M/s. Amadeus Global Travel Distribution, New Delhi v. ADIT, New Delhi

CO 203/DEL/2010 | misc
Pronouncement Date: 29-10-2010 | Result: Dismissed

Appeal Details

RSA Number 20320123 RSA 2010
Bench Delhi
Appeal Number CO 203/DEL/2010
Duration Of Justice 3 month(s)
Appellant M/s. Amadeus Global Travel Distribution, New Delhi
Respondent ADIT, New Delhi
Appeal Type Cross Objection
Pronouncement Date 29-10-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-10-2010
Assessment Year misc
Appeal Filed On 29-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA VICE PRESIDENT AND SHRI I.P.BANSAL JUDICIAL MEMBER ITA NOS.2424/DEL/2010 2425/DEL/2010 & 2426/DEL/201 0 ASSESSMENT YEARS : 2003 - 04 2004 - 05 & 2005 - 06 AS STT.DIRECTOR OF INCOME TAX CIRCLE-1(1) INTERNATIONAL TAXATION NEW DELHI. VS. M/S AMADEUS GLOBAL TRAVEL DISTRIBUTION C/O VAISH ASSOCIATES FLAT NO.5-7 10 HAILY ROAD NEW DELHI. (APPELLANT) (RESPONDENT) CROSS - OBJECTION NOS.202/DEL/201 0 203/DEL/2010 & 204/DEL/2010 ASSESSMENT YEARS : 2003 - 04 2004 - 05 & 2005 - 06 M/S AMADEUS GLOBAL TRAVEL DISTRIBUTION C/O VAISH ASSOCIATES FLAT NO.5-7 10 HAILY ROAD NEW DELHI. VS. ASSTT.DIRECTOR OF INCOME TAX CIRCLE-1(1) INTERNATIONAL TAXATION NEW DELHI. (APPELLANT) (RESPONDENT) REVENUE BY : MRS.PRATIMA KAUSHIK SR.DR AND SHRI ASHOK PANDEY CIT-DR. ASSESSEE BY : SHRI AJAY VOHRA SHRI ROOPESH JAIN AND SHRI SACHIT JOLLY ADVOCATES. ORDER PER I.P.BANSAL JM : ALL THESE APPEALS ARE FILED BY THE REVENUE AND CRO SS-OBJECTIONS BY THE ASSESSEE. 2. GROUNDS OF APPEAL AS WELL AS CROSS-OBJECTIONS IN ALL THESE THREE YEARS ARE IDENTICAL AND THEY ARE AS UNDER:- 2 GROUNDS RAISED BY THE REVENUE :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN ATTRIBUTING ONLY 15% OF THE REVENUE AS INCOME ACCRUING/ARISING IN INDIA WITHIN THE MEANING OF SEC TION 9(1) OF THE ACT AND ARTICLE 7 OF THE INDO-SPAIN DTAA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN ERROR BY EQUATING 15% OF TAXABLE INCOME WITH GROSS PROFIT S AND THEREAFTER SUBSEQUENTLY REDUCING IT WITH DEDUCTION OF EXPENSES PAID TO THE AGENT. THIS ATTRIBUTION OF RE VENUE @ 15% OF BUSINESS CONNECTION/PERMANENT ESTABLISHMENT THEN ALLOWING THE DEDUCTION OF EXPENSES OF 33% OF R EVENUE AS PAYMENT TO AGENT WILL LEAD TO ARTIFICIAL COMPUT ATION OF LOSS ON PERPETUAL BASIS WHICH IS AGAINST THE ACTUA L FACTS WHEREIN ASSESSEE HAD ITSELF COMPUTED PROFIT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE FACTS CORRECTLY BY STATING THAT TH ERE WAS NO DISPUTE REGARDING THE ALLOWABILITY OF PAYMENT TO INTERGLOBE AS EXPENSES WHILE COMPUTING INCOME OF TH E APPELLANT. THE