Indian Hotel Support Services Do Not Create Expedia’s Dependent Agent PE: ITAT Delhi

By CA Sandeep Kanoi Income Tax Judiciary October 29, 2026

TaxGuru Citation: 2026 taxguru.in 17193
Case Name: Expedia Lodging Partner Services Sarl Vs ACIT (ITAT Delhi)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2022-23
Courts: All ITAT, ITAT Delhi

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Expedia Lodging Partner Services Sarl Vs ACIT (ITAT Delhi)

Background and Nature of Business: The Income Tax Appellate Tribunal, Delhi Bench, examined whether Expedia Online Travel Services India Private Limited (EXP-IN), an Indian associated enterprise of Expedia Lodging Partner Services Sarl (ELPS), constituted a Dependent Agent Permanent Establishment (DAPE) of the Swiss company under Article 5(5) of the India–Switzerland Double Taxation Avoidance Agreement (DTAA). ELPS, a company incorporated in Switzerland, was engaged in providing lodging-related services through the Expedia Group’s online travel platform. Under its hotel-collect model, travellers made payments directly to lodging suppliers, while ELPS earned commission from those suppliers. During Assessment Year 2022-23, the assessee received ₹12,88,18,444 as commission from Indian lodging suppliers and filed its return declaring nil taxable income in India, contending that its business profits were not taxable in the absence of a permanent establishment. The assessee operated with support from two Indian associated enterprises: Hotels.com India Private Limited, which assisted with commission collection, and EXP-IN, which provided contract software development, account management, administrative and lodging-supplier support services. The central controversy concerned whether EXP-IN’s involvement with Indian hotel partners extended beyond support activities to the exercise of contractual authority on behalf of the Swiss enterprise.

Assessment Proceedings and Profit Attribution: The Assessing Officer concluded that EXP-IN was performing important commercial functions connected with the assessee’s business, particularly negotiating and concluding agreements with Indian lodging suppliers. Relying on information collected under Section 133(6) of the Income Tax Act, 1961, communications involving Taj Hotels and Hotel Vellara, and publicly available information, the AO held that employees of EXP-IN were actively participating in contractual negotiations on behalf of ELPS. Accordingly, the AO treated EXP-IN as a DAPE under Article 5(5) of the India–Switzerland DTAA. For determining taxable profits, the AO applied a profit margin of 5.75% to the Indian commission receipts, arriving at ₹74,06,831, and attributed 60% of that amount, equivalent to ₹44,44,098, to the alleged Indian permanent establishment. The amount was subjected to tax at 40%. The Dispute Resolution Panel upheld the assessment, resulting in the final assessment order dated 15 January 2025 under Sections 143(3) and 144C(13). Aggrieved by the determination of DAPE and attribution of profits, the assessee approached the ITAT Delhi.

Assessee’s Arguments Regarding Contractual Authority: The assessee maintained that EXP-IN operated under a principal-to-principal service arrangement and was remunerated at arm’s length for its functions. Its employees were responsible for communication, account management, information gathering, administrative assistance and implementing commercial decisions already taken by overseas leadership. The assessee explained that hotel partners were divided into Hotel Enterprise Partners (HEP), comprising larger hotel chains requiring customised agreements, and Hotel Market Partnerships (HMP), comprising independent properties operating through standardised online contracts. For HEP partners, essential commercial decisions were taken by senior executives in Switzerland, the United States and Singapore. Indian personnel merely conveyed approved terms, coordinated correspondence and forwarded requests for further approval. In the case of HMP partners, contractual terms were predetermined and agreements were generally completed through automated electronic registration. The assessee specifically argued that neither participation in communications nor administrative assistance amounted to authority to negotiate and enter into contracts within the meaning of Article 5(5). It also pointed out that the AO had relied on responses from only three hotel partners despite the existence of approximately 10,500 hotel partners in India.

Revenue’s Arguments and Reliance on Commercial Correspondence: The Revenue contended that the actual conduct of EXP-IN employees demonstrated their involvement in substantive negotiations and that the description of their activities as support services did not reflect commercial reality. Particular reliance was placed on correspondence involving Ms. Kanupriya Joshi, an employee of EXP-IN who communicated with Taj Hotels regarding contractual arrangements, and Ms. Namita Khuntia, who interacted with Hotel Vellara. According to the Department, emails addressed to Indian employees and their participation in preparing contractual documents established that they were integral to the negotiation process. The Revenue argued that contractual authority need not necessarily involve formally signing the agreement and that negotiating essential terms could itself satisfy the treaty requirement. It relied on the Delhi High Court’s decision in GE Energy Parts Inc. v. CIT (International Taxation) to support this interpretation. The Department also disputed the assessee’s reliance on functional, asset and risk analysis for profit attribution and defended the application of Rule 10 of the Income-tax Rules, 1962. It further argued that the bilateral advance pricing agreement concerning EXP-IN did not automatically determine the tax liability of the Swiss assessee.

Tribunal’s Examination of Emails and Hotel Agreements: The Tribunal closely examined the contractual arrangements, delegation of authority, email correspondence, hotel agreements and third-party responses. It found that the evidence did not establish that Indian employees possessed independent authority to determine essential commercial terms or conclude agreements on behalf of ELPS. In the case of Taj Hotels, the correspondence showed that commercial decisions, including marketing commitments and other non-standard contractual conditions, required approval from senior executives outside India. Ms. Kanupriya Joshi communicated approved proposals, transmitted feedback and sought instructions from overseas management. The Tribunal observed that the ELPS President had personally participated in negotiations with the CEO of Taj Hotels and remained involved in approving commercial commitments. Similarly, the evidence relating to Hotel Vellara established that registration and contractual execution occurred through an online portal, rather than through the independent exercise of contractual authority by Indian employees. The Tribunal found that the AO had selectively relied on portions of communications without adequately considering the complete correspondence and the overseas approval process. The documentary evidence supported the assessee’s contention that the Indian employees performed liaison, administrative and account management functions.

Interpretation of Article 5(5) and Judicial Precedents: The Tribunal emphasised that Article 5(5)(i) of the India–Switzerland DTAA required the Revenue to establish that a person acting for or on behalf of the foreign enterprise had and habitually exercised authority to negotiate and enter into contracts. Merely participating in preliminary discussions or communicating contractual proposals was insufficient unless the evidence demonstrated actual authority over essential commercial terms. Referring to eBay International AG v. ADIT, (2012) 25 taxmann.com 500 (Mumbai), the Tribunal observed that Indian entities performing marketing, payment collection and administrative functions did not necessarily constitute a DAPE where contractual authority had not been established. It also distinguished GE Energy Parts Inc. v. CIT (International Taxation), (2019) 101 taxmann.com 142 (Delhi), explaining that the decision recognised the possibility of a DAPE where Indian personnel exercised substantive authority over essential contractual matters, even if formal approval or signing occurred abroad. However, GE Energy did not establish that every employee participating in negotiations automatically created a DAPE. In Expedia’s case, the evidence did not demonstrate that Indian personnel exercised such substantive authority.

Habitual Exercise of Authority, BAPA and Arm’s-Length Remuneration: The Tribunal further held that the Revenue had failed to establish the independent requirement of habitual exercise of contractual authority. An isolated negotiation involving Taj Hotels could not, without supporting evidence of recurring conduct, establish the existence of a DAPE across the assessee’s Indian operations. The AO had not demonstrated that Indian employees regularly negotiated essential terms such as commission percentages, room-rate arrangements, marketing commitments, cancellation provisions, inventory obligations or payment conditions. The Tribunal also considered the Bilateral Advance Pricing Agreement (BAPA) material relating to EXP-IN, under which the functions performed by the Indian entity had undergone examination by the competent authorities. The assessee had relied on the agreed arm’s-length remuneration for covered support services, including an operating margin of 17.15% for non-CSD services, to oppose further attribution of profits. Importantly, however, the Tribunal rejected the proposition that payment of arm’s-length remuneration automatically prevents the existence of a DAPE. It clarified that PE existence and profit attribution are separate legal questions. An Indian associated enterprise may receive arm’s-length remuneration and nevertheless constitute a DAPE if the independent requirements of Article 5 are satisfied. Arm’s-length compensation becomes particularly relevant when determining profits attributable to an established PE.

8. Final Findings and Decision: On a cumulative examination of the intercompany agreement, delegation and approval arrangements, contemporaneous emails, responses obtained under Section 133(6), executed hotel contracts and BAPA material, the ITAT concluded that EXP-IN’s employees were engaged in communicating pre-approved commercial terms, liaison, account management and support functions. The Revenue had failed to establish that they possessed and habitually exercised authority to negotiate and enter into contracts for or on behalf of ELPS. Consequently, EXP-IN did not constitute a Dependent Agent Permanent Establishment of the Swiss assessee in India under Article 5(5)(i) of the India–Switzerland DTAA. The Tribunal allowed Ground No. 5 challenging the existence of DAPE. Since no DAPE was established, the separate dispute concerning attribution of ₹44,44,098 to the alleged permanent establishment became academic and required no adjudication. Grounds Nos. 2 and 3 were dismissed as not pressed, the issue of interest under Section 234B was treated as consequential, and the objection concerning penalty proceedings under Section 270A was regarded as premature. Accordingly, the assessee’s appeal was partly allowed by order pronounced on 21 September 2026.

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