Where assessee has dependent agent & fixed place of business in India he is deemed to be PE as per Article 5 (1) of Indo US tax treaty

Brief of the case:

In the case of Travelport LP USA Vs. DDIT Delhi Bench of ITAT observed that assessee has a dependent agent in form of distributor in India and held that assessee has a business connection in India u/s 9(1) (i) of the act and its income is deemed to accrue or arise in India.

Facts of the case:

• Assessee is a Limited partnership based in the State of Delaware, USA, having its principal place of business at Georgia. It is engaged in the business of providing information, reservations, transaction processing and related services for airlines, Travel agencies and other travel-related entities.
• Assessee owns and operates a Global Distribution System located outside India known as computerized reservation system(CRS) and provides subscribers with access to and use of this GDS.
• Assessee has entered into agreement World Span services Ltd. (WSL), which is 100% subsidiary of the assessee, to market the CRS and other services of assessee in UK, Europe, the Middle East, Africa, and parts of Asia.
• The worlds Span Ltd. was marketing and distributing CRS through its nonexclusive representative Calleo Distribution Technologies Pvt. Ltd. in India. For this, WSL and Calleo entered into an agreement appointing Calleo as the distributor of WSL for CRS.
• Assessee filed its return of Income declaring income at NIL on the basis that

(a) There is no business connection of assessee in India u/s 9(1) (i) of the Income Tax act as the calleo carrying out activities in India as per nonexclusive Representation agreement with WSL.

(b) Assessee does not have Permanent establishment In India as per Indo US DTAA.

(c) Assuming while denying the PE of the assessee in India, as Caello has been remunerated at 57 % of the revenue; no further income can be attributed to such PE.

• AO assessed the income after deducting the commission paid to Calleo at Rs. 8,18,22,849/-.

Contention of the revenue:

• Assessee has a permanent establishment in India in the form of equipment installed at the location of travel agents in India as well as its dependant agents in the form of Calleo as distributor. Reliance was placed on the decision of Delhi ITAT in case of Galileo International Inc. v. CIT [2008] 19 SOT 257 (Delhi) where it was held that assessee has a business connection in India u/s 9(1) (i) of the act and its income is deemed to accrue or arise in India.
• Quantum restricted to 15 % of revenue as profit attribution and further allowing expenses form the revenue so attributed to PE.

Contention of the assessee:

• Calleo is a distributor of worlds span services Ltd. therefore there is no connection of assessee.
• Assessee is the tax resident of USA it is entitled to take benefit of India- USA Double Taxation avoidance agreement.
• Assessee does not have any fixed place of business in India and its activities do not fall under any of the clauses of Article 5 of DTAA, therefore it does not have permanent establishment (PE) in India, hence in absence of PE it does not have any taxable income in India.
• In any way the 15 % income attributed to its PE is excessive and exorbitant.

Held by CIT (A):

• Assessee is held to have a business connection in India hence in terms of Section 9 (1) (i) income from booking made from India and income from such operations deemed to operator arise to the appellant in India.
• In view of the decision of ITAT in case of Galileo International Corporation vs. DCIT 15% of the revenue accruing or arising from the bookings made in India is held as reasonable attribution of revenue in the hence of the appellant is chargeable u/s 5(2) read with section 9(1)(i) of the Act.
• Since the remuneration paid by appellant to Calleo for the functions performed in India which is more than income attributable to the assessee its liability to tax in India extinguishes
• The access to CSR provided by the appellant to subscribers constituents fixed place of business i.e. PE as per para 1 of Article 5 of DTAA.
• Calleo has habitually exercised the authorities to conclude contracts on behalf of the appellant and therefore is a dependent agent of the appellant according to the Article 5 (4) (a) of the DTAA.
• 15% of the revenue generated from the bookings made within India is the revenue attributed to the PE. Since the payment to the agent in India is more than the revenue in attributable to the PE in India, no further tax liability arises on assessee.

Held by ITAT:

• Honourable Delhi High Court has upheld the decision of ITAT Delhi in Galileo International Inc Vs. DDIT in 116 ITD 1 vide order in DIT v. Galileo International Inc. [2009] 336 ITR 264( DELHI) where following observation were made:

(a) Assessee has business connection in India U/s 9 (1) (i) of the Income tax Act and therefore income accruing or deemed to accrue or arise in India on account of such business connection shall be chargeable to tax India u/s 5 (2) of the income tax act in the hands of the non-resident assessee.

(b) The Assessee has a permanent establishment in India in terms of fixed place of business within the meaning of Article 5 (1) of the Indo US tax treaty. Further It has also agency PE in terms of article 5 (4) (a) of the treaty as assessee has dependent agent in form of distributor in India.

(c) 15 % of Gross revenue of the assessee shall be profit attributable to the PE of the assessee in India and as the Indian agent is remunerated more than the revenue attributable to the PE of the assessee tax liability of assessee extinguishes.

• Respectfully following the observation of Hon’ble HC case of assessee was decided accordingly.