Prashant Maharishi, AM.
1 This appeal is filed by Sabre Asia Pacific Pte Ltd [ The Appellant/ Assessee] against the order passed by The Assistant Commissioner of Income-tax, International Tax Circle 4(1)(1), Mumbai (The Ld. AO) under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (The Act) on 24th December, 2020 for assessment year 2017-18.
2 Assessee has raised following grounds of appeal:-
"The appellant objects to the final assessment order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [Act] dated 24 December 2020 passed by the Assistant Commissioner of Income-tax, International Tax Circle - 4(2)(1), Mumbai [ACIT] for the aforesaid assessment year on the following among other grounds:
1. The learned DCIT erred in assessing the total income of the appellant at Rs. 23,18,99,458.
2. Business connection / permanent establishment in India 2.1 The learned ACIT erred in holding that the appellant had a business connection in India in terms of the Act and a permanent establishment [PE] in India in terms of the India - Singapore Double Taxation Avoidance Agreement [DTAA],
3. Income attributable to PE 3.1 The learned ACIT erred in holding that income attributable to the PE in India has to be determined on a gross basis and consequently no deduction should be allowed. He thereby erred in determining the income taxable in India at Rs. 23,17,73,103 (being 10% of gross receipts from India amounting to Rs, 2,31,77,31,028).
3.2 The learned ACIT ought to have held that out of the gross receipts in India amounting to Rs. 2,31,77,31,028, the income attributable to the PE in India is Rs. 23,17,73,103 (being 10% of Rs. 2,31,77,31,028) from which further deduction ought to have been allowed in respect of marketing service fees paid by the Appellant to Sabre Travel Network (India) Private Limited [STN] of Rs. 78,32,46,525. 3.3 On a without prejudice basis, the learned ACIT erred in holding that deduction of marketing service fees is to be allowed from the gross receipts relating to India and income attributable to the PE in India is to be computed by applying 10% of such net income.
3.4 The learned ACIT ought to have held that deduction of marketing service fees is to be allowed from the income attributable to the PE in India.
3.5 The learned ACIT erred in alleging that the Hon'ble ITAT was not made aware of appropriate facts in earlier AYs.
3.6 The learned ACIT erred in observing that the appellant has not furnished how the marketing fees paid to STN is computed. The learned ACIT also erred in observing that the agreement entered dated 31 October 2016 entered into between the appellant and Sabre Travel Network (India) Private Limited [STN] is silent on the manner of quantification of fees payable to STN. The learned ACIT erred in not appreciating that the agreement dated 31 October 2016 includes the manner of calculation of the marketing service fees as mentioned at Article 5 read with Attachment B.
3.7 The learned ACIT erred in not following the Hon'ble ITAT's decision in the appellant's own case for earlier years (i.e. AYs 1999-00 to 2014-15), Hon'ble Delhi High Court's judgment in the case of Galileo International Inc. (336 ITR 264), decision of the Hon'ble Delhi ITAT in the case of Amadeus Global Travel Distribution S.A. v. ADIT & Anr. (3 taxmann.com 777) and decision of the Hon'ble Delhi ITAT in case of Sabre Inc. (2009 taxmann.com 1020).
4. Reimbursement of expenses 4.1 The learned ACIT erred in holding that the reimbursement of expenses from STN amounting to Rs. 12,63,651 are part of business income of the appellant and thereby taxing Rs. 1,26,355 (i.e. 10% of Rs. 12,63,651).
4.2 The learned ACIT erred in not appreciating that the reimbursement of expenses were towards expenses incurred by the appellant on courier charges, marketing and consulting fees, e-learning charges, maintenance of e-learning website, expenses incurred in relation to conferences held, fees for back office accounting package, etc. and in the nature of pure reimbursement not having any element of income/service.
