Booking fee received from Non-Resident Airlines is Business Income: ITAT Grants Relief to Amadeus IT Group [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has granted relief to Amadeus IT Group holding that booking fee received from non-resident airlines was business income.

Assessee, Amadeus IT Group SA was a tax resident of Spain. The assessee along with its affiliated companies had developed a fully automated computer information system, which enabled display and dissemination of information supplied by various airlines, which in turn facilitates, inter alia, reservations, communications, ticketing and related functions on a worldwide basis (‘CRS’) for the travel industry. The CRS is for the facility of both travel agencies and airline offices worldwide.

The assessee had entered into agreements with various airlines by providing interconnectivity between the host computer of the individual airline and the Amadeus CRS created by the assessee at Erding, Germany. Amadeus also provides connectivity to its CRS to the travel agents.

In order to ensure that the customers’ needs in each national market/country are met, the assessee had 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 assessee has a distribution agreement with its NMC in India viz., Amadeus India Private Ltd. (‘AIPL’) and ResBird Technologies Pvt. Ltd. (‘ResBird’). The travel agents in India, who intend to use the aforesaid CRS have entered into subscriber’s agreement with the AIPL and ResBird.

This issue was related to taxability in India of booking fee received by the assessee as ‘royalty’ both under Section 9(i)(vi) of the Income Tax Act as well as under Article 13(3) of the India-Spain DTAA. The AO, on an alternate basis, held that booking fee received by the assessee was taxable as royalty both under Section 9(1)(vi) of the Income Tax Act and Article 13 of the India-Spain DTAA on the ground that the 'booking fee' received by the assessee from various airlines was payment for use of process and scientific equipment. The DRP upheld the order of the AO.

Neeraj Jain, on behalf of the assessee argued that in terms of Section 44DA of the Income Tax Act and Article 13(5) of the India-Spain DTAA payment in the nature of royalty which was effectively connected with the PE of the non-resident is required to be taxed as business income. The said income could not be brought to tax in India on gross basis.

He also referred to the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT wherein it had been held that payment for use of software was not in the nature of royalty under the DTAA

The two-member Bench of G.S. Pannu, (President) and Astha Chandra, (Judicial Member) observed that the impugned issue was squarely covered by the decision of the Delhi High Court in assessee’s favour wherein it had been held that the booking fee received by the assessee was taxable as ‘business income’ and not as ‘royalty’.

The Bench allowed this ground of appeal filed by the assessee.

To Read the full text of the Order CLICK HERE

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