSEE IN ASSESSMENT YEAR 1995-96 TO 1998-99. HE SUBMI TTED A COPY OF TRIBUNAL DECISION IN ASSESSEE'S OWN CASE FOR THESE ASSESSM ENT YEARS 1995-96 TO 1998-99 IN ITA NOS. 1733/D/2001, 247 3- 2475/D/2000 AND 820-823/D/2005 AND CO. NO. 47 TO 54 /D/2006 DATED 30.11.2007. IT IS ALSO SUBMITTED THAT AGAINST TH IS TRIBUNAL ORDER; BOTH THE ASSESSEE AND REVENUE WERE IN APPEAL BEFORE THE HON'BLE HIGH COURT OF DELHI. IT IS SUBMITTED THAT REVENUE'S APPEAL WERE DISMISSED BY THE HON'BLE HIGH COURT OF DELHI IN ITS JUDGMENT DATE D 25.02.2009 IN ITA NO. 851 TO 860/2008 AND IT WAS HELD BY HON'BLE DE LHI HIGH COURT THAT NO QUESTIONS OF LAW ARISES IN THIS MATTER WHICH NEED S FURTHER DETERMINATION BY THIS COURT. IT IS ALSO SUBMITTED THAT I N THE ASSESSEE'S APPEAL, IT WAS HELD BY THE HON'BLE DELHI HIGH COURT TH AT IN VIEW OF THE DISMISSAL OF APPEALS OF THE REVENUE, THE QUESTION RAISED BY ASSESSEE IN THESE APPEALS HAVE BECOME ACADEMIC AND ARE THEREFORE DISM ISSED. IT IS SUBMITTED THAT THIS JUDGEMENT OF HON'BLE HIGH COURT O F DELHI IN RESPECT OF ASSESSEE'S APPEAL IS ALSO DATED 25.02.2009 IN IT A NOS 17408, 17409, 17437, 17438, 17473-74, 17469-70, 174 10, 17439 AND 17471- 72/2008. HE SUBMITTED A COPY OF BOTH THESE JUDGE MENTS OF HON'BLE DELHI HIGH COURT RENDERED IN THE ASSESSEE'S APPEAL S AS WELL AS ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 16 REVENUE'S APPEALS. LD. DR ALSO AGREED THAT THESE ISSUES AR E COVERED AS PER THESE JUDGEMENTS.' 27. HON'BLE DELHI HIGH COURT IN ITS ORDER DATED 25 TH SEPTEMBER 2012 (ITA NO. 1148 TO 1151/2011 AND ITA NO. 466 TO 472/2 012) IN CASE OF GII FOR SUCH SECOND BATCH OF 4 YEARS FROM AY 1999-00 TO AY 20 02-03 RELIED ON THE DECISIONS OF HON'BLE DELHI ITAT AND HON'BLE DELHI HI GH COURT IN CASE OF GII FOR FIRST BATCH OF 4 YEARS AND HELD THAT SINCE FACTUA L MATRIX IS SAME, THE EARLIER DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF 25.02.2009 IS SQUARELY APPLICABLE I.E. ISSUE OF PE/BC IS ACADEMIC. 28. AGAINST THE HON'BLE DELHI HIGH COURT ORDER FOR AY 1999-00 TO 2002- 03, BOTH THE INCOME-TAX DEPARTMENT AND APPELLANT'S PR EDECESSOR ENTITY I.E. GII FILED AN APPEAL BEFORE HON'BLE SUPREME COUR T OF INDIA VIDE SLP NOS. 2956 OF 2014, 2242 OF 2013, 7222 OF 2013, 2241 OF 2013. THESE SLPS ARE PENDING ADJUDICATION BY HON'BLE SUPREME COURT . 