Notional Interest Income on Loan, would be assessable as Income of assessee having Business Connection/PE in India: ITAT

ITAT ordered that notional income interest on the loan(interest-free) will now be considered as the income and worth if assessee having permanent residency or business connection in India:

The ITAT i.e. income tax appellate tribunal of Mumbai reported that the income of notional interest on the interest-free loan will be considered as the income of the assessee which should have a permanent establishment or business peer group in India. This was the loan in relation to ADSIL i.e. Abacus Distribution System of India Limited.

Singapore residential company Sabre Asia Pacific Pte. Ltd. Is the assessee here. The company is the business of managing CRS i.e. Computerized Reservation System.

The assessee gets in touch with the participation airlines and does airline reservations for them using CRS. The respective airlines then showcase this to travel agents who then guide customers for ticket booking. The Indian subsidiary of assessee’s company had been licensed by rh3 assessee.

It was observed by AO that primary activities like sales, marketing, revenue generation, and distribution happened in India. After considering the agreement that was executed between ADSIL and assessee, it was known that ADSIl carried out its business-related activities in India.

Hence, the judgment was that the assessee will be having a PE in India. This verdict was pursued after considering the fifth article of the India-Singapore tax treaty.

The Dispute Resolution Panel-2 of Mumbai received objections with the same. It was then concluded that the assessee had neither a business peer group nor a Permanent Establishment in the country. So, no income is to be considered for payment of tax in India.

The tribunal (accountant member- Mr. N.K. Pradhan and judicial member-Ravish Sood) concluded that the notional interest advanced by assessee towards its AE relation to ADSIl will be considered as income of the assessee that has a permanent residency or business connection in India.

It was also said that the income of national interest on loans will get adjusted as against the expenditure by the assessee as a marketing service fees paid to ADSIL.