TMI Blog2018 (6) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee for the managerial/leadership training provided to the employees of the Indian Hotels cannot be held as FTS under Article 12(5)(a) of the India- Netherland tax treaty. As neither the training services rendered by the assessee to the Indian Hotels could be held to be technical services, nor the same could have been characterised as “ancillary and subsidiary” services as per Article 12(5)(a), hence the consideration received by the assessee for rendering the training services could not be held as FTS in its hands. We thus, not being persuaded to subscribe to the view taken by the CIT(A) that the consideration received for providing training services to the Indian Hotels was chargeable as FTS in the hands of the assessee, set aside his order. The Ground of appeal No. 2 is allowed in terms Whether amounts received by the assessee for providing access to the international CRS, Property Management Systems and Other Systems was ancillary and subsidiary to the enjoyment of the right “Marriott” and hence, taxable as FTS under the India-Netherland tax treaty, as well as under the Act? - Held that:- As the access to CRS, Property Management System and Other Systems provided to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax Act, 1961, dated 09.02.2012 for A.Y 2009-10. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal: Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Commissioner of Income-tax (Appeals) - 11, Mumbai ['CIT(A)'] has in his order dated September 3, 2012 under section 250 of the Income-tax Act, 1961 (the 'Act') erred on the following grounds (without prejudice to each other): 1. In holding that the amounts received by the Appellant from the Indian Hotels under the Training and Computer Systems Agreement ('TCSA') are not in the nature of reimbursement of costs and hence, liable to tax under the Act 2. In holding that conducting the training programs (i) makes available technical knowledge and (ii) is ancillary and subsidiary to the royalty agreement and hence, the amounts received for the same are chargeable to tax as fees for technical services under the Double Taxation Avoidance Agreement between India and Netherlands (the 'India-Netherlands Tax Treaty') as well as the Act. 3. In holding that the amounts received by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto a Training and Computer Systems Agreements (for short TCSA ) with M/s Viceroy Hotels Ltd., Hyderabad and M/s Chalet Hotels Ltd., Mumbai (hereinafter referred to as Indian Hotels ) for conducting training programs of their employees and also other services. It was observed by the A.O that the assessee during the year under consideration was in receipt of consideration for the services rendered to the Indian Hotels, as under: Particulars Training and Computer System Reservation Receipts. M/s Chalet Hotels Limited, Mumbai. ₹ 1,05,37,350/- M/s Viceroy Hotels Limited, Hyderabad. ₹ 9,98,148/- Total ₹ 1,15,35,498/- 4. On a query by the A.O as to why the aforesaid receipts may not be taxed in India, it was submitted by the assessee that as the consideration received from the Indian Hotels was in the nature of reimbursement of expenses incurred by the assessee and there was no mark up or profit made by the assessee on the said receipts, hence the same was not liable to be taxed. The assessee fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management Systems and Other Systems were towards reimbursement of expenses incurred by the assessee, hence the same were not taxable in India, was however not persuaded to accept the same. Still further, the CIT(A) after deliberating at length on the taxability of the aforesaid receipts in the hands of the assessee, held as under: (A). AS REGARDS CONSIDERATION RECEIVED FROM NDIAN HOTELS FOR CONDUCTING TRAINING PROGRAMSTRAINING FEES: (i). The CIT(A) observed that the Indian Hotels, viz. M/s Viceroy Hotels Ltd., Hyderabad and M/s Chalet Hotels Ltd., Mumbai had entered into respective agreements with the group company of the assessee, for permitting them to use the brand name Marriott under a license for royalty. The license fee so payable to the group company of the assessee was taxable as royalty. On the basis of the aforesaid facts, it was observed by the CIT(A) that the agreement executed between the assessee and the Indian Hotels was an integral part of the license agreement between the Indian Hotels and the group company of the assessee. The CIT(A) held a conviction that though technically the two agreements were independent of each other, but in reality they were mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017) 84 taxmann.com 108 (Kol). (iii). ACIT Vs. PCI Ltd. (2011) 12 taxmann.com 59 (Delhi) ( iv). ITO Vs. Veeda Clinic Research P. Ltd. (2011) 13 taxmann.com21 (Bang) (v). Wockhardt Ltd. Vs. ACIT (2011) 10 taxmann.com 208 (Mum). The ld. A.R taking support of the order of the ITAT, Bangalore in the case of ITO Vs. Veeda Clinic Research P. Ltd. (2011) 13 taxmann.com21 (Bang), submitted that in order to successfully invoke the coverage of training fees by make available clause in the definition of technical services, the onus was cast upon