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M/S GALILEO NEDERLAND BV Vs. ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE-1(2), (IN
September, 01st 2014
*           IN THE HIGH COURT OF DELHI AT NEW DELHI
+                INCOME TAX APPEAL NOS. 654/2012, 656/2012,
                 659/2012 & 661/2012
                                     Reserved on :        22nd July, 2014
                                     Date of decision: 25th August, 2014

        M/S GALILEO NEDERLAND BV                          ..... Appellant
                                   Through Mr. Farrokh V. Irani & Mr. Saubhagya
                                   Agarwal, Advocates.

                                   versus

        ASSISTANT DIRECTOR OF INCOME TAX, CIRCLE-1(2),
        (INTL. TAX), NEW DELHI                ..... Respondent
                       Through Mr. Sanjeev Sabharwal, Sr. Standing
                       Counsel.

        CORAM:
        HON'BLE MR. JUSTICE SANJIV KHANNA
        HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J.:

1.      This common judgment will dispose of appeals filed by Galileo
Nederland BV, now known as Travelport Global Distribution System BV,
pertaining to Assessment Years 2003-04 to 2006-07. These appeals arise
out of a common order of the Income Tax Appellate Tribunal (Tribunal, in
short) dated 29th June, 2012 by which the issue/question of profits
attributable to Indian operations was remitted to the Assessing Officer for
fresh determination. The case of the appellant-assessee is that the order of
the Tribunal is erroneous as the question of profits attributable to Indian
operations has already been determined in Assessment Years 1995-96 to
2002-03 and does not require reconsideration. The impugned order of the
Tribunal mistakenly understands and interprets the order passed by the
High Court in the case of Amadeus IT Group and, therefore, incorrectly

ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                            Page 1 of 17
observes that the ratio or formula applied in earlier years cannot be applied
in respect of Assessment Years 2003-04 to 2004-07. It is submitted that
similar reasoning by the Tribunal was rejected by the High Court in
Amadeus IT Group.                 Submission of the Revenue is that in view of
globalisation, the earlier formula or profit attribution ratio should not be
applied and the Tribunal was justified in remitting the question of profits
attributable to the Assessing Officer.

2.      We begin with a caveat that a limited issue and question arises for
consideration in these appeals and we are not required and are not
pronouncing any opinion and finding on whether the appellant-assessee
had a Permanent Establishment (PE) in India and other related issues. The
only question and issue raised in these appeals relates to profit attribution
to Indian operations on the assumption that the appellant-assessee had a PE
in India.

3.      By order dated 14th December, 2012, the following substantial
questions of law were admitted for hearing:-

                 "1. Did the Tribunal fall into error in holding that the
                 estimate of 15% fixed in its earlier orders as attributable
                 to the assessee's income arising in India, is inapplicable
                 to the assessment years in question for the reasons
                 mentioned in its impugned order?
                 2.     Did the Tribunal fall into error in departing from
                 its reasoning in the case of the assessee's predecessor for
                 the period 1995-96 to 2000-2003 [sic, 2002-2003]
                 through different orders?
                 3.     Whether the Tribunal fell into error in applying the
                 ratio of Amadeus in disregard of the order of this Court
                 in the concerned appeals?
                 4.     Whether on the facts and in the circumstances of
                 the case and in law the ITAT ought to have held that
                 even if any income of the appellant could be attributed to
                 India, the same stood exhausted by the expense incurred
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                      Page 2 of 17
                 by the appellant in India, resulting in the appellant having
                 no tax liability in India?"





4.      The appellant, a company incorporated in Netherlands at the relevant
time was engaged in the business of providing electronic distribution
services to travel industry through Computerised Reservation System
(CRS). CRS is an automated system which processes booking data and
other data and provides the following functions:-

                 1.       Display flight schedules and seat availability.
                 2.       Display and/or quote airline fare.
                 3.       Make airline seat reservation.
                 4.       Issue airline tickets.
                 5.    Any or all of the functions similar to the above
                 functions in respect of hotel, car and other travel related
                 services apart from air services.
5.      The appellant had maintained computer facility at Denver, Colorado
in USA, which stored the data fed on real time basis on availability of
airlines seats, hotel rooms, car hires, fares etc. The appellant-assessee had
entered into agreements with different airlines, hotels, car hire companies
etc. to enable them to acquire, procure and store data. The said functions
were performed outside India. The aforesaid CRS enabled travel agents
and others who make airline, hotel and car bookings using the data stored
on the appellant-assessee's computer on real time basis by communicating
their requirements online. The data provided information regarding
possible itineraries, availability of seats/room fares etc. and enabled
booking in airlines, hotels etc.

