Sabre Sabre Inc. v. ACIT (2024)

🌐 Sabre GLBL Inc. vs. ACIT – ITAT Delhi on Business Connection and Permanent Establishment under India–USA DTAA (2024)

📌 Background

In the digital era, multinational enterprises providing computerized reservation systems (CRS) for airlines and hotels often face scrutiny regarding taxability in India under Section 9(1)(i) of the Income-tax Act, 1961, and the corresponding provisions of Double Taxation Avoidance Agreements (DTAAs).

The key question is whether such companies have a business connection or a permanent establishment (PE) in India through their technological interfaces or Indian agents.

In Sabre GLBL Inc. v. ACIT [(2024) 111 ITR 446 / 230 TTJ 179 / 159 taxmann.com 678 (Delhi)(Trib.)], the Delhi Bench of the ITAT analyzed whether the assessee’s post-2005 business restructuring—where it stopped providing physical infrastructure to Indian travel agents—eliminated the existence of a fixed place PE or agency PE in India.

📂 Facts of the Case

• Assessee: Sabre GLBL Inc., a company incorporated and tax resident in the United States.
• Assessment Years: 2012–13 to 2016–17.
• Nature of Business: The assessee operated a global computerized reservation system (CRS) used by airlines, hotels, and travel agencies worldwide for booking tickets and related travel services.
• Agreements:
  • Entered into Participating Carrier Distribution Agreements with airlines, enabling their ticket inventory to be distributed via the CRS.
  • Entered into Subscriber Agreements with global travel agencies, including those in India, granting access to the CRS for booking and reservation purposes.
• Revenue’s View:
  • The assessee had a business connection, fixed place PE, and agency PE in India.
  • The earlier business model, under which Sabre provided computers and communication links to Indian agents, was deemed still relevant.
• Assessee’s Stand:
  • After 2005, there was a complete shift in the business model:
    • Sabre no longer supplied computers, printers, or data lines to travel agents.
    • Travel agents sourced their own hardware and internet connectivity.
    • Sabre had no office, no employees, and no physical presence in India.
  • Therefore, it could not be said to have a PE or business connection under Section 9(1)(i) or Articles 5 and 7 of the India–USA DTAA.

❓ Point of Dispute

Whether Sabre GLBL Inc., operating a global CRS accessible by Indian travel agents through the internet, had a fixed place PE or agency PE in India under Articles 5 and 7 of the India–USA DTAA, given the post-2005 business model changes.

📑 Submissions by the Assessee

• No Physical Presence:
  The assessee had no office, premises, or employees in India. The CRS was entirely operated from servers located outside India.
• Changed Business Model:
  • Before 2005: Sabre provided dedicated computers and network links to travel agents in India.
  • After 2005: Travel agents independently procured their hardware and internet connectivity.
  • Therefore, there was no physical equipment or infrastructure in India belonging to Sabre.
• No Control or Disposal Test Satisfied:
  For a fixed place PE, the enterprise must have the right to use and control the premises or equipment. In this case, Indian travel agents used their own premises and systems; Sabre had no control over them.
• No Agency PE:
  Indian travel agents were independent entities, not acting exclusively or habitually concluding contracts on behalf of Sabre.
• Burden of Proof on Revenue:
  The Revenue failed to demonstrate the existence of any PE or evidence of Sabre’s physical presence in India post-2005.

📑 Submissions by the Revenue

• The CRS gateway installed at travel agents’ locations constituted a fixed place of business for Sabre in India.
• The economic activity generated in India through ticket bookings justified a business connection.
• Earlier years’ findings of a PE were applicable despite the alleged change in business model.

⚖️ Legal Principles & Tribunal’s Findings

1. Change in Business Model is Material

The Tribunal observed that the business model underwent a significant transformation post-2005. Earlier findings of PE could not be automatically applied to subsequent years without reassessing the factual matrix.

2. Fixed Place PE – Article 5(1)

A fixed place PE requires:

• A place of business;
• The place to be fixed; and
• The enterprise to carry on business through that place.

Since Sabre had no premises, employees, or physical infrastructure in India, and the CRS operated entirely from servers outside India, the test for a fixed place PE failed.

3. Agency PE – Article 5(4)

The Tribunal noted that Indian travel agents:

• Operated independently;
• Did not habitually conclude contracts on behalf of Sabre; and
• Were not economically dependent on Sabre.

Hence, there was no agency PE.

4. Business Connection – Section 9(1)(i)

For a business connection, there must be an element of continuity and a real relationship between activities in India and income earned.
Sabre merely facilitated bookings through a global system hosted outside India—thus, no income accrued or arose in India.

5. Burden of Proof

The Tribunal emphasized that the burden to establish a PE lies squarely with the Revenue. Mere reference to earlier assessments cannot substitute factual verification for the relevant years.

🏁 Held

✅ Sabre GLBL Inc. did not have a fixed place PE or agency PE in India post-2005.
✅ The CRS operated entirely outside India, with no tangible presence or control in India.
✅ Indian travel agents were independent users, not dependent agents.
✅ Therefore, the profits from CRS operations were not taxable in India under Articles 5 and 7 of the India–USA DTAA.

✅ Practical Impact for Taxpayers

• Technology and Platform-Based Businesses: Establishes that access to servers or software by Indian users does not automatically create a PE.
• Burden on Revenue: Tax authorities must reassess factual circumstances each year rather than rely on prior findings.
• Digital Economy Clarity: Provides much-needed guidance for cross-border digital service providers operating remotely from outside India.
• DTAA Protection: Reinforces that business profits are taxable in India only if a PE exists.

🔑 Key Takeaways

1. PE Determination is Year-Specific: Each assessment year must be examined independently.
2. No PE Without Physical or Economic Control: Access through independent third parties does not establish a fixed place PE.
3. Digital Services Taxation: Remote digital platforms with servers outside India may not trigger PE exposure.
4. OECD & DTAA Consistency: Aligns with international tax norms emphasizing control and disposal tests for PEs.

📢 Why This Case Matters

The Sabre GLBL Inc. ruling is a landmark decision in the digital taxation space, affirming that technological presence alone—without physical or control-based nexus—does not constitute a Permanent Establishment under Indian tax law.

The Tribunal’s focus on changed business operations and independent control of travel agents sets a strong precedent for foreign digital service providers and global CRS operators. It echoes the evolving international stance under the OECD BEPS framework that taxation must follow economic substance, not mere digital interaction.

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