Attribution of income of a PE - whether a question
of law?
Facts:
Assessee
was providing airline computerized reservation systems. A place and agency PE
was read by the tax authorities. The assessee was getting paid USD 3/EUR 3 per
booking and they were remunerating the agents almost USD 1/EUR 1 or more in
certain cases. On facts, the tax authorities upheld a 15% attribution of the
income at USD 0.45/per reservation based on Functional, risk analysis (FAR).
The case of the assessee was once the agent/PE was remunerated beyond the Arm's
length computed by tax authorities at USD 0.45/reservation, no further
attribution of income is possible in India. This was upheld by the ITAT and on
appeal the high court dismissed the plea of the revenue that the attribution
was done erroneously. Aggrieved by this high court order revenue went in higher
appeal to SC -
Held
against the revenue, the issue of existence of a PE is a fact and the arm's
length pricing and the remuneration to the agents @ 15% was also a fact.
No question of law arises on this. The order of High court and ITAT was
upheld.
Ed. Note:
This case of computerized reservation first in the case of Gallelio and
then by Travelport for many years was a vexed issue. Now this verdict
has set right that what is fact cannot be going in appeal as question of law to
high court or to Apex court.
Parallel
to this verdict recently the SC also has upheld that the computation of arm's
length price can be appealed as a question of law especially if the ground
rules of computation are not adequately followed. Refer Flash No.
142/2023/Sap Labs India Private Limited v ITO/Civil Appeal No. 8463 of 2022
(Arising from S.L.P.(Civil) No.28652/2018)/SC/19.04.2023 : 2023 TaxPub(DT) 2471
(SC)
Case: DIT v. Travelport Inc. 2023 TaxPub(DT) 2563 (SC)