TMI Blog2022 (5) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... . and Chalet Hotels Limited and we are also conscious of the fact that sum is received by the assessee and provision of section 163 of the act also needs to be examined. However, there is a substantive provision for that. We set aside all these four appeals back to the file of the learned Assessing Officer with a direction to consider the certificate of registration on trademark dated 21 August 2006, which was applied for on 24 November 2003. AO may re-consider that in whose hands the above income is chargeable to tax as royalty income. AO may also consider that who received the above sum on behalf of the non- resident tax payers and whether the provision of section 163 of the Act can be invoked or not considering assessee as an agent of Non-resident. Appeal allowed for statistical purposes. - ITA No. 3232 to 3235/Mum/2018 - - - Dated:- 6-5-2022 - Shri Prashant Maharishi, Am And Shri Sandeep Singh Karhail, Jm For the Assessee : Shri Paras Savla And Shri Pratik Poddar, ARs For the Revenue : Shri Mi l ind S. Chavan, DR ORDER PER PRASHANT MAHARISHI, AM: 01. These are four appeals filed by Marriott International Corporation [Assessee/ Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant to use the Marriott brand and the Appellant in turn has sub-licensed the Marriott brand to the Indian hotels; despite the fact that these is no sub-licensing arrangement between MWC and the Appellant, In not accepting that fact that (i) MWC is the original owner of the Marriott brand to whom the Indian hotels are already paying royalty for granting the license to use the Marriott brand, and (ii) there is no agreement between MWC and the original owner of the brand since MWC, itself, is the original owner of the Marriott brand; In holding that the arrangement is of subcontracting or splitting of royalty income of the Marriott Group merely on the basis that the Appellant and MWC are affiliates; In holding that the agreements signed by the Appellant and MWC with the Indian hotels, namely (i) for promoting the global brand, and (ii) for the use of the brand name against the payment of royalty are interdependent on each other and cannot survive without each other and hence, such arrangement is only a tax planning device and is meant to mislead the Indian Revenue authorities; In not appreciating that there was no question of splitting up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colorable device. Accordingly, we are of the view that the 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 Renaissance . 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 assed 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. 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of agreement between the original owner of the brand and M/s MWC are also not available on record. In the light of the above, you are requested to furnish the details of the name of the company who owns the brand and the also the copy of agreement between the original owner of the brand and M/s MWC. 13. The assessee vide its letter dated 24th February 2016 has stated as under: - In this regard, on behalf of and under the instructions from our client, we wish to submit that ITAT while passing the order has erroneously held that Marriott brand was owned by a third group entity of the Assessee whose name was not known and that the third group entity had licensed the same to Marriott Worldwide Corporation; which in turn had allowed the Indian hotels to use the Marriott brand. However, we wish to submit that the correct position is that the trademark registration for the Marriott brand is owned by Marriott Worldwide Corporation. Further, Marriott Worldwide Corporation has entered into license and royalty agreements with the Indian hotels for the use of Marriott brand trademarks, and has offered royalty income to tax in India. A Copy of the license and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking international marketing works of both the brands. Though M/s MWC and the assessee have entered into independent agreements with the hotels separately, apparently, there is reference to the other agreement in each of the agreements. All the agreements have been referred to collectively as Marriott agreements . Clause 8.10 of the agreement entered with Palm Hotels (India) Ltd reads as under: 8.10 Entire Agreement: The following constitute the entire agreement between the parties and/or their respective affiliates, supersede all prior understandings and writings, and may be changed only by a writing signed by the parties and/or their respective Affiliates: (i) the Marriott Agreements; (ii) the Technical Services Agreements; (iii) any instruments to be executed and delivered pursuant to any of the foregoing agreements; and (iv) any other writing executed by the parties or their respective Affiliates, which writings are stated to be supplemental to or to amend any of the foregoing agreements. This clause apparently refers to all the agreements entered by all the affiliates of Marriot group with the Hotels. Further as submitted by Ld. D.R, the surviva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proposed to be paid by the hotel would show that the royalty was paid @ 0.5% of the gross revenue, whereas the expenses proposed to be paid was 2.65% of the gross revenue plus contribution towards special programs (approx. 