TMI Blog2021 (10) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... h brand standards, maintaining the qualification available with regard to the international hotel business and its management techniques and Coordinating the managerial plan and actions, advising local general CMH Hotel management on trends and changes in the hotel business in general and provide advice on the production of operating and capital budgets at the level of the CMH Hotels, which are consistent with the strategic plan can at best be the managerial consultancy service but not the services made available so that the recipient can use or replicate the such services received from the assessee. With regard to accounting support the Bench has posed a pertinent question as to why not the accounting support given be treated as the technical knowledge 'made available'. It was answered that the accounting support given was in relation to the preparation of balance sheet and modalities and to advice production of reports regarding the budgets from time to time and the services are rendered repetitively based on the requirements of the clients and hence it cannot be treated as a service which was 'made available' to be applied independently and in times to come. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recipient ignoring the explicit language of Article 12(4)(b) of the DTAA which provides that the recipient should be in a position to apply the technology contained in the services. 1.5 That on the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate that the support services provided by the Appellant are required by IHG India on an on-going basis and hence the technology, experience etc., cannot be said to be made available by the Appellant to IHG India. 1.6 That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in observing that interpreting the term 'make available' in reference to other tax treaties, is not permissible. 2. The above grounds of appeal are independent and without prejudice to one another. 3. Brief facts of the case as taken from the order of the Ld. CIT(A) are that the Assessee is a private company incorporated in Singapore and is a part of the Inter Continental Hotels Group ('IHG'). The primary business of the Assessee is to franchise/license, operate and manage hotels operating under different hotel brands of IHG in the Asia Pacific region the Assessee bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,923/- from Inter Continental Hotels Group (India) Private Limited ('IHG India') on account of support services provided by the Assessee as Fee for Technical Services (FTS) under the India- Singapore Double Taxation Avoidance Agreement('DTAA'). 8. The assessee, being the regional headquarters, has centralized departments which provide services in the nature of operational support, accounting and legal support, information technology related services etc. to its subsidiaries/affiliates in the Asia-Pacific region for operational efficiency and consistency. The amount charged by IHG AP to IHG India for such support services is determined based on certain allocation keys (fee charged) to be applied to 'total management pool costs'. During AY 2012-13, management support charges of an amount of ₹ 5,43,76,923/- has accrued to the Assessee for providing such support services to IHG India. In this regard, support services agreement was submitted during the course of assessment proceedings. 9. The assessee did not offer the aforesaid receipts to tax on the plea that the support services do not constitute FTS as envisaged under Article 12(4) of India-Singa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 90(2) of the Act, IHG AP claimed the shelter of the provisions of the India- Singapore DTAA to the extent these are more beneficial vis- -vis the Act. 12. As per Article 12(4) of the tax treaty between India and Singapore, the term 'fees for technical services' means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. 13. The Assessee submitted that since the services were not ancillary or subsidiary to enjoyment of a right for which royalty is being received by the Assessee, therefore, such receipts cannot be taxed as FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices being provided, it is clear that the assessee is providing organizational change management assistance, development of coaching skills, or operational improvement services. It is bringing its own, proprietary methodologies or frameworks to guide the identification of problems and to serve as the basis for recommendations for more effective or efficient ways of performing work tasks. Thus the services of the assessee are not merely support services but Managerial Consultancy Services which fall in purview of Consultancy Services. Any managerial, technical, consultancy service can be provided only when the provider possesses the expertise, skill, knowledge or know how etc., in the relevant field and once it is so, the further act of providing such services to the recipient enables the recipient in many ways including enabling it to apply such technology on its own. AO made reference-to section 80-O of the Income Tax Act which is the only section that refers to the expression 'made available' and relied on decision of Hon'ble Supreme Court in the case of CBDT Vs. Oberoi (India) (P.) Ltd. 97 Taxmann 453 (SC). AO relied on the decision in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kill set, knowledge etc., by the Assessee to IHG India, there was no need of availing such services by IHG India on an ongoing basis. 