TMI Blog2022 (3) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... f any royalty as provided in Article 12(4) of the India-Netherland tax treaty, thus the consideration received by it from the Indian Hotels for providing access to CRS, Property Management System and Other Systems, could not have been brought within the sweep of ancillary and subsidiary services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as ancillary and subsidiary services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT(A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee It is not in dispute that the facts prevailing in A.Yrs. 2009-10 [ 2018 (6) TMI 605 - ITAT MUMBAI] , 2011-12 and 2012-13 [ 2019 (8) TMI 1797 - ITAT MUMBAI ] are ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/Mum/2020 for A.Y.2010-11 2014-15 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No.CIT(A)-58/Arr.75/2013-14 CIT(A)-58,Mumbai/10123/2016-17 dated 28/06/2016 24/07/2019 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 23/05/2013 08/01/2017 respectively by the ld. Dy. Director of Income Tax (IT), Unit-2(1) / Dy. Commissioner of Income Tax (International Taxation-4(1)(1) Mumbai (hereinafter referred to as ld. AO). 1.1. As identical issues are involved in both the appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. Let us take up the appeal for A.Y.2010-11 first. 2. The assessee has raised the following grounds of appeal:- 1. In holding that the amounts received by the Appellant under the Training and Computer Systems Agreement ('TCSA') on account of conducting core managerial training programs for managerial employees of the Indian hotels qualify as 'fees for technical services' under Article 12(5)(a) of the India-Neth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is a company incorporated in Netherlands and is a tax resident of Netherlands. The assessee is part of Marriott group. The assessee is engaged in conducting training programmes and providing access to various computers systems such as centralized reservation systems, property management systems and other systems to Marriott chain of hotels located worldwide. The assessee submitted that the cost and expenses incurred by the assessee for rendering the aforesaid services are allocated amongst hotels on a fair and reasonable basis. No separate fee of any other form of mark up was ever charged by or was payable to the assessee for such services. The assessee has entered into agreements with Viceroy Hotels Ltd., Hyderabad and Chalet Hotels Ltd., Mumbai Indian Hotels for conducting training programmes for employees of Indian Hotels and providing services to Indian Hotels. The assessee claimed that consideration received for these services from Indian Hotels are in the nature of reimbursement of expenses incurred by the assessee. Hence, the assessee has not offered any income which is taxable in India. During the year under consideration, the assessee has received the following a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was to provide (i) certain core-training programs for management level personnel; and (ii) other training for other employees of the above referred Indian Hotels. However, during the year under consideration the assessee had only provided certain core-training programs for management level personnel. We are of the considered view that the claim of the assessee before the lower authorities that as the training services provided to the management level personnel were in the nature of general managerial/leadership training and the same did neither involve 'make available' or transfer of any technology to the personnel, had neither been dislodged before the lower authorities, nor anything has been placed on record before us by the ld. D.R, which could persuade us to hold otherwise. We find ourselves to be in agreement with the view taken by the ITAT, Bangalore in the case of Veeda Clinic Research (P.) Ltd. (supra), that in order to successfully invoke the coverage of training fees by 'make available' clause in the definition of technical services, the onus is on the revenue authorities to demonstrate that the services do involve transfer of technology. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration received by the assessee for the managerial/leadership training provided to the employees of the Indian Hotels cannot be held as FTS. 11. We have further deliberated on the reliance placed by the CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Oberoi Hotels (India) (P.) Ltd., (supra) wherein it was observed that 'technical services' included 'professional services'. Still further, we find that the A.O also had relied on certain judgments/orders,viz. (i) Intertek Testing Services (supra); (ii) G.V.K Industries (supra); (iii) Continental Construction Ltd. (supra); (iv) Oberoi Hotels (India) (P.) Ltd. (supra); and (v) Dr. Sudhir Kumar Solanki (supra), to support his view that 'technical services' included 'professional services'. We find substantial force in the contention of the ld. A.R that in case training services rendered by the assessee to the Indian Hotels were to be construed as professional services, than the same would fall within the sweep of Article 14 of the India-Netherland tax treaty, which exclusively pertained to Independent Personal Services and would automatically be excluded from Article 12 dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ordinary course of its business, and