29. IN THE THIRD BATCH OF 4 YEARS I.E. FROM AY 200 3-04 TO AY 2006-07 IN CASE GALILEO NETHERLAND BV (GNBV) (NOW KNOWN AS TRAVEL PORT GLOBAL DISTRIBUTION SYSTEM BV) (TGDSBV) (PREDECESSOR OF THE AP PELLANT AND SUCCESSOR OF GII), THE DELHI ITAT VIDE ITS ORDER DATED 2 9 TH JUNE 2012 (ITA NO. 1306 TO 1309/DEL/2012), DISMISSED THE CROSS OBJECTION S RAISED BY GNBV ON PE/BC GROUND. IT WAS HELD THAT: '21. NOW COMING TO THE CROSS OBJECTIONS FILED BY THE ASSE SSEE IN ALL THESE YEARS FOUR YEARS. THE LD. AR DID NOT ARGUE THE CR OSS OBJECTIONS AND THEREFORE THESE CROSS OBJECTIONS ARE TREATED AS NOT P RESSED. THEREFORE, THE ASSESSEE'S CROSS OBJECTIONS IN ALL FOUR YEAR S ARE DISMISSED' ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 17 30. THE HON'BLE DELHI HIGH COURT IN ITS ORDER DATED 2 5 TH AUGUST 2014 (ITA NO. 654/2012 656/2012, 659/2012 & 661/2012) IN CASE OF GALILEO NETHERLANDS B.V (GNBV) (SUCCESSOR OF GII AND PREDECESSOR OF THE APPELLANT) FOR THIRD BATCH OF YEARS I.E. AY 2003-04 T O AY 2006-07 REFRAINED FROM FORMING ANY OPINION ON GNBV'S PE/BC IN INDIA. R ELEVANT EXTRACT OF THIS ORDER IS REPRODUCED AS UNDER: (PLEASE REFER PARA 2 ON PAGE 313 OF PAPERBOOK PART 1 ) '2. WE BEGIN WITH A CAVEAT THAT A LIMITED ISSUE AND QU ESTION ARISES FOR CONSIDERATION IN THESE APPEALS AND WE ARE NOT REQUIRED ARE NOT PRONOUNCING ANY OPINION AND FINDING ON WHETHER THE A PPELLANT- ASSESSEE HAD A PERMANENT ESTABLISHMENT (PE) IN INDIA AND OTHER RELATED ISSUES. THE ONLY QUESTION AND ISSUE RAISED IN THE SE APPEALS RELATES TO PROFIT ATTRIBUTION TO INDIAN OPERATIONS ON THE ASSUMPTION THAT THE APPELLANT- ASSESSEE HAD A PE IN INDIA.' 31. AGAINST THE HON'BLE DELHI HIGH COURT ORDER FOR AY 2003-04 TO AY 2006-07, BOTH THE INCOME-TAX DEPARTMENT AND APPELLAN T'S PREDECESSOR ENTITY I.E. GNBV/TGDSBV FILED AN APPEAL BEFORE HON'B LE SUPREME COURT OF INDIA VIDE SLP NOS. 391 OF 2015, 3780 OF 2015, 3779 OF 2015 AND 1297 OF 2015. THESE SLPS ARE PENDING ADJUDICATION BY HON'BLE SU PREME COURT. 32. THUS, THE ISSUE OF APPELLANT'S PE/BC IN INDIA IS COVERED AGAINST IT BY THE ABOVE DECISIONS OF HON'BLE DELHI HIGH COURT AND HON'BLE DELHI ITAT IN APPELLANT'S PREDECESSOR'S CAS E. GROUND NO. 6 IS RELATED 'EXCESSIVE ATTRIBUTION TO A LLEGED PE OF THE APPELLANT IN INDIA' 33. GROUND NO.6 IS COVERED IN FAVOUR OF THE APPELLAN T BY VIRTUE OF THE APPLICATION OF THE DECISIONS OF HON'BLE DELHI ITAT AND HO N'BLE DELHI HIGH ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 18 COURT IN CASE OF APPELLANT AND ITS PREDECESSOR ENTITIES I. E. GII AND TGDSBV. THE HON'BLE DELHI HIGH COURT AND HON'BLE DELH I ITAT IN APPELLANT'S OWN/ PREDECESSOR'S CASE I.E. GII AND GNBV, HAV E HELD THAT ATTRIBUTION RATE TO THE ALLEGED INDIA PE IS 15% OF G ROSS BOOKING FEES AND SINCE INDIAN RELATED EXPENSES ARE MORE THAN ATTRIBUTED GROSS BOOKING FEES TO THE PE IN INDIA, IT WOULD EXTINGUISH THE ASSESSMENT A S NO FURTHER INCOME IS TAXABLE IN INDIA. 