LD.CIT(A) HAD NOT APPRECIATED THE F ACTS CORRECTLY THAT THE ASSESSING OFFICER HAS ALLOWED DE DUCTION OF PAYMENT MADE TO AGENT AS EXPENSES OUT OF THE TOT AL RECEIPTS FROM BOOKING MADE IN INDIA. WHEREAS LD.C IT(A) ALLOWED DEDUCTION FOR PAYMENTS TO AGENT AGAINST THE 15% OF THE REVENUE. THIS RESULTED INTO MISMATCH OF REC EIPTS AND EXPENSE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN NOT ATTRIBUTING ANY INCOME TO THE FIXED PLACE PERMANENT ESTABLISHMENT OF THE ASSESSEE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE PROVISIONS OF CIRCULAR 23 OF 1969 DO NOT APPLY TO THE FACTS OF THE CASE. 3 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS BY NOT APPRECIATING THE TRUE IMPORT OF RATIO OF JUDGMENT O F THE HONBLE COURT IN THE CASE OF DIT(INTL. TAXATION) V/ S MORGAN STANLEY AND COMPANY INC. (2007) 292 ITR 406 AND IMP ORT OF WITHDRAWAL OF CIRCULAR NO.23 BY THE CBDT W.E.F. 22.10.2009. GROUNDS RAISED BY THE ASSESSEE :- 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN H OLDING THE APPELLANT LIABLE TO TAX IN INDIA IN RESPECT OF RECE IPTS FROM AIRLINES AND OTHER SERVICE PROVIDERS RELATING TO S EGMENTS BOOKED FROM INDIA THROUGH THE APPELLANTS COMPUTER RESERVATION SYSTEM (CRS). 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN H OLDING THAT THE APPELLANT HAD A PERMANENT ESTABLISHMENT (PE') IN INDIA IN TERMS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) ENTERED INTO BETWEEN INDIA AND S PAIN. 2.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HO LDING THAT COMPUTERS PROVIDED TO THE TRAVEL AGENTS THROU GH WHICH THE BOOKINGS WERE MADE USING THE APPELLANTS CRS CONSTITUTED FIXED PLACE OF BUSINESS AND THEREFORE A PE OF THE APPELLANT IN INDIA IN TERMS OF PARAGRAPH (1) O F ARTICLE 5 OF THE DTAA BETWEEN INDIA AND SPAIN. 2.2 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT THE ACTIVITIES OF THE APPELLANT I N INDIA WERE OF AUXILIARY AND PREPARATORY CHARACTER AND TH EREFORE THE APPELLANT CANNOT BE SAID TO HAVE A PE IN INDIA HAVING REGARD TO THE PROVISION OF ARTICLE 5(3)(E) OF THE D TAA BETWEEN INDIA AND SPAIN. 2.3 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN H OLDING THAT AMADEUS INDIA (P) LTD. CONSTITUTED DEPENDENT A GENT PERMANENT ESTABLISHMENT (PE) OF THE APPELLANT IN IN DIA. 3.0 WITHOUT PREJUDICE THAT THE CIT(A) ERRED ON FAC TS AND IN LAW IN NOT DELETING THE DISALLOWANCE OF DEVELOPM ENT COST MADE BY THE ASSESSING OFFICER WHILE COMPUTING THE INCOME ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN INDIA. 