ITAT spares Galileo from paying tax

Mumbai: Galileo International, a computer reservation service (CRS) company specialising in electronic booking of air tickets, has been exempted from paying tax, thanks to an Income Tax Appellate Tribunal (ITAT), Delhi bench’s order. The order says the company is not liable to pay tax since it has made an arm’s length payment to its agent in India Interglobe. This decision will have a bearing on the Indian operations of CRS majors such as Abacus, Amadeus and Saber.
The ITAT’s ruling is in tune with the principles laid down by the Supreme Court in the case of Morgan Stanley. In that case, the apex court had said the commission paid to an agent extinguishes the liability to pay taxes in India.
The ITAT made several observations that will have a bearing on the taxability of foreign companies operating in India. Firstly, it said Galileo has a permanent establishment in India through the computers installed in the country. Secondly, the distributor who markets and distributes Galileo’s network in India, is a permanent agent even though the distributor has a full-fledged travel business in the country.
Both observations have sparked off a debate among tax professionals as what constitutes a permanent establishment has a bearing on the taxability of a foreign company in India.
26/12/07 Padmakshan/Economic Times

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Categories: Foreign Dec 2007, General Aviation Dec 2007