Amadeus IT Group SA, Spain V. ACIT, New Delhi

ITA 3175/DEL/2023

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3537 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-12-2023
• Assessment Year: 2021-2022
• Appeal Filed On: 07-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 234B; 44DA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI Before Sh. Kul Bharat, Judicial Member Dr. B. R. R. Kumar, Accountant Member ITA No. 3175/Del/2023 : Asstt. Year: 2021-22 Amadeus IT Group SA, E-2807, Salvador De Madriaga-1, E-28027, Madrid, Spain Vs The ACIT, Circle-1(1)(1), Intl. Taxation, New Delhi (APPELLANT) (RESPONDENT) PAN No. AAOCA 4539 P Assessee by : Sh. Neeraj Jain, Adv. Sh. Anshul Sachhar, Adv. Sh. Tavish Verma, Adv. Revenue by : Sh. Vizay B.Vasanta, CIT-DR Date of Hearing: 07.12.2023 Date of Pronouncement: 05.03.2024 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order dated 23.10.2023 passed by the AO u/s of Assessing Officer for the A.Y. 2021-22. 2. The assessee has raised the following grounds of appeal:- “1. That the assessing officer erred on facts and in law in computing the income of the appellant for the relevant assessment year at Rs. 377,12,21,153 as against 'Nil' income returned by the appellant. 2. That the assessing officer erred on facts and in law in alleging that the appellant avoided furnishing specific information called for in the assessment, particularly the various agreements with the airlines. Re: Invalid Document Identification Number (“DIN”) by the DRP Directions ITA No. 3175/Del/2023 Amadeus IT Group SA 2 3. That on the facts and circumstances of the case and in law, the DRP Directions along with its Intimation letter dated 29.09.2023, passed by quoting an invalid DIN in the order which is non-est and bad in law. 4. That on the facts and circumstances of the case and in law, the assessing officer erred in following the directions issued by the DRP vide order dated 23.10.2023 and passed final assessment order without appreciating that an invalid DIN was quoted in the said DRP order. Re: Permanent Establishment 5. That the Dispute Resolution Panel (‘DRP’)/ assessing officer erred on facts and in law in holding the appellant to be liable to tax in India in respect of receipts from airlines, etc. relating to segments booked from India through the appellant’s computer reservation system following the orders of earlier years, not appreciating that no income accrued or arose to the appellant in India. 5.1. That the DRP/ assessing officer erred on facts and in law in holding that computers, electronic hardware/ software, and the connectivity provided by the appellant to the travel agents through SITA/ third party nodes located in India, collectively, constituted PE of the appellant in India under Article 5 of the Indo-Spain DTAA (“the Treaty”) and the income arising to the appellant from the airlines, etc. was attributable to the activities of the alleged PE in India. 5.2. That the DRP/ assessing officer erred on facts and in law in holding that as the website of the appellant shows that it has various offices in India for performing functions like training, product development, technical support, etc., such offices premises constitute fixed place of the appellant in India. 5.3. That the DRP/ assessing officer erred on facts and in law in alleging that Amadeus India constitute dependent agent permanent establishment (PE) of the appellant in India and the income arising to the appellant from the airlines was attributable to the alleged PE in India. 5.4. That the DRP/ assessing officer erred on facts and in law 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 distribution fee paid to AIPL was not at arm’s length and consequently, AIPL constituted dependent agent PE of the appellant. 5.5. That the DRP/ assessing officer erred on facts and in law in alleging that the appellant exercised control over the ITA No. 3175/Del/2023 Amadeus IT Group SA 3 subscribers/ travel agents through AIPL. 5.6. That the DRP/ assessing officer erred on facts and in law in holding that AIPL constituted PE of the appellant under Article 5(4) of the Treaty on the ground that AIPL was carrying out negotiations with the subscribers/ travel agents without appreciating that in terms of the said Article, PE is constituted only when such enterprise has and habitually exercises authority to conclude contracts on behalf of the foreign enterprise 5.7. That the DRP/ assessing officer erred on facts and in law in holding that the offices of AIPL constitute PE of the appellant in India without even specifying under which paragraph of Article 5 of the Treaty such offices of Amadeus constitute PE of the appellant. That the DRP/ assessing officer erred on facts and in law in computing the profits attributable to the alleged PE of the appellant in India at Rs. 70,29,500/- Re: Attribution of Profits 6. That the DRP/ assessing officer 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. 6.1. That the DRP/ assessing officer erred on facts and in law in not appreciating that the issue of attribution of profits to PE has been decided by Supreme Court in favor of the appellant for Assessment Years 1996-97 to 2005-06 wherein the court has upheld the order of the High Court on the aspect that 15% of the revenue earned by the appellant is taxable in India and since the appellant pays 33% of the booking fees to the distributors, no income is attributable to tax in India and accordingly, 'Nil' return filed by the appellant has duly been accepted by the Supreme Court. 6.2. That the DRP/ assessing officer erred on facts and in law in following the order for assessment year 2007-08 to allege that no remuneration was paid by the appellant to AIPL for main activity of marketing the CRS and providing the hardware support to travel agents and, therefore, profits from such functions were required to be attributed to the appellant's dependent agency PE in India. 7. That the DRP/ assessing officer erred on facts and in law in disallowing expenditure of Euro 3,574,000/- incurred by the appellant under the head ‘Distribution fee’, while computing the income attributable to the alleged PE, following the assessment order for assessment year 2007-08. ITA No. 3175/Del/2023 Amadeus IT Group SA 4 8. That the DRP/ assessing officer 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. 9. That the DRP/ assessing officer erred on facts and in law in disallowing expenditure of Euro 16,205,000/- incurred by the appellant under the head ‘Development fees’, while computing the income attributable to the alleged PE, following the assessment order for assessment year 2007-08. 