34. THE ITAT IN THE CASE OF GALILEO INTERNATIONAL IN C (GII) (PREDECESSOR OF THE APPELLANT) IN THE FIRST BATCH OF 4 YEARS- AY 1995-96 TO 1998-99 VIDE ITS ORDER DATED 30 NOV. 2007 (19 SOT 257 (DELHI) ON T HE BASIS A FUNCTION, ASSETS AND RISK (FAR) ANALYSIS, HELD THAT ONLY 15% OF THE REVENUE COULD BE ATTRIBUTED TO INDIA WHICH GOT COMPLET ELY EXHAUSTED BY THE COMMISSION PAID TO THE INDIAN DISTRIBUTOR/ ITQPL, R ESULTING IN NO INCOME REMAINING TO BE TAXED IN INDIA. IT WAS HELD AS UNDER: '9. .....IN THE PRESENT CASE, WE FIND THAT ONLY PART OF CRS SYSTEM OPERATES OR FUNCTIONS IN INDIA. THE EXTENT OF W ORK IN INDIA IS ONLY TO THE EXTENT OF GENERATING REQUEST AND RECEIVIN G END-RESULT OF THE PROCESS IN INDIA. THE MAJOR FUNCTIONS LIKE COLLECTING THE DATABASE OF VARIOUS AIRLINES AND HOTELS, WHICH HAVE ENTERED INTO P CA WITH THE APPELLANT TAKES PLACE OUTSIDE INDIA. THE COMPUTER AT DE NVER IN USA PROCESSES VARIOUS DATA LIKE SCHEDULE OF FLIGHTS, TIMINGS, PRICING, THE AVAILABILITY, CONNECTION, MEAL PREFERENCE, SPECIAL FAC ILITY, ETC. AND THAT TOO ON THE BASIS OF NEUTRAL DISPLAY REAL TIME ON LIN E TAKES PLACE OUTSIDE INDIA. THE COMPUTERS AT THE DESK OF TRAVEL AGENT IN IN DIA ARE MERELY CONNECTED OR CONFIGURED TO THE EXTENT THAT IT CAN PERFO RM A BOOKING FUNCTION BUT ARE NOT CAPABLE OF PROCESSING THE DATA OF ALL THE AIRLINES TOGETHER AT ONE PLACE. SUCH FUNCTION REQUIRES HUGE INV ESTMENT AND HUGE CAPACITY, WHICH IS NOT AVAILABLE TO THE COMPUTERS I NSTALLED AT THE DESK OF SUBSCRIBER IN INDIA.THE MAJOR PART OF THE WORK OR TO SAY A LION'S ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 19 SHARE OF SUCH ACTIVITY, ARE PROCESSED AT THE HOST COMPUTER IN DENVER IN USA. THE ACTIVITIES IN INDIA ARE ONLY MINUSCULE PORTION . THE APPELLANT'S COMPUTER IN GERMANY IS ALSO RESPONSIBLE FOR ALL OTHER F UNCTIONS LIKE KEEPING DATA OF THE BOOKING MADE WORLDWIDE AND ALSO KEEPING TRACK OF ALL THE AIRLINES/HOTELS WORLDWIDE THAT HAVE ENTERED INTO PCA. THOUGH NO GUIDELINES ARE AVAILABLE AS TO HOW MUCH SHOULD BE INCOME REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA, THE SAME HAS TO BE DETERMINED ON THE FACTUAL SITUATION PREVAILING IN EACH CASE. HOWEVER, BROADLY TO DETERMINE SUCH ATTRIBUTION ONE HAS TO LOOK INTO THE FACTORS LIKE FUNCTIONS PERFORMED, ASSETS USED AND RISK UNDERTAKEN. ON THE BASIS OF SUCH ANALYSIS OF FUNCTIONS PERFORMED, ASSETS USED AND RISK SHARED IN TWO DIFFERENT COUNTRIES, THE INCOME CAN BE AT TRIBUTED. IN THE PRESENT CASE, WE HAVE FOUND THAT MAJORITY OF THE FUNCTI ONS ARE PERFORMED OUTSIDE INDIA. EVEN THE MAJORITY OF THE ASSE TS, I.E., HOST COMPUTER WHICH IS HAVING VERY LARGE CAPACITY WHICH PROCESSE S INFORMATION OF ALL THE PARTICIPANTS IS SITUATED OUTSI DE INDIA. THE CRS AS A WHOLE IS DEVELOPED AND MAINTAINED OUTSIDE INDIA. TH E RISK IN THIS REGARD ENTIRELY RESTS WITH THE APPELLANT AND THAT IS I N USA, OUTSIDE