The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that more than 15% of the revenues generated from India can’t be attributed to the PE in India when the risk assumed in earlier years had not changed.
M/s Amadeus IT Group SA, the assessee, a tax resident of Spain along with its affiliated companies, has developed a fully automatic computer information system, which enables the display and dissemination of information supplied by various Airlines, which in turn facilitates, reservations, communications, ticketing and related functions on a worldwide basis (CSR) for the travel industry.
The taxpayer claimed to have 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 taxpayer at Erding, Germany.
After analysis of the facts and contentions raised by the taxpayer, DRP concluded that the assessee is having a Fixed Place Permanent Establishment (PE) and a Dependent Agent PE in India and attribution of profit to such PE. The Assessing Officer (AO) computed the profit earned by the taxpayer at Rs.597,88,23,953/- or EURO 86,339,800/- from India and computed the profit attributed to Indian PE at Rs.448,41,17,951/- taxable @ 40% plus surcharge and education cess i.e. 42.024%.
Further, the AO computed the booking fees received by the taxpayer from CRS like royalty income taxable in India, both under the Act as well as under the Double Taxation Avoidance Agreement (DTAA) (between India & Spain) and taxed the same at 10%. AO also levied the interest under section 234B and charging of interest levied u/s 234A, 234C and 234D are mandatory and consequential. AO accordingly assessed the total income of the taxpayer at Rs.661,28,11,902/- and the profit attributable to PE is taxed at a normal rate and the income from royalty is taxed @ 10% as per the provisions of Article 13 of India-Spain DTAA.
The computers, electronic hardware provided to the travel agents etc. constituted PE of the taxpayer in India and the income derived from such PE is taxable in India.
It was observed that the Co-ordinate Bench of the Tribunal 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 assessee’s PE in India.”
A Coram of Shri Shamim Yahya, accountant member and Shri Yogesh Kumar U S, judicial member held that “since there is no change in the business model and facts of the cases at hand and the extent & nature of the activities of the PE in India and abroad, and the assets employed and risk assumed is same as in the earlier years, distribution fee paid in those years approximately of the booking fee per segment, no further addition can be made during the year under assessment.”
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