10. That the DRP/ assessing officer erred on facts and in law in disallowing expenditure of Euro 11,454,000/- incurred by the appellant under the heads ‘Marketing cost’ and ‘Central operating cost’, while computing the income attributable to the alleged PE, on the ground that the appellant has not been able to establish that the aforesaid expenditure has been incurred specifically for the Indian distribution activity and the justification of incurring such expenditure. 10.1 That the DRP/ assessing officer erred on facts and in law in holding that allocation of cost, particularly marketing costs, on the basis of number of bookings generated will always result in over allocation of cost to a fully grown up market like India and consequently, erred in not accepting the cost allocation method adopted by the appellant. 10.2 That the DRP/ assessing officer erred on facts and in law in alleging that the aforesaid expenses were in the nature of ‘head office’ expenses and allowed deduction @5% of adjusted income under section 44C of the Act. Re: CRS income – Royalty 11. That the DRP/ assessing officer erred on facts and in law in, alternatively, holding that booking fee of Euro 11,616,000/- received by the appellant was taxable in India as ‘royalty’ both under section 9(1)(vi) of the Act and Article 13(3) of the Treaty. 12. That without prejudice, the DRP/ assessing officer erred on facts and 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 was not liable to tax in India as ‘royalty’. 12.1 That the DRP/ assessing officer erred on facts and in law in holding that source of income accruing to the appellant was located in India by alleging that the most of the airlines from which revenues were received were resident in India, which is factually incorrect. ITA No. 3175/Del/2023 Amadeus IT Group SA 5 13. Without prejudice, that the DRP/ assessing officer, having held the appellant to have permanent establishment in India, erred on facts and in law in bringing to tax the alleged ‘royalty’ income on gross basis, without appreciating that in terms of section 44DA of the Act and Article 13(5) of the Treaty, royalty income effectively connected with the PE of the non-resident is required to be taxed as business income on net basis. Re: Altea system 14. That the DRP/ assessing officer erred on facts and in law in holding that payments received by the appellant from various airlines in relation to the alleged use of Altea system was taxable in India as ‘royalty’ both under section 9(1)(vi) of the Act and Article 13(3) of the Treaty. 15. That without prejudice, the DRP/ assessing officer erred on facts and in law in not appreciating that the payments received from various airlines in relation to the Altea System were not sourced in India in terms of Article 13(6) of the Treaty, therefore, were not liable to tax in India as ‘royalty’. 16. Further without prejudice, the DRP/ assessing officer erred on facts and in law in holding on adhoc basis a sum of Euro 43.88 million as the income of the appellant liable to tax in India as ‘royalty’ for the alleged use of Altea system by various airlines, without affording an opportunity of being heard to the appellant, in gross violation of the principles of natural justice. Re: Charge of interest 17. That the DRP/ assessing officer erred on facts and in law in levying interest of Rs.7,30,88,005 under section 234A of the Act. 18. That the DRP/ assessing officer erred on facts and in law in levying interest of Rs. 45,31,45,631 under section 234B of the Act.” 3. DIN – Not pressed 4. Permanent Establishment – As per the order of the Hon’ble Supreme Court for A.Y. 2020-21 in assessee’s own case vide order dated 20.07.2023 in CA No. 8057/2011, the assessee constitutes a fixed place PE under Article 5(1) of India-Spain Tax Treaty. ITA No. 3175/Del/2023 Amadeus IT Group SA 6 5. Attribution of Profits – Since, the assessee constituted PE in India, With regard to the attribution of profits derived from such PE, the ld. AR argued that the income derived from such PE was completely consumed by distribution and other expenses attributable and hence no income survives for taxation. The Hon’ble High Court has held that 15% of the revenue earned by the appellant is taxable in India, hence, the AO is directed to examine the profits earned, determine the available profits and tax the amount after examining the P&L account. 6. Disallowance of Expenses – The assessing officer disallowed distribution fee expenses 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’. Further, the assessing officer also disallowed development cost and marketing costs incurred for earning revenue from bookings made from India. It may be pertinent to note that similar expenditure has been allowed deduction since inception, i.e., assessment years 1996- 97 to 2006-07and in view of there being no change in facts or law, no disallowance is warranted in the present year, too. The aforesaid position has been upheld by the Tribunal in appellant’s own case for assessment years 2007-08 to 2020-21. This issue has attained finality since revenue has accepted the said aforesaid findings of Tribunal. Respectfully following the earlier orders of the Tribunal, the addition is directed to be deleted. ITA No. 3175/Del/2023 Amadeus IT Group SA 7 7. CRS Income-Royalty – This issue is intra-polated on the issue of PE and attribution of profits as dealt above. 8. Altea System – The Co-ordinate Bench of Tribunal in assessee’s own case for the assessment years 2007-08 to 2020- 21 held that payment received by the appellant from the airlines for the Altea system cannot be characterized as “royalty” either under the Act or under the Treaty. Respectfully following the earlier orders of the Tribunal, the addition is directed to be deleted. 9. Interest under section 234A – In view of the extension of due date for filing of the return vide Circular No. 01/2022 dated 11.01.2022, no interest u/s 234A is leviable. 10. Interest under section 234B – This issue stands covered by the orders of the Co-ordinate Bench of Tribunal for assessment years 2007-08 till 2019-20. The AO is directed to follow the same ratio. 11. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 05/03/2024. Sd/- Sd/- (Kul Bharat) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 05/03/2024 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR