INCOME TAX ACT, 1961

Section 9(1)(i)

Income deemed to accrue or arise in India - Under section 9(1)(i) - PE in India -

Assessee, based at UK, was engaged in the busienss of providing electronic Global Distribution Services (GDS) in the rest of the world territory, including the India region, for the travel industry by utilizing a Computer Reservation System (CRS), which was an automated system set in place for processing booking data. AO noticed that in India assessee appointed Inter-Globe Technology Quotient India (P) Ltd. (ITQPL) as distributor of its GDS. Though assessee claimed that it had no business connection or PE in India so as tobring to tax the fee received from CRS/GDS, however, AO was not convinced. After analyzing submissions of assessee in the context of facts and materials on record, as well as, the business model of assessee, AO concluded that assessee was a conduit company within stepping stone type of conduit framework created primarily for he purpoe of treaty shopping. Thus, he held that assessee was not entitled to the benefits of Indo-UK DTAA. Further, he held that assessee had a dependent agent PE in India in the form of ITQPL. Hence, business profits attributable to PE were to be computed under clause (1) of rule 10 read with section 115A. Held: CRS, which was the source of revenue was partially existent in the machines, namely, various computers installed at the premises of the subscribers. In some cases, assessee itself has placed those computers and in all the cases connectivity in the form of nodes leased from SITA was installed by assessee through its agent. The computers so connected and configured which could perform the function of reservation and ticketing were part and parcel of the entire CRS. The computers so installed required further approval from appellant/Interglobe who allows the use of such computers for reservation and ticketing. Without authority of assessee such computers were not capable of performing the reservation and ticketing part of the CRS system. The computer so installed could not be shifted from one place to another even within the premises of subscriber, leave apart shifting of such computer from one person to another. Thus, assessee exercised complete control over computers installed at the premises of subscribers. This amounted to a fixed place of business for carrying on business of the enterprise in India. But for supply of computers, the configuration of computers and connectivity which were provided by the assessee either directly or through its agent Interglobe would amount to operating part of its CRS system through such subscribers in India and accordingly, PE in the nature of a fixed place of business in India. Thus, assessee could be said to have established PE within India.

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