4 3. AT THE OUTSET IT WAS POINTED OUT BY THE LEARNED AR THAT THE DECISION OF CIT(A) IS BASED ON THE EARLIER DECISION OF ITAT IN THE CASE OF ASSESSEE IN RESPECT OF EARLIER ASSESSMENT YEARS AND THUS IT WAS PLEADED THAT ALL THE ISSUES RAISED BY THE DEPARTMEN T AND THE ASSESSEE IN THEIR RESPECTIVE APPEALS AND CROSS-OBJECTIONS AR E COVERED BY THE EARLIER DECISION OF THE ITAT IN ASSESSEES OWN CASE . IT WAS POINTED OUT THAT THE SAID DECISION OF THE TRIBUNAL IS SINCE REP ORTED IN TTJ AS 113 TTJ 767 UNDER THE NAME OF AMADEUS GLOBAL TRAVEL DISTRIB UTION S.A. VS. DCIT. 4. IT WAS POINTED OUT THAT THE REVENUE HAS RAISED O NLY ONE ISSUE WHICH IS REGARDING ATTRIBUTION OF INCOME ARISING TO ASSESSEE AS PER PROVISIONS OF SECTION 9(1)(I) OF THE ACT AND ARTICL E 7 OF INDO-SPAIN DTAA. GRIEVANCE OF THE REVENUE IN THE PRESENT APPE AL IS THAT CIT(A) HAS WRONGLY ATTRIBUTED ONLY 15% OF REVENUE AS INCOM E ARISING IN INDIA AND FOR HOLDING SO HE HAS WRONGLY APPRECIATED THE PROVISIONS OF CIRCULAR 23 OF 1969 AND HAS WRONGLY APPRECIATED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DIT INTERNATI ONAL TAXATION VS. MORGAN STANLEY AND CO. 292 ITR 406. 5. IT WAS POINTED OUT BY THE LEARNED AR THAT THE IT AT WHILE RENDERING THE DECISION REGARDING ATTRIBUTION OF 15% AS INCOME ARISING IN INDIA HAS CONSIDERED THE PROVISIONS OF CIRCULAR AS WELL AS DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MORGAN STA NLEY AND CO. (SUPRA) AND THUS IT WAS PLEADED THAT ALL THE ISSUE S RAISED BY THE REVENUE ARE THUS COVERED BY THE EARLIER DECISION OF THE TRIBUNAL DATED 30.11.2007 IN RESPECT OF AY 1996-97 TO 1998-99 WHIC H IS REPORTED AT 113 TTJ 767. 6. WITH REGARD TO THE CROSS-OBJECTION FILED BY THE ASSESSEE IT WAS POINTED OUT BY THE LEARNED AR THAT THE TRIBUNAL HAS HELD THE SAID ISSUE 5 AGAINST THE ASSESSEE AND TO KEEP THE MATTER ALIVE THE ASSESSEE IS PRESSING THROUGH THE CROSS-OBJECTIONS REGARDING THE DECISION OF THE TRIBUNAL VIDE WHICH IT HAS BEEN HELD THAT ASSESSEE HAS PE IN INDIA. 7. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. S O AS IT RELATES TO THE ATTRIBUTION OF INCOME ARISING TO ASSESSEE IN IN DIA THE ISSUE IS COVERED BY PARA 18 OF THE AFOREMENTIONED ORDER OF T HE TRIBUNAL DATED 30.11.2007. THE SAID PARA IS REPRODUCED BELOW:- 18. THE NEXT QUESTION THEREFORE ARISES IS WHETHER HAVING HELD THAT THERE IS BUSINESS CONNECTION IN INDIA HO W MUCH INCOME IS CHARGEABLE TO TAX IN INDIA. AS PER S.9(1 )(I) OF THE ACT INCOME ACCRUING OR ARISING WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. AS PE R CL.(A) OF EXPLN. 