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2024 (1) TMI 490 - AT - Income TaxAccrual of income in India - PE in India or not? - royalty income both under the provisions of the Act as well as under Indian-Singapore Double Taxation Avoidance Agreement (DTAA) - taxability of reimbursement as business fee for technical service (FTS) - assessee is a non-resident corporate entity incorporated in Singapore - HELD THAT:- It is a fact on record that for use or right to use brand name/trade mark, the assessee has received separate consideration which has been offered to tax. Whereas, the receipts from loyalty program, marketing, reservation services, blackberry services etc. are purely for rendition of certain services and not for use or right to use of any copyright or trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. As there is nothing on record to suggest that the services rendered by the assessee have transferred any design or model or plan or secret formula or for any information concerning industrial, commercial or scientific experience. Therefore, in our view, the receipts cannot be treated as royalty under Article 12(3)(a) of the Tax Treaty. Similarly, the fee received cannot be treated as royalty under Article 12(3)(b) as there is no transfer of use or right to use any industrial or commercial or scientific equipments. In any case of the matter, the fees received are purely for certain services, therefore, in our view, they cannot be treated as royalty. At this stage, we must observe, the services rendered by the assessee are merely for facilitating the sale and promotional operation of the entity and are not required to facilitate the application of the brand license. Pertinently, while considering taxability of similar nature of services as royalty/FTS, Hon’ble jurisdictional High Court in the case of DIT Vs. Sheraton International Inc. [2009 (1) TMI 27 - DELHI HIGH COURT] has upheld the decision of the Tribunal holding that the receipts are neither in the nature of royalty nor FTS. As decided in Starwood Hotels Worldwide Inc. [2022 (7) TMI 781 - ITAT DELHI] fee received by the assessee under the Centralized Services Agreement cannot be treated as FIS either under Article 12(4)(a) or 12(4)(b) of the India–US Tax Treaty. As a natural corollary, it can only be treated as business income of the assessee. Hence, in absence of a PE in India, it will not be taxable. Thus to conclude the amount in dispute, in our view, cannot be qualified as ‘Royalty’. Accordingly, we direct the Assessing Officer to delete the addition. Appeal of assessee allowed.
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