4.3 Without prejudice to the above, the learned ACIT erred in not following the decision of the Hon'ble ITAT in appellant's own case for AY 2004-05, wherein it is held that even if the reimbursement is considered as part of business income, there should not be any income chargeable to tax since the expenditure paid by the appellant (i.e. marketing fees paid to STN) is sufficient to absorb its income. Further, the learned ACIT erred in not following the decision of the Hon'ble ITAT in appellant's own case for AYs 2005-06 to 2014-15, wherein it is held that 10% of the reimbursement of expenses which is characterized as business income would justifiably be entitled to set-off against the marketing fees paid by the appellant to STN. Others
5. The learned ACIT erred in not granting TDS credit of Rs. 12,36,79,232 as reflected in Form 26AS and claimed by the appellant in the return of income filed for AY 2017-18. The learned ACIT has also not provided any reason for basis for non-grant of the TDS credit.
6. The learned ACIT erred in not granting interest under section 244A of the Act.
7. The learned ACIT erred in levying interest of Rs.4,51,43,865 under section 234B of the Act.
8. The learned ACIT has erred in initiating penalty proceedings under section 270A of the Act."
3 Brief facts of the case shows that assessee is a company incorporated in Singapore, engaged in business of promotion, development, operation, marketing and maintenance of computerised reservation system for making airline booking. The primary business of the assessee is to make airline reservations for and on behalf of the participating airlines by using the computerised reservation system. The participating airlines provide the necessary information, which is displayed to the travel agent throughout the word so that they could guide their customers to make the necessary request for booking of tickets through the computerised reservation system. The assessee licenses the right to market the computerised reservation system to a company in each of the Asia-Pacific countries, which in turn market the system directly to the travel agents. For each of the bookings made through the marketing companies' subscribers, the assessee pays commission to that marketing company. In India and assessee has licensed its wholly owned Indian subsidiary company Sabre travel network (India) private limited and pays commission to it. Airlines companies pay a fixed percentage of booking value made through use of computerised reservation system to the assessee. During the year, all its receipts in India are from this activity from various travel agents.
Assessee filed its return of income on 30th November, 2017 disclosing a total income of Rs. Nil, but has claimed refund of Rs. 12,36,79,230/-. Corresponding receipt involved in the above tax deduction at source is Rs.2,317,731,028/- being gross receipts from Indian bookings, which was not offered for taxation. Assessee has also paid Rs. 79,16,71,459/- as marketing fees to its associate enterprise, M/s Sabre Travel Network India Ltd. 05 The learned assessing officer noted that the facts for the present year are similar to the facts for assessment year 2015 - 16 for which assessment is already completed u/s 143 (3) read with Section 144C (13) of the act on 22/8/2019. In assessment year 2015 - 16, the learned assessing officer determined taxability of the receipts and held that:-
i. assessee has a permanent establishment in India in the form of 100% subsidiary sabre travel network India Ltd in terms of article 5 of the India Singapore Double Taxation Avoidance Agreement as subsidiary company is dependent upon the assessee and is performing only activities for the assessee.vThis was also so for the reason that coordinate bench in assessee's own case in earlier years has also held that the assessee has a permanent establishment in India in the form of Agency PE.