1 TO S. 9(1)(I) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA THE IN COME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS R EASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA . THUS IN A GIVEN CASE IF ALL THE OPERATIONS ARE NOT CARRIED OUT IN INDIA THE INCOME HAS TO BE APPORTIONED BETWEEN THE INCOME ACCRUING IN INDIA AND INCOME ACCRUING OUTSID E INDIA. IN THE PRESENT CASE WE FIND THAT ONLY PART OF CRS SYSTEM OPERATES OR FUNCTIONS IN INDIA. THE EXTENT OF WORK IN INDIA IS ONLY TO THE EXTENT OF GENERATING REQUES T AND RECEIVING END-RESULT OF THE PROCESS IN INDIA. THE MAJOR FUNCTIONS LIKE COLLECTING THE DATABASE OF VARIOUS A IRLINES AND HOTELS WHICH HAVE ENTERED INTO PCA WITH THE AP PELLANT TAKES PLACE OUTSIDE INDIA. THE COMPUTER AT ERDING IN GERMANY PROCESSES VARIOUS DATA LIKE SCHEDULE OF FLI GHTS TIMINGS PRICING THE AVAILABILITY CONNECTION MEA L PREFERENCE SPECIAL FACILITY ETC. AND THAT TOO ON THE BASIS OF NEUTRAL DISPLAY REAL TIME ON-LINE TAKES PLACE OUTSI DE INDIA. THE COMPUTERS AT THE DESK OF TRAVEL AGENT IN INDIA ARE MERELY CONNECTED OR CONFIGURED TO THE EXTENT THAT T HEY CAN PERFORM A BOOKING FUNCTION BUT ARE NOT CAPABLE OF PROCESSING THE DATA OF ALL THE AIRLINES TOGETHER AT ONE PLACE. SUCH FUNCTION REQUIRES HUGE INVESTMENT AND HUGE CAPACITY WHICH IS NOT AVAILABLE TO THE COMPUTERS I NSTALLED AT THE DESK OF SUBSCRIBER IN INDIA. THE MAJOR PART OF THE WORK OR TO SAY A LIONS SHARE OF SUCH ACTIVITY IS P ROCESSED AT THE HOST COMPUTER IN ERDING IN GERMANY. THE ACTIVI TIES IN 6 INDIA ARE ONLY MINUSCULE PORTION. THE APPELLANTS COMPUTER IN GERMANY IS ALSO RESPONSIBLE FOR ALL OTHER FUNCTI ONS LIKE KEEPING DATA OF THE BOOKING MADE WORLDWIDE AND ALSO KEEPING TRACK OF ALL THE AIRLINES/HOTELS WORLDWIDE WHO HAVE ENTERED INTO PCA. THOUGH NO GUIDELINES ARE AVAILAB LE AS TO HOW MUCH SHOULD BE INCOME REASONABLY ATTRIBUTABLE T O THE OPERATIONS CARRIED OUT IN INDIA THE SAME HAS TO BE DETERMINED ON THE FACTUAL SITUATION PREVAILING IN E ACH CASE. HOWEVER BROADLY TO DETERMINE SUCH ATTRIBUTION ONE HAS TO LOOK INTO THE FACTORS LIKE FUNCTIONS PERFORMED ASS ETS USED AND RISK UNDERTAKEN. ON THE BASIS OF SUCH ANALYSIS OF FUNCTIONS PERFORMED ASSETS USED AND RISK SHARED IN TWO DIFFERENT COUNTRIES THE INCOME CAN BE ATTRIBUTED. IN THE PRESENT CASE WE HAVE FOUND THAT MAJORITY OF THE FU NCTIONS ARE PERFORMED OUTSIDE INDIA. EVEN THE MAJORITY OF THE ASSETS I.E. HOST COMPUTER WHICH IS HAVING VERY LARG E CAPACITY WHICH PROCESSES INFORMATION OF ALL THE PAR TICIPANTS IS SITUATED OUTSIDE INDIA. THE RISK IN THIS REGARD ENTIRELY RESTS WITH THE APPELLANT AND THAT IS IN SPAIN OUTS IDE INDIA. HOWEVER IT IS EQUALLY IMPORTANT TO NOTE THAT BUT F OR THE PRESENCE OF THE ASSESSEE IN INDIA AND