6.      The appellant-assessee has appointed an exclusive distributor in
India, M/s Galileo India Private Limited under an agreement. The said
distributor negotiated and entered into contracts with various travel agents
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                            Page 3 of 17
in India who wished to be connected to the appellant-assessee's CRS and
provided connectivity to them. The appellant-assessee did not physically
carry any operations in India and did not engage or have employees in
India. In order to enable the travel agents in India to connect to the CRS,
the appellant assessee has entered into an agreement with Societe
Internationale         de     Telecommunications   Aeronautiques   (SITA),      an
independent and a separate entity. SITA provided nodes in India which
SITA owned and the travel agents through these nodes remained connected
and established communication link with CRS. As per the agreement with
SITA, the appellant-assessee had to pay costs for connectivity charges
from its data centre in USA to the nodes, which as noticed were owned by
SITA in India. SITA did not own communication lines in India and,
therefore, had procured them from local telephone companies for different
circuits.

7.      Travel agents were paid/remunerated by the airlines for the bookings
on tickets issued using the appellant assessee's data base, CRS .             The
appellant-assessee was also paid/remunerated by the airlines for the
worldwide bookings including bookings made in India. The appellant-
assessee received these payments outside India. The appellant-assessee did
not receive any payment from the travel agents in India. The appellant-
assessee had received Euro 3 for each completed booking from the airline
etc. The appellant-assessee had paid Euro 1 for each completed booking to
their distributor in India.

8.      As noticed above, the sole question and dispute in the present
appeals relate to computation or assessment of the profits/income
attributable to Indian operations, i.e. income earned by the appellant-
assessee through and from their PE in India. Other aspects and issues need
not be examined in these appeals.
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                     Page 4 of 17
9.      The Assessing Officer held that as per Explanation to Section 9(1)(i)
of Income Tax Act, 1961 (Act, in short) where all business operations were
not carried out in India, the income of business deemed as taxable in India
shall only be such part of income as was reasonably attributable to the
operations carried out in India. Article 7(2) of the Indo-Netherlands Tax
Treaty states that only profits attributable to the PE were taxable in the
State where the PE existed. He held that major part of business activity of
the appellant assessee leading to generation of profits attributable to PE in
India was carried out in India observing that fixed place of business was
created by the computer of the travel agent and when passengers booked
tickets through such agents. This had happened on thousands of occasion
on every day basis. The nodes of SITA were located in India, which
enabled the travel agents to have access to the data stored in the CRS of the
computers of the appellant in Denver, USA. In light of the above, three-
fourth of the profit generated from operations in India was attributed to PE
in India and such profit was held to be taxable in India. The exact
reasoning given by the Assessing Officer on the said aspect reads as
under:-

                     "Since a major part of the business activity of the
                     assessee leading to generation of profit is
                     attributable to its permanent establishment in
                     India, attribution of profits is also to be made on
                     this guiding principle. The assessee's PE in India
                     is constituted in India by way of fixed place of
                     business created at the computer of the travel
                     agent, when passengers book tickets and such
                     travel agents, numerous as they are, transact on
                     thousands of occasions on everyday basis. The
                     node of SITA is also located in India which
                     enables the travel agent to access the CRS of the
                     assessee. The servers of the assessee, however,
                     are located in the USA. Similarly, the agency PE
                     created through the distributor is responsible for
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                       Page 5 of 17
                     all the major activities leading to profits to the
                     assessee. The contracts with the travel agents are
                     contracted in India on a regular basis and the
                     distributor has such authority and also procures
                     orders for the assessee on a regular server
                     corporate office and set up a relocated in, are
                     attributable to its set up in the USA.
                          In the light of the above, it is held that three
                     fourth profits generated from India operations are
                     attributable to its permanent establishment in
                     India. The figure of 75% is an estimate adopted
                     on the basis of the examination of the extent of
                     activities carried out in India and the USA."


