It is a factual question as to what percentage of profits originated or accrued in India. Supreme Court

Director of Income-tax v. Travelport Inc. – [2023] (SC)

The assessee’s area of work involved offering “Computerized Reservation System” (CRS)-based electronic global distribution services to airlines. It maintains and runs a Master Computer System for this purpose, which is made up of a number of mainframe computers and servers in different nations, notably the USA. This Master Computer System is linked to airline servers, to and from which data about flight schedules, seat availability, etc. is continuously sent and obtained.

The respondents have designated Indian firms and have entered into distribution agreements with them to promote and distribute the CRS services to travel brokers in India. Per booking made in India, the assessee receives a payment of USD 3/EUR 3. It makes payments to the Indian firms ranging from USD/EURO 1 to USD/EURO 1.8 out of the aforementioned earnings.

The Assessing Officer (AO) determined that all revenue received outside of India is taxable because it was generated by the software that the Assessee installed in the travel agency’s facilities. Additionally, the CIT(A) upheld the AO’s order.

On subsequent appeal, the Tribunal determined that 15% of the total revenue was income accruing or arising in India based on the functions carried out, assets utilized, and risks assumed (FAR). The appeal that AO filed was denied by the High Court. The present appeal was brought before the Supreme Court by irate-AO.

The Supreme Court ruled that it is clear from the Tribunal’s orders that the Tribunal calculated the amount of revenue due to the assessee in relation to reservations made in India that can be linked to activities undertaken in India using the FAR analysis (Functions Performed, Assets Used, and Risks Undertaken) method.

More than twice as much money, which has already been taxed, was paid to the distribution agencies by the respondents as commission. As a result, the Tribunal correctly came to the conclusion that the same cancelled the evaluation. What percentage of profits were generated or amassed in India is fundamentally one of the facts.

What is reasonably traceable to the operations conducted in India alone can be interpreted to be the income of the business assumed to arise or accrue in India under Explanation 1(a) to section 9(1)(i).

It is certainly a matter of fact as to how much of the money can be properly attributed to the operations conducted in India. The Tribunal has taken into account pertinent factors with regard to this factual issue.