ii. Based on the above findings, the learned assessing officer attributed the income to the permanent establishment of assessee in India. The coordinate bench in assessee's own case also decided this issue in earlier year. The claim of the assessee was that 10% of gross fees of Rs.2,317,731,028/- would be Rs. 23,17,73,103/- and as assessee has already paid the marketing fees of Rs.791,671,459 to its subsidiary company the income taxable in India would be Nil and nothing further is required to be attributed. The learned assessing officer rejected the contention of the assessee holding that the agreement between the assessee and its subsidiary companies dated 31/10/2016 is silent on the manner of quantification of fees payable to the subsidiary company and therefore he did not grant set of the entire marketing fees paid to its subsidiary. The learned that AO was of the view that marketing fees paid by the assessee is attributable to the entire gross receipts from India and the claim of the assessee to set-off the entire marketing fees against the 10% of gross receipt offered for taxation is incorrect. The learned AO also did not accept the order of the coordinate bench in assessee's own case for earlier years wherein it has been held that as the commission and marketing services. Read to the subsidiary exceeds the income to be taxed there shall not be any income taxable in India. The learned assessing officer was of the view that 25% of the gross receipts paid as commission to the subsidiary company corresponds to the entire gross receipts and not only to the income attributable to India. After considering the quantum in the earlier year or this year, it would lead to an absurd conclusion that the assessee is incurring and net loss from its operation in India by the logic of attribution of income to India at the rate of 10% of the cross receipts and paying 25% of the gross receipts as commission. Based on this he did not allow any deduction on account of fees paid to subsidiary company. Accordingly he taxed a sum of Rs.231,773,103/- being 10% of the gross receipts in India amounting to Rs.2,317,731,028/-.
iii. The learned assessing officer also made calculation without prejudice to the above allowing the deduction is to the assessee considering the gross receipts in India of 231,77,31,028/- and reduced there from the marketing fees paid of Rs.783,246,525/- resulting into the net gross receipts in India of Rs.1,534,484,503 and thereafter attributing 10% of income thereon amounting to Rs.153,448,450/-. iv. With respect to the reimbursement of expenditure the learned assessing officer followed the direction of the dispute resolution panel wherein it has been held that 10% of the reimbursement as income of the assessee is attributable to a permanent establishment in India accordingly he estimated the profit at the rate of 10% of the amount of Rs.12,63,651/- being Rs.126,355 as business income of the assessee. 06 Accordingly on 23/12/2019 draft order u/s 144C of the income tax act was made determining the total income of the assessee at Rs.231,899,458/- which was required to be taxed at the rate of 40%. 07 The assessee preferred objections before the learned DRP-2, Mumbai. The learned DRP issued directions on 29-10-2020 that :- a. with respect to existence of permanent establishment in India and business connection the learned dispute resolution panel followed the order of the coordinate bench in assessee's own case for earlier years and held that as there is no change in the facts and circumstances of the case during the year, it held that assessee company has a permanent establishment in India and 15% of the gross receipts are attributed as accruing or arising in India. b. With respect to the income attributable to permanent establishment, it held that deduction of commission and marketing fees of Rs.783,246,555 could be claimed only against the revenue of Rs.2,317,731,028/- from Indian operations and not against the income estimated by the AO at the rate of 10% of the total revenue. The reasoning given by the learned DRP was that estimation of 10% of the revenue takes care of all deductions and further as per rule 10 if the income is estimated at a certain percentage of turnover it does not envisage any further deductions. The learned DRP also held that the decisions of the coordinate bench in assessee's own case are contested before the honourable Bombay High Court.
c. It also upheld the chargeability to tax of 10% of the reimbursement as income based on the direction of the learned dispute resolution panel for assessment year 2012 - 13, 2013 - 14, and 2014 - 15.
8 Consequent to that the learned assessing officer passed assessment order u/s 143 (3) read with Section 144C (13) of the act on 24/12/2020 determining the total income of the assessee at Rs.231,899,458/-.
9 Assessee is aggrieved with the order of the learned assessing officer and has preferred this appeal. Arguments of learned authorized representative can be paraphrased and summarised as:-
a. The issue with respect to the permanent establishment is decided by the co-ordinate bench against the assessee in earlier years. Accordingly, he submitted that ground 2 is decided against the assessee.
