Airline Computerised Reservation System (CRS) distribution agreement -- PE (Permanent Establishment) existence -- ALP remuneration extinguishes further attribution of income -- Allowability of expenses against PE

Facts:

Assessee a non-resident UK entity of its Dutch parent was incharge of airline CRS distribution system to India and to rest other countries. A distribution agreement was made by assessee with one Inter globe technology quotient private limited (ITQPL) for which 25% of revenue from CRS was to be paid as distributor margin. It was the stand of the revenue that an agency PE arose thru ITQPL in India for the assessee and attribution of income was made at 10% of CRS revenue. Against the PE expenses were also not allowed. This reached the ITAT on appeal by the assessee -

Held partly in favour of the assessee that based on earlier year order a PE does exist in India for the assessee. Attribution will be based on earlier years @ 15% of the CRS revenue. Entire expenses are allowable against this 15% revenue. Because the assessee was remunerating the alleged agency PE - ITQPL @ 25% of CRS revenue (more than the decided 15%) no further attribution is possible in India if agent is remunerated more than the Arm's length price (ALP).

Ed. Note:The yo-yo of decisions in earlier years and the High Court order, SLP dismissal etc. indicate that if there is a PE read by revenue then let revenue establish the attribution percentage first and then review if PE existence supposes further risk in India. This was the strategy adopted by the assessee on this vexed issue of PE attribution.

Case: Travelport International Operations Ltd. v. ACIT 2023 TaxPub(DT) 774 (Del-Trib)