THE CONFIGURA TION AND CONNECTIVITY BEING PROVIDED IN INDIA THE INCOM E WOULD NOT HAVE GENERATED. THUS THE INITIAL CAUSE OF GENE RATION OF INCOME IS IN INDIA ALSO. ON THE BASIS OF ABOVE FAC TS WE CAN REASONABLY ATTRIBUTE 15 PER CENT OF THE REVENUE ACC RUING TO THE ASSESSEE IN RESPECT OF BOOKINGS MADE IN INDIA A S INCOME ACCRUING OR ARISING IN INDIA AND CHARGEABLE UNDER S. 5(2) R/W S.9(1)(I) OF THE ACT. 8. THEREFORE AFTER HEARING BOTH THE PARTIES WE FO UND THAT THE APPEALS OF THE DEPARTMENT ARE COVERED BY THE AFOREM ENTIONED OBSERVATIONS OF THE TRIBUNAL. RESPECTFULLY FOLLOWI NG THE SAME WE FOUND NO MERIT IN DEPARTMENTAL APPEALS AND THEY ARE DISMISSED. 9. SO AS IT RELATES TO CROSS-OBJECTIONS FILED BY TH E ASSESSEE THE ISSUE IS COVERED BY THE FOLLOWING OBSERVATIONS OF T HE TRIBUNAL IN THE AFOREMENTIONED ORDER DATED 30.11.2007:- 17.1 THE FIRST QUESTION BEFORE US IS WHETHER THER E IS ANY BUSINESS CONNECTION IN INDIA WITHIN THE MEANING OF S.9(1)(I) OF THE ACT. THE SCOPE OF TOTAL INCOME IS DESCRIBED IN S.5 OF THE IT ACT. AS PER S.5(2) THE TOTAL INC OME OF A 7 PERSON WHO IS A NON-RESIDENT TO THE EXTENT WHICH I S RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR ACCR UES OR ARISES OR DEEMED TO ACCRUE OR ARISE IN INDIA IS TAX ABLE IN INDIA. AS PER S.9(1)(I) OF THE ACT ALL INCOME ACC RUING OR ARISING WHETHER DIRECTLY OR INDIRECTLY THROUGH OR F ROM ANY BUSINESS CONNECTION IN INDIA SHALL BE DEEMED TO ACC RUE OR ARISE IN INDIA. AS PER CL.(A) OF EXPLN.1 IN THE C ASE OF A BUSINESS OF WHICH ALL THE OPERATIONS ARE NOT CARRIE D OUT IN INDIA THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE SUCH PART OF T HE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CAR RIED OUT IN INDIA. THUS AS PER THE CONJOINT READING OF S.5 (2) AND S.9(1)(I) OF THE ACT ONLY IF THE INCOME IS ARISING DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA CAN BE TAXED IN INDIA. THE EXPRESSION BUSINESS CONNECTION WAS EARLIER NOT DEFINED IN THE ACT. TH E FINANCE ACT 2003 W.E.F. 1 ST APRIL 2004 I.E. AS APPLICABLE TO ASST.YR. 2004-05 AND ONWARDS HAS INSERTED TWO NEW EXPLANATIO NS TO CL.(I) OF S. 9(1) CLARIFYING THAT EXPRESSION BU SINESS CONNECTION WILL INCLUDE A PERSON ACTING ON BEHALF OF NON- RESIDENT AND WHO CARRIED ON CERTAIN ACTIVITIES. HO WEVER FOR THE PURPOSE OF OUR PRESENT DISCUSSION THE AMEN DED PROVISIONS HAVE NO RELEVANCE AS THE SAME ARE W.E.F. ASST.YR. 2004-05 ONWARDS. SINCE THESE APPEALS ARE FOR THE YEARS PRIOR THERETO WE SHALL DISCUSS ONLY THE UNAM ENDED PROVISIONS. THE EXPRESSION BUSINESS CONNECTION H AS A WIDE THOUGH UNCERTAIN MEANING. IT ADMITS OF