CIT Vs Amadeus It Group Sa (Delhi High Court)
The Delhi High Court recently made a decision in the case of CIT vs. Amadeus IT Group SA, where it declined to entertain certain issues raised in appeals filed by the appellant, the Commissioner of Income Tax (CIT). The primary reason for dismissing these issues was that they had not been raised before the statutory authority, rendering them ineligible for consideration by the court.
Introduction: In this case, the appellant, the Commissioner of Income Tax (CIT), had filed appeals related to the assessment years 2017-18 and 2019-20. The appeals challenged a common order issued by the Income Tax Appellate Tribunal (ITAT) on September 13, 2022. The key contention in these appeals revolved around the determination of profit attributable to the Permanent Establishment (PE) of the Assessee in India.
Detailed Analysis:
The issues presented in the appeals included the following:
1. Whether the ITAT erred in adopting a figure of 15% for determining the profit attributable to the PE of the Assessee in India?
2. Whether the ITAT erred in allowing the appeal of the assessee regarding income from royalty under the head of income from Alten Suite?
3. Whether the ITAT erred in determining that the booking fee received by the assessee is taxable as business income and not under the head of Royalty?
4. Whether the ITAT erred in attributing only 15% of the revenue as income accruing/arising in India without appreciating the legal position regarding the attribution of profit to the PE under the India-Spain Double Taxation Avoidance Agreement (DTAA)?
5. Whether the ITAT erred in not considering the rejection of FAR (Functions, Assets, and Risks) analysis as a basis for attributing profit to PE by India?
6. Whether the ITAT erred in not appreciating the difference between the allocation of income under Article 9 between Associated Enterprises (AEs) and the attribution of profit to PE under Article 7?
7. Whether the ITAT erred in not recognizing that Indian DTAs adopt formulary apportionment for determining Arm’s Length profit of the PE?
During the proceedings, it was revealed that while issues 1 to 3 were similar to those in a previous decision, the remaining issues (4 to 7) had not been raised before the statutory authorities during the initial proceedings. The counsel for the CIT argued that the Functions, Assets, and Risks Analysis (FAR analysis) should not have been applied, and the statutory authorities had relied on Rule 10 of the Income Tax Rules, 1962. However, it was acknowledged that this argument had not been presented before the statutory authorities.
Conclusion: In light of the failure to raise key issues (4 to 7) before the statutory authorities during the initial proceedings, the Delhi High Court declined to entertain these issues in the appeals. Consequently, the appeals were closed, and the court did not express any opinion on the merits of these unraised issues.
This case serves as a reminder of the importance of presenting all relevant arguments and issues before the statutory authorities during the initial proceedings, as failing to do so may result in the court’s refusal to entertain these issues in subsequent appeals.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to just exceptions.
CM APPL. 44806/2023 in ITA 489/2023 [Application filed on behalf of the appellant seeking condonation of delay of 170 days in re-filing the appeal]
CM APPL. 44810/2023 in ITA 490/2023 [Application filed on behalf of the appellant seeking condonation of delay of 170 days in re-filing the appeal]
2. These are applications filed by the appellant/revenue seeking condonation of delay in re-filing the appeal.
3. According to the appellant/revenue, there is a delay of 170 days in re-filing the appeal.
4. Counsel for the respondent/assessee says that she would have no objection if the delay is condoned.
5. For the reasons given in the applications, the delay in re-filing the appeals is condoned.
6. The applications are disposed of.
ITA 489/2023
ITA 490/2023
7. These are appeals concerning Assessment Year (AY) 2017-18 [in ITA 489/2023] and AY 2019-20 [in ITA 490/2023].
8. These appeals seek to assail a common order dated 13.09.2022 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
9. Mr Ruchir Bhatia, learned senior standing counsel who appears on behalf of the appellant/revenue, informs us that the questions of law proposed in these appeals are also similar.
10. Therefore, for disposal of the aforementioned appeals, the questions of law as set out in ITA 489/2023 are extracted hereafter:
“2.1 Whether in the facts and in the circumstances of the case, the Ld. ITAT erred in law in adopting a figure of 15% for determination of profit attributable to the PE of the Assessee in India?
2.2 Whether in the facts and in the circumstances of the case the Ld. ITAT erred in law in allowing the appeal of the assessee on the issue of income from royalty under the head income from Alten Suite?
2.3 Whether in the facts and in the circumstances of the case the Ld. ITAT erred in law in determination of booking fee received by the assessee is taxable as business income and not under the head Royalty?
2.4 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred in attributing only 15% of the revenue as income accruing/arising in India without appreciate the legal position that there is no legal basis to attribute profit to the PE under Article 7 of India-Spain DTAA on the basis of function performed, asset used or risk assumed?
2.5 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred in not appreciating the fact and law that FAR analysis as a basis of attribution of profit to PE have been rejected by India by making specific reservation which is stated in Para 1.1 of reservation of non-OECD Countries OECD Model Tax Convention?
2.6 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred in not appreciating the fact that allocation of income under Article 9 between AEs is different from attribution of profit to PE under Article 7 as the former applies FAR analysis whereas the latter is not?
2.7 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred in not appreciating the legal position that Indian DTAAs adopt formulary apportionment for determination of Arm’s Length profit of the PE by following ‘relevant business entity’ approach instead of “functionally separate entity approach and the IT rule 10 is accordingly designed to determine the profit attributable to the PE?”
11. Mr Bhatia does not dispute the fact that the proposed questions 2.1 to 2.3 are covered by the decision rendered on 04.05.2023 in a bunch of appeals, one of which is numbered as ITA 254/2023, titled The Commissioner of Income Tax-International Taxation-1 v. Amadeus IT Group SA 2023: DHC: 4326-DB.
12. Having regard to the said order, no substantial question of law arises insofar as the aforementioned proposed questions are concerned.
13. As regards the remaining proposed questions i.e., those set out in 2.4 to 2.7, Mr Bhatia says that Functions, Assets and Risks Analysis [in short, “FAR analysis] should not have been applied in ascertaining attribution of profit.
14. According to Mr Bhatia, the statutory authorities have taken recourse to rule 10 of the Income Tax Rules, 1962 [in short, “Rules”].
15. On being queried, Mr Bhatia does concede that this aspect was not urged before the statutory authorities. Since this aspect was not argued before the statutory authorities, we are of the opinion that in these appeals, the questions of law as proposed in paragraphs 2.4 to 2.7 cannot be entertained.
16. Consequently, the above-captioned appeals are closed.
17. Parties will act based on the digitally signed copy of the order.