INDIA. HOWEVER, IT IS EQUALLY IMPORTANT TO NOTE THAT BUT FOR THE PRESENCE OF THE ASSESSEE IN INDIA AND THE CONFIGURATION AN D CONNECTIVITY BEING PROVIDED IN INDIA, THE INCOME WOULD NOT HAVE GENERATED. THUS THE INITIAL CAUSE OF GENERATION OF INCO ME IS IN INDIA ALSO. ON THE BASIS OF ABOVE FACTS WE CAN REASONABLY ATTR IBUTE 15 PER CENT OF THE REVENUE ACCRUING TO THE ASSESSEE IN RESPECT OF BOOKINGS MADE IN INDIA AS INCOME ACCRUING OR ARISING IN INDIA AND CHARGEABLE UNDER SECTION 5(2) READ WITH SECTION 9(1)(I) OF THE AC T.' (PARA 10 ON PAGE 224 OF PAPERBOOK PART 1) '10. NEXT QUESTION TO BE DECIDED IS IF IT IS FOUND THAT THE INCOME ACCRUING IN INDIA IS CONSUMED BY THE PAYMENT MADE T O THE ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 20 AGENTS IN INDIA, WHETHER ANY INCOME STILL IS LEFT T O BE TAXED IN INDIA. THE ACTIVITIES OF THE APPELLANT IN INDIA ARE ENTIREL Y ROUTED THROUGH THE EFFORTS OF NMC NAMELY INTERGLOBE INDIA ( P.) LTD. (INTERGLOBE). INTERGLOBE IS RESPONSIBLE FOR MONITORIN G THE ACTIVITIES OF THE SUBSCRIBERS ENROLLED IN INDIA. THE REQUEST ORIGINATE D FROM THE COMPUTERS AT THE DESK OF TRAVEL AGENT IS ONCE AGAIN ROUT ED THROUGH THE FACILITY OF PROCESSING SUCH INFORMATION AT INTERGLOBE. IF INTERGLOBE FINDS THAT THE SUBSCRIBER ACCESSING THE CRS IS AUTHORIZED TO DO SO , THE REQUEST IS FURTHER FORWARDED. INTERGLOBE IS ALSO RESPON SIBLE FOR ESTABLISHING CONNECTIVITY OF THE COMPUTERS OF THE SUBSCRIBE RS AND MAINTAINING THEM. INTERGLOBE IS ALSO RESPONSIBLE FOR T RAINING OF THE SUBSCRIBERS IN RESPECT OF USE OF CRS. FOR ALL THESE SERVICES RENDERED BY INTERGLOBE TO THE APPELLANT, IT IS BEING PAID REMUNE RATION IN TERMS OF DISTRIBUTION AGREEMENT. BROADLY THE ASSESSEE RECEIVES THR EE 'EUROS' AS FEES PER 'NET BOOKING', I.E., GROSS BOOKING MINUS CANCELL ATION. THE ASSESSEE PASSED ONE DOLLAR TO INTERGLOBE FOR EACH NET BOOK ING PROCESSED THROUGH GALILEO SYSTEM BY SUBSCRIBER. THUS, IN RE SPECT OF THE ACTIVITIES CARRIED OUT IN INDIA AND CONSIDERING THE INCOME ACCRUING IN INDIA, REMUNERATION PAID TO THE INDIAN AGENTS CONSU MES THE ENTIRE INCOME ACCRUING OR ARISING IN INDIA.' (PARA 18 ON PAGE 251 OF PAPERBOOK PART 1) '18WHILE DEALING WITH THE QUESTION AS TO WH AT IS SUCH PART OF INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPE RATIONS CARRIED OUT IN INDIA, WE HAVE HELD THAT ONLY 15 PER CENT OF THE REVENUE GENERATED FROM THE BOOKINGS MADE WITHIN INDIA IS TAXA BLE IN INDIA. THE SAME PROPORTION HAS TO BE ADOPTED HERE WHILE COMPUTING PROFIT ATTRIBUTABLE TO THE PE. WE HAVE ALSO HELD THAT SINCE THE PAYMENT TO THE AGENT IN INDIA IS MORE THAN WHAT IS THE INCOME ATTRIB UTABLE TO THE PE IN INDIA, IT EXTINGUISH THE ASSESSMENT AS NO FURTHER INCOME I S