NO PRE CISE DEFINITION AND THE SOLUTION TO THE QUESTION MUST DE PEND UPON THE PARTICULAR FACTS OF EACH CASE. EVEN THE A MENDED DEFINITION WILL NOT DETERMINE AS TO WHAT CONSTITUTE S BUSINESS CONNECTION AS THE SAME IS NOT AN EXHAUSTIV E DEFINITION BUT IS A DEFINITION WHICH ALSO INCLUDES SOME OF THE ACTIVITIES TO BE TERMED AS BUSINESS CONNECTION. WE SHALL THEREFORE REVERT TO SOME OF THE JUDICIAL PRONOUNCEMENTS IN THIS REGARD. HON'BLE SUPREME COU RT IN THE CASE OF CIT VS. R.D.AGARWAL & CO. (SUPRA) HELD THUS: THE EXPRESSION BUSINESS CONNECTION UNDOUBTEDLY MEA NS SOMETHING MORE THAN BUSINESS. A BUSINESS CONNECTIO N IN S. 42 INVOLVES A RELATION BETWEEN A BUSINESS CARRIE D ON BY A NON-RESIDENT WHICH YIELDS PROFITS OR GAINS AND SO ME ACTIVITY IN THE TAXABLE TERRITORIES WHICH CONTRIBUT ES DIRECTLY OR INDIRECTLY TO THE EARNING OF THOSE PROFITS OR GA INS. IT PREDICATED AN ELEMENT OF CONTINUITY BETWEEN THE BUS INESS OF THE NON-RESIDENT AND THE ACTIVITY IN THE TAXABLE TERRITORIES A STRAY OR ISOLATED TRANSACTION IS NOR MALLY NOT TO BE REGARDED AS A BUSINESS CONNECTION. BUSINESS 8 CONNECTION MAY TAKE SEVERAL FORMS. IT MAY INCLUDE CARRYING ON A PART OF THE MAIN BUSINESS OR ACTIVITY INCIDENTAL TO THE MAIN BUSINESS OF THE NON-RESIDENT THROUGH AN AGENT OR IT MAY MERELY BE A RELATION BETWEEN THE BUSINESS OF THE NON-RESIDENT AND THE ACTIVITY IN TH E TAXABLE TERRITORIES WHICH FACILITATES OR ASSISTS THE CARRY ING ON OF THAT BUSINESS. IN EACH CASE THE QUESTION WHETHER THERE IS A BUSINESS CONNECTION FROM OR THROUGH WHICH INCOME PROFITS OR GAINS ARISE OR ACCRUE TO A NON-RESIDENT MUST BE DETERMINED UPON THE FACTS AND CIRCUMSTANCES OF THE CASE. A RELATION TO BE A BUSINESS CONNECTION MUST BE REA L AND INTIMATE AND THROUGH OR FROM WHICH INCOME MUST ACC RUE OR ARISE WHETHER DIRECTLY OR INDIRECTLY TO THE NON- RESIDENT. BUT IT MUST IN ALL CASES BE REMEMBERED THAT BY S.42 INCOME PROFIT OR GAIN WHICH ACCRUES OR ARISES TO A NON- RESIDENT OUTSIDE THE TAXABLE TERRITORIES IS SOUGHT TO BE BROUGHT WITHIN THE NET OF THE IT LAW AND NOT INCOM E PROFIT OR GAIN WHICH ACCRUES OR ARISES OR IS DEEMED TO ACC RUE OR ARISE WITHIN THE TAXABLE TERRITORIES. INCOME RECEI VED OR DEEMED TO BE RECEIVED OR ACCRUING OR ARISING OR DE EMED TO BE ACCRUING OR ARISING WITHIN THE TAXABLE TERRITORI ES IN THE PREVIOUS YEAR IS TAXABLE BY S.4(1)(A) AND (C) OF TH E ACT WHETHER THE PERSON EARNING IS A RESIDENT OR NON-RES IDENT. IF THE AGENT OF A NON-RESIDENT RECEIVES THAT INCOME OR IS ENTITLED TO RECEIVE THAT INCOME IT MAY BE TAXED IN THE HANDS OF THE AGENT BY THE MACHINERY PROVISION ENACT ED IN S. 