3%). The expenses shall also include insurance like contribution towards potential liabilities at 0.15% of the gross revenue. The above said discussion would show that M/s Marriott group has undertaken clear tax planning and accordingly entrusted each facet of the job to different companies and each of the said companies have entered separate agreement with the hotels However, all the agreements have been interlinked with each other so that all the operations have ultimate control with Marriott group only. v) Normally value of a Brand is created by popularizing the same among public. The value of a Brand would depend upon the acceptance level of the public. More the public admire a brand, more would be its value. Once the public at large start reposing confidence on the Brand , the same becomes a marketable product in the business circles. Once it becomes a marketable product, the owner of the brand would be entitled to give licenses to others on payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greements signed by the assessee company with three Indian Companies is a colorable device to reduce the gross royalty amount earned by the Marriott group of companies in India, which was taxable in India. (d) A company charging royalty from various other companies for use of a brand name has to incur expenditure out of the 'royalty' amount earned by it in order to promote and build international brand name worldwide. But the said expenditure is not deductible against the royalty amount under the Act. (Hence the assessee has resorted to these types of segregating the royalty amount). (e) The assessee company has not incurred expenses for promoting a particular hotel. In that case, how the Indian hotel companies can reimburse expenses to the assessee company when the expenses are not directly related to these hotels. vii) We may explain the view point of the revenue with an example. Suppose a company would like to collect royalty of say Rs. 100/-. As stated earlier, it is the responsibility of the brand owner to incur expenditure to maintain and promote the Brand Value. Hence, let us assume that the brand owner spends a sum of Rs.70/- towards expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Hotels. (b) All the group companies have same address. (c) All the agreements are interlinked and referred to as entirety of the agreement (d) The survival of cach of the agreement is dependent upon the survival of the other agreement. (e) A single approval for entering into foreign collaboration with all group companies has been obtained Would show that the Indian Hotels have considered agreements entered with M/s Marriott group as agreements pertaining to single transaction, but agreed to pay the amount to different companies. Thus, it is seen that the Marriott group has planned to dissect the single transaction into more than one component and further, Marriott group has seen that each of the component was received by a different company. xi) We have already noticed that the responsibility to maintain the Brand Value always lies with the brand owner. If the brand value goes down in the market, nothing would prevent the Indian Hotels to terminate the agreement with a particular brand owner and switch to another brand. In this kind of factual situation, we are of the view that the Brand owner normally ensures that the brand value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner of brand and MWC. has submitted vide order dated 24.02.2016 that the trademark registration for the Marriott brand is owned by MWC. (a) Therefore, if the brand owner is MWC, as stated by the assessee, and MWC has in turn given the license to use the brand to the Assessee Company and the assessee has further sub licensed the same to the Indian hotels. This in short is an arrangement of subcontracting or splitting of the Royalty income of the Marriott group as they are all affiliate group companies. (b) It may be pertinent to note here that the earning of income by the Assessee company for promoting the Brand Marriott' and 'Renaissance' is possible only because the license to use the brand has been given by MWC to the Indian Hotels directly even though they are not an Affiliate of the Marriott group. It is the responsibility of the person who has the license to use the brand to maintain and incur expenses to maintain and promote the brand. The assessee company and the brand owner (MWC) as stated by the assessee have signed two different agreements with the hotel companies respectively, one for promoting global brand of the assessee company and the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee further submits that it has filed an appeal before the Hon'ble HC against the observation made by the ITAT in Para 52 of the ITAT order. In view of the above discussion, and in the facts and circumstances of the case it can be inferred that the assessee has deliberately furnished inaccurate particulars of the facts before the AO and the ITAT even after repeated opportunities and tried to conceal the particulars of its income. Penalty proceedings are being initiated for the same. Penalty us 271(1) (c) is being initiated for furnishing inaccurate particulars of income, 16. Subject to the above discussions, the total income of the assessee is computed as under: Receipts in the nature of Royalty Rs. 102587456/ Reimbursement of expenses Rs. 82730610/ Total taxable income Rs. 185318066/ Rounded off Rs. 185318070/. 010. Assessee aggrieved, preferred appeal before the learned CIT (A). The learned CIT(A) noted that the learned Assessing Officer has followed the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that assessee did not produce any certificate before lower authorities at the time of assessment despite repeated request by the LD lower authorities. It has come in second round of litigation. It is further stated that assessee has received consideration and therefore according to provision of section 163 of the Act assessee is an agent of the Nonresident. Hence, assessee is liable to pay tax. 013. We have carefully considered the rival contention and perused the orders of the lower authorities. The only issue involved in this appeal is that income of royalty arising out of the above trademark of brand Marriott is taxable in the hands of the assessee or not. Now, assessee has given a registration certificate dated 21st august, 2006 and covers above assessment years. No doubt, as held by the Hon'ble Delhi High Court in the case of CUB Pty Limited vs. [2016] 71 taxmann.com 315 (Delhi) that since the brand owner not located in India, the situs of the brand would also be outside India and naturally, the income arising there from would be chargeable to tax in the hands of the owner of the brand. In fact, Marriott International Inc. (assessee) in these appeals is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