b. The issue of income attribution to the permanent establishment has been decided for all those years in favour of the assessee. He submitted that the co-ordinate bench has held that income attributable to the functions performed by permanent establishment is 15 percent of the gross receipts. It further held that if the amount paid by the assessee to its dependent on the permanent establishment in India is higher than the above amount, no further income is chargeable to tax in India. He submitted a chart showing that the above calculation says that the 15 percent of the gross receipts is Rs. 34,76,59,654/- whereas the amount paid to the agent is Rs. 78,32,46,525/-; hence, no further adjustment is required to be made. Accordingly, he submitted that ground 3 is decided in favour of the assessee by the co-ordinate bench in assessee's own case. c. With respect to the ground 4, he submitted that this issue of reimbursement of expenses of which 10% is charged to income tax is already covered in favour of the assessee by the decision of the co-ordinate benches in earlier years. He submitted that even after considering the above amount of income on account of reimbursement, the income chargeable to tax in the hence of the subsidiary company is much higher. Therefore, he submitted that ground number 4 is covered by the decision of the co-ordinate bench in assessee's own case.
d. He further submitted that there is no change in the facts and circumstances of the case. Accordingly, he submitted that the issue may be decided following those judgements.
e. With respect to ground 6, he submitted that the assessee has not been granted interest under section 244A of the Act till the date of grant of refund. He submitted that the date of order passed under section 154 r.w.s. 143(3) of the Act on 25/01/2021 wherein refund of Rs. 2,60,19,701/- was determined. However, the same has not been paid and, therefore, according to him, the refund should have been granted to the assessee till the date of grant of the refund. He referred to application dated 09/03/2021 preferred before the assessing officer contesting the same and requesting to re-compute the interest under section 244 of the Act. Before us, he submitted that Hon'ble Bombay High Court in R.A. No. 1199/ Bom/1998 dated 17/07/2003 following the decision of the Hon'ble Bombay High Court in case of CIT vs. Pfizer Ltd 191 ITR 626 (Bom) held that the interest under section 244A should be allowed to the assessee till the date of grant of the refund. He submitted that the refund could be granted only when the cheque is issued in favour of the assessee. He submitted a detailed chart of the various issues involved in the appeal along with several decisions of the co-ordinate bench in assessee's own case as well as the orders issued under section 154 of the Act by the learned assessing officer.
h. He did not press grounds 5 , and submitted that grounds 1,9 & 10 are general in nature and ground no 8 is with respect to the initiation of penalty proceedings is premature 10 Learned departmental representative, specifically referred to paragraph 12 of the directions of the learned DRP. He submitted that there is no dispute that there is a permanent establishment of assessee in India and income of that PE of assessee is liable to tax in India. He specifically referred to paragraph 12.3 and submitted that when a particular percentage of the total revenue is charged to tax in India, there cannot be any issue of granting any deduction to the assessee. With respect to the percentage of income, he supported the orders of the assessing officer and learned DRP. He further stated that the decision of the co-ordinate benches in assessee's own case for assessments 1999-2000 to 2011-12 have not attained finality as they are challenged before Hon'ble Bombay High Court. He, therefore, supported the orders. 11 We have carefully considered the rival contentions and perused the orders of the lower authorities. The first issue that needs to be decided is whether the assessee has a permanent establishment in India or not? This is challenged as per ground 2 of the appeal. We find that this issue is squarely covered against the assessee by the decision of the co-ordinate bench in assessee's own case from assessment years 1999-2000 to 2014-15. The co-ordinate benches have originally followed the decision in the case of the assessee for assessment year 1999-2000 in ABACUS INTERNATIONAL PTE LTD. VERSUS THE ASST. DIRECTOR OF INCOME-TAX, MUMBAI ITA No. 3903/Mum/2006, ITA No. 4789/Mum/2007, ITA No. 4790/Mum/2007 Dated: - 28 August 2010, , where the co- ordinate bench has held as under:-
"7. We have perused the records and considered the rival contentions carefully. The dispute is regarding assessability of income of the assessee in India accruing on account of computerized reservation made by the assessee on behalf of participating airlines. The assessee who was in the business of airlines reservation was maintaining a computerized reservation system and for this purpose the host computer had been installed in USA. The marketing in India was being done through ADSIL, its own wholly owned subsidiary in India who had agreement with various travel agents and provided them a dedicated computer with printer and internet lease lines. The assessee was paying 25% of gross receipt in India to ADSIL as commission. The authorities below have held that the assessee was having a business connection in India and that it had a PE through ADSIL which was a wholly dependent agent. Though in the grounds of appeal the assessee has challenged the finding of the authorities below that the assessee was having business connection and PE in India, no arguments were advanced before us against the above findings of the authorities below.
