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TMI Blog1983 (3) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ter alia, provides that the East India Hotels Ltd., which is in brief called East India, would become member of the IHC Intercontinental group of hotels and would be entitled to all the benefits available to hotels in the said group. Clause 1 of the agreement provides that East India would be entitled to use of the word ' Intercontinental ' as a part of the name of the hotels run by it. Clause 1 further provides that East India would get advantage resulting from IHC's access to the international travel market and availability to IHC's technical and consulting services designed to promote modern and efficient hotel management and operating methods. Clause 2 mentions about promotion and advertising by IHC wherein East India will also be included. Clause 3 mentions of sales and reservations services to be rendered by the IHC abroad. Clause 5 mentions that the reports regarding sales, financial statements, room occupancy, etc, etc., are to be provided by East India to IHC. Consulting services are to be provided by the IHC to East India as per clause 6. It also included sending of staff for the said purpose. Clause 7 will be very relevant, which deals with compensation to be paid to IHC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72-73. Other appeals have also come in due course before the Commissioner (Appeals). He accepted the assessee's plea that no income accrued or deemed to have accrued in India in regard to the amount payable under the Membership and Service agreements referred to above. The revenue being aggrieved filed the appeals and the common ground urged is as follows : " On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) is not justified in deleting the sum of Rs. 78,750 assessed by the Income-tax Officer on account of 20 per cent of membership fees from East India Hotels Ltd. under section 9(1)(i) of the Income-tax Act, 1961." (Taken from the memo of appeal for the assessment year 1971-72.) 3. Mr. Nagarajan, learned departmental representative, at the outset submitted that though the Commissioner (Appeals) has not decided specifically as to where the agreement was completed, since the ITO raised the issue for the assessment years 1971-72 and 1972-73, he would press that question also apart from contending on the basis of sections 5(2)(b) and 9(1) of the Income-tax Act, 1961 (' the Act '), that the income is liable to be taxed in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO mainly relied on the fact that the agreement was signed on behalf of IHC abroad and the same was sent to India, which was signed in India by affixing Indian stamps. But as rightly pointed out by the learned authorised representative for the assessee that though the agreement was signed, the acceptance was communicated outside India through the foreign agent of the Indian party and after the seal of IHC was put on the agreement, the same was completed. We have seen the correspondence which is on record and the note given by the assessee even at the time of the original hearing of the appeals by the Tribunal. To our minds, the matter is very clear that the agreement was completed only outside India. In fact the ITO raised this objection only in the assessment years 1971-72 and 1972-73 and not in the later years and rightly so. 5. The second and more fundamental issue is about the accrual of income or deemed accrual. We have first of all to see the provisions of section 5. Section 5(2)(b) is the relevant provision on which reliance is placed by Mr. Nagarajan. It reads as under : " 5. (2) Subject to the provisions of this Act, the total income of any previous year of a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause--- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; " Mr. Nagarajan wants us to hold and upset the finding of the Commissioner (Appeals) that the income of the assessee is liable to be assessed under the Income-tax Act by virtue of the provisions of section 9. He generally relied on the provisions of section 9 which speak of business connection in India. We are unable to understand how there is business connection so far as the assessee is concerned. As the Commissioner (Appeals) rightly held that there cannot be any business connection, inasmuch as, there are no operations carried on by the assessee in India. The assessee did not have any office or a post for any officer in India. No personnel of the assessee visited India at any time during the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et of IHC and, therefore, IHC is permitting the user of such word. In this connection, we may emphasise clause I of the agreement about which we have already mentioned. The members of the Intercontinental Group have been given the right to the use of the word ' Intercontinental ' as a part of the name of the hotel. It is, therefore, clear that the terms of the membership and service agreement contemplated the right of the use of the word ' Intercontinental ' given by the IHC to the hotels in India. In other words, one of the terms of the agreement is the assignment of the right of the use of the word ' Intercontinental '. In our considered view, the word ' Intercontinental ' is an asset of the assessee and the right to use or exploit that asset has been given by the IHC to the Indian companies. It means that the assessee is deriving some income by virtue of the permission of the assessee to use the word ' Intercontinental ' by the Indian companies. There can be no doubt that the use of the word ' Intercontinental ' is of an advantage to the Indian hotels. When their name is associated with the word ' Intercontinental ' specially outside India, it has the advantage of having foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the entire income. As already indicated a very small percentage is attributable for the right to use the word ' Intercontinental '. Having regard to all other terms and conditions of the agreement and also bearing in mind the main purpose for which the assessee received compensation, we think it will be appropriate to fix 5 per cent of the receipts only as attributable to the right given by the assessee to use the word ' Intercontinental '. To put it differently, the assessee would be liable to be taxed in respect of income arising through or from the asset, viz., use of the word ' Intercontinental ', and such income is determined at 5 per cent of the receipts. The ITO is directed to make the computation. 11. Cross-objections filed by the assessee for the assessment years 1971-72, 1972-73 and 1973-74 are not pressed and they are, accordingly, rejected. Cross-objection for the assessment year 1974-75 deals with the non-application of rule 115-B. The Commissioner (Appeals) did not decide this issue because he has deleted the entire membership fees. But in the view we have taken that 5 per cent of the membership fee is taxable, rule 115B. will have to be considered and we direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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