Facts of the Case

  • The appeals were filed by the Revenue against a common order of the ITAT dated 13.09.2022.
  • The matter pertained to Assessment Years 2017-18 and 2019-20.
  • The dispute involved:
    • Attribution of profits to the Permanent Establishment (PE) in India
    • Taxability of booking fees
    • Classification of income as royalty vs business income
  • The ITAT had attributed 15% of profits to the PE in India.

Issues Involved

  1. Whether ITAT erred in attributing 15% profit to the PE in India.
  2. Whether income from “Altea Suite” qualifies as royalty income.
  3. Whether booking fees should be taxed as royalty or business income.
  4. Whether FAR analysis is applicable for attribution under Article 7 of DTAA.
  5. Whether Rule 10 should be applied for determining profits of PE.

Petitioner’s Arguments (Revenue)

  • ITAT wrongly attributed only 15% profits to the PE, lacking legal basis.
  • FAR analysis should not be used for attribution under Article 7 of DTAA.
  • India does not accept OECD Model provisions relating to FAR for PE attribution.
  • Rule 10 of Income Tax Rules should govern profit attribution.
  • Booking fee and related income should be treated as royalty.

Respondent’s Arguments (Assessee – Amadeus IT Group SA)

  • ITAT correctly applied principles and attributed reasonable profits.
  • Booking fees are business income, not royalty.
  • Issues raised by Revenue were already covered by earlier judgments.
  • No objection to condonation of delay in refiling appeals. 

Court Findings

  • Questions relating to:
    • Profit attribution (15%)
    • Royalty vs business income
      were already covered by earlier decision dated 04.05.2023 in similar cases.
  • Hence, no substantial question of law arose for these issues.
  • Regarding FAR analysis and Rule 10:
    • The Revenue had not raised these arguments before lower authorities.
    • Therefore, such issues cannot be entertained at appellate stage 

Court Order / Final Decision

  • Delay in refiling appeals was condoned.
  • Appeals were dismissed/closed.
  • No substantial question of law found.

Important Clarifications

  • Issues already settled by earlier High Court rulings cannot be re-agitated.
  • New legal arguments cannot be raised for the first time before the High Court.
  • FAR analysis applicability must be raised at earlier stages.
  • Reinforces distinction between:
    • Article 7 (PE profits)
    • Article 9 (Transfer pricing)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS31082023ITA4892023_215001.pdf

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