TRAVELPORT INTERNATIONAL OPERATIONS LIMITED,UNITED KINGDOM V. ACIT CIRCLE 3(1)(1), INTERNATIONAL TAXATION-3, NEW DELHI

ITA 1910/DEL/2023

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31453 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY B VASANTA
• Assessee Lawyers: S.K. AGGARWAL; ORDERS OF; FOLLOWING
• Keywords: Question of law; Rule of consistency; Tax effect; Double taxation relief; Permanent establishment; Application of stay; Residential status
• Section: 143(3); 144C; 9(1); 9(1); 9(1); 40a(ia); 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT and SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.1910/Del/2023 Assessment Year : 2020-21 Travelport International Operations Ltd, (earlier Known as Travelport Global Distribution System BV), Axis One, Axis Park, 10 Hurricane Way, Langley, Berkshire, United Kingdom, SL3 8AG Vs. ACIT, Circle-3(1)(1), International Taxation-3, Delhi (PAN: AAACS7141Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri S. K. Aggarwal, CA REVENUE BY : Shri Vijay B Vasanta, CIT DR Date of Hearing : 03.10.2024 Date of Order : 30.12.2024 O R D E R PER S. RIFAUR RAHMAN, AM : 1. This appeal has been filed by the assessee against the final assessment order dated 31.05.2023 passed u/s 143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the directions of the Ld. Dispute Resolution Panel (DRP)/TPO vide order dated 20.04.2023 for Assessment Year 2020-21. 2 ITA No.1910/Del/2023 2. At the time of hearing, ld. AR for the assessee submitted as under :- “1. BRIEF BACKGROUND 1.1. Business model of Appellant 1.1.1. The Appellant is a company incorporated in the United Kingdom. The Appellant provides electronic global distribution services (‘GDS’) 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 data to provide the following functions: a) The ability to display flight schedule and seat availability 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. These services are primarily provided to airlines and help in facilitation of booking of tickets. For each completed booking using Appellant’s CRS/GDS, airlines pay booking fees to it. 1.1.2. The Appellant appoints distributors for marketing its CRS services. In India, the authorized distributor is Interglobe Technologies Quotient India Private Limited (ITQPL/ ‘the distributor’). ITQPL is entitled to receive distribution fees from the Appellant for each segment booked in the Indian Territory. The Distributor/ ITQPL independently signs an agreement with the Travel Agent’s, to provide booking services. 1.1.3. The master computer system (MCS) stationed in USA is connected to travel agents in India through a communication network owned by SITA (third party service provider). Société Internationale de Télécommunications Aéronautiques (‘SITA’), a Belgian Co-operative and an unrelated third party, provides communications services to appellant as an independent service provider / contractor on a principal-to-principal basis. SITA does not own local communication lines within India and therefore contracts with local telephone companies for the appropriate circuits. 1.1.4. Appellant bears the cost of connectivity services provided by SITA from the Data Centre/MCS in USA, to the nodes of SITA upto the territory outside India. As per the distribution agreement with ITQPL, the Distributor is responsible for the establishment, provision, operation and maintenance of a local telecommunications network connected to the SITA node within India. 1.1.5. The Ld. Assessing Officer (‘AO’) following the assessment order for AY 2018- 19 and AY 2019-20 passed the draft assessment order dated 16th December 2022 for AY 2020-21 under 143(3) r.w.s. 144C of the Act, holding that the activities of distributor 3 ITA No.1910/Del/2023 ITQPL/ Travel Agent constitute business connection u/s 9(1) and attributed 25% of Gross Receipts as taxable income in India. 1.1.6. The Ld. Dispute Resolution Panel (‘DRP’) vide their direction dated 20th April 2023 directed the Ld. AO to follow their earlier directions in the preceding AY’s and in case the pending appeals before Hon’ble Supreme Court for predecessor’s companies i.e. Galileo International Inc (‘GII’) and Travelport Global Distribution System BV (‘TGDSBV’) (earlier known as Galileo Nederland BV), stand decided, then follow the judgment of the Hon’ble Supreme Court on this issue. 