10.     Commissioner of Income Tax (Appeals) observed that the appellant-
assessee had business connection in India and in terms of Section 9(1)(i) of
the Act, as income from bookings made from India and income was earned
from such operations was deemed to accrue or arise to the appellant-
assessee in India. On the question of attributable income to the Indian
operations, he observed that Functions, Assets and Risk (FAR) Analysis
was undertaken by the Tribunal for the Assessment Years 1995-96 to
1998-99 and the facts for the year under consideration being identical, 15%
of the revenue accruing or arising in India was reasonable attribution
towards income accruing or arising to the appellant-assessee in India and
chargeable under Section 5(2) read with Section 9(1)(i) of the Act. He
further observed that Tribunal had in earlier years held that the payment
made to the Indian distributor (i.e. Euro 1) was more than the income
attributable to India (15% of Euro 3 or Euro 0.45), thus, extinguishing the
appellant-assessee's liability to pay tax. With regard to Circular No. 23
relied on by the Tribunal in the said case it was observed that the
withdrawal would be effective from 22nd October, 2009, i.e., prospectively
and not retrospectively. Thus, the remuneration paid by the appellant-

ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                         Page 6 of 17
assessee to Galileo India Limited, the distributor for the functions carried
out in India, being more than the income attributable to the appellant
assessee's earning from India, extinguished their tax liability. This meant
that the appellant assessee did not have any liability to pay tax in India.
Following the orders in earlier years, the appeals filed by the appellant-
assessee to this extent were allowed by the Commissioner of Income Tax
(Appeals).

11.     Revenue preferred an appeal against the aforesaid findings and the
Tribunal in the impugned order on the issue in question observed as under:-

                 "16. We have heard the rival submissions of both the
                 parties and have gone through the material available on
                 record. The citation relied upon by the Ld. DR relates to the
                 assessment year 2001-02 & 2002-03 and was decided on
                 27.4.2009 i.e. after the earlier order of Hon'ble ITAT dated
                 21st November, 2008. similarly, the Hon'ble Delhi High
                 Court had refused to intervene in both the cases i.e. one
                 filed by the revenue and the other filed by the assessee. In
                 the first case relating to assessee for the assessment years
                 1995-96 to 1998-99 wherein the ITAT had attributed 15%
                 as attributable to operation in India, the High Court had
                 held as under:-
                 "Nothing has been urged before us either on behalf of the
                 assessee - appellant or on behalf of the revenue-respondent
                 to assail the finding of the Tribunal in the supplementary
                 statement of case. The question is as to what proportion of
                 the profit of the sale in categories (a), (b) (c) & (d) arose or
                 accrued in British India is essentially one of the fact
                 depending upon the circumstances of the case. In the
                 absence of some statutory or other fixed formula any
                 finding on the question or proportion involves some
                 element of guess work. The endeavour can only be a
                 approximate and there cannot be in the very nature of
                 things be great precision and exactness in the matter. As
                 long as the proportion fixed by the Tribunal is based upon
                 the relevant material it should not be disturbed.



