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2015 (1) TMI 659 - AT - Income TaxIndo-US DTAA - amounts received from the Indian Hotels under an agreement titled as “International Sales and Marketing Agreement” - whether are not reimbursement of expenses - taxability as “Royalty” or “Fee for included services” - Held that:- In the instant case, the assessee has undertaken the job of marketing the “Marriott / Rennaisance” brands. There is no doubt that the assessee company belongs to Marriott group. Further the claim of the assessee that it was undertaking the marketing work on cost to cost basis without any mark up defies the business logic or prudence. A commercial company shall never work without profit. The very fact that it was functioning on cost to cost basis or without profit motive itself proves that the assessee company is only an extended arm of “Marriott group company” owning the Brand name. Hence, we are of the view that the assessee company, being only an extended arm of “Marriott group company” owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. Thus it is clear tax planning by adopting colourable device. Accordingly,as separate legal identity of the assessee company gets blurred and corporate veil should be lifted. Hence, the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. We have already noticed that all the advertisement/marketing program are carried out in the name of “Marriot” and/or “Rennaissance”. Hence all of them go to swell the existing Brand names referred above. Hence they become taxable as royalty in terms of Article 12 of the Indo US DTAA. However as argued by ld. AR, the assessee in whose hands these amounts are to be assessed is the question that needs to be answered. In our view this question requires examination at the end of the AO. Accordingly, we restore this matter to the file of AO with the direction to consider the question of taxation of receipts as royalty in the hands of the assessee as representative assessee or in the hands of any other group company. The assessee should be given adequate opportunity in this regard. Decided partly in favour of assessee. Levy of interest u/s 234B for non-payment of advance tax - CIT(A) dismissed issue by holding that the assessee did not put forth any argument on that issue - Held that:- As A.R placed reliance on the decision rendered in the case of DIT Vs. NGC Network Asia LLC ( 2009 (1) TMI 174 - BOMBAY HIGH COURT), where in the High Court has held that the amount of tax deductible at source is to be taken into account to determine the liability to pay advance tax. Since the assessee is not liable to pay advance tax and accordingly the assessing officer was not justified in levying interest u/s 234B of the Act, said contentions are in accordance with the decision rendered by the jurisdictional High Court, we agree with his contentions. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to follow the decision of Hon’ble jurisdictional High Court referred above. Decided in favour of assessee.
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