the revenue authorities to demonstrate that these services involved transfer of technology. It was in the backdrop of the aforesaid contention submitted by the ld. A.R that though the training services rendered by the assessee were in the nature of general managerial /leadership training services and not in the nature of technical services, but in case it was to be held otherwise and the services rendered by the assessee were to be brought within the sweep of FTS as per Article 12(5)(b), than the onus was cast upon the A.O to prove that the assessee by providing the services did make available transfer of technical knowledge. The ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. The ld. A.R submitted that the view taken by the CIT(A) that as the TCSA agreements entered into by the assessee with the Indian Hotels were an integral part of the licensing agreements and both the agreements were complementary to each other, thus the consideration received by the assessee from providing training services being ancillary and subsidiary to the enjoyment of rights, property or information by the Indian Hotels on the basis of the licensing agreement, could safely be held as FTS in the hands of the assessee as per Article 12(5)(a) of the India-Netherlands tax treaty, was an absolutely misconceived view. It was submitted by the ld. A.R that in order to consider a service fee as ancillary and subsidiary to the application or enjoyment of some right, property or information for which a consideration described in Article 12(4) is received, the service must be related to the application or enjoyment of right, property or information. It was further averred by the ld. A.R that as the assessee was not the owner of any brand or trademark for which any royalty was received by it under Article 12(4) of the India-Netherlands tax treaty, hence the training services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be brought to tax in India as per Article 7 of the India-Netherland tax treaty. The ld. A.R in order to drive home his contention that as the consideration received by the assessee for providing access to CRS, Property Management System and Other Systems was for providing standard facilities/services and not in lieu of any tailor made services, thus the same could not be held as FTS, relied on the judgments of the Hon ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd. (2016) 383 ITR 1 (SC) and DIT Vs. A.P Moller Mersk (2017) 392 ITR 186 (SC). The ld. A.R in support of his contention that consideration received for providing access to reservation system cannot be held as FTS, relied on certain judicial pronouncements, viz. (i). DIT Vs. Sheraton International Inc. (2009) 313 ITR 267 (Del); (ii). Bass International Holdings NV Vs. JCIT (ITA No. 4341/Mum/2002; dated. 12.05.2006; and (iii). Six Continents Hotel Inc. Vs. DCIT (2011) 11 taxmann.com 332 (Mum). The ld. A.R submitted that in all the aforesaid cases the courts/tribunal had held the receipts for providing reservation services as business receipts. The ld. A.R further assailed the validity of interest charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional evidence under Rule 29 of the Appellate Tribunal rules, 1963. However, we are of the considered view that as the assessee had failed to show that the lower authorities had adjudicated the case without affording reasonable opportunity to the assessee to adduce the said documents, thus the same cannot be admitted. We thus, decline to admit the documents filed by the assessee before us as additional evidence. 9. We shall now advert to the contentions advanced by the ld. A.R to drive home his contention that the consideration received by the assessee from the Indian Hotels for conducting training and providing access to CRS, Property Management System and Other Systems, having been received by way of reimbursement of expense, were thus not liable to be subjected to tax in the hands of the assessee in India. We are of the considered view that as the assessee had failed to substantiate on the basis of any clinching evidence that the consideration received for the services rendered by it to the Indian Hotels were in the nature of reimbursement of expenses incurred by the assessee and there was no mark up or profit made by rendering the said services, therefore, its claim tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, as under: ( i). Llyods Register Industrial Services (India) P. Ltd. vs. ACIT (2010) 36 SOT 293 (Mum): The Tribunal observed that the expenses incurred by the assessee which was engaged in the business of survey of ships, on the training of its employees who would inspect various mechanical and electrical equipments in the ship and ultimately issued a fitness certificate, could not be held as payments made for technical services. The Tribunal while concluding as hereinabove, observed that the employees by taking training from the Principal company had acquired only inputs to enable them to perform their work with desired state of efficiency. ( ii). Ershisanye Construction Group India (P) Ltd. vs. DCIT (2017) 84 taxmann.com 108 (Kol): The Tribunal had observed that payments which were made by a Chinese company