1.1.7. It is submitted that the Hon’ble Supreme Court vide their order dated 19 April 2023(PB Vol-II- Page 395 to 414), in the case of Company’s predecessor’ entities for AY 1995-96 to AY 2006-07 upheld the order of Hon’ble ITAT and Hon’ble Delhi High Court attributing 15% of revenue to the PE on basis of FAR less payment made to distributor resulting in ‘Nil’ income. The relevant extracts of Hon’ble Supreme Court decision dated 19th April 2023 is as under – “11. Appeals were filed both by the Revenue and Assesses against the orders of the Tribunal before the Delhi High Court. The Delhi High Court dismissed the appeals filed by the Revenue on the ground that no question of law arose in these matters. The Delhi High Court held that insofar as attribution is concerned, the Tribunal had adopted a reasonable approach. 14. We do not think that we need to go into the second contention of the learned Additional Solicitor General, for the simple reason that the approach of the Tribunal and the High Court on the question of attribution appears to be fair and reasonable. 15. It is seen from the orders of the Tribunal that the Tribunal arrived at the quantum of revenue accruing to the respondent in respect of bookings in India which can be attributed to activities carried out in India, on the basis of FAR analysis (Functions performed, assets used and risks undertaken). The Commission paid to the distribution agents by the respondents was more than twice the amount of attribution and this has already been taxed. Therefore, the Tribunal rightly concluded that the same extinguished the assessment. 16. The question as to what proportion of profits arose or accrued in India is essentially one of facts. Therefore, we do not think that the concurrent orders of the Tribunal and the High Court call for any interference. 21. Therefore, we are of the view that the impugned order(s) of the High Court do not call for interference. Insofar as the second issue, namely, the question of permanent establishment is concerned, we are not going into the same, as we have concurred with the High Court on the first issue.” 4 ITA No.1910/Del/2023 1.1.1. This judgment of Hon’ble Supreme Court dated 19th April 2023 was brought to the notice of Ld. AO, however, the same was not followed in passing the final assessment order for AY 2020-21.Also, the Ld. AO while passing final assessment, have completely misunderstood facts, litigation history and business model of the Appellant. The Ld. AO grievously erred in not following the binding judgment of Hon’ble Supreme Court by stating that the said judgement was in the case of Appellant’s predecessor' entities, while admittedly business model, factual and legal matrix remains the same 1.1.2. The Ld. AO further erred in stating that while Hon’ble Supreme Court has upheld the orders of Hon’ble High Court and ITAT attributing 15% of receipts on the basis of FAR, in view of AO, FAR analysis has no legal basis in determining attribution of income. 1.1.3. The Ld. AO has clearly violated established Principal of Judicial Discipline and Rule of Consistency in not following the binding judgment of Hon’ble Supreme Court. 1.1.4. Aggrieved by the final assessment order dated 30th May 2023, the Appellant had filed an appeal before the Hon’ble ITAT and also, a stay petition. This Hon’ble Bench in the stay matter held that the dispute arising in the appeal are squarely covered by the decisions of the Hon’ble Tribunal, Jurisdictional High Court and Hon’ble Supreme Court of India passed in favour of Appellant and its predecessor’s entities, therefore, 100% stay of demand was granted to the Appellant.(Stay order PB Vol-I-Page 53 to 56). 1.2. The Tax litigation history of CRS business by the Appellant and its predecessor entities i.e. GII and TGDSBV 1.2.1. The CRS was earlier owned and managed by Galileo International Inc. (GII), a USA based entity, which operated worldwide. Thereafter, in year 2002, the territory of operations of GII was split into two parts: T-1 (USA and Canada) and T-2 (Rest of the world). The responsibility of carrying out business in T-2 territory was given to the Travelport Global Distribution System BV (‘TGDSBV’) (earlier known as Galileo Netherland BV or GNBV). TGDSBV was a Netherland based entity and carried on such CRS business till 31 December 2015. 