                 We, therefore, are of opinion that no question of law arises
                 in these matters which needs any further determination by
                 this court."
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                    Page 7 of 17
                 17. In the other case of Amadius IT Group similar
                 controversy has arisen and Ld. AR had relied upon the
                 ITAT order in the case of M/s Galileo International (the
                 assessee in the present case) in I.T.A. No.,108/Del/ dated
                 21.11.2008. However, the Hon'ble Tribunal had rejected
                 the claim of the assessee and had referred back the matter
                 to the file of Assessing Officer for fresh adjudication. The
                 relevant paragraph of Hon'ble Tribunal is reproduced
                 below:-
                 "Apropos the other issue i.e. estimate about the expenditure
                 of profits of PE in India we are unable to accept the
                 contentions of ld. counsels that the issue is covered in its
                 favour inasmuch as, the Tribunal gave above decision on
                 the peculiar facts of that year. Looking at globalization the
                 share of Indian travellers in terms of booking has increased
                 considerably. Besides the extent of assessee's expenses is
                 not known which has been informed that such expenditure
                 cannot be apportioned. In view thereof we are inclined to
                 set aside the issue about the estimate of taxability of India
                 PE back to the file of Assessing Officer to consider our
                 observations and above ITAT and High Court judgment to
                 decide the same afresh in accordance with law and above
                 observations after giving the assessee an opportunity of
                 being heard."
                 18. On assessee's appeal to High Court, the High Court had
                 refused to interfere in the order of ITAT.
                 19. From the facts of the case and from two citations of
                 Hon'ble High Court and Hon'ble Tribunal's order in
                 assessee's own case and in the case of Amadeous Travels
                 (supra), we are of the opinion that an estimate of 15% ratio
                 fixed 10 years cannot be applied now in the name of
                 consistency especially keeping in view the increase in
                 globalization increase in Indian passengers originating from
                 India and the facts that assessee is not in losses. The
                 Income tax proceedings are applicable from year to year
                 depending upon facts of each year and principle of res
                 judicata do not ordinarily apply to income tax proceedings
                 and therefore facts of the case which relate to back to initial
                 for years of setting up of business. Estimate of 10 back
                 years cannot said to be applicable for years to come without
                 considering the change in facts and circumstances. The
                 estimation of profits attributable to Indian operations
                 should ideally be based upon number of bookings
                 originating from India viz-a-viz total bookings in a
                 particular year and consideration of global accounts. That
                 comparison can easily lead to a fair estimation of
                 percentage of total business attributable to Indian
                 operations. Similarly expenditure attributable to Indian
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                   Page 8 of 17
                 operations can be calculated on some sound commercial
                 basis keeping in view the bookings from India or in the
                 alternative the Assessing Officer can calculate net profits
                 attributable to India operations by calculating proportionate
                 net profits of the company with respect to bookings from
                 India viz-a-viz total bookings. With these directions, we
                 remit the matter back to the file of the Assessing Officer for
                 fresh consideration by adopting a reasonable and
                 commercial test for estimation of business attributable to
                 India and net taxable income which could have been said to
                 have accrued to appellant due to bookings from India. To
                 determine the profits attributable to Indian operations,
                 Assessing Officer may verify the global accounts of the
                 assessee."
12.     Appellant-assessee is right in his submission that the Tribunal has
misread the order dated 24th January, 2011 passed by the High Court in
Amdeus IT Group SA case for the Assessment Years 2001-02 and 2002-
03. Tribunal for the assessment years 2001-02 and 2002-03, relying on
their earlier order dated 27th April, 2009 in the case of Amadeus Global
Travel Distribution, Spain relating to Assessment Years 2001-02 and 2002-
03 had issued similar directions but the High Court in appeal had
specifically and clearly rejected the reasoning. In order to appreciate the
contentions, we would first like to refer to the decision of the Tribunal in
the case of Amadeus Global Travel Distribution, who was engaged in the
identical business and were competitors of the appellant-assessee. Appeal
filed by Amadeus Global Travel Distribution for the Assessment Years
2001-02 and 2002-03 came up for hearing before the Tribunal and was
decided by order dated 27th April, 2009. The Tribunal observed that the
High Court had already decided and held that 15% of the operations were
attributable to India but nothing would be taxable as the expenses incurred
were more. In the result, the taxable income of Indian PE was nil as there
were no taxable profits.                 However, in spite of the aforementioned
observations, agreeing with the submissions made by the Departmental
Representatives, Tribunal in order dated 27th April, 2009 held:-

ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                  Page 9 of 17
                 "4. Learned DR, on the other hand, contends
                 that it is not the ratio of the Tribunal that for all
                 years to come there will be no income, inasmuch
                 as the number of travellers in India have hugely
                 increased resulting in an increase in the percentage
                 of share of Indian revenue and profits. Therefore,
                 the ITAT judgment apropos estimation cannot be
                 held as applicable to all the subsequent years. If this test is
                 applied always in that eventuality assessee will not be
                 liable for any tax for all the years to come, this cannot be
                 the proposition of this Tribunal judgment, which is purely
                 on estimate. Since the lower authorities have held all the
                 profits of assessee as taxable in India, they had no benefit
                 of this Tribunal and High Court judgments, the matter may
                 be set aside on this issue back to the file of AO to decide
                 the same afresh taking into consideration the scope of
                 operations of the assessee, the estimate about expenses and
                 Indian share in profitability after duly considering the ITAT
                 and High Court judgment in accordance with law.
                 5.                XXXXX