could not be brought within the sweep of ancillary and subsidiary services as provided in Article 12(5)(a) of the India-Netherland tax treaty. We thus, are of a strong conviction that the CIT (A) loosing sight of the fact that as the assessee was not in receipt of any royalty as per Article 12(4) of the India-Netherland tax treaty, hence had failed to appreciate that the training services rendered by it could not have been held to be ancillary and subsidiary services under Article 12(5)(a) We thus, are of the view that the consideration received by the assessee for providing training services to the Indian Hotels could not be held as FTS under Article 12(5)(a) of the India-Netherland tax treaty. We are of the considered view that in terms of our aforesaid observations, 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 persuad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational Inc. (supra) had observed that consideration received by the assessee for providing access to reservation system could not be brought to tax as FTS in the hands of the assessee. We further find that the Hon'ble Supreme Court in the case of Kotak Securities Ltd. (supra) had in the backdrop of the facts involved in the case before it, had observed that services made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges were paid by members of BSE were for common services that every member of Stock Exchange was necessarily required to avail of to carry out trading in securities in Stock Exchange, thus such services did not amount to 'technical services' provided by Stock Exchange, as the same were not services which were specifically sought for by the user or consumer. The Hon'ble Apex Court following the aforesaid view, had thereafter observed in the case of A.P Moller Maersk A S (supra), that where the assessee, a foreign shipping company had set up a telecommunication system in order to enable its agents across globe including India to perform their role more effectively, the payment received for providing such f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the sweep of ancillary and subsidiary services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as ancillary and subsidiary services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT (A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. 3.4. As far as the treatment of the income received from computer reservation systems as Royalty , this Tribunal in assessee s own case for A.Yrs. 2011-12 and 2012-13 in ITA No.5678/Mum/2016 and ITA No.764/Mum/2017 dated 09/08/2019 respectively had held as under:- 19. We have considered the submission of both the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon facilities provided to the members of the Marriot chain of hotels across the board by the assessee, and what not tailor made services to suit their specific requirements, thus the said facility could not be construed as technical services . 21. The other contention of the revenue that TCSA being integral part of the license /royalty agreement, providing access to computer systems were ancillary and subsidiary to the enjoyments of the rights, property or information pursuant to the Royalty agreement were also rejected by tribunal in its order for assessment year 2009-10. Where further noted that the the revenue has not filed appeal against the claim of assessing officer for assessment year 2009-10 that the payments access to computer system qualify as royalty, when CIT appeal said concluded that the same qualifies as FTS. In our view the tribunal had refrain from dealing with the contention of the assessee that payment received or access to computer system could not be treated in the nature of royalty. However, during the year under consideration i.e. assessment year 2011-12, the assessing officer concluded that payment received for access to computer system qualifies as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 23. Further, in our view the said receipt also cannot qualify as brand royalty at the same amount is received merely access to computer software/system and such payment are clearly not related to Marriott brand. The assessing officer relied upon the order of Tribunal Six continents Hotel Inc (supra) wherein it has been held that, when, the assessee does not promote any international brand and is purely providing right to use of system and related services along with training to the Indian hotels. It is not in dispute that in relation to the services provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to each individual hotel property. 25. In view of aforesaid factual and legal discussion, we are of the view that while using computer software, which is copyrighted article and there is no transfer of copyright or use of copyright itself particularly when there is no transfer of a patent, invention, model, design, secret formula or process or trade mark or similar property or imparting of any information concerning thereof. 