1.2.2. With effect from 01 January 2016, the CRS operations of TGDSBV has been operated by the Appellant pursuant to group reorganization and accordingly, the assessment order has been passed in the name of the Appellant from AY 2016-17 onwards, following the earlier assessment orders on this issue. The table below further clarifies the history of Appellant and its predecessor entities operating the CRS Relevant AY Entity catering to Indian market Country of residence 1995-96 to 2002-03 Galileo International Inc. (‘GII’) USA 2003-04 to 2016-17 TGDSBV (earlier Netherland 5 ITA No.1910/Del/2023 (upto 31 Dec’15) called GNBV) 2016-17 onwards TIOL or Appellant United Kingdom 1.2.3. Basic structure of the business, risks, functionalities and assets remain same, unaffected by above territorial reorganization and such fact has even been admitted, relied and emphasized by the Ld. AO and DRP in their respective orders/ directions and Hon’ble ITAT has also noted the above in passing appellate order in favour of the appellant following its earlier orders and following the orders of the Hon’ble Delhi High Court on this issue. 1.2.4. The issue in appeal is fully covered in favour of the Appellant by orders of Hon’ble ITAT, Delhi High Court from AY 1995-96 onwards (upto immediately preceding year i.e. AY 2019-20) The Hon’ble ITAT and Hon’ble Delhi High Court in their orders have held as under: i. Permanent Establishment (PE)/ Business Connection (BC) - The issue of constitution of PE/ BC was decided against the appellant ii. Issue of attribution of revenue to the alleged PE/ BC –It was held that correct attribution rate be taken at 15% of the gross revenue iii. Issue of allowability of distribution expenses – It was held that distribution commission has been made to the resident of India and duly offered to tax. Hence, provision of section 40a(ia) of the Act are not attracted and hence, 100% deduction of distribution expenses (paid to ITQPL) be allowed iv. Issue of allowability of all other expenses- It was held that 70% deduction is allowed in the hands of the appellant, relying on the non- discrimination clause. 1.2.5. Further, Hon’ble Supreme Court vide their order dated 19th April 2023, for AY 1995-96 to AY 2006-07 have upheld the order of Hon’ble ITAT and Hon’ble Delhi High Court attributing 15% of revenue to PE less distributor’s commission 1.2.6. The year wise detailed chart of decision of Hon’ble Supreme Court, Hon’ble Delhi High Court and Hon’ble ITAT in favour of the Appellant/ its predecessor is attached as PB V-II - Page 497 to 502 1.2.7. Furthermore, it is submitted before your Honors that there is no change in business model of Appellant & its predecessors and hence, the issue is covered in favour of the Appellant by earlier years appellate order upto AY 2019-20. 1.2.8. The litigation history in case of the Appellant upto AY 2019-20 has been provided in below tabular format: 6 ITA No.1910/Del/2023 AY Entity Forum Decision of Forum PE/BC Determination of taxable income 95-96 to 98-99 GII Delhi 1TAT Yes 15% of revenue less distributor fee, resulting in ‘Nil’ income Delhi HC Academic Upheld the ITAT order Supreme Court Academic Upheld Delhi HC and ITAT order 99-00 to 02-03 GII Delhi ITAT Yes 15% of revenue less distributor fee, resulting in ‘Nil’ Income Delhi HC Academic Upheld the ITAT order Supreme Court Academic Upheld Delhi HC and ITAT order 03-04 to 06-07 TGDSBV Delhi ITAT Yes After remand back, 15% was accepted pursuant to High Court order Delhi HC Academic Upheld the ITAT order Supreme Court Academic Upheld Delhi HC and ITAT order 07-08 to 12-13 & 14-15 TGDSBV Delhi ITAT Yes 15% of revenue less distributor fee and 70% of other expenses, resulting in 'Nil' income Delhi HC Yes Upheld ITAT order 15-16 TGDSBV Delhi ITAT Yes 15% of revenue less distributor fee and 70% of other expenses, resulting in ‘Nil’ income 16-17 Appellant Delhi ITAT Yes 15% of revenue less distributor fee and 70% of other expenses, resulting in ‘Nil’ income 17-18 Appellant Delhi ITAT Yes 15% of revenue less distributor fee and 70% of other expenses, resulting in ‘Nil’ income 18-19 Appellant Delhi ITAT Yes 1. Hon’ble ITAT following earlier year’s ITAT orders held that attribution shall be at 15% of revenue less distributor fee and 70% of other expenses, resulting in ‘Nil’ taxable income 1.2.9. As the factual and legal matrix of the case is the same, the decision in the earlier years appellate orders has been followed by Hon’ble ITAT upto AY 2019-20. 