Onus on Revenue demonstrate that PE of A Foreign Enterprise Exists In India

International Air Transport Association (Canada) Vs ACIT (ITAT Mumbai)

At this stage, we may herein observe that as in the present case before us, in the case of Delmas France (supra) also there was no finding of the lower authorities that the transactions between the principal and agent were done in arm’s length conditions. Under such circumstances, the Tribunal relying on the order of the ^‘Special bench’ of the Tribunal in the case of Motorola Inc. Vs. Dy. CIT (2005) 95 ITD 269 (Del)(SB), had held, that the onus was on the Revenue to demonstrate that a PE of the foreign enterprise exists in India. In its aforesaid order it was observed by the Tribunal, that in the case before them, the onus was even greater inasmuch the very foundation of DAPE did rest on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. “if it is shown that the transactions between the agent and the enterprise were not made under arm’s length conditions”. As such, in the absence of any such negative finding being available on record, it was observed by the Tribunal that it could not be inferred that the agent was not of an independent status. Further, noticing that neither any such finding was given by the A.O or by the Dispute Resolution Panel, nor in the course of the proceedings before the Tribunal any material was brought on record which could at least prima facie demonstrate, or even indicate, that the transactions between the principal and agent were not under arm’s length conditions, the Tribunal concluded that it was to be held that the assessee did not have any PE in India. We may herein observe, that the Tribunal taking cognizance of the fact that there was nothing on record to even remotely suggest a prima facie case that the transactions between the foreign enterprise and the agent were not at arm’s length, had thus, declined to remand the matter and allow a fresh inning to the A.O for making roving and fishing enquiries on the aspect of transactions not having been done in arm’s length conditions. On further appeal, the Hon’ble High Court approved the view taken by the Tribunal. In the case before us also neither the lower authorities had established that the transactions between the assessee viz. IATA, Canada and the ATC’s were not done under arm’s length condition, nor any material was placed on our record by the ld. D.R to demonstrate any such fact. Accordingly, in the absence of any finding by the lower authorities that the transactions between the assessee and the ATC’s were not at arm’s length, we thus on a similar footing conclude that as per a conjoint reading of Article 5(4) and Article 5(5) of the India-Canada tax treaty, the ATC’s being an independent agent within the meaning of Article 5(5) of the India-Canada tax treaty could not have been held to be the DAPE of the assessee in India.

FULL TEXT OF THE ITAT JUDGEMENT

The present cross-appeals arises from the order passed by the A.O under Sec. 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short ^„Act’), dated 30.12.2015. The assessee has assailed the impugned order on the following grounds of appeal before us:

“Based on the facts and in the circumstances of the case and in law, the Appellant respectfully craves leave to prefer an appeal against the order passed by the Deputy Commissioner of Income tax (International taxation) – 2(2)(1), under Section 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (‘Act’) (‘Assessment order’), in pursuance of the directions issued by Dispute Resolution Panel – I (‘Hon’ble DRP’), Mumbai, on the following grounds:

On the facts and circumstances of the case and in law, the Learned AO, based on the directions of the Hon’ble DRP has:

Ground No. 1 – General ground

Erred in determining the total taxable income of the Appellant at Rs.24,51,25,623/- and computing tax and interest payable thereon at Rs.7,42,29,180/-.

Ground No. 2 – Provision of distance learning courses

a. Erred in treating the Authorized Training Centers (‘ATCs’) to be the dependent agent permanent establishment (‘PE’) of the Appellant in India under Article 5(4) of the India – Canada tax treaty and accordingly, taxing the revenues of Rs.12,12,38,736 received by the Appellant on account of sale of distance learning courses as being in the nature of ‘business profits’ under Article 7 of the India – Canada tax treaty.

b. Without prejudice to the above, erred in not appreciating that the income received by the Appellant on account of sale of distance learning courses cannot be said to be attributable to India, considering that the activity relating to the distance learning courses has been undertaken by the Appellant outside India.

c. Without prejudice to the above, erred in assuming that the entire revenues received by the Appellant from sale of distance learning courses in India is from ATCs, without appreciating the fact that the said revenues also include revenue directly received from students in India.

d. Without prejudice to the above, even assuming (without admitting) that the Appellant has a dependent agent PE in India, erred in:

i. Arbitrarily attributing 40% of the gross receipts of the Appellant on account of sale of distance learning courses as income attributable to the dependent agent PE in India; and International Air Transport Association (Canada) Vs. The Asst. Commissioner of Income-tax (I.T)-2(2)(1), Mumbai The Asst. Commissioner of Income Tax Act (I.T)-2(2)(1),Mumbai Vs. International Air Transport Association (CANADA)

ii. Arbitrarily and on an ad-hoc basis estimating the profits at 100% of the gross receipts attributed to the dependent agent PE of the Appellant on account of sale of distance learning courses.

e. Without prejudice to the above, erred in holding that the entire income received by the Appellant on account of sale of distance learning courses is alternatively taxable as royalty, both under the Act and the India – Canada tax treaty.

Ground No. 3 – Sale of physical publications (ie, DGR manuals)

Erred in taxing the income from sale of physical publications (ie, DGR manual) as ‘royalty’ Erred in income under Article 12 of the India – Canada tax treaty, as being in the nature of information concerning any industrial, commercial or scientific experience.

Ground No. 4 – Application fees for sale of DGR manuals

Erred in taxing the application fee received for DGR manuals/ publications (which was inadvertently offered to tax as ‘Collection of royalties from ATS’) as ‘royalty’ income under Article 12 of the

India – Canada tax treaty, as being in the nature of information concerning any industrial, commercial or scientific experience.

Ground No. 5 – Provision of advertising space on websites and publications

Erred in taxing the receipts from provision of advertising space as ‘royalty’ income under the Act and Article 12 of the India – Canada tax treaty, on the ground that the customers use the logo, brand and goodwill of the Appellant by advertising on the Appellant’s website and publications.

Ground No. 6 – Collection of membership fees, BSP Link charges and fees for IATA Clearing House facility’ (‘ICH facility’)

In relation to collection of membership fees

a. Erred in taxing the membership fees as ^„business profits’ under Article 7 of the India – Canada tax treaty, by treating the Indian office of the Appellant as a PE of the Appellant under Article 5 of the India – Canada tax treaty, without appreciating the fact that the membership fees collected by the Appellant is independent and not related to the BSP activities undertaken by the Indian branch office.

b. Erred in failing to provide any reason or basis for deeming the contribution/ membership fees received from the members, by which they obtain membership with the Appellant and get access to information pertaining to the various services provided by the Appellant, as being related to IATA branch office which is specifically involved in providing BSP services only as per the approval of the RBI.

c. Without prejudice to the above, erred in not appreciating the contention of the Appellant that it qualifies as a mutual association and hence, the membership fees received from the members should not be liable to tax having regard to the principle of mutuality under the Act.

In relation to BSP Link charges from airlines and IATA branch for onward remittances to Accelya World SLU, Spain (‘Accelya Spain) (categorized as ‘Provision of E-Services)

d. Erred in considering the incorrect amount of Rs.2,81,04,800 as being the BSP Link charges collected by the Appellant for onward payment to Accelya Spain, instead of the correct amount of Rs.2,29,29,020.

e. Erred in not accepting the contentions of the Appellant that the BSF Link charges collected by the Appellant for onward payment to Accelya Spain are in the nature of reimbursement of expenses/ cost, without any mark up, and hence, in the absence of any income element in respect of such charges, the same cannot be taxed as ‘business profits’ under Article 7 of the India – Canada tax treaty.

In relation to fees for ICH facility

f. Erred in treating the Indian branch office of the Appellant as being the FE of the Appellant in India as per Article 5 of the India – Canada tax treaty, without appreciating the fact that the activity of provision of ICH facility is completely independent and separate from the BSP services provided by the Indian branch office and accordingly, taxing the said receipts as ‘business profits’ under Article 7 of the India – Canada tax treaty.

g. Erred in not accepting the contentions of the Appellant that as the ICH facility is provided by the Appellant outside India and the income is also received by the Appellant in a bank account maintained outside India, the revenues pertaining to the said ICH facility cannot be taxed as business profits in India under Article 7 of the India – Canada tax treaty.

h. Erred in failing to provide any reason or basis for deeming that the receipts in relation to the ICH facility provided by the Appellant outside India are related to the IATA branch office in India which is specifically involved in providing BSP services as per the approval of the RBI.

In relation to attribution of profits

i. Erred in estimating 40% of the gross receipts of the Appellant as being the income attributable to the FE (i.e, the Indian branch office) in India, on an arbitrary and ad-hoc basis; and

ii. Erred in estimating 90% of the gross receipts attributed to the PE of the Appellant in India, as being the profits attributable to such FE in India, on an arbitrary and ad-hoc basis.

Ground No. 7 – Short grant of credit for self-assessment taxes paid by IATA Canada

Erred in granting short credit of the self-assessment tax of Rs.1,32,10,040 paid by the Appellant for the subject AY.

Ground No. 8 – Non-grant of credit of taxes deducted at source (‘TDS’)

Erred in not granting credit of TDS of Rs.24,21,636 in respect to the income declared by the Appellant.

Ground No. 9 Wrong computation of interest under Section 234A of the Act

Erred in wrongly computing the interest under Section 234A of the Act at Rs.88,10,046, by not granting credit of the TDS to the Appellant.

Ground No. 10 – Wrong levy of interest under Section 234B and 234C of the Act

a. Erred in levying interest under Section 234B and 2340 of the Act, without appreciating the fact that interest under Section 234B and 234C of the Act is not leviable in case of a foreign company.

b. Without prejudice to the above, erred in wrongly computing interest of Rs.2,20,25,115 and Rs.2,26,050 under Section 234B and Section 234C of the Act respectively, without taking into consideration the self-assessment tax and TDS for the subject AY.

Ground No. 11 – Initiation of penalty proceedings

The learned AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act, on the basis that the Appellant has concealed income and furnished inaccurate particulars of income.

Each of the above grounds of appeal is without prejudice to and independent of one another.

The Appellant craves leave to add, alter, amend, substitute or delete the any of the above grounds of appeal at or before the time of hearing of the appeal, so as to enable the Hon’ble Income Tax Appellate Tribunal to decide this appeal according to law.

The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case.”

On the other hand, the revenue has challenged the impugned order on the following grounds of appeal before us :

“1. Whether on the facts and circumstances of the case the Hon’ble Dispute Resolution Panel (DRP) was justified in directing the A.O to restrict 40% of the entire revenue received by the assessee from the sale of the training materials as income attributable to the PE without appreciating the fact that the assessee does all the work related to sale of various distance learning courses in India. Through its PE in India, thereby making all or almost all the earnings thereof, attributable to PE in India.