26. Further we have noted that on remaining contention raised by lower authorities, the Tribunal in assessee's own case for Assessment Year 2009- 10 on similar set of fact passed the following order: 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 Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, a foreign shipping company had set up a telecommunication system in order to enable its agents across globe including India to perform their role more effectively, the payment received for providing such facility was not taxable as fee for technical services. We have perused the facts of the case before us and after deliberating on the same in the backdrop of the aforesaid judicial pronouncements are of the considered view that as the access to CRS, Property Management System and Other Systems provided to the Indian Hotels by the assessee were common facilities provided 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-Netherland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of fact, and our aforesaid detailed discussions on the issues, these grounds of appeal are allowed in favour of assessee. 3.5. It is not in dispute that the facts prevailing in A.Yrs. 2009-10, 2011-12 and 2012-13 are identical with the facts prevailing in A.Y. 2010-11 as they form part of the same agreement and same nature of activities carried out by the assessee. Hence, we hold that the decision rendered by this Tribunal for A.Yrs. 2009-10, 2011-12 and 2012-13 as detailed supra shall apply mutatis mutandis to A.Y.2010-11 also. Accordingly, the ground Nos. 1-3 raised by the assessee are allowed. 4. The ground Nos.4-8 raised by the assessee are supportive of ground Nos.1-3 as they are merely argumentative in nature. Accordingly, the same are also allowed. 5. The assessee has raised additional grounds on 22/10/2018. The ground No.9 raised vide additional ground was stated to be not pressed by the ld. AR at the time of hearing, as in his opinion, the same would be academic in nature. Accordingly, the said ground is hereby dismissed as not pressed. 6. The ground No.10 raised by the assessee vide additional ground is seeking direction to the ld. AO for granting correct T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Appellant respectfully submits that the learned Commis`sioner of Income-tax (Appeals) - 58, Mumbai, has in his order dated July 24, 2019 under section 250 of the Income-tax Act, 1961 ( the Act') erred in disposing the appeal of the Appellant on the following grounds, which are without prejudice to one another: 1. In taxing the receipts earned by the Appellant pursuant to the Training and Computer Systems Agreement ('TCSA') despite of the favorable orders passed by the Income-tax Appellate Tribunal, Mumbai ( ITAT) in the Appellant's own case for AYs 2009-10, 2011-12 and 2012-13 wherein the ITAT held that the receipts are not taxable in India; 2. In holding that the receipts earned by the Appellant pursuant to the TCSA entered with the Indian hotel owners are taxable in India under the Act as well as under the India-Netherlands tax treaty; 3. In not accepting the claim of non-taxability of amounts received for conducting training programs for the employees of the Indian hotel owners; and 4. In not considering that the amounts received by the Appellant under the TCSA could at best be considered to be in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had already been decided by this Tribunal in favour of the assessee holding that the said receipts are not taxable in India either as FTS or as royalty as per the Act and as per Indo-Netherlands treaty. Merely because the assessee had offered income from training services to tax in the return of income for the A.Y.2014-15 (i.e. the year under consideration), the assessee should not be unjustly taxed on a receipt which is otherwise not chargeable to tax both as per the Act and as per the treaty. We find that the Hon ble Supreme Court in the case of Goetze India Ltd., reported in 284 ITR 323 had held that any claim of the assessee could be made only by way of a valid return. In the instant case, the assessee could not file a revised return within the time prescribed under the Act. It is a fact that assessee had offered the income while filing its return for A.Y.2014-15. Thereafter, during the course of assessment proceedings, in view of the subsequent development that had cropped up in assessee s own case wherein the Tribunal for A.Y.2009-10 had taken a decision in favour of the assessee on the very same taxability of receipts from training services, the assessee made a claim befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). 12.1. On merits, the ld. DR also pointed out that during the year, the ld. AO treated the receipts from computer reservation system as equipment royalty which was not decided by the Tribunal in earlier years and accordingly he argued that the decision of the Tribunal in earlier years would not be applicable for this assessment year. Per contra, the ld. AR argued that the term equipment referred to by the ld. AO only means server . The very same server was available in earlier years also for rendering the computer reservation system services by the assessee. Hence, there is absolutely no change in the facts. We also find that servers are owned and used by the assessee and not by the Indian entity. The servers are not given on rent to Indian Hotels. Hence, we are in agreement with the argument advanced by the ld. AR in this regard and hold that the year under consideration is no way factually different from earlier years and hence, the decision rendered by this Tribunal in A.Y.2010-11 supra shall apply mutatis mutandis to this assessment year also. 12.2. In view of the aforesaid observations, we hold that receipts of the assessee from training services and computer reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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