21. The Assessee relied upon the following judicial precedents to support its contention that technology, skill and technical know-how etc. cannot be held to be made available to service recipient where similar services are required by it on an ongoing basis, year after year. R.R. Donnelley India Outsource Private Ltd. ( 241 CTR 305) Pan AmSat International Systems Inc. (9 SOT 100) 22. The Assessee also relied on following case laws wherein it is held that the similar services as provided by the Assessee to IHG India are not in the nature of FTS. Bharti AXA General insurance Co. Ltd. (234 ITR 62) AAR Shell Technology India Private Limited (AAR No. 850 of 2009) AAR Invensys Systems Inc. (317 ITR 438) AAR Ernst Young (P) Ltd. (323 ITR 184) AAR Measurement Technologies Limited [305 ITR 37 (AAR)] AAR Intertek Testing Services India (P.) Ltd., In re ( 175 Taxman 375) AAR 23. It was argued that the aforesaid principal and meaning of 'Make Available' has been upheld in plethora of ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able with regard to the international hotel business and its management techniques. Co-ordinate the managerial plan and actions within the AA Region; Advise local general CMH Hotel management on trends and changes in the hotel business in general. Provide advice on the production of operating and capital budgets at the level of the CMH Hotels, which are consistent with the strategic plan; Provide to local general CMH Hotel management on a periodic basis regional financial reports and statements for operating performance comparisons which allow local management to make business decisions; Improve finance resources of CMH Hotels which are subject to seasonal fluctuation by provision of treasury assistance; Provide financial advice on the viability of new projects; CO-ordinate the implementation of the rules of operations in CMH Hotels; Advise CMH Hotels in applying the rules of operations, taking into account the fact that CMH Hotels operate in a number of countries in the AA Region; Centralize information on the quality performance of CMH Hotels; Provide advice on technical aspects of site selection for new CMH ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees in the AA region; Provide employees of the Regional Pooling Company or its Affiliates, to participant from time to time on secondment; Assist and advise on the development of an individual manpower specification and its application to managerial selection; Assist in recruitment, selection and provision for senior personnel for CMH Hotels; Provide support as necessary from the Global Human Resources team and the business services centre; Assist in obtaining necessary visas, work permits and in defining relocation requirements; Co-ordinate international manpower planning and uniform employment policies; Monitor and negotiate on labour relation issues. 7. Miscellaneous Provide all other relevant areas of advice and support in connection with the owning and-or managing of CMH Hotels. 26. It is not in dispute that IHG India has received the above services from the assessee company in terms of management service agreement. It is obvious that the assessee company provides highly technical services which are used by IHG India for taking managerial decision, budgeting accounting decision, risk management decision, etc. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Hotel Crowne Plaza Gurgaon) and SC Hotels Resorts (India) Pte. Ltd. (IHG India) (submitted vide letter dated 28.02.2017) states that the Manager (IHG India) shall second the General manager to owner (the Crowne Plaza hotel) who shall employee that person directly throughout the period of secondment. The process of engagement of seconded employees from the IHG India to third party owned hotels clearly reflects the transfer of knowledge expertise of a particular institution to other institute. Further, para 3.3 of aforesaid Management Agreement states that the Manager (IHG India) will have the right to determine all policies and procedures relating to operation of the hotel including marketing and sales policies, personnel policies etc. IHG India has played the role of bridge in connecting the assessee company to the third party owners. Therefore, it may not be correct to say that the services delivered by the assessee company did not make available the knowledge, knowhow and skill to IHG India to apply/use the same in its decision making process. The assessee relied on the various case laws to support its claim without appreciating that the facts of the present case are distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting), and other business support functions (finance, human resources, IT etc.). IHG India works closely with hotel owners to develop and monitor business plans, capital expenditure budgets, operational strategies, communicating and providing guidance to the hotels in rolling out various initiatives, conduct annual review and operational audits of the hotels etc. Guidance are provided to the General Managers ( GM ) of the hotels in analyzing information and diagnosing operational issues and develop action plans to improve the performance of the hotels including coordination between various corporate functions and the hotels. The respective functional teams in the areas of human resource, IT and new hotel openings support the related needs for the third party hotel management business. 29. In this background, the only issue remains to be adjudicated is whether the meaning of 'make available' is applicable to the services mentioned under sub-clause (b) of Article 12(4) of the treaty or not. The ld. CIT(A) gave the reasons the services of operation support, analytical and accounting support, legal advice, purchasing, personal training should be treated as the services whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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