1.2.10. The Company would like to submit before your Honors that Ld. AO while passing the draft assessment order for AY 2018-19 and AY 2019-20, for the first time, deviated from the earlier year’s assessment order and alleged the Appellant being a ‘conduit entity’ under stepping stone framework by referring to 1986 OECD Report on Double Taxation / OECD Commentary to Article 1 and denied the benefits of India-UK Treaty. 7 ITA No.1910/Del/2023 1.2.11. Further, the Ld. AO held that the Appellant constitute a ‘Business Connection’ in India and attributed 25% of revenue as taxable income for AY 2018-19 and AY 2019- 20. 1.2.12. The Hon’ble DRP vide its direction dated 29th April 2022 for AY 2018-19 and AY 2019-20 did not approve the above allegation of Ld. AO and directed as under – 3.1 The Hon'ble ITAT, New Delhi in it's order in ITA No 163/Del/2021 dated 27/09/2021for AY 2017-18 has stated that the above grounds are covered against the assessee for AYs 1995-96 to 1998-99 by decisions of Hon'ble ITAT, & Hon'ble Delhi High Court in the case of the Appellant's predecessor entity, ie. GII & TGDSBV. The Hon'ble Supreme Court vide its order dated 22- 11-2019 had dismissed the SLPs filed before it due to low tax effect in consonance with Circulated No. 17 of 2019 leaving the questions of law open. The Hon'ble Delhi High court for AYs 1999-00 to 2002-03 had relied upon its earlier orders in case of GII and held that the issue of PE/BCs was academic. The SLPs filed by GII are pending in the Hon'ble Supreme Court. The Hon'ble Delhi High Court in case of Gll and predecessor of the assessee) had refrained from forming any opinion on the issue of PE/BC in India for AYs 2003-04 to 2006-07. The SLPs of both the Revenue and the taxpayer are pending in the Hon'ble Supreme Court. 3.2 The AO is directed to verify whether the appeal of the Revenue is pending in the Hon'ble Supreme Court or not on the above issue. In case the appeal of the Revenue is pending in the Hon'ble Supreme Court, the findings of the AO on the above grounds are upheld. In case the Hon'ble Apex Court has already given it's decisions, the AO is directed to follow the same. The above objections of the assessee are accordingly disposed off. 1.3. Favourbale Order of Hon’ble ITAT for AY 2018-19 and AY 2019-20 in case of Appellant 1.3.1. The Hon’ble ITAT in their combined order for AY 2018-19 and AY 2019-20 dated 10th January 2023 held as under (Pages 471 to 496 of PB -Vol-II) “12. Facts being identical, respectfully following the consistent view of Hon’ble Jurisdictional High Court and Coordinate Bench in assessee’s own case, as discussed above, we decide these grounds against the assessee by holding that the assessee has business connection and PE in India. These grounds are dismissed. 18. Thus, considering the consistent view of the Hon’ble Jurisdictional High and the Tribunal in assessee’s own case in past assessment years, we hold that 15% of the booking fees should be attributed to the PE in India. Ground no. 7 is allowed. 8 ITA No.1910/Del/2023 21. Facts being identical in the impugned assessment year, we direct the Assessing Officer to allow deduction of expenses following the directions of the Tribunal in the past assessment years, as discussed above. This ground is allowed.” 1.3.2. The Appellant filed a Miscellaneous Application (‘MA’) before Hon’ble ITAT for AY 2018-19 and AY 2019-20 for specifically disposing the grounds regarding the allegation of Ld. AO on ‘Conduit Entity’ under the Stepping-Stone framework and denying the benefits of India-UK Treaty. 1.3.3. The Hon’ble ITAT was pleased to pass the order in the above MA on 06th October 2023 holding that the Appellant is not a ‘Conduit Entity’ under Stepping-Stone framework and held that allegation of Ld. AO is entirely baseless and is without any cogent reasons. 1.3.4. The Hon’ble ITAT also stated that the Hon’ble DRP in their directions of these AY’s have not accepted the finding of Ld. AO and specifically held that the facts are identical in earlier assessment years and directed to follow the decision of Hon’ble Supreme Court. The relevant extracts of ITAT MA order for AY 2018-19 and AY 2019- 20 (attached as Annexure 1) is as 5. Keeping in view the past history of such dispute, learned DRP directed the Assessing Officer to verify, whether the department is in appeal against the order of the Tribunal and Hon’ble Delhi High Court and if it is found to be so, sustain the addition. Thus, from the aforesaid observations of learned DRP, it is evident that they have impliedly not accepted the allegations of the Assessing Officer regarding assessee, being a stepping-stone conduit entity. This may be because it was never an issue in the past assessment years. Assessment of income at the hands of the assessee was only because of existence of PE in India. 6. In any case of the matter, considering the decisions of the Tribunal and Hon’ble Jurisdictional High Court in past assessment years, it cannot be said that the status of the assessee as a conduit entity was ever an issue. Therefore, in our considered opinion, the observations of the Assessing Officer regarding the status of the assessee as a conduit company are not based on any cogent material brought on record, and rather unnecessary and irrelevant for deciding the issue, as to whether, assessee’s income is taxable in India or not. (Emphasis Supplied) 1.3.5. For captioned year i.e AY 2020-21, the Ld. AO passed identical draft assessment order as in AY 2018-19 and AY 2019-20. The Hon’ble DRP in their directions dated 20th April 2023 for AY 2020-21, held that the issues involved are legal issues in the case of the Appellant and are identical to those in case of the Appellant for AY 2018-19 and AY 2019-20. 9 ITA No.1910/Del/2023 1.3.6. The Hon’ble DRP, while re-producing the directions of AY 2018-19 and AY 2019-20, directed the AO to follow the directions of Hon’ble Supreme Court in this issue while passing final assessment order for AY 2020-21. The relevant extracts of DRP directions dated 20th April 2023 is as under – “5.1 The issues involved in the ground numbers 1 to 3 are legacy issue in the case of the assessee and are identical to those in the case of the case of the assessee for AY 2018-19 and AY 2019-20 while adjudicating on the issue for AY 2019-20 the panel held as under:- ………… 5.2 Since there is no change in factual matrix or the issue involved the panel finds no ground to deviate from its decision in AY 2018-19 and A Y 2019-20. Accordingly the decision of the panel in AY 2018-19 and AY 2019-20 will apply for AY 2020-21 as well. The objections raised in ground numbers 1 to 3 are accordingly disposed of.” 1.3.7. From the above, it is apparent clear that factual and legal matrix of the Appellant is identical for AY 2018-19 and AY 2019-20, as upheld by Hon’ble DRP. Further, Hon’ble ITAT is its combined order dated 10th January 2023 for AY 2018-19 and AY 2019-20 have already decided the issue in favour of the Appellant by following decision of Co-ordinate bench in earlier years and High Court, upholding order of Delhi ITAT. 1.3.8. Therefore, the issues of appeals for AY 2020-21 are squarely covered in the favour of the Appellant by the earlier year’s appellate orders. 1.3.9. Also, it is submitted that the Hon’ble Supreme Court vide their order dated 19 April 2023 (PB Vol-II- Page 395 to 414), upheld the order of Hon’ble ITAT and Hon’ble Delhi High Court attributing 15% of revenue to the PE on basis of FAR less payment made to distributor resulting in ‘Nil’ income. 1.3.10. Therefore, in view of the above, it is humbly submitted that the very premises of Ld. AO to deny India-UK DTAA benefit and not following the binding decision of Hon’ble Supreme Court is based on fallacies and surmises and without considering the business model of the Appellant, litigation history, the laws and the provisions which governs the applicability of treaty provisions, and thus be dropped. 