TAXABLE IN ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 21 INDIA. IT IS TO BE NOTED THAT EVEN IN THE FIRST ASSESSMEN T FRAMED BY THE ASSESSING OFFICER, THE ENTIRE EXPENSES IN THE FORM OF REMU NERATION PAID TO INTERGLOBE WAS HELD AS ALLOWABLE DEDUCTION AND WAS R EDUCED WHILE COMPUTING THE INCOME OF APPELLANT. IF THAT BE THE CASE, THE INCOME ATTRIBUTABLE TO PE IN INDIA BEING LESS THAN THE REMUN ERATION PAID TO THE DEPENDENT AGENT, IT EXTINGUISHES THE ASSESSMENT AND REQU IRES NO FURTHER EXERCISE FOR COMPUTATION OF INCOME. WE ACCORDINGL Y HOLD SO AND IN VIEW OF THE SAME THE INCOME OF THE APPELLANT WILL BE NIL.' 35. THE REVENUE AUTHORITIES THEREAFTER FILED, (PARA 5 ON PAGE 260 OF PAPERBOOK PART 1) A MISCELLANEOUS APPLICATION (MA) BEFORE THE ITAT TO REVISE THE EARLIER ORDER ON THE GROUND THAT, EVEN AFTER HOLDING THAT THE APPELLANT'S PREDECESSOR I.E. GII HAS A PE IN INDIA THE HON'BLE ITAT ERRED IN HOLDING THAT NO INCOME WAS ATTRI BUTED TO THE SAID PE. THE QUESTIONS POSED ALSO INCLUDED MANNER OF ATTRIBUTION I.E. WHETHER ATTRIBUTION IS ON SALES OR THE NET PROFITS. THE REVENUE AUTHORITIES CONTENDED THAT THE ATTRIBUTION SHOULD BE ON THE NET P ROFITS AND NOT SALES - THIS CONTENTION OF THE REVENUE AUTHORITIES WAS REJECTED BY THE HON'BLE ITAT VIDE ITS MA ORDER DATED 21 NOVEMBER 2008 (MA N O. 108/DEL/2008, 311 TO 318/DEL/2008 AND 220 TO 223/DEL/2008), IN CASE OF GII IN THE FIRST BATCH OF 4 YEARS- AY 1995-96 TO 1998-99, WHEREIN IT WAS HELD THAT FOR COMPUTATION OF INCOME OF AN INDIAN PE, FIRST STEP IS T O ATTRIBUTE THE REVENUES TO INDIA AND THEN ALLOW DEDUCTION OF INDIA RELATED EXPENSES FROM SUCH ATTRIBUTED REVENUE. THE RELEVANT EXTRACT OF ORDER IS RE-PRODUCED AS UNDER: '5. THE NEXT CONTENTION OF APPLICANT IS THAT INSTEAD O F ESTIMATING OR APPORTIONING INCOME OR PROFITS THE TRIBUNAL HAS ATTRIB UTED THE REVENUE. IN OUR OPINION THIS IS NOT A MISTAKE APPARENT FROM RE CORD. FOR COMPUTATION OF ANY INCOME, THE FIRST POINT IS TO APPORT ION THE REVENUE FROM THE OPERATIONS CARRIED OUT IN INDIA. UNLESS THE RE VENUES ARE ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 22 ATTRIBUTED, THE INCOME WHICH IS A SECOND STEP CANNOT BE A TTRIBUTED. HOWEVER, AFTER APPORTIONING REVENUE, SINCE IT WAS FOUND THAT OUT OF THE APPORTIONED REVENUE, THE REMUNERATION PAYABLE TO TH E AGENT IN INDIA EXCEEDS SUCH APPORTIONED REVENUE, NO FURTHER INCOME IS TA XABLE IN INDIA' '9. WE FIND THAT ALL ISSUES ARISING IN THE APPEAL HAVE BEENANSWERED. NEITHER ANY ARGUMENT NOR ANY GROUND IS LEFT OUT. IN VIEW OF OVERALL SITUATION IF THE TRIBUNAL HAS CONSCIOU SLY COME TO THE CONCLUSION THAT NO INCOME ACCRUES IN INDIA AND IN RESPECT O F WHICH ELABORATE REASONS ARE GIVEN, IF THE APPLICANT DO NOT A GREE WITH THE REASONING, IT CANNOT BE SAID THAT ANY MISTAKE HAS CREPT I N THE ORDER OF THE TRIBUNAL WHICH IS RECTIFIABLE UNDER SECTION 254(2) OF THE ACT. WE THEREFORE DECLINE TO INTERFERE'. 36. THE HON'BLE DELHI HIGH COURT IN CASE OF GALILEO INT ERNATIONAL INC (GII) (PREDECESSOR OF THE APPELLANT) IN THE FIRST BATCH OF 4 YEARS- AY 1995- 96 TO 1998-99 UPHELD THE DECISION OF HON'BLE DELHI ITA T FOR THESE YEARS, VIDE ITS ORDER DATED 25TH FEB 2009 (ITA NO. 851 TO 8 56 OF 2008, 859 TO 860 OF 2008), IT WAS HELD AS UNDER: 'THE TRIBUNAL THEREAFTER DISCUSSED THE PRINCIPLE WHICH IS TO BE FOLLOWED IN APPORTIONING THE INCOME-TAX ACCRUING IN INDIA AND T HE INCOME ACCRUING OUTSIDE INDIA. THE TRIBUNAL FOUND THAT ONLY A PART OF CRS ORDER OPERATES AND FUNCTIONS IN INDIA. THE EXTENT OF WORKING IN INDIA IS ONLY TO THE EXTENT OF CHANNELIZING THE REQUEST AND RECEIVING THE RESULT OF THE PROCESS IN INDIA AND THE MAJOR FUNCTIONING AND COLLECTING THE DATA BASE OF VARIOUS AIRLINES AND HOSTELS WHICH HAVE ENTERED INT O PCA WITH THE RESPONDENT TAKES PLACE OUTSIDE THE INDIA. THE TRIBUNA L ALSO TOOK INTO CONSIDERATION THE FACT THAT THE COMPUTER OF DENVER AT U SA PROCESSES VARIOUS DATA LIKE SCHEDULE OF FLIGHTS, TIMINGS, PRICING , THE AVAILABILITY, ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 23 CONNECTION, MEAL PREFERENCE, SPECIAL FACILITY, ETC. AND THAT TOO ON THE BASIS OF NEUTRAL DISPLAY REAL TIME ON LINE TAKES PLACE OUTSIDE INDIA. INSOFAR AS THE ROLE PLAYED IN INDIA IS CONCERNED, THAT I S LIMITED TO THE COMPUTERS AT THE DESK WHICH ARE MERELY CONNECTED OR CONFIG URED TO THE EXTENT THAT IT CAN PERFORM A BOOKING FUNCTION BUT AR E NOT CAPABLE OF PROCESSING THE DATA OF ALL THE AIRLINES TOGETHER AT ONE PLACE. THE TRIBUNAL WAS ALSO INFLUENCED BY ANOTHER IMPORTANT FACT VIZ., SUCH FUNCTIONING REQUIRES HUGE INVESTMENT AND HUGE CAPACITY W HICH IS NOT AVAILABLE IN THE COMPUTERS INSTALLED AT THE DESK OF TH E SUBSCRIBER IN INDIA. ON THIS BASIS, THE TRIBUNAL FORMED THE OPINION THAT MAJOR PART OF THE WORK ARE PROCESSED AT THE HOST COMPUTER IN DENVER IN USA AND THE ACTIVITIES IN INDIA ARE ONLY MINUSCULE PORTION. TAKING INTO CONSIDERATION ALL THESE FACTORS THE TRIBUNAL WAS OF THE OPINION THAT ONE COULD REASONABLY ATTRIBUTE 15 PER CENT OF THE 'REVENUE' ACCRU ING TO THE RESPONDENT IN RESPECT OF BOOKINGS MADE IN INDIA AS MAJ OR EXPENSES IN THAT BEHALF IS INCURRED IN ACTIVITIES CARRIED OUT IN US .' (PLEASE REFER PARA ON PAGE 272 OF PAPERBOOK PART 1) 'THUS, THE APPROACH ADOPTED BY THE TRIBUNAL WAS TO FI RST ARRIVE AT THE FIGURE RELATING TO THE REVENUE GENERATED IN INDIA A ND ABROAD. IT CONCLUDED THAT OUT OF THE REVENUE ACCRUED TO THE RESPON DENT IN RESPECT OF THESE BOOKINGS 15 PER CENT THEREOF SHOULD BE ATTRIBU TED TO INDIA, KEEPING IN VIEW A VERY MINOR PORTION OF THE ACTIVITY BEING CARRIED OUT HERE' (PLEASE REFER PARA ON PAGE 273 OF PAPERBOOK PART 1) 'AFTER FORMULATING THE AFORESAID QUESTION, THE TRIBUN AL ANSWERED THE SAME HOLDING THAT SINCE THE REVENUE ATTRIBUTABLE IN RE SPECT OF THE BOOKING MADE IN INDIA IS ONLY 0.45 EURO (15 PER CENT OF EURO 3) AND ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 24 COMMISSION PAID TO INTERGLOBE WAS EURO 1, THERE WAS NO INCOME WHICH WAS TAXABLE IN INDIA.' 'THE TRIBUNAL IN THIS BEHALF HAS NOTED THAT THE ENTIR E PAYMENT MADE BY THE RESPONDENT TO THE INTERGLOBE HAS BEEN ALLOWED AS EXPENSES WHILE COMPUTING TOTAL INCOME OF THE RESPONDENT. AFTER ARRIV ING AT THESE FINDINGS OF FACTS, THE TRIBUNAL REFERRED TO CIRCULAR N O. 23 OF 23-7-1969 WHICH PRESCRIBES THAT NO INCOME CAN BE FURTHER CHARGED TO TAX IN INDIA. TO SAME EFFECT IS THE JUDGMENT OF THE SUPREME COURT I N MORGAN STANLEY & CO. INC.'S CASE (SUPRA)' (PLEASE REFER LAST PARA ON PAGE 276 OF PAPERBOOK PART 1) 'WE, THEREFORE, ARE OF THE OPINION THAT NO QUESTION OF LAW ARISES IN THESE MATTERS WHICH NEEDS ANY FURTHER DETERMINATION BY THIS COURT. THESE APPEALS ARE ACCORDINGLY DISMISSED IN LIMINE.' 37. AGAINST THE HON'BLE DELHI HIGH COURT ORDER FOR AY 1995-96 TO AY 1998-99, BOTH THE INCOME-TAX DEPARTMENT AND APPELLAN T'S PREDECESSOR ENTITY I.E. GII FILED AN APPEAL BEFORE HON'BLE SUPRE ME COURT OF INDIA VIDE SLP NO. 6511 TO 6518/2010. THE HON'BLE SUPREME COURT VIDE ITS ORDER DATED 22 NOVEMBER 2019 DISMISSED (AS WITHDRAWN) SLP NOS. 6512 TO 6515/2010 AND 6517 TO 6518/2010 PERTAINING TO AY 19 95-96, 1996-97 AND AY 1998-99 ON ACCOUNT OF LOW TAX EFFECT, IN CONSONAN CE WITH CIRCULAR NO. 17 OF 2019, LEAVING THE QUESTION OF LAWS OPEN. 38. AY 2017-18, PE ATTRIBUTION AT 15% OF GROSS REVEN UE LESS THE EXPENSES (AS ALREADY ALLOWED BY THE LD. AO AND LD. DRP ), AS PER THE DECISION OF THE HON'BLE DELHI ITAT BENCHES AND HON'BLE D ELHI HIGH COURT, REDUCES THE TAXABLE INCOME TO NIL AND THUS, NO INCOME IS TAXABLE IN INDIA. ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 25 GROUND NOS. 9 TO 12 ARE GENERAL AND CONSEQUENTIAL G ROUNDS 39. IN VIEW OF THE ABOVE, THESE GROUNDS WOULD BECOME ACADEMIC IN NATURE. 40. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/09/2021. SD/- SD/- (KUL BHARAT) ( DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 27/09/2021 *SUBODH KUMAR, SR. PS* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.6661/DEL/2019 ASPECT SOFTWARE INC. 26 DATE INITIAL 1. DRAFT PUNCHED ON COMPUTER 27.09.2021 PS 2. DRAFT PLACED BEFORE AUTHOR 27.09.2021 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DATE OF UPLOADING