in respect of training of Chinese engineers of the assessee in english language would not constitute FTS. ( iii). ACIT Vs. PCI Ltd. (2011) 12 taxmann.com 59 (Delhi): The High Court observed that payments made by the assessee to a non-resident party for training its personnel or customers to explain to the proposed buyers the salient features of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee of either of the two conditions therein provided, viz. (a). fixed base for performing of the professional activities in the contracting state; or (b). stay for a period or periods exceeding 183 days in the fiscal year. 12. We shall now advert to the observations of the CIT(A) that as the Training and Computer systems agreements (for short TCSA ) entered into by the assessee with the Indian Hotels, viz. M/s Viceroy Hotels Ltd., Hyderabad and M/s Chalet Hotels Ltd., Mumbai were an integral part of the licensing/royalty agreement, thus both the agreements were complementary to each other. The CIT(A) was of the view that as the training services rendered by the assessee were ancillary and subsidiary to the enjoyment of the rights, property or information pursuant to the royalty agreement, thus the consideration received by the assessee from rendering such services could safely be held as FTS as per Article 12(5)(a) of the India-Netherland tax treaty. We have deliberated at length on Article 12(5)(a) of the tax treaty, which reads as under: Article 12(5): For the purposes of this Article, fees for technical services means payment of any kind to any person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e his order. The Ground of appeal No. 2 is allowed in terms of our aforesaid observations. 13. We shall now advert to the assailing of the order of the CIT(A) by the assessee, on the ground that he had erred in holding that the amounts received by the assessee for providing access to the international CRS, Property Management Systems and Other Systems was ancillary and subsidiary to the enjoyment of the right Marriott and hence, taxable as FTS under the India-Netherland tax treaty, as well as under the Act. We find that since inception, it has been the claim of the assessee that as the providing of access to CRS, Property Management Systems and Other Systems to the Indian Hotels, were standard facilities/services, thus they could not be characterised as technical services and the consideration received in lieu thereof be subjected to tax as FTS receipts. We find from a perusal of the agreement entered into between the assessee and the Indian Hotels that the assessee had made available the CRS, Property Management Systems and Other Systems for use by the Indian Hotels in their business. We find that the ld. A.R in support of his contention that the consideration received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided to the members of the Marriott chain of hotels across the world by the assessee, and were not tailor made services to suit their specific requirements, thus the said facility could not be construed as technical services . 14. We shall now advert to the observations of the CIT(A) that as the consideration received by the assessee on account of providing access to CRS, Property Management Systems and Other Systems facility was ancillary and subsidiary to the enjoyment of the right to use the brand Marriott , thus the same would be taxable as FTS under Article 12(5)(a) of the India-Netherlands tax treaty. We are of the considered view that as observed by us hereinabove, invoking of Article 12(5)(a) and holding the consideration received by an assessee from certain ancillary and subsidiary technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, itself presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that now when the assessee was not the owner of any brand or trademark for which any royalty would have been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Ground of appeal No. 4 is allowed. 16. We find that the assessee being aggrieved with the order passed by the A.O while giving effect to the order of the CIT(A), has sought our indulgence for redressing the same by raising the grounds of appeal nos. 5 and 6. We are afraid that as the aforesaid grievances of the assessee does not emanate from the impugned order of the CIT(A) before us, hence the same cannot be adjudicated by us. The Grounds of appeal Nos. 5 and 6 are dismissed in terms of our aforesaid observations. 17. We shall now advert to the claim of the assessee that the A.O had erred in raising the tax rate provided in the India-Netherland tax treaty by a further amount of surcharge, education cess and secondary and higher education cess. The ld. A.R in support of his aforesaid contention had drawn our attention to certain judicial pronouncements. We find that the issue that the of rate of tax provided in the tax treaty cannot be enhanced by including surcharge and education cess separately, is covered by an order of a coordinate bench of the Tribunal in the case of Capgemini SA vs. DCIT (Intl. Taxation)-2(10(1), Mumbai (2016) 160 ITD 13 (Mum). We ..... X X X X Extracts X X X X X X X X Extracts X X X X
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