40(2). INCOME NOT TAXABLE UNDER S. 4 OF THE ACT OF A NON- RESIDENT BECOMES TAXABLE UNDER S.42(1) IF THERE SUB SISTS A CONNECTION BETWEEN THE ACTIVITY IN THE TAXABLE TERR ITORIES. HON'BLE BOMBAY HIGH COURT IN THE CASE OF BLUE STAR ENGINEERING CO. (BOMBAY)(P) LTD. VS. CIT (1969) 73 ITR 283 (BOM) AT P.291 AFTER REFERRING TO THE DECISION OF R.D.AGGARWAL & CO. (SUPRA) HELD AS UNDER: IT WOULD THUS BE SEEN THAT IN ORDER TO CONSTITUTE A BUSINESS CONNECTION AS CONTEMPLATED BY S.42 THER E MUST BE AN ACTIVITY OF THE NON-RESIDENT AND CONTRIBUTING TO THE EARNING OF PROFITS BY THE NON-RESIDENT IN HIS BUSIN ESS. THE BUSINESS CONNECTION MUST UNDOUBTEDLY BE A COMMERCIA L CONNECTION BUT ALL COMMERCIAL CONNECTIONS WILL NOT NECESSARILY CONSTITUTE BUSINESS CONNECTION WITHIN T HE MEANING OF THE CONCEPT UNLESS THE COMMERCIAL CONNEC TION IS REALLY AND INTIMATELY CONNECTED WITH THE BUSINES S ACTIVITY OF THE NON-RESIDENT IN THE TAXABLE TERRITO RIES AND IS 9 CONTRIBUTORY TO THE EARNING OF PROFITS IN THE SAID TRADING ACTIVITY. 17.2 IN THE LIGHT OF THE ABOVE PROVISIONS OF THE I T ACT AND THE JUDICIAL PRONOUNCEMENTS WE MAY APPRECIATE THE FACTS AND DEAL WITHIN THE ISSUE. THE APPELLANT HAS DEVELOPED A FULLY AUTOMATIC RESERVATION AND DISTRIB UTION SYSTEM KNOWN AS AMADEUS SYSTEM WITH ABILITY TO PERF ORM COMPREHENSIVE INFORMATION COMMUNICATION RESERVATI ON TICKETING DISTRIBUTION AND RELATED FUNCTIONS ON A W ORLDWIDE BASIS. THROUGH THIS AMADEUS SYSTEM THE APPELLANT PROVIDES SERVICE TO VARIOUS PARTICIPANTS I.E. AIRLI NES AND HOTELS ETC. WHEREBY THE SUBSCRIBERS WHO ARE ENROLL ED THROUGH THE EFFORTS OF NMC CAN PERFORM THE FUNCTION S OF RESERVATIONS AND TICKETING ETC. THUS THE AMADEUS S YSTEM OR THE CRS IS CAPABLE OF NOT ONLY PROCESSING THE INFORMATION OF VARIOUS AIRLINES FOR DISPLAY AT ONE SEAMLESS SYSTEM ORIGINATING FROM THE DESK OF THE SUBSCRIBER S COMPUTER WHICH MAY OR MAY NOT BE PROVIDED BY THE APPELLANT BUT WHICH IN ALL CASES IS CONFIGURED AND CONNECTED TO SUCH AN EXTENT THAT SUCH COMPUTERS CAN INITIATE OR GENERATE A REQUEST FOR RESERVATION AND ALSO RECEIVE THE INFORMATION IN THIS REGARD SO AS TO ENA BLE THE SUBSCRIBER TO BOOK THE AIRLINES SEAT OR HOTEL ROOM. THE REQUEST WHICH ORIGINATED FROM THE SUBSCRIBERS COMP UTER ENDED AT THE SUBSCRIBERS COMPUTER AND ON THE BASIS OF INFORMATION MADE AVAILABLE TO THE SUBSCRIBER RESER VATIONS WERE ALSO POSSIBLE. IT IS TO BE NOTED THAT ALL THE SUBSCRIBERS IN RESPECT OF WHICH INCOME IS HELD TAXABLE ARE SITU ATED IN INDIA. THE EQUIPMENT I.E. COMPUTER IN SOME CASES A ND THE CONNECTIVITY AS WELL AS CONFIGURATION OF THE COMPUT ER IN