No fixed place or agency PE for online platform hosted outside India; commission not taxable absent PE under DTAA Article 7.

ORDER 

PER VIMAL KUMAR, JM:

The appeal of the assessee is against the final Assessment Order dated 15.01.2025 of Ld. Assessing Officer/The Assistant Commissioner of Income Tax, Circle (International Taxation-1)(1)(2) u/s 147 r.w.s 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY:2018-19.

2. Brief facts of the case are that the assessee did not file its return of income. The case was picked up by the risk management strategy of insight for non-filing of income tax return. On perusal of AIR information and Form 26AS available with system it was observed that assessee during the financial year 2017-18 entered into following transactions:

2.1 In absence of ITR source of funds and the tax liability of income of Rs.17,67,810/- could not be ascertained which remained unexplained. The assessee was show caused vide notice u/s 148A(b) of the Act dated 25.03.2022 as to why notice u/s 148 of the Act should not be issued. The assessee did not file any response. Notice u/s 148 of the Act dated 11.04.2022 was issued along with order u/s 148A(d) dated 11.04.2022 of the Act after approval of the competent authority as per Section 149(1)(b) and u/s 151(i) of the Act. The assessee filed return of income for AY: 2018-19 on 18.05.2022 declaring nil income and tax payable nil or nil refund claim. Notice u/s 143(2) of the Act dated 28.06.2023 and notice u/s 142(1) dated 19.01.2023, 28.06.2023, 08.11.2023 and 26.03.2024 along with detailed questionnaire were issued to the assessee. The assessee made compliance electronically vide letter dated 18.12.2023 assessee submitted as under:

“6. The assessee vide letter dated 18.12.2023 had submitted that,

“Booking.com is a tax resident of the Netherlands and is eligible to claim benefits of the India-Netherland Double Taxation Avoidance Agreement.

Booking.com operates an online reservation system through which participating accommodations (such as hotels, guesthouses, etc.) can make their rooms available for reservation, and through which visitors of its website (such as travelers) can make reservations at such accommodations. After the booking has materialized and the travelers/ bookers have checked out of the accommodation, Booking.com charges commission from the accommodation at an agreed percentage of the amount earned by the accommodation from the travelers. The accommodations can offer their available capacity on the Booking.com website by using a self-service internet tool. The accommodations determine and set their own room price. When a booker makes a reservation, the transaction occurs directly between the accommodation and the booker. Booking.com acts as an intermediay between the booker and the accommodation and is not a contracting party in the transaction between the accommodation and the booker. This online reservation system (i.e. Booking.com platform) itself is hosted on servers outside of India. Pursuant to this arrangement, Booking.com was in receipt of commission from the Indian accommodations for the subject AY.”

6.1 Further, the assessee has also submitted the reason for adopting its tax position in the ITR of the commission income earned that is not chargeable to tax in India.

“A sample contract based on which such payments were received is enclosed herewith for your ready reference as Annexure I. Para 2.3 of the contract clearly underscores the fact that the commission is payable by the accommodations to Booking.com only in a scenario where booking actually materializes (para 2.3.2). The relevant por