ITAT Quashes ₹3960+ Crore Tax Demand Against Booking.com, Rules No Permanent Establishment in India [Read Order]

In a recent ruling The Income Tax Appellate Tribunal (ITAT) Delhi has set aside a tax demand of over ₹3960 crore, holding that the Netherlands‑based company does not have a Permanent Establishment (PE) in India under Article 5 of the India-Netherlands Tax Treaty.

The matter arose after the Assessing Officer (AO) alleged that Booking.com had a Fixed Place PE and Agency PE in India, attributing 100% of its commission income from Indian accommodations to India. The Dispute Resolution Panel (DRP) upheld this view, leading to a final assessment order dated 15 January 2025.

The appellant argued that the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) erred in treating Booking.com’s commission income of ₹396,09,81,782 as taxable in India. They maintained that the company does not constitute a Permanent Establishment (PE) in India, neither a Fixed Place PE, nor a Dependent Agent PE

They also added that the AO failed to discharge the burden of proving the existence of a Permanent Establishment, as required by Supreme Court precedents such as Formula One and eFunds, and challenged the reassessment proceedings under Sections 147/148, citing defects in notice service, digital signature, and sanction.

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On the other hand, the revenue argued that Indian hotels and guesthouses acted as dependent agents of the company, thereby creating a business connection in India. Also relied on precedents involving other reservation system companies such as Galileo and Amadeus, where income attribution to India was upheld, and also referred to rulings like the MasterCard AAR and Sabre Decision Technologies case to argue that similar digital booking platforms had been treated as taxable in India.

After concerning the arguments, the tribunal observed that the assessee is a Netherlands‑based company operating its online accommodation reservation platform entirely through servers outside India, with no place of business, personnel, agents, or equipment in India.

It observed that the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) had erred in concluding that Booking.com B.V. constituted a Fixed Place PE or Agency PE in India and treating third‑party accommodations, from whom the assessee earned commission on room bookings, as a Permanent Establishment under Article 5 of the India-Netherlands DTAA was without any factual or legal basis.

The bench of Vimal Kumar(Judicial member) and M Balaganesh (account member) ruled that the final assessment order dated 15 January 2025, passed in pursuance of the DRP’s directions dated 31 December 2024, was illegal and therefore set aside.

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