ALL THE CASES ARE PROVIDED BY THE APPELLANT. THE BOOKI NG TAKES PLACE IN INDIA ON THE BASIS OF THE PRESENCE O F SUCH SEAMLESS CRS SYSTEM. ON THE BASIS OF BOOKING MADE BY THE TRAVEL AGENT IN INDIA THE INCOME GENERATES TO THE APPELLANT. BUT FOR THE BOOKING NO INCOME ACCRUES T O THE APPELLANT. TIME AND AGAIN IT IS CONTENDED THAT THE WHOLE OF THE PROCESSING WORK IS CARRIED OUT AT HOST COMPU TER SITUATED AT ERDING IN GERMANY AND ONLY THE DISPLAY OF INFORMATION IS IN INDIA FOR THE PROPOSITION THAT TH ERE IS NO BUSINESS CONNECTION IN INDIA. WE ARE UNABLE TO AGR EE WITH SUCH PROPOSITION. THE CRS EXTENDS TO INDIAN TERRIT ORY ALSO IN THE FORM OF CONNECTIVITY IN INDIA. BUT FOR THE REQUEST GENERATED FROM THE SUBSCRIBERS COMPUTERS SITUATE IN INDIA THE BOOKING IS NOT POSSIBLE WHICH IS THE SOU RCE OF REVENUE TO THE APPELLANT. THE ASSESSEE IS NOT TO R ECEIVE THE PAYMENT ONLY FOR DISPLAY OF INFORMATION BUT THE INCOME 10 WILL ACCRUE ONLY WHEN THE BOOKING IS COMPLETED AT T HE DESK OF THE SUBSCRIBERS COMPUTER. IN SUCH A SITUATION THERE IS A CONTINUOUS SEAMLESS PROCESS INVOLVED AT LEAST PART OF WHICH IS IN INDIA AND HENCE THERE IS A BUSINESS CO NNECTION IN INDIA. THE COMPUTERS AT THE SUBSCRIBERS DESK A RE NOT DUMB OR ARE IN THE NATURE OF KIOSK INCAPABLE OF PER FORMING ANY FUNCTION. THE COMPUTERS ALONG WITH THE CONFIGU RATION HAVE BEEN SUPPLIED EITHER BY THE APPELLANT OR THROU GH ITS AGENT AIPL AND THE CONNECTIVITY BEING PROVIDED BY T HE APPELLANT ENABLES THE SUBSCRIBERS TO ACCESS THE CRS AND PERFORM THE TICKETING AND BOOKING FUNCTIONS. THUS THERE IS A DIRECT BUSINESS CONNECTION ESTABLISHED IN INDIA A ND HENCE IN TERMS OF S. 9(1)(I) THE INCOME IN RESPECT OF THE BOOKING WHICH TAKES PLACE FROM THE EQUIPMENT IN INDIA CAN B E DEEMED TO ACCRUE OR ARISE IN INDIA AND HENCE TAXABL E IN INDIA. 10. THEREFORE THE CROSS-OBJECTIONS FILED BY THE AS SESSEE WITH RESPECT TO THE YEARS UNDER CONSIDERATION ARE COVERED BY THE AFOREMENTIONED OBSERVATIONS OF THE TRIBUNAL AND WE HOLD THAT CIT(A ) HAS CORRECTLY HELD THAT ASSESSEE HAS PE IN INDIA AND HIS FINDINGS IN T HIS REGARD ARE IN ACCORDANCE WITH THE AFOREMENTIONED ORDER OF THE TRI BUNAL DATED 30.11.2007. WE DISMISS THE CROSS-OBJECTIONS FILED BY THE ASSESSEE. 11. IN THE RESULT THE APPEALS FILED BY THE DEPARTM ENT AS WELL AS CROSS-OBJECTIONS OF THE ASSESSEE BOTH ARE DISMISSED . DECISION PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER 2010. SD/- SD/- (G.E.VEERABHADRAPPA) (I.P.BANSAL) VICE PRESIDENT JUDICIAL MEMBER DATED : 29.10.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 11 5. DR ITAT ASSISTANT REGISTRAR