                 6.      Apropos the other issue i.e. estimate about
                 expenditure of profits of PE in India, we are unable to
                 accept the contention of learned counsel that the issue is
                 covered in its favour, inasmuch as the Tribunal gave above
                 decision on the peculiar facts of that year. Looking at the
                 globalisation, the share of Indian travellers in terms of
                 booking has increased considerably besides the extent of
                 assessee's expenses is not known, it has been informed that
                 such expenditure cannot be apportioned summarily. In
                 view thereof, we are inclined to set aside the issue about
                 estimate of taxability of Indian PE back to the file of AO to
                 consider our observations and above ITAT and High Court
                 judgment to decide the same afresh in accordance with law
                 and above observations after giving the assessee an
                 opportunity of being heard."
13.     What is clearly noticeable is that the reasoning recorded above finds
replication and repetition in the impugned order passed by the Tribunal in
the present appeals. Tribunal in the two orders has highlighted that looking
at globalisation, share of Indian travellers in terms of bookings should have
increased considerably and, therefore, the issue to attribution of profits
required a fresh decision by the Assessing Officer. However, the aforesaid
reasoning was not accepted by the Delhi High Court when the Amadeus IT
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                   Page 10 of 17
Group SA filed appeals being ITA Nos. 1040/2009 and 1041/2009 and it
was held as under:-

                 "The only issue raised in these appeals which are filed
                 by the same assessee but for the different assessment years
                 is as to whether the assessee is running permanent
                 establishment in India or not. We find that all the
                 Authorities below, after considering various facts, have
                 arrived at the finding of fact that the assessee is having
                 permanent establishment in India.

                         However, limited grievance of the learned counsel
                 for the appellant is that even when the Income Tax
                 Appellate Tribunal has accepted that the income chargeable
                 to tax shall be 15% of the income earned in India, in Para 6
                 of the impugned order, the ITAT has sent the matter back
                 to the Assessing Officer to consider the question of
                 apportionment of the expenses. Para 6 reads as under:

                 "6.     Apropos the other issue i.e. estimate about the
                 expenditure of profits of PE in India we are unable to
                 accept the contentions of ld. counsels that the issue is
                 covered in its favour inasmuch as, the Tribunal gave above
                 decision on the peculiar facts of that year. Looking at
                 globalization the share of Indian travellers in terms of
                 booking has increased considerably. Besides the extent of
                 assessee's expenses is not known it has been informed that
                 such expenditure cannot be apportioned. In view thereof we
                 are inclined to set aside the issue about the estimate of
                 taxability of India PE back to the file of Assessing Officer
                 to consider our observations and above ITAT and High
                 Court judgment to decide the same afresh in accordance
                 with law and above observations after giving the assessee
                 an opportunity of being heard."

                         It is not in dispute that as per the judgment of this
                 Court in the case of Director of Income Tax vs. Galileo
                 International Inc. [224 CTR 251], the income to the extent
                 of 15% of the revenues in India is be charged to tax. This
                 income is subject to the deduction of expenditure. We
                 clarify that it is that expenditure which the Tribunal has
                 referred to and not the issue of 15% chargeable to tax.

                        With the aforesaid clarifications, these appeals are
                 disposed of."




14.     Thus, it is clear that the High Court did not approve of the reasoning

ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                 Page 11 of 17
that globalisation would have resulted or would result in change in
attribution of profits per se.                The observation of the Tribunal in the
impugned order to the effect that the Delhi High Court had refused to
interfere with the order dated 27th April, 2009 is factually incorrect and
wrong. The said reasoning was clearly not accepted and overturned by the
High Court.

15.     Not only this, the said determination of quantum of income
attributable to India in the case of the appellant-assessee has been followed
by the Delhi High Court in Assessment Years 1999-2000 to 2002-03 in
order dated 25th September, 2012. Thus, the 15% formula, which was
applied for Assessment Years 1995-96 to 1998-99 has been followed upto
Assessment Year 2002-03. The impugned order in the present case, as
noticed, is dated 29th June, 2012. Appeals for the Assessment Years 1999-
2000 to 2002-03 were decided by the Delhi High Court on 25th September,
2012, i.e., after pronouncement of the order dated 29th June, 2012.

16.     The appellant-assessee has placed on record copy of orders dated
28th April, 2011 in the case of Amadeus Global Travel Distributors, SA in
ITA No. 689/2011, wherein appeal filed by the Revenue was dismissed in
view of the order dated 24th January, 2011 in the case of the present
assessee. Similar appeals for Assessment Years 2004-05 and 2005-06
being ITA Nos. 795/2011 and 797/2011 in the case of Amadeus IT Group
SA were dismissed by the High Court vide order dated 31st May, 2011.

17.     The appellant-assessee has also placed on record orders passed by
the Delhi High Court in the case of Sabre Inc., USA, another non-resident
company engaged in identical business. Their proportionate earnings were
sought to be taxed in India. The appeals filed by the Revenue on the said
aspect have been dismissed. One such appeal relates to Assessment Year
2005-06.
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                           Page 12 of 17
18.     The aforesaid decisions by Coordinate Division Benches are binding
on us and we do not think it will be appropriate to disregard and not follow
the said orders. Appropriately appeals by the Revenue are pending before
the Supreme Court and the issues and questions can be decided there.
Division Benches of the Delhi High Court have specifically rejected the
plea and submission that globalisation by itself mandates and requires
change in 15% formula for attribution profits to Indian PE.

19.     We are aware that each assessment year is separate and distinct and
principle of res judicata does not apply to proceedings for subsequent or
other years. However, decision on an issue or question though not binding
should be followed and not ignored unless there are good and sufficient
reasons to take a different view. Thus, it was/is possible for the Assessing
Officer to depart from the finding or a decision in one year as it is final and
conclusive only in relation to a particular year for which it is made but as
observed in Radhasoami Satsang versus Commissioner of Income Tax,
[1992] 193 ITR 321 (SC), when a fundamental aspect pervading through
different assessment years has been found as a fact in one way or the other,
it would inappropriate to allow the position to be changed in a subsequent
year particularly when the said finding has been accepted.           The said
principle is also based upon the rules of certainty and consistency that a
decision taken after due application of mind should be followed
consistently as this lead to certainty, unless there are valid and good
reasons for deviating and not accepting the earlier decision.

20.     We have already quoted the assessment order on the question of
attribution to ascertain whether there was any attempt by the Assessing
Officer to differentiate or cull out new data and facts on the issue of
attribution of income to the Indian PE. No such attempt and application of
mind was made and undertaken in the assessment order.
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                    Page 13 of 17
21.     In these circumstances, the Sr. Standing Counsel for the Revenue
made specific reference to paragraph 19 of the order of Tribunal and
submitted that there is a distinguishing factor. The estimate of 15% ratio
requires reconsideration because of increase in bookings from India. It was
submitted that the estimate of 15% was made ten years back, therefore,
cannot be considered to be appropriate. The Tribunal has observed that
estimation of profits would be ideally based upon number of bookings
originating from India in comparison with the bookings in a particular year
and on consideration of global accounts. It is not possible to agree with the
said submission for several reasons. Firstly, this is not the basis of the
assessment made by the Assessing Officer. In fact, the Assessing Officer
had mentioned in the assessment orders that the facts and circumstances of
the case remain the same. Foundation and basis should have been first
made in the assessment order. Secondly, the Tribunal in the earlier appeal
in the case of Galileo International Inc. (2008) 19 SOT 257 (Delhi)
relating to Assessment Years 1995-96 to 1998-99 had undertaken the FAR
Analysis and in respect of functions of the appellant-assessee observed:-

                 "9. ...Thus in a given case if all the operations are
                 not carried out in India, the income has to be
                 apportioned between the income accruing in India and
                 income accruing outside India. In the present case, we find
                 that only part of CRS system operates or functions in India.
                 The extent of work in India is only to the extent of
                 generating request and receiving end result of the process
                 in India. The major functions like collecting the database of
                 various airlines and hotels, which have entered into PCA
                 with the appellant takes place outside India. The computer
                 at Denver in USA processes various data like schedule of
                 flights, timings, pricing, the availability, connection, meal
                 preference, special facility, etc. and that too on the basis of
                 neutral display real time on line takes place outside India.
                 The computers at the desk of travel agent in India are
                 merely connected or configured to the extent that it can
                 perform a booking function but are not capable of
                 processing the data of all the airlines together at one place.
                 Such function requires huge investment and huge capacity,
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                   Page 14 of 17
                 which is not available to the computers installed at the desk
                 of subscriber in India. The major part of the work or to say
                 a lion's share of such activity, are processed at the host
                 computer in Denver in USA. The activities in India are
                 only minuscule portion. The appellant's computer in
                 Germany (sic USA) is also responsible for all other
                 functions like keeping data of the booking made worldwide
                 and also keeping track of all the airlines/hotels worldwide
                 that have entered into PCA. Though no guidelines are
                 available as to how much should be income reasonably
                 attributable to the operations carried out in India, the same
                 has to be determined on the factual situation prevailing in
                 each case. However, broadly to determine such attribution
                 one has to look into the factors like functions performed,
                 assets used and risk undertaken. On the basis of such
                 analysis of functions performed, assets used and risk shared
                 in two different countries, the income can be attributed. In
                 the present case, we have found that majority of the
                 functions are performed outside India. Even the majority of
                 the assets i.e. host computer which is having very large
                 capacity which processes information of all the participants
                 is situated outside India. The CRS as a whole is developed
                 and maintained outside India. The risk in this regard
                 entirely rests with the appellant and that is in USA, outside
                 India. However, it is equally important to note that but for
                 the presence of the assessee in India and the configuration
                 and connectivity being provided in India, the income would
                 not have generated. Thus the initial cause of generation of
                 income is in India also. On the basis of above facts we can
                 reasonably attribute 15% of the revenue accruing to the
                 assessee in respect of bookings made in India as income
                 accruing or arising in India and chargeable under
                 Section 5(2) read with Section 9(1)(i) of the Act."