The Learned counsel for the assessee submitted that even if the assessee had business connection and PE in India, only the income attributable to the PE could be taxed in India. According to him, there was no income attributable to the PE which could be taxed in India. He placed reliance on the decision of tribunal in the case of Galileo International Inc (supra) which was also in the same business of computerized reservation system and had identical working in India. In that case, tribunal held that only 15% of receipts could be attributed to accrue/ arise in India and since the payment made by the assessee to ADSIL in India was more than 15%, there was no income attributable to PE which could be taxable in India.
7.1 We have carefully perused the order of the tribunal in the case of Galileo International Inc (supra) and we agree that the case is identical to that of the assessee. Galileo International Inc was also in the business of computerized reservation and had maintained the host computer in USA. It was also marketing the reservation work in India through agents to whom payments were being made and the nature of functions performed in India were identical to that in case of the assessee. As in case of the assessee, Galileo International Inc was also sharing the network of SITA in India. Though the agent in India in case of the assessee was its own wholly owned subsidiary we agree with the submission of the Learned counsel of the assessee that there was no reason for the assessee to inflate the payment to the subsidiary as the same was taxable in India. No material has also been on record to show that payment to the ADSIL was not at arm's length price. In case of Galileo International inc., tribunal observed that attribution of income has to be made after considering the factors like functions performed, assets used and risks undertaken. The tribunal noted that the major functions like collecting data relating to the various airlines and hotels was done on the host computer outside and the main asset, i.e. the host computer was situated in USA. The tribunal also observed that the activities in India were only miniscule portion and held that only 15% of revenue could be attributed to operations in India. Considering the facts that source of income i.e booking of tickets as well as marketing was done in India and only the processing of availability of seats, etc was done on the main computer outside, whether attribution of only 15% of receipts to the operations in India is reasonable could be a subject matter of difference of opinion, but for the sake of consistency and uniformity, we have to follow the decision of the coordinate bench of the tribunal, the facts being identical. Therefore, respectfully following the decision of the tribunal in case of Galileo International Inc. (supra) we hold that only 15% of gross receipts could be attributed as accruing or arising in India and since the assessee had already incurred expenditure @ 25% of gross receipts on account of payments to ADSIL in India, there is no income which can be taxed in India."
12 In the orders of the subsequent years, the coordinate benches followed the above extracted order for assessment year 1999-2000.
There is no change in the facts and circumstances of the case, as agreed by both the parties. Therefore, we, respectfully following the decisions of the co-ordinate benches in assessee's own case for assessment years 1999-2000 and the orders of the subsequent assessment years, we also hold that there is no infirmity in the order of the learned assessing officer in holding that assessee has permanent establishment in India and, therefore, income of the assessee is chargeable to tax in India. It further held that assessee has also a business connection in India in terms of the provisions of the Income-tax Act. Accordingly, ground 2 of the appeal is dismissed.
