Amadeus IT Group SA v. Asstt. DIT [ITA No.
4906/Del/2010, ITA No. 5150/Del/2011, ITA No. 60/Del/2013, ITA No.
1824/Del/2014, ITA No. 1204/Del/2015, ITA No. 1626/Del/2016, dt. 26-10-2020] :
2020 TaxPub(DT) 4452 (Del-Trib)
Computerized reservation system in aviation sector --
PE-attribution of income -- DAPE
Facts:
1. Assessee a non-resident Spanish Company in the domain of
CRS for airlines was held to be having a place PE by virtue of the remote
computers and a Dependent Agency PE (DAPE) by virtue of its Indian subsidiary
AIPL (Amadeus India Pvt. Ltd.) performing certain marketing functions. The same
was also upheld by the Del HC in assessee's own case of ITA Nos. 191, 192,
193/2011 applying DIT v. Galileo International Inc. (2009) 224 CTR 251
(Del) : 2009
TaxPub(DT) 1488 (Del-HC). Accordingly the percentage of
attribution was confirmed at 15%. The assessee was remunerating 33% to the
Indian arm for its activities. It was the case of the assessing officer that
since the degree of control and scope of the entity has got changed in its
ambit the attribution be done of 75% of the income from India which was at Rs.
1,452 million thus the attributed income was held to be Rs. 1,089 million.
Assessee's counter was since the percentage of attribution was already decided
by the high court @ 15% no disturbance of it be done especially when there was
no change of events/circumstances and since the payment to the DAPE was 33%
there cannot be any taxable income attributable in their hands any further. A
further reasoning of revenue was that the CRS fee was also taxable as royalty.
This was the moot point of the appeal before the ITAT.
2. A specific type of reservation software of assessee was
used exclusively by British Airways and it was the departmental plea that the
same be taxed as royalty given the amended definition under the act. On higher
appeal --
Held in favour of the assessee that once their attribution
based on their functional risk analysis was fixed @ 15% no further attribution
is called for. Since the agency commission/marketing fee to the Indian arm AIPL
(DAPE) was @ 33% there can be no further attribution possible as no income
remained in the hands of the non-resident out of the attributed Indian income.
The decision of the assessee's own case was relied upon and affirmed.
As for the British Airways Reservation Software, it was
held that the treaty definition cannot be super imposed with a unilateral
amendment in the Income Tax Act and thus the same cannot be taxed as royalty.
Editorial Note:
Reference be made to Sabre
Asia Pacific Pte. Ltd. v. DCIT/A.Y. 2013-14/ITA No. 4968/Mum/2017/Favour of the assessee/dated 8-7-2020
especially the editorial comments on the same which is appended as under.
The attribution of income arrived is gross income against
which genuine expenditure should be allowed is a golden rule which is what has
been applied in this case. However in this case the attribution was applying
rule 10 @ 10% and in earlier years @ 15%. A claim by department to remand to
assessing officer to examine attribution on (FAR) Functional and risk analysis
basis was negated by the ITAT in earlier years. It sounds odd to have attribution
of income @ 10% with commission payout being @ 25%. The resultant will always
be a loss as the decision shows unless volumes/yields make up for the gap.
Either the attribution percentage was incorrect or there was no need for the
attribution. If revenue were to do such attributions it is not unusual of
assessee's to adopt such smart tax planning tactics.
A calculation of additional tax on attributable income vs.
the tax outflow of service tax/GST on the commission and marketing fee payouts
(which also should be normally tax neutral due to availability of set off of
input credit with only timing impact besides working capital cost) less lower
tax in hands of NMC subsidiary saved due to these expenses should have been the
logical arithmetic for assessee to come to such a conclusion with the resultant
benefit being more than the cost.
The 25% commission and marketing fee virtually made the
income attribution/TP addition virtually impotent. Even if TP disallowance was
made in hands of the NMC for the commission or marketing fee being excessive
the case appears tax neutral as the existence of PE in India would enable the
PE to reduce that much expense from its books so only the differential rate of
tax between resident to non-resident becomes gain to revenue. Then there are
other issues like the 25% does not look unusual in CRS or in travel industry.
Perhaps the 25% was taken into account certain volumes which did not
crystallize as well. The ITAT decisions referred for earlier years of the
assessee are in appeal before high court pending adjudication.