22.     It was this reasoning, which was approved by the Delhi High Court
in ITA Nos. 851/2008 & etc., Director of Income Tax versus Galileo
International Corporation, decided on 25th February, 2009 along with
other ITAs, rejecting the submission of the Revenue that the Tribunal had
erred in attributing only 15% of the said income as attributed to Indian
operations. High Court also rejected the submission that the Tribunal's
finding was erroneous as Double Taxation Avoidance Agreement with
USA advanced attribution of profits and not revenue, observing that the
Tribunal had applied principles of attribution of profits and not revenue. It
ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                                 Page 15 of 17
was specifically held that the Tribunal had undertaken the exercise to
assess what would be attributable to operations in India and thereafter
found that only a small or miniscule part of CRS operations and functions
were performed in India. These were limited to the extent of generating
the request and receiving the result in India. The major functioning, i.e.,
collecting data bases with various airlines, hotels etc. and entering or
feeding them into the computer took place outside India. It was in the
computer in Denver, USA that various processed data with regard to
schedule of flights timing, pricing, availability, meal preference, special
facilities etc. was stored and process undertaken. The role performed by
the computers in India or the Indian agents was to merely get connected or
be configured so that the travel agents could perform the booking function.
The computers in India were not capable of processing data, which was
processed abroad. Further, the functions required huge investment and
capacity, which was not installed and available in the computers at the desk
of the travel agents in India but were available in the host computer in the
USA. Thus, it was looking at the nature and the character of the functions
undertaken in India viz., the functions and assets outside India, 15% was
attributed to India. (Aspect of risk has not been discussed but it has never
been the case of the revenue that risk factor tilts the scale for higher
attribution of income to Indian PE). This worked out to Euro 0.45 and this
was less than the commission of Euro 1, which was paid by the appellant-
assessee to the distributor in India.              There was substantial difference
between expense of Euro 1 and attribution of Euro 0.45, as an income,
which left a gap of Euro 0.55 per booking.

23.     It has been rightly submitted on behalf of the appellant that there is
another error in the reasoning given in paragraph 19. The Tribunal has
wrongly observed that earlier appellant-assessee was in losses. There is no

ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                         Page 16 of 17
such finding in the earlier orders. The appellant-assessee was maintaining
globalised accounts and India specific attribution of profits/losses was not
undertaken in the accounts being maintained.

24.      In view of the aforesaid position, the questions Nos. 1 and 2 have to
be answered in favour of the appellant-assessee and against the Revenue.
Similarly, it has to be held that the Tribunal fell in error in applying the
ratio of Amadeus case without noticing the decision of the Delhi High
Court. Question No. 4 need not be answered in view of the discussion on
question Nos. 1 and 2. The earlier decisions of the Delhi High Court
would equally apply as there was no change in circumstances highlighted
and brought out in the assessment orders.

25.     The appeals are accordingly disposed of. No costs.



                                                     (SANJIV KHANNA)
                                                         JUDGE



                                                   (V. KAMESWAR RAO)
                                                          JUDGE
August 25th, 2014
VKR/kkb




ITA Nos. 654/2012, 656/2012, 659/2012 & 661/2012                    Page 17 of 17

 
 
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