13 Ground 3 is with respect to the income attributable to the permanent establishment. This issue is first decided in assessment year 1999-2000. Subsequently, the co-ordinate benches followed the above decision. The co-ordinate bench held that the income attributable to the functions performed by the permanent establishment is 15% of the gross receipts. It further held that if the amount paid by the assessee to its agency PE is higher than the above amount, then no further income is attributable to the permanent establishment in India. In the present case, we find that the gross receipts attributable to India is Rs. 231,77,31,028/- and 15% thereof is the income which amounts to Rs. 34,76,59,654/- against which the subsidiary has offered the service for income of Rs. 78,32,46,525/- and, therefore, no further income is required to be attributed. No change in the facts and circumstance of the case has been pointed out before us. Therefore, respectfully following the decision of the co-ordinate benches in assessee's own case for earlier assessment years, we allow ground 3 of the appeal of the assessee. We also hold that as in the present case, income attributed to the permanent establishment of assessee is much higher than the amount paid by the assessee to its dependent agency PE in India; no further income is chargeable to tax. Further with respect to the determination of the income attributable to PE in India, the assessee has not offered any sum in the return of income; but the revenue authorities have determined the 10% gross receipts from India of the total sum of Rs. 231,77,31,028/-. The co-ordinate bench in assessee's own case has decided the identical issue for earlier assessment years. The co-ordinate bench for assessment years 2005-06 to 2011-12, vide its consolidated order dated 16/02/2018 held that 15% of the gross receipts pertaining to India booking shall be the income attributable to the India operations of the assessee. Such is the view also followed for assessment years 1999-2000 to 2004-05. Further, the commission paid by assessee to its subsidiary company @25% of the gross receipts pertaining to India booking is higher than the income attributable being 15% of the gross receipts pertaining to India and, therefore, no further attribution is required. Therefore, respectfully following the decision of the co-ordinate bench in assessee's own case for earlier years, in absence of any difference in facts and circumstances of the case, we allow ground 3 of the appeal of the assessee.
14 With respect to ground 4 where 10% of the reimburse
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ment of expenditure held to be the income of the assessee amounting to Rs. 1,26,355/-. Brief facts of the case was that the assessee has shown reimbursement of expenditure of Rs. 12,63,651/-. The details of the reimbursement were furnished along with documentary evidences. The above sum was reimbursed by Indian entity to the assessee for various activities undertaken by the assessee on behalf of Indian subsidiary. The assessing officer held it to be the business income holding that 10% of such payment received by the assessee from subsidiary should be the income of the assessee. Accordingly Rs. 1,26,355/- were held to be liable to be taxed in India. The assessee preferred an objection before the learned DRP, which was rejected, and the order of the assessing officer was confirmed. Assessee submitted before us that identical issue arose in the case of the assessee, fist in assessment year 2004-05 and the co-ordinate bench held that 10% of the gross income of the reimbursement along with other income attributed to the PE is lower than the sum paid by the assessee to entertain subsidiary and therefore, no further income is required to be attributed. No change in the facts and circumstances of the case were shown before us. Therefore, respectfully following the decision of the co-ordinate bench in the case of the assessee itself for earlier assessment years, we confirm the action of the learned assessing officer by treating the 10% of the sum as income out of the reimbursement. However, in the present year, as the amount paid by the appellant to its dependent agency PE is higher, no separate addition is required. Accordingly, ground 4 of the appeal is allowed with above direction. 15 Ground no 5 of the appeal is not pressed and hence dismissed. 16 Coming to ground 6 of the appeal wherein the assessee is aggrieved by the order passed by the learned assessing officer under section 154 of the act, dated 25/01/2021, according to which, the amount of refund was determined at Rs. 2,33,59,521/-. On such refund, interest under section 244A of the Act was also determined amounting to Rs. 26,60,180/-. However, till date no such refund has been issued to the assessee. Therefore, the claim of the assessee is that the assessee should have been granted interest on such refund till the date on which the refund is actually received by the assessee. The assessee has also filed an application before the learned assessing officer on 09/03/2021 raising the similar grievances. We direct the learned assessing officer to re-compute the interest under section 244A of the Act up to the date of grant of refund. Accordingly, ground 6 of the appeal is allowed. 17 Ground no 1, 7 to 9 were not pressed as either being consequential, premature, or general, hence, dismissed. 18 In the result, appeal filed by the assessee is partly allowed