2. Whether on the facts and circumstances of the case, the Hon’ble Dispute Resolution Panel (DRP) was justified in directing the A.O to restrict 40% of the gross receipts as income attributable to Indian Branch (PE) on account of membership dues, BSP Link Services and ICH facilities without appreciating the fact an opportunity was given to the assessee during the course of the assessment the interest of justice, A.O in her draft order allowed 10% of the gross receipts as related expenses and only 90% of the revenue was charged to tax.

3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. “

As the issues raised in the cross-appeals are inextricably interlinked or in fact interwoven, therefore, the same are being taken up and disposed off together by way of a consolidated order.

2. Briefly stated, the assessee is a corporation incorporated under the Special Act of the Parliament of Canada and is a tax resident of Canada. The assessee corporation held a valid Tax Residency Certificate during the year under consideration. Being a non-profit organisation, it is stated to have carried out its activities with an object to promote safe, reliable, secure and economical services for the benefit of the stakeholders of the world commercial aviation industry. Further, the assessee has a branch office in India ,viz. IATA Branch, for setting up of which an approval was obtained from the Reserve Bank of India.

3. On a perusal of the records, we find, that the assessee had filed its return of income for A.Y. 2012-13 on 31.03.2014, declaring a total income of Rs.4,26,07,201/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. In the course of the assessment proceedings it was observed by the A.O that the assessee had offered its following incomes for tax:

Sr. No.	Item of Income	Amount (USD)	Amount(Rs.)
1.	Classroom Training	644,436	3,26,79,350
2.	Royalty	44,570	22,60,145
3.	Annual Fee- Accredited Training Centers	151,207	76,67,707
	Total	840,213	4,26,17,202

However, as noticed by the A.O the assessee had not offered its following receipts for tax:

Sr. No.	Revenue source	Description	Income (USD)
1.	Sale of Distance learning materials	Includes sale of  distance learning kits (i.e, books/manuals   or CDs), shipped from Canada to the customer or to   the third party   (non-IATA)   regional partner training Centre	23,90,825
2.	Provision of E-services (Billing and settlement functions)	The amount  received by IATA Canada represents the payments   collected from airlines for         onward remittance to the third party company for the use of the billing and settlement portal by the airlines	5,54,226
3.	Provisions of E-Services. (Passenger Intelligence Services – PAX-IS)	PAX-IS is a   product by which  the customer   buys access to   data on global passenger/load factors by flight which can be used in route planning, etc	9,70,746
4.	Collection of membership dues	Includes on – time joining fees and annual membership fees   received from Airlines	5,76,539
5.	Sale of publications (DGR)	Includes sale of publications such     as the Dangerous Goods Manual   that are shipped from  Canada directly to the customer	3,45,883
6.	Provision of classroom training courses	Includes   delivery    of   IATA Canada’s   courses to its customers in India through independent third party instructors	6,44,436
7.	Provisions of consulting services	Consulting services performed by IATA Canada for  its   customers  for    its customers in India through independent   third party contractors	12,09,250
8.	Collection of royalties (Accredited Training Schools)	Includes     income received from     independent   schools for the    right  granted to provide IATA    courses to their     own customers     in relation to the      handling  of cargo including dangerous goods.	44,570
9.	Collection of annual fee from Accredited Training Centres	Consists of the annual fee charged to the independent regional accredited training centres	1,51,207
0.	Provisions of advertising space	Fee for display    of  the customer’s name of the logo on IATA publications and public release of the sponsors   list    to    various media (ratio, television, etc)	16,733
1.	Clearing house facility	Fee for clearing     house facility  provided   by    IATA Canada outside India	2,43,448
2.	Cost recovery	Reimbursement    of costs, without     any mark-up, incurred by IATA Canada on behalf of its customers.	1,45,953

On being confronted, the assessee admitted taxability of the additional income arising from provision of consulting services, and also that arising from provision of e-services i.e Passenger Intelligence Services–PAX-IS as Fees for Technical Services (FTS) and royalty, respectively. As regards its claim of non-taxability of the remaining streams of incomes, the assessee in the course of the assessment proceedings tried to impress upon the A.O that as the same were neither in the nature of royalty, FTS or business profits, they were thus not exigible to tax in India. But then, the A.O after deliberating on the contentions which were advanced by the assessee to drive home its claim of non-taxability of the remaining streams of income, was however, not persuaded to subscribe to the same. As per the draft assessment order passed under Sec. 143(3) r.w.s 144C(1), dated 27.03.2015 the A.O proposed the following additions to the returned income of the assessee:

“C  Addition of incomes not admitted by the assessee
Relying on the Treaty:

1.	Sale of distance learning materials	Business income @40%	121,238,736
2.	Sale of publications (DGR)	Royalty @10%	17,539,727
3.	Provision of advertising space	Royalty @10%	848,530

The items of revenue arising to IATA Canada from India pertaining to the BSP

(Billing Settlement Plan) Services

1.	Provision of E-services
2.	(Billing and Settlement functions)	Business income @40%	25,294,320
2.	Collection of membership dues	Business income @40%	26,312,663
3.	Clearing house facility	Business income @40%	11,110,723
	Total Income		355,499,498

After making the aforesaid additions and taking cognizance of the additional income that was offered by the assessee during the course of the assessment proceedings, viz. (i) provision of e-services; and (ii) provision of consulting services, the income of the assessee was proposed to be assessed at Rs.35,54,99,498/-.

4. Aggrieved, the assessee objected to the draft assessment order before the Dispute Resolution Panel-1, Mumbai (for short ^„DRP‟). However, the DRP not finding favour with the contentions advanced by the assessee, vide its order passed under Sec. 144C(5) of the Act, dated 17.11.2015 inter alia principally upheld the additions proposed by the A.O. At the same time, the DRP directed the A.O to take 40% of the entire revenue received by the assessee from the sale of the training material as the income attributable to its Permanent Establishment (for short ^„PE‟) in India. On a similar footing, the DRP directed the A.O to restrict 40% of the gross receipts on account of membership dues, BSP Link services and ICH facilities, as the income attributable to the Indian branch (PE) of the assessee.

5. The A.O after receiving the order of the DRP under Sec. 144C(5), dated 17.11.2015, therein framed the assessment vide his order passed under Sec.143(3) r.w.s 144C(13), dated 30.12.2015, and assessed the income of the assessee at Rs.24,51,25,623/-.

6. Being aggrieved with the assessment order passed by the A.O u/s 143(3) r.w.s 144C(13), dated 30.12.2015, both the assessee and the revenue have carried the matter before us by way of the present cross-appeals. At the very outset of the hearing of the appeal the ld. Authorised representative (for short ^„R‟) for the assessee Shri. Porus Kaka, Senior Advocate, sought liberty for admission of certain documents as ^„additional evidence‟. The ld. A.R took us through the assessee‟s letter dated 06.08.2018, as per which the documents filed before us as additional evidence comprised of viz. (i). copies of the extracts of DGR manuals sold by the assessee to its customers; (ii). copies of the extracts of the technical instructions published by the International Civil Aviation Organisation (available in the public domain); (iii). copy of an advertising insertion order and agreement; and (iv). copy of the sample advertisements displayed on the assessee‟s website. It was submitted by the ld. A.R that as the said documents would have a strong bearing on the adjudication of the Ground of appeal No. 3 and Ground of appeal No. 5, the same may therefore be admitted. On the contrary, the ld. Departmental representative (for short ‘D.R’) objected to admission of the aforesaid fresh evidence as was sought by the assessee. We have perused the material furnished by the assessee by way of additional evidence (Page 1-13) of the assessee’s additional evidence paper book, and being of the considered view that the same would have a material bearing on the adjudication of the issues as regards assessing of the consideration received by the assessee on sale of DGR manuals and provision of advertising space to its customers, as royalty, by the revenue, the same therefore merits to be admitted as per Rule 29 of the Appellate Tribunal Rules, 1963.

7. The ld. A.R took us through the multiple issues involved in the  appeal of the assessee before us. Adverting to the issue of provision of distance learning courses pertaining to the aviation sector by the assessee to various students across the globe including India, it was submitted by the ld. A.R that the A.O/DRP by wrongly treating the Authorized Training Centers (hereinafter referred to as ‘ATC’s) in India as the dependant agent PE (hereinafter referred to as ‘DAPE’) of the assessee, had erroneously held the consideration therein received as the profits attributable to such PE’s in India. After taking us though the fact pattern as regards providing of the distance learning courses of the assessee viz. IATA, Canada by the ATC’s in India, it was submitted by the ld. A.R that the activities of the ATC’s i.e registration and training of students was carried out by them in their ordinary course of business in an independent capacity. It was further submitted by the ld. A.R that the relationship between the assessee viz. IATA, Canada and the ATC’s was on principal to principal basis and there was no element of agency between them. Further, the ld. A.R took us through Article 5(5) of the India-Canada tax treaty. It was submitted by the ld. A.R that the ATC’s were independent entities, which in the ordinary course of their business were inter alia providing the courses designed by the assessee to the students in India. Further, it was submitted by the ld. A.R that the ATC’s were not wholly or almost wholly devoted as an agent of the assessee and had carried out the transactions with the assessee viz. IATA, Canada at arm’s length. In the backdrop of his aforesaid contentions, it was submitted by the ld. A.R that the ATC’s could not be held to be a DAPE of the assessee as per Article 5(5) of the India-Canada tax treaty. The ld. A.R further took us through Article 5(4) of the India-Canada tax treaty, and submitted, that the conditions therein contemplated were not satisfied for treating the ATC’s as the DAPE of the assessee. In the backdrop of his aforesaid contentions, it was the claim of the ld. A.R that the A.O/DRP were in error in treating the ATC’s as DAPE of the assessee, and resultantly, holding an amount of Rs. 4,84,95,494/- i.e 40% of the revenue generated from sale of distance learning material as the business income attributable to such DAPE, liable to tax in the hands of the assessee in India.

8. Per contra, the ld. Departmental representative (for short  ^„D.R’) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the ATC’s operated as agents of the assessee viz. IATA, Canada, and habitually enrolled students on its behalf and provided training to the students in the courses mandated by the assessee, therefore, the A.O/DRP holding the ATC’s as the DAPE of the assessee had rightly attributed the revenue generated from the sale of the distance learning material to them, and brought the same to tax as the ^„business income’ of the assessee under Article 7 of the India-Canada tax treaty. At the same time the ld. D.R assailed the quantum of income that was attributed by the A.O from provision of distance learning courses pursuant to the directions of the DRP at 40% of the revenue generated.

9. We have heard at length the authorised representatives for both the parties in context of the issue pertaining to treating of the ATC’s as the DAPE of the assessee, and attribution of 40% of the revenue generated from sale of the distance learning courses as the business income of the assessee liable to be taxed in India as per Article 7 of the India-Canada tax treaty. Also, we have perused the orders of the lower authorities as well as the material available on record, and also the judicial pronouncements pressed into service by the respective parties. Before proceeding any further, we may herein observe, that though the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 27.03.2015 had attributed the entire revenue of USD 2,390,825/- i.e Rs.12,12,38,736/- from provision of distance learning courses as the income of the ATC’s, but the DRP had scaled down the attribution of such income to 40% of the revenue so generated. For a fair appreciation of the issue under consideration we shall briefly cull out the fact pattern as regards the provision of the distance education courses of the assessee by the ATC’s in India. As is discernible from the records, we find that the assessee viz. IATA, Canada allowed students to avail various distance learning courses pertaining to aviation sector, viz. IATA Proprietary Training Programs, International Aviation Training Program, International Cargo Agent Training Program, International Travel and Tourism Training Program etc., for which the interested students could either directly register/enrol on the website of the assessee or approach an ATC. The assessee during the year under consideration had 59 ATC’s in India. On a perusal of the records, we find that the ATC’s for carrying out training and being able to provide the assesse‟s courses in their syllabus had to register themselves with the assessee and pay one-time ATC fees viz. ATC network access fee, ATC annual authorization fee, and branch fee. Insofar such ATC fees is concerned, the same had undisputedly been offered to tax by the assessee as ^„royalty‟. For the provision of the distance learning courses the assessee would receive enrolment fees from the students/ATC‟s, which would be paid for the course material/training kit fees, shipping fees, exam fees (conducted by a third party in India), and fees for issuance of certificates on successful completion of the courses. In a case where the student would approach the ATC for the distance learning courses of the assessee, the concerned ATC would procure the study material for the said course from the assessee and provide the same to the student who would thereafter make the payment for the same to the ATC. The aforesaid transaction between the ATC‟s and the students was on an independent basis and the assessee was not a privy to the said arrangement. Also, we find that the ATC would procure the course material as per the number of the students registered with them, and hence, did not maintain a stock of the course material on behalf of the assessee at any time.

10. We have perused the records to which our attention was drawn by the ld. A.R in the course of the hearing of the appeal, and find, that the ATC‟s were independent third party organisations that provided training of their various self-designed courses, courses designed by other third parties, and also the courses designed by the assessee viz. IATA Canada to its students. In fact, the ld. A.R in order to drive home his claim that the ATC‟s were not exclusively into providing of courses designed by the assessee and were providing a host of other self-designed/third party courses, had taken us through Page 65-67 of the APB, which revealed the multiple educational programs offered by one of the ATC viz. Srinivassa Sinai Dempo College of Commerce and Economics. On a perusal of the aforesaid sample screenshots, we find that Srinivassa Sinai Dempo College of Commerce and Economics was providing multiple courses, viz. Bachelor of Commerce, Bachelor of Business Administration, Master of Commerce, M.A (Tourism and Heritage) Management, PGDBA-Event Management, Accounting for Small Businesses, Certificate Course in Tour Management, IATA Course etc. Similar is the position in the case of another ATC, viz. Kuoni Academy, which as can be gathered from the screen shots, Page 69-70 of ^„APB’, was also providing multiple courses, viz. International Master in Business Administration & Tourism Management, Kuoni Certified Advanced Course in Travel Management, Kuoni Certified Advanced Course in Travel & Tourism Management, Kuoni Certified Abacus Operator-Level-1, Kuoni Certified Program in Tour Guiding Skills, IATA Foundation, Kuoni Certified Program in Travel Agency Operations-IOTAA, IATA Consultant, Kuoni Certified Galileo Operator-Level-1, Kuoni Certified Galileo Specialist-Level 1 & 2, Kuoni Certified Abacus Specialist-Level 1 & 2, Kuoni Certified Tour Manager Program, Kuoni Certified Air Ticketing Specialist, Kuoni Certified Program in Airport Customer Services, Kuoni Certified Program in Visa Facilitation etc. Also, our attention was drawn towards the financial statements of another ATC viz. Thomas Cook India Pvt. Ltd, as available in the public domain. On a perusal of the financial statements of Thomas Cook India Pvt. Ltd., we find that the primary source of revenue of the said party was by way of commission received from traveller’s cheque, margin on foreign exchange, and net commission earned on travel management. Insofar the revenue generation from conducting training programs is concerned, we find that the same was a miniscule amount of Rs. 0.39 crores as against the total revenue of Rs. 377.12 crores generated by the said entity during the year under consideration. Insofar the courses provided by Thomas Cook are concerned, we find that the same as per the screen shot, Page 68 of APB were classified under three heads i.e (i). Under Graduate Courses, viz. Certificate Course in Domestic Tour Management; (ii). Post Graduate Courses, viz. MBA Tourism (Pondichery University), Travel Professional Program – A Post Graduation Diploma in Travel & Tourism Management with MBA– Tourism (Pondichery University), Travel Professional Program – A Post Graduate Diploma in Travel & Tourism Management, Certificate Course in World Tour Management, PGDM in International Tourism Business–equivalent to MBA (IITTM); and (iii). IATA Courses, viz. IATA Foundation Course, IATA Consultant Course, Corporate Training, and Tourism Board Training. Accordingly, in the backdrop of our aforesaid observations it can safely be concluded that the aforesaid ATC’s could not be held to be exclusively into providing of courses designed by the assessee, but were also providing a host of other self-designed/third party courses. On being confronted with the aforesaid factual matrix the ld. D.R failed to dislodge the claim of the counsel for the assessee that the ATC’s were independent third party organisations providing training of their various self-designed courses, courses designed by other third parties, and also the courses designed by the assessee viz. IATA Canada, and were not exclusively into providing of courses designed by the assessee viz. IATA, Canada. In fact, no observation to the said effect is also discernible from the orders of the lower authorities. On the contrary, the DRP at Page 53 – Para 5.3.2(i), had observed, that the ATC’s were independent organisations doing their business of providing training to the students to enable them to work in aviation, travel and tourism industry. But then, after so observing, the DRP was of the view that as the ATC’s for rendering the training courses were entirely dependant on the various manuals and study material provided by the assessee, and the distance learning courses of the assessee constituted the backbone of such training and the overall operations of the ATC’s, they were thus rightly held by the A.O as DAPE of the assessee. Apart from that, the DRP in order to fortify his aforesaid conviction had drawn support from the fact that the ATC’s were recognised and approved by the assessee, and for providing training to the students were mandatorily required to be registered with the assessee. Also, it was observed by the DRP that the training could be provided by the ATC’s to the students only after they had purchased the necessary study material from the assessee, i.e either directly by online payment or indirectly through sales by ATC’s. In the backdrop of its aforesaid observations, the DRP was of the view that the projection of the relationship of the assessee and the ATC’s as that of principal to principal basis was a farce. For so concluding, the DRP was of the view that though the students enrolled by the ATC’s were apparently the customers of the ATC’s on their own account and for their own benefit, but the moment the student enrolled for the training, the subscription of the assessee for the training material was secured and the charges were ensured. As such, the DRP was of the view that the payment of charges by the ATC’s (as an agent) to the assessee was disguised in the form of sale of materials. On a perusal of the observations of the DRP, we find, that except for its generalised observation that the distance learning courses of the assessee constituted the backbone of such training and the overall operations of the ATC’s, there is no whisper or reference to any such material or facts which could irrefutably prove that the activities of the ATC’s were devoted wholly or almost wholly on behalf of the assessee viz. IATA, Canada. Rather, the facts brought to our notice as regards the multiple educational programs offered by the ATC’s viz. Srinivassa Sinai Dempo College of Commerce and Economics, Kuoni Academy and Thomas Cook, gives a clear picture that the said ATC’s were not exclusively into providing of courses designed by the assessee, but were providing a host of other self-designed/third party courses. Further, the factum as regards the miniscule revenue generated by the aforesaid ATC viz. Thomas Cook India Pvt. Ltd. from conducting training programs, as in comparison to its other streams of revenue generation clearly militates against the observation of the DRP that the distance learning courses of the assessee constituted the backbone of the overall operations of the ATC’s.

11. It is in the backdrop of our aforesaid observations that we shall now deliberate on the aspect as to whether or not the ATC’s could be held to be the DAPE of the assessee viz. IATA, Canada. At the outset, we may herein observe that in order to treat the ATC’s as a DAPE of the assessee the provisions of Article 5(5) of the India-Canada tax treaty needs to be satisfied prior to evaluating the provisions of Article 5(4) of the said treaty. As per Article 5(5) of the India-Canada tax treaty, an enterprise of a contracting state shall not be deemed to have a PE in the other Contracting state merely because it carries on business in that other state through a broker, general commission agent, or any other agent of an independent status, subject to the condition that such person is acting in the ordinary course of its business. But then, as per the rider provided in Article 5(5) of the tax treaty, the agent would be divested of its independent status, if it cumulatively satisfied the dual conditions therein provided viz. (i). its activities are devoted wholly or almost wholly on behalf of that enterprise; AND (ii). the transactions inter se the agent and the enterprise are not made under arm’s length conditions. For the sake of clarity, we herein reproduce Article 5(5) of the India-Canada tax treat, which reads as under:

“5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm’s length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph.”

As such, an enterprise carrying on business in the other contracting state through a broker, general commission agent or any other agent of an independent status, or merely maintaining in that other State a stock of goods with an agent of an independent status from which deliveries are made by that agent, shall not be deemed to have a PE in the other Contracting state, subject to the condition that such agent of an independent status is acting in the ordinary course of its business. But then, if the activities of such agent are  devoted wholly or almost wholly on behalf of that enterprise, AND  the transactions between the agent and the enterprise are not made  under arm‘s length conditions, it shall not be considered an agent of an independent status within the meaning of Article 5(5) of the India-Canada tax treaty. Now, in the case before us, as observed at length hereinabove, the activities of the ATC’s in India cannot be held to be devoted wholly or almost wholly on behalf of the assessee viz. IATA, Canada. Independent of that, it is not even the case of the revenue that the transactions between the assessee viz. IATA, Canada and ATC’s are not made under arm’s length conditions. As observed by us hereinabove, as per Article 5(5) of the India-Canada tax treaty an enterprise carrying on business in the other contracting state through a broker, general commission agent or any other agent of an independent status, or merely maintaining in that other State a stock of goods with an agent of an independent status from which deliveries are made by that agent, shall not be deemed to have a PE in the other Contracting state, subject to the condition that such agent of an independent status is acting in the ordinary course of its business. As regards the rider therein provided in Article 5(5) of the India-Canada tax treaty, the same as observed by us hereinabove would require cumulative satisfaction of two conditions for the purpose of divesting the agent of its status as that of being an independent agent viz. (i). the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise; AND (ii). the transactions between the agent and the enterprise are not made under arm’s length conditions. In the case before us the DRP itself had observed that ATC‘s are independent organisations doing their business of providing training to the  students to enable them to work in aviation, travel and tourism  industry. As such, the fact that the ATC’s are independent agents, acting in the ordinary course of their business had been admitted by the DRP, and the said observation has not been assailed by the revenue before us. Without prejudice to the fact that the activities of the ATC’s were not devoted wholly or almost wholly on behalf of the assessee, viz. IATA, Canada, in the absence of any observation by the lower authorities that the transactions between the assessee and the ATC’s were not made under arm’s length conditions, would therein result to an absence of a cumulative satisfaction of the aforesaid two fold conditions prescribed in Article 5(5) of the tax treaty for divesting the ATC’s of their status as that of an independent agent. In sum and substance, as the assessee viz. IATA, Canada, was carrying on its business in India through ATC’s which were independent organizations doing their business of providing training to students to enable them to work in aviation, travel and tourism industry, therefore, the assessee de hors any such observation recorded by the lower authorities that the transactions between the assessee and the ATC’s were not made under arm’s length conditions, cannot be held to have a PE in India within the meaning of Article 5(5) of the India-Canada tax treaty. Our aforesaid view that in the absence of any observation that the transactions between the assessee i.e IATA, Canada and the ATC’s were not made under arm’s length conditions, the ATC’s which are independent organizations acting in the ordinary course of its business cannot be divested of their status as that of an independent agent under Article 5(5) of the India-Canada tax treaty is supported by the order of the ITAT, Mumbai in the case of Delmas France S.A Vs. ACIT (International taxation) (2013) 141 ITD 67 (Mum). In the said case the Tribunal on the basis of a conjoint reading of Article 5(5) and Article 5(6) of India-France tax treaty, had observed as under:

“ 9. Let us now deal with the scope of dependent agent permanent establishment (DAPE) as set out in Article 5(5) and Article 5(6) of the Indo French DTAA. Article 5(5) provides the situations in which business being carried on through a dependent agent results in creation of PE in the source state. The provisions of Article 5(6) are, however, slightly at variance with standard tax treaty provisions, and need to be analysed in some detail. The significant feature of Article 5(6) of Indo French DTAA, which is somewhat unique in the sense that this provision is in clear deviation from the standard UN and OECD Model conventions, is that even when an agent is wholly or almost wholly dependent on the foreign enterprise, he will still be treated as an independent agent unless additional condition of the transactions being not an arm’s length conditions is fulfilled. It is so for the reason that Article 5(6) provides that even when an agent is wholly or almost wholly dependent on the principal, i.e. foreign enterprise, “he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arms length conditions” (emphasis by underlining supplied by us). In other words, as long as it is not shown that the transactions between the agent and the principal are not made under arm’s length conditions, the agent is treated to be an independent agent. The implication of the agent being treated as an independent agent is that the provisions of dependent agent PE, as set out in Article 5(5), can never come into play in the cases in which the business is carried out by the foreign enterprise through an independent agent, because Article 5(5), which overrides the provisions of Article 5(1) and 5(2), specifically provides that “where a person other than an agent of an independent status to whom paragraph 6 applies ( emphasis by underlining supplied by us) is acting in one of the Contracting States on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State” subject to fulfillment of certain other conditions which are admittedly fulfilled in the present case. Therefore, as long as the agent is of independent status, the provisions of Article 5(5) cannot be invoked. It is also important to bear in mind that since provisions of Article 5(5) override the provisions of Article 5(1) and 5(2), no permanent establishment under article 5(1) and (2) can be said to come into existence, so far agency situations are concerned, until the conditions of Article 5(5) are also satisfied. Learned Departmental Representative fairly does not dispute, and rightly so, that the permanent establishment in the present case will be governed by Article 5(5) read with Article 5(6). Learned Departmental Representative’s only objection is that since an important aspect, i.e. aspect relating to the transactions having been done in arm’s length conditions, has not been examined by the Assessing Officer, the matter should be restored to the file of the Assessing Officer for specific adjudication on the transactions between principal and agent having been done in arm’s length conditions. We are unable to see any merits in this plea. As held by a coordinate bench of this Tribunal, in the case of Airlines Rotables Ltd Vs DDIT8, “It is a settled position of law, as noted by the Special Bench of this Tribunal in the case of Motorola Inc. , that the onus is on the Revenue to demonstrate that a PE of the foreign enterprise exists in India”. In the present case, i.e. in the case of DAPE in accordance with provisions of Indo French DTAA, the onus is even greater inasmuch the very foundation of DAPE rests on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. “if it is shown that the transactions between the agent and the enterprise were not made under at arm’s length conditions”. Unless this negative finding is on record, it cannot be inferred that the agent is not of an independent status. No such finding was given by the Assessing Officer, or even by the Dispute Resolution Panel. Even in the proceedings before us, no material has been brought on record which at least prima facie demonstrates, or even indicates, that the transactions between the principal and agent are not under arm’s length conditions. Once this onus is not discharged by the revenue authorities at any of these stages, and in accordance with the law laid down by Special Bench decision in the case of Motorola Inc, we have to hold that the assessee did not have any PE in India. We are not inclined to grant a fresh inning to the Assessing Officer for making roving and fishing enquiries on the aspect of transactions not having been done in arm’s length conditions – particularly as there is nothing on record to even remotely suggest a prima facie case in this regard. A negative finding in this regard is a sine qua non for making out a case for existence of DAPE in the context of Indo French DTAA, and this finding being absent, we have to hold that the stand of the Assessing Officer, with regard to existence of PE, is not sustainable in law. As regards reference to Hon’ble Visakhapatnam Port Trust’s case, the observations made therein do not apply in this context as it was not dealing with Dependent Agency Permanent Establishment (DAPE) which is now the case before us. As we have seen earlier, the provisions of DAPE override the provisions regarding fixed place PE, and, therefore, any observations made in the context of fixed place PE do not apply to the DAPE situations. As regards the reference to the OECD Model Convention commentaries or other standard literature in the context of DAPE, it cannot be of any help in interpretation of DAPE provisions in Indo French DTAA because of a somewhat peculiar provision in Article 5(5) read with Article 5(6), which is not part of OECD or UN Model Convention, and which provides that “However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm’s length conditions.”. We have also noted that the DRP has held that there is a PE on the short ground that assessee’s claim for applicability of Article 9 presupposes existence of a PE, but it is difficult to comprehend as to how existence of a PE can be inferred merely because the assessee has made a particular claim, which is rejected anyway. The onus of establishing that there is a PE, as we have noted earlier in the discussions, is on the revenue authorities and there is no room for inferences being drawn up in this respect merely because the assessee has made a particular claim. Similarly, reference to agent’s authority to conclude contracts, as has been made by the DRP, is not decisive test either because even when agent has the authority to conclude contracts, it is still to be established that the agent is not an independent agent. That exercise is not even conducted in this case. The Assessing Officer’s reliance on OECD Commentary, therefore, is of no avail either. In view of these discussions, as also bearing in mind entirety of the case, we set aside and vacate the Assessing Officer’s findings with regard to existence of assessee’s PE in India. We may, at the cost of repetition, clarify that these conclusions are arrived at in the light of the factual position that there are no findings by the Assessing Officer, or the Dispute Resolution Panel, to the effect that the transactions between the agent and the assessee are not at an arm’s length price, and that, in view of the provisions of Article 5(6) of Indo French DTAA, such a finding by the revenue is a sine qua non for existence of DAPE. To this extent, our decision is confined to the facts of this case for the particular assessment year before us”.

10. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the order of the Tribunal in assessee’s own case (supra) hold that the assessee has no PE in India and, hence, not liable to tax and accordingly the grounds taken by the assessee are allowed.”

On further appeal by the revenue, the Hon’ble High Court of Bombay in its order passed in the case of DIT(International Taxation) Vs. Delmas France (2015) 232 Taxman 401 (Bom) had affirmed the order of the Tribunal and dismissed the appeal of the revenue, observing as under:

“9) There is substance in the contention of Mr. Irani that the departmental representative appeared before the Tribunal and fairly stated that the matter should be examined in the light of applicability of Article 5(5) read with Article 5(6). The combined effect of this fair suggestion and concession is that firstly notwithstanding anything contained in Article 5(1) and (2) whether a person other than the agent of Indian State to whom paragraph 6 of Article 5 applies is acting in one of the Contracting States on behalf of an enterprise of other Contracting State, that enterprise shall deemed to have been a permanent establishment in the first mentioned Contracting State. That is also provided he exercises habitually an authority to conclude contracts on behalf of the enterprise and his activities are not relevant to purchase of goods or merchandise for the enterprise. He may also be having no such authority, but if he maintains habitually in the first mentioned Contracting State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, then, the business of an enterprise is wholly or partly carried out within the meaning of Article 5(5) and the said enterprise has a permanent establishment in India. Insofar as Article 5(5) and para 6 is concerned, there is a deeming fiction, and by virtue of that, the enterprise of one of the Contracting States is deemed not to have permanent establishment in other Contracting State merely because it carries on business in that other Contracting State through broker, general commission agent or any other agent of an independent status, provided that such persons are acting in ordinary course of their business. Then comes the provision, whether activities of an agent who may be an agent of independent status but devoted wholly or almost wholly to that enterprise, but he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm’s length conditions.

10) In the present case, what was essentially brought to the notice of the Tribunal was that this is an important aspect relating to the transactions, but they have not been examined in the manner indicated by us above by the Assessing Officer, therefore the matter should be restored to file of the Assessing Officer for specific adjudication of the transactions between the Assessee and the agent. The Tribunal did not accept this. Not because of any broad legal principle, but there being no finding of this nature on record at all. If the Assessing Officer or the DRP failed to render the finding and which would indicate the applicability of the Article and as pressed by the departmental representative, then, to our mind, the Tribunal was under no obligation to remand the matter back to the Assessing Officer. The Tribunal has rightly observed that even during the course of the proceedings before it, no material was placed on record, which would prima facie demonstrate or even indicate that the transactions between the principal namely the Assessee and the agent are not under at arm’s length conditions. Once this onus is not discharged by the Revenue and the Tribunal has confined its observations and conclusions to the facts and circumstances peculiar to the Assessee’s case and for the particular assessment year, then, we agree with Mr. Irani that this Appeal does not raise any substantial question of law. However, we do not find any basis for the submission made by Mr. Singh that the Tribunal should have examined the matter in the light of applicability of Article 5(1)(2) of the DTAA. The departmental representative has given up that because there was no finding rendered by the Assessing Officer. The Tribunal as rightly held was not obliged to go into the same. Even on this ground the Tribunal’s order cannot be faulted.”

At this stage, we may herein observe that as in the present case before us, in the case of Delmas France (supra) also there was no finding of the lower authorities that the transactions between the principal and agent were done in arm’s length conditions. Under such circumstances, the Tribunal relying on the order of the ^„Special bench’ of the Tribunal in the case of Motorola Inc. Vs. Dy. CIT(2005) 95 ITD 269 (Del)(SB), had held, that the onus was on the Revenue to demonstrate that a PE of the foreign enterprise exists in India. In its aforesaid order it was observed by the Tribunal, that in the case before them, the onus was even greater inasmuch the very foundation of DAPE did rest on a negative finding with respect to the wholly dependent or almost wholly dependent agent i.e. “if it is shown that the transactions between the agent and the enterprise were not made under arm’s length conditions”. As such, in the absence of any such negative finding being available on record, it was observed by the Tribunal that it could not be inferred that the agent was not of an independent status. Further, noticing that neither any such finding was given by the A.O or by the Dispute Resolution Panel, nor in the course of the proceedings before the Tribunal any material was brought on record which could at least prima facie demonstrate, or even indicate, that the transactions between the principal and agent were not under arm’s length conditions, the Tribunal concluded that it was to be held that the assessee did not have any PE in India. We may herein observe, that the Tribunal taking cognizance of the fact that there was nothing on record to even remotely suggest a prima facie case that the transactions between the foreign enterprise and the agent were not at arm’s length, had thus, declined to remand the matter and allow a fresh inning to the A.O for making roving and fishing enquiries on the aspect of transactions not having been done in arm’s length conditions. On further appeal, the Hon’ble High Court approved the view taken by the Tribunal. In the case before us also neither the lower authorities had established that the transactions between the assessee viz. IATA, Canada and the ATC’s were not done under arm’s length condition, nor any material was placed on our record by the ld. D.R to demonstrate any such fact. Accordingly, in the absence of any finding by the lower authorities that the transactions between the assessee and the ATC’s were not at arm’s length, we thus on a similar footing conclude that as per a conjoint reading of Article 5(4) and Article 5(5) of the India-Canada tax treaty, the ATC’s being an independent agent within the meaning of Article 5(5) of the India-Canada tax treaty could not have been held to be the DAPE of the assessee in India.

12. As we have concluded hereinabove that the ATC’s are the agent’s of an independent status of the assessee viz. IATA, Canada, within the meaning of Article 5(5) of the India-Canada tax treaty, therefore, there remains no occasion for us to deal with the contentions advanced by the ld. A.R that the ATC’s do not satisfy the conditions laid down for dependant agent PE under Article 5(4) of the tax treaty, which aspect is thus left open.

13. In the backdrop of our aforesaid observations, we herein conclude that the ATC’s are the agents of independent status of the assessee viz. IATA, Canada, within the meaning of Article 5(5) of the India-Canada tax treaty. Accordingly, without adverting to the other contentions advanced by the ld. A.R in order to impress upon us that the ATC’s cannot be held to be the DAPE of the assessee viz. IATA, Canada, we vacate the view taken by the A.O/DRP holding to the contrary. As we have held that the ATC’s are not the DAPE of the assessee, therefore, the addition of Rs. 4,84,95,494/- i.e 40% of the revenue generated from sale of distance learning material, attributed to them in their status as that of DAPE of the assessee corporation, viz. IATA, Canada, and assessed as the business income of the assessee in India under Article 7 of the India-Canada tax treaty cannot be sustained and is therefore vacated.

14. We shall now deal with the claim of the assessee that the DRP had erred in concluding that the income received by the assessee on sale of distance learning courses is alternatively taxable as royalty, both under the Act and the India-Canada tax treaty. On a perusal of the DRP order, we find, that it was therein observed that as the assessee by providing training material to the students was providing knowledge, information and training about the aviation and travel and tourism industry in general, which was in nature of proprietary commercial knowledge, information and skill acquired from experience provided to the students on enrolment in ATC‟s, the receipts were thus taxable as royalty both under the Act and the India-Canada tax treaty. We have deliberated at length on the issue under consideration and are unable to persuade ourselves to subscribe to the view taken by the DRP. Before proceeding any further, it would be relevant to cull out the definition of royalty as contemplated in Article 12(3) of the India-Canada tax treaty, which reads as under:

“12(3). The term “royalties” as used in this Article means:

(a) payment of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film paper or other means or reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and

(b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 or Article 8 from activities described in paragraph 3(c) or 4 of Article 8.”

As observed by us hereinabove, the assessee pursuant to the request from the student’s/ATC’s despatches the course material i.e the learning kit in the form of books or CD’s directly to the students or ATC’s. Although, the course material providing knowledge, information and training about the aviation and travel and tourism industry in general is sold to the students/ATC’s, but no ^„use’ or ^„right to use’ any copyright in relation to such study material is granted to them. In fact, the student’s/ATC’s do not have any right to reproduce/sell the contents of the study material in any form or media. As the course material providing knowledge, information and training about the aviation and tourism industry in general is merely a sale of book/CD, which does not involve transfer of intellectual property, and also does not contain any undivulged technical information which is not available in the public domain and/or know-how, therefore, it falls outside the scope of the term ^„information concerning technical, industrial, commercial or scientific experience’ under Article 12(3) of the India-Canada tax treaty. In sum and substance, as the consideration received by the assessee is towards a simplicitor sale of training material/books, thus, the same cannot be brought within the definition of ^„royalty’ under Article 12(3) of the India-Canada tax treaty. Our aforesaid view that the consideration received for providing the study material to the students in distance learning courses cannot be held as ^„royalty’ is fortified by the order of the ITAT, Delhi in the case of Hughes Escort Communication Ltd. Vs. Dy. CIT (2012) 31 CCH 128 (Del), wherein it was observed as under:

“8.12.On a careful perusal of the above it is seen that the nature ofpayment made to eCornell is not ‘royalty’ as the payment is not for theuse or the right to use any copy right or literary work. The fact that it is not for artistic, scientific work, work on film, tape, radio, television, broadcasting etc. does not arise. It is also not for use or right to use patent, trade mark, design, plan, secret formula or process etc. It is purely and simply a case of pooling of resources by way of an Affiliate Agreement wherein the respective roles and responsibilities have been assigned and the arrangement being of the nature of pooling of resources where fee sharing of the two parties have been set out this is not a case where any payment is being made to eCornell by the assessee for any kind of service as it is purely a case of apportioning of fees attributable to eCornell as per the Affiliate Agreement being remitted to eCornell and the portion of the fees collected for providing enrollment infrastructure in order to access the study material by the students is retained by the assessee as its share. As such on facts the present case does not partake the nature of royalty as contemplated under Clause 3(a) of Article 12 of the Indo-US DTAA.”

Accordingly, not finding favour with the alternative observation of the DRP that the consideration received by the assessee for providing course material to the students/ATC’s was liable to be assessed as royalty, we vacate the same. The Ground of appeal No. 2 raised by the assessee is allowed in terms of our aforesaid observations. As we have held that the ATC’s are not the DAPE of the assesse, therefore, the Ground of appeal No. 1 raised by the revenue, wherein it had challenged the scaling down of the quantum of revenue attributed by the A.O pursuant to the directions of the DRP is dismissed as having been rendered as infructuous.

15. We shall now deal with the claim of the assessee that the A.O/DRP had erred in taxing the income from sale of physical publications (i.e DGR manuals) as royalty income under Article 12(3) of the India-Canada tax treaty. On a perusal of the orders of the lower authorities, we find, that the assessee had came up with annual physical publications known as “Dangerous Goods Regulations Manual” (^„DGR’ manuals), which provided information inter-alia pertaining to handling of shipment of dangerous goods. These publications could be purchased online by the airlines or any other customer who was involved in the business of transportation of cargo. The DGR manuals published by the assessee was based on the “Technical Instructions for the Safe Transport of Dangerous Goods by Air”, as were developed by the International Civil Aviation Organization (hereinafter referred to as “ICAO”), a United Nations agency for international air transport. The aforesaid fact is substantiated on a perusal of the Page 1-10 of the ^„additional evidence‟ filed by the assessee before us. As observed by us hereinabove, the assessee had filed by way of additional evidence viz. (i). the relevant extracts of DGR manual sold by the assessee to its customers; and (ii). the relevant extracts of the technical instructions published by International Civil Aviation Organisation, which instructions are available in the public domain. On a perusal of Page 2 of the additional evidence which is an extract of the DGR manual published by the assessee, we find, that “Instruction No  5.0.1.7” headed as “Portable tanks” therein deals with carrying of certain dangerous goods on cargo aircraft in portable tanks. We find that the aforesaid instruction is a copy of “Note 6” headed as “Portable tanks” as published by ICAO in its “Technical Instructions for the Safe Transport of Dangerous Goods by Air”, Page 8 of the additional evidence. As such, the DGR manuals published by the assessee dealt with the instructions for transportation of dangerous goods by air, with a purpose to assist the customers in handling the transportation of dangerous goods. The DGR manuals contained information pertaining to classification, packaging, marking, labelling and documenting shipping of dangerous goods. As such, the DGR manuals were essentially instructive and user friendly reference manual in order to facilitate safe shipping and transport of dangerous goods around the world by air, based on the instructions on dangerous goods developed by ICAO. The DGR manuals were purchased by the customers by placing orders on the website of the assessee. The assessee after receiving the orders would despatch the manual directly to the customers. At this stage, we may herein observe that the assessee had also inadvertently classified the application fees received by it for DGR manuals/publications, as “Collection of royalties from Accredited Training Schools”, and had offered the same to tax as royalty. However, on learning about its said mistake, the assessee had in the course of the assessment proceedings sought refund of the taxes paid on the aforesaid amount which was wrongly projected by it as royalty. In order to buttress his aforesaid claim the ld. A.R in the course of hearing of the appeal had drawn our attention to a reconciliation statement that was filed by the assessee in respect of the amounts which were wrongly treated by it as royalty received from the ATC‟s, Page 82–  84 of ^„APB‟. Being of the view that the DGR manual was a proprietary material sold by the assessee viz. IATA, Canada, which falls in the category of “Information concerning industrial, commercial or scientific experience” the A.O/DRP held the receipts from sale of the DGR manuals as ^„royalty‟ within the meaning of Article 12(3) of the India-Canada tax treaty.

16. Aggrieved, the assessee has assailed the treating of the sale consideration of DGR manuals/publications as ^„royalty‟ by the A.O/DRP. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. As observed by us hereinabove, the DGR manuals published by the assessee were a compilation of the Instructions on Dangerous Goods developed by ICAO, which in a comprehensive manner provided a user friendly compilation of instructions for safe transport of goods as laid down by ICAO. In the backdrop of the aforesaid facts, we find substance in the claim of the ld. A.R that the sale of DGR manuals was a simplicitor sale of a manual/book and did not involve any transfer of intellectual property. As the DGR manuals were a comprehensive and a user friendly compilation of instructions for safe transport of dangerous goods as laid down by ICAO, which did not contain any such undivulged technical information that was not available in the public domain, and/or know-how, therefore, the same in our considered view cannot be stamped as “information concerning technical, industrial, commercial or scientific experience” as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is fortified on a perusal of the contents of the DGR manual in the backdrop of the “Technical Instructions for the Safe Transport of Dangerous Goods by Air” published by ICAO. On a perusal of the definition of ^„royalty‟ as provided in Article 12(3) of the India-Canada tax treaty, we find that the same comprises of consideration received for the ^„use‟ or the ^„right to use‟ the following:

• plan, secret formula or process; or
• Information concerning industrial, commercial or scientific experience; or
• Any industrial, commercial, or scientific equipment.

We find substance in the claim of the assessee that the consideration received on sale of DGR manuals could not be characterised as ^„royalty‟ within the meaning of Article 12(3) of the India-Canada tax treaty, for the following reasons:

• The publications were outright sales to the customers, and no ^„use‟ or ^„right to use‟ any copyright in relation to the publication was granted to the customer;
• The customers did not get vested with any right to reproduce/sell the content of the publication in any form or media;
• The customers also did not get any right to use the patent, trademark, design or model, plan, secret formula or process of IATA Canada on supply of such physical publications;
• The information provided in the publications was merely a user-friendly and comprehensive compilation of data available in the public domain and hence, the same cannot tantamount to imparting of any information concerning the technical, industrial, commercial or scientific experience;
• The assessee by compiling the instructions for safe transport of dangerous goods as laid down by ICAO did not share its experience, techniques or methodology employed in developing the publication with the subscribers nor did it impart any information relating to the formation of the publication;
• The information or data transmitted through the publication was already available in the public domain and it was not something which was exclusively available with the assessee. In fact, the assessee merely compiled and presented information in a proper form by applying its own methodology;
• Further, the information concerning any industrial, commercial or scientific experience (i.e., know-how) generally implies undivulged technical information in the areas of industry, commerce or science, which however, was not so insofar the information published in the DGR manuals was concerned.

Accordingly, on the basis of our aforesaid observations, we are of a strong conviction that the consideration received by the assessee on sale of DGR manuals cannot be brought within the realm of the definition of ^„royalty‟ as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Madhya Pradesh in the case of CIT Vs. HEG Ltd. (2003) 263 ITR 230 (MP). In the said case, it was observed by the Hon‟ble High Court that it is not any information concerning the industrial or commercial venture that could earn the status as that of royalty, as some expertise or skill in providing of such information would be required. In this regard, it was observed by the High Court, as under:

“That apart we have already indicated that every information would not have in the status of royalty. There are various kinds of categories of information. Solely because an entry of the commercial nature would not make it a royalty. That cannot be the exclusive base or foundation. Some sort of expertise of skill is required. The aforesaid factor would be the requisite one. We are not inclined to accept the submission of Mr. Arya that every information if it concerns the industries or commercial venture would be a royalty. That would tantamount to state the law quite broadly. That does not seem to be the purpose of the statute or that of the treaty.”

Also, as the sale of the DGR manuals tantamount to a simplicitor sale of a copyrighted article with no vesting of any copyright of the same with the customer, the consideration therein received by the assessee cannot be attributed to the ^„use‟ or the ^„right to use‟ the copyright itself, and thus, on the said count also cannot be brought within the realm of the definition of ^„royalty‟ as provided in Article 12(3) of the India-Canada tax treaty. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2014) 220 Taxman 273 (Del). In the backdrop of our aforesaid observations we vacate the view taken by the lower authorities that the consideration received by the assessee from sale of DGR manuals was to be treated as ^„royalty‟ and brought to tax in its hands. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations.

17. We shall now advert to the claim of the ld. A.R that the A.O/DRP had erred in treating the application fees received by the assessee for DGR manuals/publications that was wrongly offered to tax as “Collection of royalties from ATS”, as royalty income under Article 12 of the India-Canada tax treaty. It is the claim of the assessee that the amounts which were received by it as application fees for DGR manuals/publications were inadvertently offered by it in its return of income as royalty income. In order to buttress its aforesaid claim, the assessee had filed before us a reconciliation statement in respect of the amounts which were wrongly treated by it as royalty received from the ATC‟s, Page 82–84 of ^„APB‟. As observed by us hereinabove, the consideration received by the assessee on sale of DGR manuals cannot be held as ^„royalty‟ within the meaning of Article 12(3) of the India-Canada tax treaty. Accordingly, on the basis of the said observations, the amount received by the assessee as application fees for DGR manuals/publications (claimed to have been wrongly offered to tax as “Collection of royalties from ATS”) cannot be treated as ^„royalty‟ in the hands of the assessee. But then, as the facts substantiating the said claim of the assessee are not there before us, we therefore restore the matter to the file of the A.O for necessary verification. In case the aforesaid claim of the assessee is found to be in order, then the consequential addition made in the hands of the assessee shall be vacated. The Ground of appeal No. 4 is allowed for statistical purposes in terms of our aforesaid observations.

18. We shall now advert to the claim of the assessee that the A.O/DRP had erred in taxing the receipts from provision of advertising space by the assessee on its website and publications as ^„royalty‟ income within the meaning of Article 12(3) of the India-Canada tax treaty, for the reason, that by so advertising the customers use the logo, brand and goodwill of the assessee. Briefly stated, the assessee viz. IATA, Canada provided advertising space to its customers either on its website that was located outside India, or in its publications/manuals that were published by it outside India. The provision of the advertisement space in both the website and the publications was managed by the assessee from outside India, and the consideration for rendering such services was also received directly in a bank account outside India. In order to buttress the aforesaid factual position the ld. A.R had drawn our attention to Page 12 & 13 of the additional evidence that has been filed before us. Being of the view, that by advertising on the assessee‟s website and publications/manuals the customers were using the logo, brand and goodwill of the assessee, the A.O/DRP concluded that the consideration therein received was liable to be taxed as ^„royalty‟ in its hands.

19. Assailing the aforesaid view so taken by the lower authorities, the assessee has carried the matter in appeal before us. We have heard at length the authorised representatives for both the parties in context of the issue under consideration, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them to drive home their respective contentions. In our considered view, the providing of advertising space by the assessee to its customers, either on its website or publications/manuals, did not result to vesting of any right to use, display, exploit or modification of the assessee‟s brand or logo, in any manner. As such, the consideration received by the assessee from provision of advertisement space in its publications /manuals or website would not fall within the realm of the definition of ^„royalty‟ as provided in Article 12(3) of the India-Canada tax treaty. In sum and substance, as no ^„use‟ or ^„right to use‟ any copyright, patent, trademark, design or model, plan was granted to the customers by the assessee in the course of providing of advertising space to them in its publications/manuals or website, the consideration received in lieu thereof cannot be brought within the meaning of the definition of the term ^„royalty‟ as provided in Article 12(3) of the India-Canada tax treaty. Viewed from another angle, as the customers by obtaining an advertising space in the website or publications/manuals of the assessee in no way get vested with any right to commercially exploit the brand or logo of the assessee, therefore, the consideration therein received by the assessee for providing such advertising space would fall beyond the meaning of the term ^„royalty‟ as defined in Article 12(3) of the India-Canada tax treaty. Our aforesaid view that consideration received by an assessee for providing advertising space cannot be held as ^„royalty‟ in its hands is fortified by the order of the ITAT, Mumbai in the case of Yahoo India (P) Ltd. Vs. DCIT (2011) 140 TTJ 195 (Mum). In the said case, it was observed by the Tribunal that the payment made by the assessee to a foreign company for the services rendered by it for uploading and display of the banner advertisement on its portal was in the nature of business profit and not royalty. It was held by the Tribunal as under :

“8. As already noted by us, the payment made by assessee in the present case to Yahoo Holdings (Hong Kong) Ltd. was for services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal. The banner advertisement hosting services did not involve use or right to use by the assessee any industrial, commercial or scientific equipment and no such use was actually granted by Yahoo Holdings (Hong Kong) Ltd. to assessee company. Uploading and display of banner advertisement on its portal was entirely the responsibility of Yahoo Holdings (Hong Kong) Ltd. and assessee company was only required to provide the banner Ad to Yahoo Holdings (Hong Kong) Ltd. for uploading the same on its portal. Assessee thus had no right to access the portal of Yahoo Holdings (Hong Kong) Ltd. and there is nothing to show any positive act of utilization or employment of the portal of Yahoo Holdings (Hong Kong) Ltd. by the assessee company. Having regard to all these facts of the case and keeping in view the decision of the Authority of Advance Rulings in the case of ISRO Satellite Centre (supra) and Dell International Services India (P) Ltd. (supra), we are of the view that the payment made by assessee to Yahoo Holdings (Hong Kong) Ltd. for the services rendered for uploading and display of the banner advertisement of the Department of Tourism of India on its portal was not in the nature of royalty but the same was in the nature of business profit and in the absence of any PE of Yahoo Holdings (Hong Kong) Ltd. in India, it was not chargeable to tax in India.”

As observed by us hereinabove, in the case of the present assessee before us also the consideration received by the assessee from the customers was for providing advertisement space in its publications/manuals or websites, without vesting of any right to use, display, exploit or modify the assessee‟s brand or logo in any manner. As such, we are of the considered view that the consideration received by the assessee for a simplicitor providing of advertisement space to the customers in its publications/manuals or website cannot be held as ^„royalty‟. Our aforesaid view is supported by the order of the ITAT, Kolkata in the case of ITO Vs. Right Florists Pvt. Ltd. (2013) 143 ITD 445 (Kol). In the said case, it was observed by the Tribunal that payment made by assessee for online advertisement to Yahoo and Google was not in the nature of ^„royalty‟. A similar view had also been arrived at by the ITAT, Mumbai in the case of Pinstorm Technologies Pvt. Ltd. Vs. ITO (2013) 154 TTJ 0173 (Mum). In the said case, it was observed by the tribunal that the amount paid by the assessee to M/s. Google Ireland Ltd. for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax was deductible at source since the same was not chargeable to tax in India in the absence of any PE. Accordingly, on the basis of our aforesaid observations we are unable to persuade ourselves to subscribe to the characterisation of the consideration received by the assessee for providing advertising space to its customers, as royalty, by the A.O/DRP. As such, the view taken by the lower authorities wherein they had taxed the receipts from provision of advertising space as ^„royalty‟ income in the hands of the assessee is vacated. The Ground of appeal No. 5 is allowed in terms of our aforesaid observations.

20. We shall now take up the grievance of the assessee that the A.O/DRP had erred in taxing certain receipts viz. (i) collection of membership fees; (ii). BSP link charges; and (iii). fees for clearing house facility (^„ICH facility‟) as ^„business profits‟ under Article 7 of the India-Canada tax treaty. After hearing the authorised representatives for both the parties at length in context of the aforesaid issues, perusing the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them, our observations as regards the same are as under:

(A). BSP link charges :

(i). During the year under consideration the assessee viz. IATA, Canada had an agreement with Accelya World SLU, a company registered in Spain, for providing Billing Settlement Plan (BSP) Link Services to the airlines across the world including India. The BSP link enabled the agents and the airlines to avail billing and settlement facility/services in relation to the air tickets sold by the agents. For provision of the BSP Link services, Accelya World SLU, Spain, raised invoices on the assessee viz. IATA, Canada, for recovery of the BSP Link charges charges from the airlines and the agents. In turn, the assessee viz. IATA, Canada raised invoices directly on the airlines and IATA India branch, wherein they in turn raised invoices on the agents without any mark up. In the backdrop of the aforesaid facts, it was submitted before the lower authorities that the assessee viz. IATA, Canada had merely acted as a facilitator/intermediary in relation to the invoices raised and the payments collected from the agents and the airlines in relation to the BSP Link charges. As such, it was the claim of the assessee that in the absence of any income element in the recovery of the BSP charges from the airlines and agents (through IATA India branch), the same could not have been brought to tax in the hands of the assessee. In sum and substance, it was the claim of the assessee before the lower authorities that as the collection of the BSP charges by the assessee viz. IATA, Canada from airlines and agents (through IATA India branch) for onward remittance to Accelya World SLU, Spain, without any mark-up, was in the nature of a reimbursement, thus, in the absence of any income element the same could not have been brought to tax as the ^„business income‟ of the assessee under Article 7 of the India-Canada tax treaty. Apart from that, the assessee had also assailed the assessing of the BSP charges owing to the ^„principle of mutuality‟. However, the contentions advanced by the assessee did not find favour with the A.O. Although, the A.O vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 27.03.2015 observed, that reimbursements received on actual basis at cost cannot be taxed as they do not carry any element of profit, but then, insofar the BSP charges were concerned, he after allowing 10% of the gross BSP charges as deduction for relatable expenses, therein subjected the balance amount of BSP charges (90% of gross receipts) to tax in the hands of the assessee. After rejecting the contentions of the assessee the DRP principally upheld the view taken by the A.O that the BSP charges were liable to be assessed as the ^„business income‟ of the assessee. But then, the DRP directed the A.O to restrict the income on account of BSP charges to 40% of the gross receipts.

(ii). Aggrieved with the order of the A.O/DRP the assessee has assailed the assessing of the BSP charges as its ^„business income‟ under Article 7 of the India-Canada tax treaty. On the other hand, the revenue is aggrieved with the scaling down of the quantum of income from BSP charges from 90% of gross receipts as was proposed by the A.O vide his draft assessment order, to 40% of gross receipts pursuant to the directions of the DRP. We find that the assessee had inter alia submitted before the lower authorities that it had merely acted as a facilitator/intermediary in recovering BSP Link charges from the airlines and agents (through IATA India branch), and had remitted the same to Accelya World SLU, Spain, without any mark-up. In fact, the said contention was raised by the assessee both before the A.O and the DRP. Admittedly, in case the assessee had only facilitated the recovering of the BSP charges from the airlines and agents (through IATA India branch), and remitted the same to Accelya World SLU, Spain, without any mark-up, then the same in the absence of any income element could not have been brought to tax in its hands. In fact, we find that the DRP in the assessee‟s own case for A.Y 2016-17, vide its order passed u/s 144(5), dated 03.07.2019, had accepted the objection of the assessee, and observed, that as the BSP Link charges were collected by the assessee for onward remittance to Accelya World SLU, Spain, without any mark-up, the same would thus not constitute income in the hands of the assessee. Accordingly, the DRP had directed the A.O to delete the addition of BSP charges in the hands of the assessee. In the backdrop of our aforesaid observations, we are of the considered view that collection of the BSP charges by the assessee from the airlines and agents for onward remittance to Accelya World SLU, Spain, without any mark-up, cannot be held to be its ^„business income‟. But then, as the said aspect had not been looked into by the A.O/DRP, we therefore in all fairness restore the matter to the file of the A.O for the limited purpose of verifying the same. In case the claim of the assessee that the BSP Link charges were collected by it for onward remittance to Accelya World SLU, Spain, without any mark-up, is found to be in order, then the addition made by the A.O to the said extent shall stand deleted. The Grounds of appeal No.6(d & e) raised by the assessee are allowed for statistical purposes.

(B). IATA CLEARING HOUSE FACILITY (ICH FACILITY) :

(i). The assessee viz. IATA, Canada, provided the ICH facility to the air transport industry across the globe. Through the ICH facility the assessee viz. IATA, Canada enabled the world airlines and industry suppliers to settle their passenger, cargo and miscellaneous/non-transportation billings. The ICH facility provided by the assessee, viz. IATA, Canada facilitated raising of the invoices, netting off of payables and receivables, providing transaction details report to the airlines/strategic partners. In order to explain the concept of ICH facility the assessee had drawn support from an example before the lower authorities. Say, a passenger booked a ticket through Air India for a journey from India to Geneva, with a lay-over at Amsterdam. On the basis of an interlining agreement among the world’s airlines, the Air India aircraft would carry the passenger from India to Amsterdam, and thereafter a Swiss Airlines aircraft would carry the passenger from Amsterdam to Geneva. In this situation, Air India would collect the entire fare from the passenger and would be required to pay the Swiss Airlines for the journey between Amsterdam to Geneva. Now, it is by availing the ICH facility that Air India would settle its dues with the Swiss Airlines. As such, it was submitted by the assessee before the lower authorities that the ICH facility enabled the airlines to settle their billings/dues securely and efficiently, thereby reducing their exposure arising on account of foreign exchange fluctuation. It was the claim of the assessee, viz. IATA, Canada, before the lower authorities that as the ICH services were provided by it directly outside India, and the fees in respect of the said services was also received in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been brought to tax as the ^„business income’ of the assessee under Article 7 of the India-Canada tax treaty. It was further submitted by the assessee that though IATA India branch constituted a PE of the assessee in India as per Article 5(2)(b) of the India-Canada tax treaty, but then, as the fees pertaining to ICH facility was received directly outside India, and IATA India as per the approval of the RBI was not permitted to undertake any activity apart from the BSP services, therefore, the fees received by the assessee from ICH facility could not be attributed to the IATA India branch. Accordingly, it was the claim of the assessee before the lower authorities that the fees pertaining to ICH facility could not be assessed as ^„business income‟ of the assessee under Article 7 of the India-Canada tax treaty. In sum and substance, it was the claim of the assessee that as its Indian PE viz. IATA India branch which as per the approval of RBI was not permitted to undertake any activity apart from the BSP services had no role in providing of the ICH services which were provided outside India, therefore, the fees therein received by the assessee could not be attributed to the said PE. However, the A.O/DRP did not find favour with the aforesaid claim of the assessee. Observing, that the assessee had not demonstrated that the activities pertaining to ICH facility were being conducted by the assessee, viz. IATA, Canada directly from outside India, the DRP concurred with the view taken by the A.O that the fees pertaining to ICH facility was liable to be assessed as the business income of the assessee under Article 7 of the India-Canada tax treaty.

(ii). We have given a thoughtful consideration to the contentions advanced by the authorised representatives for both the parties in context of the aforesaid issue under consideration, and have perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them. As is discernible from the orders of the lower authorities, the assessee was given permission by the RBI to open a branch office in India, vide its order dated 25.11.1995, under Sec. 29 of the Foreign Exchange Regulation Act, 1973, for conducting non-commercial activities on no profit basis. We find that though it was the claim of the assessee that as per the approval of the RBI the IATA-India branch was not permitted to undertake any activity apart from the BSP services, but the DRP taking cognizance of the financial statements of the IATA-India branch, and also observing that RBI had never conducted any enquiry into the affairs of the assessee, declined to accept the said claim of the assessee. As regards the claim of the assessee that though IATA-India branch constituted a PE of the assessee in India as per Article 5(2)(b) of the India-Canada tax treaty, but then, as the ICH services were provided directly outside India, and the fees in respect of the said services was also received by the assessee in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been attributed to the IATA-India branch, the same we find was rejected by the DRP, for the reason, that the assessee had not demonstrated that the ICH services were being provided by the assessee, viz. IATA, Canada, directly from outside India. We have given a thoughtful consideration and are in agreement with the claim of the assessee, that the amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in those transactions. In a case where the transactions had taken place outside India, the same cannot be attributed to the PE, because the PE had no role to play in such transactions. As such, only the portion of profits which are attributable to the PE in India are taxable in India, and the revenues from functions/activities carried outside India cannot be taxed in India. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Co. Ltd. Vs. DIT (2007) 288 ITR 408 (SC). In the said case the Hon‟ble Apex Court had observed, that as the PE of the assessee company had nothing to do with the offshore services rendered by the assessee company, a resident of Japan, in connection with a turnkey project executed in India, therefore, consideration received by the assessee company for rendition of such services could not be brought to tax in India. Referring to Article 7 of the DTAA, it was observed by the Hon‟ble Apex Court that the same limits the tax on business profits to that arising from the operations of the PE. It was observed by the Hon‟ble Court, that as in the case before them the entire services were rendered outside India, and had nothing to do with the PE, therefore, nothing could be attributed to the PE and thus brought to tax in India. Apart from that, it was observed by the Hon‟ble Apex Court that in case of composite transactions which have some operations in one territory and some in others, the principle of apportionment has to be essentially applied in order to determine the taxability of various operations. In the backdrop of the aforesaid settled position of law, the amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in the transaction from which revenue has been generated. We are unable to subscribe to the manner in which the A.O/DRP had summarily rejected the claim of the assessee that as the ICH services were provided by the assessee, viz. IATA, Canada directly outside India, and the fees in respect of the said services was also received by the assessee in its bank account maintained outside India, therefore, the revenue pertaining to the said ICH services could not have been attributed to the IATA-India branch. In our considered view, the matter in all fairness requires to be restored to the file of the A.O. The A.O shall in the course of the ^„set aside‟ proceedings verify the veracity of the claim of the assessee that the ICH services were provided by the assessee, viz. IATA, Canada directly outside India. In case, the claim of the assessee is found to be in order, then the addition of fees received from providing ICH services made in its hands would stand vacated. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard during the course of the ^„set aside’ proceedings and shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Accordingly, the matter is restored to the file of the A.O for fresh adjudication in terms of our aforesaid observations. The Grounds of appeal Nos. 6(f) to 6(h) are allowed for statistical purposes.

(C). COLLECTION OF MEMBERSHIP FEES :

(i). As observed by us hereinabove, the assessee is a corporation incorporated under the Special Act of the Parliament of Canada, Page 1 of the ^„APB’. The assessee is stated to be a non-profit organisation whose purpose, objects and aims are to promote safe, reliable, secure and economical services to all the stakeholders of the world’s commercial aviation industry. Another primary function of the assessee is to provide means for collaboration among the air transport enterprises engaged directly or indirectly in international air transport services. Also, the assessee corporation cooperates with the International Civil Aviation Organization and other such international organizations. The assessee has 240 members and associate members from 115 countries around the world. In order to become a member of the assessee corporation, viz. IATA, Canada, the airlines pay the necessary joining fees and subsequent annual membership fees. Also, the assessee receives joining and annual membership fees from its various strategic partners. That pursuant to obtaining the membership of the assesse corporation, viz. IATA, Canada, the members obtain certain benefits, viz. IATA operational safety audit; security and facilitation; product distribution; physical publications; training activities; attending annual general meetings and world air transport summit etc. However, a member in order to avail any of the aforesaid services has to pay a separate fees for the same. Apart from that, upon payment of the membership fees to the assessee, viz. IATA, Canada, the member airlines and the strategic partners get information about the various services provided by the assessee corporation.

(ii). In the backdrop of its claim that the assessee corporation was regulated by the principle of mutuality, it was submitted by the assessee that the aforesaid receipts were not exigible to tax. However, the A.O/DRP being of the view that the assessee corporation failed to cumulatively satisfy the requisite conditions to invoke the principle of mutuality, viz. (i). complete identity of contributors and the recipients/participants; (ii). instrumentality of the assessee in carrying out the mandates of its members; and (iii). impossibility of the assessee deriving any profit from contribution or non-involvement of commerciality, therein rejected its claim of mutuality. Alternatively, it was submitted by the assessee that as its Indian PE viz. IATA India branch which as per the approval of RBI was not permitted to undertake any activity apart from the BSP services had no role in collection of membership dues which was carried out outside India, therefore, the said activity could not be attributed to the said PE. However, the A.O did not find favour with the aforesaid claim of the assessee, and vide his draft assessment order passed u/s 143(3) r.w.s 144C(1), dated 27.03.2015 after allowing deduction of 10% of the gross collection of membership dues as deduction for relatable expenses, therein subjected the balance amount (90% of gross receipts) to tax in the hands of the assessee. Observing, that the assessee had not demonstrated that the activities pertaining to the collection of membership dues were being conducted by the assessee, viz. IATA, Canada directly from outside India, the DRP concurred with the view taken by the A.O that the same was liable to be assessed as the business income of the assessee under Article 7 of the India-Canada tax treaty. But then, the DRP directed the A.O to restrict the addition to 40% of the gross collection of membership dues.

(iii). We have given a thoughtful consideration to the contentions advanced by the authorised representatives for both the parties in context of the aforesaid issue under consideration, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them. As is discernible from the orders of the lower authorities, the assessee was given permission by the RBI to open a branch office in India, vide its order dated 25.11.1995 under Sec. 29 of the Foreign Exchange Regulation Act, 1973, for conducting non-commercial activities on no profit basis. We find that though it was the claim of the assessee that as per the approval of the RBI the IATA-India branch was not permitted to undertake any activity apart from the BSP services, but the DRP taking cognizance of the financial statements of the IATA-India branch, and also the fact that RBI had never conducted any enquiry into the affairs of the assessee, declined to accept the said claim of the assessee. As regards the claim of the assessee that though IATA-India branch constituted a PE of the assessee in India as per Article 5(2)(b) of the India-Canada tax treaty, but then, as the collection of the membership dues by the assessee, viz. IATA, Canada was carried out directly outside India, therefore, the same could not have been attributed to the IATA-India branch, we find was rejected by the DRP, for the reason, that the assessee had not demonstrated that the activities pertaining to collection of the membership dues were being carried out by the assessee, viz. IATA, Canada, outside India. We are in agreement with the claim of the assessee that amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in those transactions. In a case where the transactions had taken place outside India, the same cannot be attributed to the PE, because the PE had no role to play in such transactions. As such, only the portion of profits which are attributable to the PE in India are taxable in India, and the revenue from functions/activities carried outside India cannot be taxed in India. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Co. Ltd. Vs. DIT (2007) 288 ITR 408 (SC). In the said case, the Hon’ble Apex Court had observed that as the PE of the assessee company had nothing to do with the offshore services rendered by the assessee company, a resident of Japan, in connection with a turnkey project executed in India, therefore, consideration received by the assessee company for rendition of such services could not be brought to tax in India. Referring to Article 7 of the DTAA, it was observed by the Hon’ble Apex Court that the same limits the tax on business profits to that arising from the operations of the PE. It was observed by the Hon’ble Court, that as in the case before them the entire services were rendered outside India and had nothing to do with the PE, therefore, nothing could be attributed to the PE and thus brought to tax in India. Apart from that, it was observed by the Hon‟ble Apex Court that in case of composite transactions which have some operations in one territory and some in others, the principle of apportionment has to be essentially applied in order to determine the taxability of its various operations. In the backdrop of the aforesaid settled position of law, the amount of profit that would be attributable to a PE would be on the basis of the extent appropriate to the role played by the PE in the transaction from which revenue has been generated. We are unable to subscribe to the manner in which the A.O/DRP had summarily rejected the claim of the assessee that as the activities pertaining to collection of membership dues were being carried out by the assessee, viz. IATA, Canada directly outside India, therefore, the same could not have been attributed to the IATA-India branch. In our considered view, the matter in all fairness requires to be revisited by the A.O. The A.O shall in the course of the ^„set aside‟ proceedings verify the veracity of the claim of the assessee that the collection of membership dues was carried out by it directly outside India. In case the claim of the assessee is found to be in order, then, the addition made by the A.O on the said count would stand vacated. Needless to say, the assessee shall be afforded a reasonable opportunity of being heard during the course of the ^„set aside‟ proceedings and shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh documentary evidence. Accordingly, the matter is restored to the file of the A.O for fresh adjudication in terms of our aforesaid observations. The Ground of appeal No. 6(a) to 6(c) are allowed for statistical purposes.

21. As we have restored the issues as regards assessing of the aforesaid receipts, viz. (i). BSP link charges; (ii). fess for ICH facility; and (iii). collection of membership dues to the file of the A.O for fresh adjudication in terms of our aforesaid observations, therefore, the scaling down of the revenue attributable to the PE, viz. IATA-India branch that was proposed vide the draft assessment order by the A.O at 90%(of the gross receipts), to 40% (of gross receipts) pursuant to the directions of the DRP, are also resultantly restored to the file of the A.O. The Ground of appeal No. 2 of the revenue is allowed for statistical purposes.

22. We shall now advert to the claim of the assessee that the A.O had erred in allowing short credit for self-assessment taxes of Rs. 1,32,10,040/- paid by the assessee. As the said issue would require verification of records, we therefore restore the matter to the file of the A.O. The A.O is directed to verify the factual position, and in case the claim of the assessee is found to be in order, then the credit for the amount deposited by it by way of self-assessment tax be allowed to it. Needless to say, the A.O in the course of the ‘set aside’ proceedings shall afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim. The Ground of appeal No. 7 raised by the assessee is allowed for statistical purposes.

23. The assessee has assailed before us the non-grant of credit of TDS of Rs. 24,21,636/- as was claimed by it in the return of income. Again, as the aforesaid issue would require verification of the records, we thus restore the matter to the file of the A.O. In case the claim of the assessee is found to be in order the A.O shall grant the credit for the TDS, as claimed by the assessee. Needless to say, the A.O shall in the course of the ‘set aside’ proceedings afford a reasonable opportunity of being heard to the assessee, wherein the latter shall remain at a liberty to substantiate its aforesaid claim. The Ground of appeal No. 8 raised by the assessee is allowed for statistical purposes.

24. We shall now advert to the claim of the assessee that the A.O had wrongly worked out the interest u/s 234A at Rs. 88,10,046/-, without granting credit of the TDS. As we have restored the issue as regards verification of the assesses claim of not granting of TDS credit by the A.O, therefore, we set aside the matter to the file of the A.O who is directed to recompute the interest u/s 234A after allowing credit of the amount of tax deducted at source, if any. The Ground of appeal No. 9 raised by the assessee is allowed for statistical purposes.

25. We shall now advert to the claim of the assessee that the A.O had wrongly worked out the interest u/s 234B and u/s 234C at Rs. 2,20,25,115/- and 2,26,050/-, respectively. The assessee has assailed the charging of the aforesaid interests on two fold basis viz.

(i) that the A.O had erred in failing to appreciate that interest u/ss. 234B and 234C is not leviable in case of a foreign company; and

(ii) that the interests u/ss. 234B and 234C had wrongly been computed without taking into consideration the respective amounts of self-assessment tax deposited by the assessee, and also the amount of TDS. As the second limb on the basis of which the charging of interest u/ss. 234B and 234C has been assailed before us would require verification of records, we thus restore the matter to the file of the A.O for necessary verifications. At the same time, as the assessee has assailed the very validity of levy of interest u/ss. 234B and 234C of the Act, on the ground that the same are not leviable in the case of a foreign company, we thus in the absence of any contention advanced by the ld. A.R before us on the said count restore the matter to the file of the A.O. The assessee shall remain at a liberty to substantiate its claim as regards non-levy of interest u/ss. 234B and 234C before the A.O. The Ground of appeal No. 10 raised by the assessee is allowed for statistical purposes.

26. The assessee has assailed the initiation of penalty proceedings u/s 271(1)(c) of the Act. As the same does not arises from the impugned order, and in fact is premature, therefore, the Ground of appeal No. 11 is dismissed as infructuous.

27. Resultantly, the appeal of the assessee in ITA No. 587/Mum/2016 is partly allowed, while for the appeal of the revenue in ITA No. 964/Mum/2016 is partly allowed for statistical purposes.