According to top department sources, the demand from these companies from 1995-96 to 1998-99 with interest on which tax has to be paid amounts to around Rs 300 crore. According to the department, as per the double taxation avoidance agreement between India and the US/Spain/Singapore, the income of these companies is taxable, because they have permanent establishments in India and the income earned is attributable to the permanent establishment.

The department argues that when a customer goes to a travel agent and books a ticket on an airline, these companies get between $3.5 and $5 from the airlines on which the ticket has been booked by the agent.

The computer of the Indian travel agent and its software has been provided by the CRS company. The lease linesprovided to these travel agents by Societe Internationale Telecommunication Aeronautica (SITA) on behalf of the CRS companies provides connectivity for booking tickets to the travel agents. All the activities, therefore, are completed in India, and the source of income is in India.

The department has also rejected the contention of one of these companies that the transactions between the company and its Indian agent has been made under the arms-length condition.

It feels that there is close business connection, under which, all the hardware and software, and training and help desk are provided by the international company. Therefore, the transaction cannot be said to be on an arms-length basis. The moment a CRS company breaks its contract with the Indian agent, its income from the India operation will become nil, the department argues.

The CRS companies--Galileo International and Sabre Group Inc (US), the Singapore-based Abacus Distribution System, and Amadeus Marketing (Spain)- had earlier filed anappeal before the commissioner of income tax, New Delhi.