3. With the above submissions and also submitted that the issues raised by the assessee relating to the issue of non following the binding precedents in the assessee’s own case in ground no’s 1 to 4 are submitted above and all other issues raised in the 10 ITA No.1910/Del/2023 grounds of appeal from 5 to 10 are already covered in the immediately preceding Assessment Years viz, AY 2018-19 and AY 2019-20, the issues raised by the AO are factually same and applicable mutatis mutandis. With regard to Ground No. 11 to 13, the same are consequential in nature. 4. On the other hand, ld. DR for the Revenue relied on the order of ld. DRP/Assessing Officer. 5. Considered the rival submissions and material placed on record. We observe that the issue raised by the assessee in this appeal are exactly similar to the facts in the AY 2018-19 and AY 2019-20 and the coordinate bench has passed a consolidated order in which they have adjudicated the issues raised by the assessee as under: “12. Facts being identical, respectfully following the consistent view of Hon’ble Jurisdictional High Court and Coordinate Bench in assessee’s own case, as discussed above, we decide these grounds against the assessee by holding that the assessee has business connection and PE in India. These grounds are dismissed. 18. Thus, considering the consistent view of the Hon’ble Jurisdictional High and the Tribunal in assessee’s own case in past assessment years, we hold that 15% of the booking fees should be attributed to the PE in India. Ground no. 7 is allowed. 21. Facts being identical in the impugned assessment year, we direct the Assessing Officer to allow deduction of expenses following the directions of the Tribunal in the past assessment years, as discussed above. This ground is allowed.” 6. Further, with regard to issue of whether the assessee a conduit entity, the coordinate bench has not adjudicated the issue in the order however, in the MA Nos. 316 and 317/Del/2023, the issue was raised by the assessee are adjudicated as under: 5. Keeping in view the past history of such dispute, learned DRP directed the Assessing Officer to verify, whether the department is in appeal against the order 11 ITA No.1910/Del/2023 of the Tribunal and Hon’ble Delhi High Court and if it is found to be so, sustain the addition. Thus, from the aforesaid observations of learned DRP, it is evident that they have impliedly not accepted the allegations of the Assessing Officer regarding assessee, being a stepping-stone conduit entity. This may be because it was never an issue in the past assessment years. Assessment of income at the hands of the assessee was only because of existence of PE in India. 6. In any case of the matter, considering the decisions of the Tribunal and Hon’ble Jurisdictional High Court in past assessment years, it cannot be said that the status of the assessee as a conduit entity was ever an issue. Therefore, in our considered opinion, the observations of the Assessing Officer regarding the status of the assessee as a conduit company are not based on any cogent material brought on record, and rather unnecessary and irrelevant for deciding the issue, as to whether, assessee’s income is taxable in India or not. 7. From the above, it is clear that all the issues raised by the assessee are decided in favour of the assessee by the Hon’ble Supreme Court and High Court and also by the coordinate benches. Therefore, we are inclined to allow the grounds raised by the assessee in the present appeal. The AO should have followed the settled issues in favour of the assessee by following the relevant precedents. Therefore, we allow all the grounds raised by the assessee in this appeal and accordingly, the additions made by the AO are deleted. 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 30.12.2024. Sd/- sd/- (SAKTIJIT DEY) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated: 30.12.2024 TS 12 ITA No.1910/Del/2023 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "