While dealing with the taxability of income from non-India Point of Sales (POS), the Delhi High Court has clarified that once 15% of revenue is attributed to the Indian Permanent Establishment (PE), the entire related expenditure must be deducted therefrom to compute taxable income. Since the expenditure, i.e., 68% commission was higher than the attributed revenue of 15%, no taxable income arose from these transactions.
As far as non-India POS income is concerned, the Court exercised judicial restraint as the matter was sub-judice before appellate bodies. However, to ensure justice, the Court adopted a proportional approach, linking the withholding tax rate to the quantum of disputed income. It determined that the non-India POS revenue constituted about 20% of the petitioner’s total revenue, i.e., Rs. 246.83 crore out of Rs. 1222.18 crore.
Therefore, the Court decided it expedient to apply a proportionate tax rate to this part of the income, rather than granting a complete NIL rate certificate which would ignore the ongoing dispute. Accordingly, the Court set aside the impugned order and the corresponding certificate, and directed the competent authority to issue a fresh tax withholding certificate within fifteen days, providing for a deduction of tax at the rate of 0.5%. This rate was calculated by taking the proportion of non-India POS revenue to total revenue and applying it to the original 1.6% rate determined by the authority, with the resulting 0.32% being rounded off to 0.5%.
The Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar observed that the issue concerning the taxability of income from non-India POS transactions is yet to be conclusively decided by the appellate authorities, and given that the Assessing Officer’s view has been consistently against the petitioner for the last four years, the Bench would refrain from making any definitive finding on that matter.
On the primary issue, the Bench affirmed the legal position established by the Supreme Court in the petitioner’s own case, DIT v. Travelport Inc. [(2017) 398 ITR 593 (SC)], which held that 15% of the petitioner’s revenue is attributable to its Indian PE based on a Functions Performed, Assets Used, and Risks Undertaken (FAR) analysis.
The Bench clarified that this 15% attribution pertains to revenue, not income, and it does not act as a limit on the allowability of expenditure. Consequently, the entire commission of 68% paid to distribution agents must be deducted from the 15% attributed revenue. Since the commission expense exceeded the attributed revenue, the Bench noted that the resulting income would be negative, meaning no further income was taxable in India with respect to India-based transactions.
Briefly, the petitioner is a UK-incorporated and tax-resident company providing electronic global distribution services (GDS) to the global travel industry through a Computer Reservation System (CRS). For its services, it receives booking fees from airlines. The petitioner filed a writ challenging an order and a consequential certificate issued under Section 197 of the Income Tax Act, which mandated that payers making payments to the petitioner must deduct tax at a rate of 1.6%.
The petitioner contended that, as established by the Supreme Court in its own case, only 15% of its revenue is attributable to its Permanent Establishment (PE) in India, and the entire commission of 68% paid to its Indian agent should be deducted from this revenue, resulting in a loss.
The tax authority, however, had only deducted 15% of the 68% expense. They argued that income from non-India Point of Sales (POS) is also taxable, an issue on which the Assessing Officer had raised demands for the past four years and which the Dispute Resolution Panel (DRP) had recently decided against the petitioner.
Case Relied On:
DIT v. Travelport Inc. [(2017) 398 ITR 593 (SC)]
Appearances:
Senior Advocate Ajay Vohra, along with Advocates Manuj Sabharwal, Drona Negi and Devvrat Tiwari, for the Petitioner/ Taxpayer
SSC Siddhartha Sinha and JSC Easha Gurung, for the Respondent/ Revenue
