A senior AI official confirmed that the IT department has been requested not to drag the airlines into an issue in which they are not directly involved and recover the payments from the CRS companies themselves. The airlines to which the notices have been sent include British Airways, Swiss Air, Lufthansa and Air India among others.

The rebuttal by the airlines will heighten the ongoing confrontation between the department and CRS companies as they are unrelenting to pay any tax in India. The reservation companies which have bases abroad have already filed appeals with the income tax commissioner in New Delhi. A taxconsultant with a CRS company said that nowhere in the world is such a practice prevalent. Since the CRS companies do not have a permanent establishment in India, it is not binding on them to pay taxes, he added.

Under the tax treaties, the overseas companies have to pay taxes only if they have permanent establishments in the operating countries. Having small value equipment such as modem does not typify a permanent presence, the consultant said.

If that is the case, all importers doing business with India have to be taxed. According to the consultant, the tax department is "bent upon troubling" the airlines which are in no way obliged to pay the taxes. The airlines must make payment to the CRS companies from their global pool and not the income accrued from the Indian operations, Also, the agreements for the computer reservation have been signed outside India.

IT officials, on the other hand, say that CRS companies are liable to pay taxes as they have a permanent presence in the country. The four majorCRS companies operating here are Sabre, Galeilio, Amdeus and Abacus. While Sabre is headquartered in the US, Abacus and Galelio are based in Europe. The foreign airlines together owe Rs 180 crore as arrears towards the CRS companies for their operation in and out of India.