TMI Blog2022 (3) TMI 1475X X X X Extracts X X X X X X X X Extracts X X X X ..... and computer reservation etc. rendered by one of the group of company particularly in the field of hospitality industry outside India has been considered. In the case of Director of Income Tax vs. Sheraton International Inc. [ 2009 (1) TMI 27 - DELHI HIGH COURT] wherein such type of service was under consideration, the Hon ble Delhi High Court held that such services are neither royalty nor FTS as per the provisions of section 9 of the Act and accordingly not liable to tax in India. Thus we hold that the payments made to the HSCL by the assessee are not in the nature of royalty under the provisions of section 9(1)(vi) of the Act and thus not chargeable to tax and not requiring the assesee to withhold any tax on such payments. It is a settled position of law that under section 195 of the Act, tax is not required to be withheld on remittance made by the assessee in respect of the income of the payee which is not chargeable to tax under the provisions of the Act. In support, reliance is placed on the judgements of the Hon ble Supreme Court in Transmission Corporation of A.P. Ltd. Anr. [ 1999 (8) TMI 2 - SUPREME COURT] and GE India Technology Cen. (P) Ltd. [ 2010 (9) TMI 7 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of hotels work under the brand of Hyatt. The assessee entered into a Strategic Oversight Agreement ( SOA ) with HISWAL dated 4.9.2008 in respect of carrying out hotel and management services with the assessee. For such services, various employees of HISWAL visits India from time to time. As per SOA there are various other services which are to be provided by other affiliates of Hyatt. One such affiliate of Hyatt is HCSL. HCSL provides centralised services outside India to one worldwide Hyatt Group of Hotels, who work under the supervision and control of Hyatt. HSCL conducts sales and marketing on behalf of all hotels affiliated to the Hyatt chain. The said chain marketing services as stated in the application filed by the assessee include business and sales promotion, advertising, publicity and public relations, reservation system across the globe, conduct marketing surveys and studies to standardize and improve the facilities in the hotels of the affiliates across the world, all other such activities aimed at protecting and promoting the mutual interest of the affiliates as well as to benefit the guests with better services and facilities. The cost of such expenses incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments to HCSL is in the nature of royalty / Fees for Technical Service ( FTS ) taxable under section 9(1)(vi)/(vii) of the Act and directed that tax is required to be withheld at the applicable rate under section 195 of the Act. 5. On appeal, the Ld. CIT(A) in para 4.2 and 4.3 of his order recorded the findings of the Ld. AO during the assessment proceedings which is reproduced below :- 4.2 During the assessment proceedings, the Ld. AO observed that M/s HISWAL, Dubai was providing certain strategic plans, guidelines, processes and policies relating to the development and operation of the Hotel in terms of agreement known as Strategic Oversight agreement (hereinafter SOSA ). The AO referred to the assessment order u/s 143(3) r.w.s. 144C in the case of HISWAL for Asst. Year 2009-10 dated 21.11.2012, in which it was held that the payment in respect of activities of HISWAL and its affiliates as a whole, under SOSA constitute Royalty or FTS. It was also mentioned by the AO that in the said order of DRP, it was held that the services being rendered under SOSA by HISWAL and other affiliates constitute an integrated bouquet of services in the nature of technical services, based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recipient does not determine the nature of services rendered by it, and in this regard, reliance was placed on the decision in the case of Danfoss Industries P. Ltd. in re (268 ITR 1) and Timken India (273 ITR 57). The AO lastly, rejected the contention of the appellant on the ground that that Certificates u/s 195(2) have been issued by the AO in the earlier years allowing the appellant to remit such payments to HCSL without deducting any tax by observing that doctrine of res judicata or estoppels by record does not apply to tax proceedings. In view of this, heavily relying upon the decision of DRP in the case of M/s HISWAL in A.Y. 2009-10, the Ld. AO held that the payment to be remitted by appellant to HCSL, HongKong, was chargeable to tax in India as Royalty/FTS. Since the appellant has not given the PAN No of the remittee, the AO held that the appellant had to withhold the tax @ 20% plus surcharge (2%) and education cess (3%), in view of the provisions of section 206AA of the Act. 6. Ld. CIT(A) after duly considering the findings of the Ld. AO, detailed submissions made by the assessee before him and relevant clauses of SOA held that tax is not required to be wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefits, services and facilities including, without limitation, institutional advertising programs (which exclude advertising programs in which only selected H.I. hotels participate in by mutual agreement, the cost of which programs are allocated amongst the participating H.I. hotels) (collectively, Chain Marketing Services ). IRL shall provide reservations services. Neither Strategic Services provider, HCSL nor IRL, nor any other affiliate of Strategic Services provider shall receive any profit for the rendition of Chain Marketing or reservations services. HCSL shall, however, be entitled to be reimbursed for the Hotel's share ( Chain Allocation ) of all costs incurred by HCSL Strategic Services Provider or their affiliates, including without limitation, salaries of officers or employees, in the rendition of said services, and IRL shall be reimbursed for reservations costs. The charges for Chain Marketing Services and for reservation services shall be made on the same basis as to the other hotels operated by H.I., Strategic Services Provider and their affiliates. The present formula (in 2008 Dollars) for Chain Allocation is based on US$394 per Hotel guest room, per ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided for advertising services for the appellant company only. The said advertising campaign can be held to build the brand Hyatt for which services can be rendered to M/s Hyatt International Inc. However, there is no evidence to prove that such services were specifically rendered for promoting the business of the appellant. As per SOSA, various Hyatt Group of companies located across the globe, were required to make proportionate payment to HCSL in order to recover the cost of such marketing campaign. However, in the own admission of AO, there is no one- to-one relationship between the services rendered by HCSL and the payment made by the appellant, which is only based on a formula globally applicable for all Hyatt Group of Companies depending on the Number of rooms and room revenue and limited to the recovery of actual cost of providing marketing services for the entire group. Under the circumstances, it cannot be held that the appellant was provided any services in respect of which such recovery of cost can be held as FTS. Under the circumstances, I find no merit in as such payment treating FTS. Accordingly, the Ground No. 1 cannot be sustained. 6.4 The Ld. AO also emphas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relied upon the findings of the Ld. AO and the DRP s finding in the case of assessment of HISWAL for assessment year 2009-10 under section 143(3) of the Act. 9. The Ld. AR submitted that the assessee in earlier years was permitted to make remittance to HCSL without any TDS thereon. He submitted that the services were provided by HCSL outside India by HCSL which is a separate independent entity providing such services to various hotels operated by Hyatt across the globe. HCSL is a no profit entity. The DRP s order in case of HISWAL for assessment year 2009-10 has no application in assessee s case which was based on the finding that HISWAL is having a PE in India. Further, the said order only talks about the nature of services provided by HISWAL and does not mention anything about the services rendered by HSCL which was in the nature of marketing services. The payment is analogous to payment made by an Indian exporter to its agent outside. Since the foreign agent operates outside India, no part of its income arises in India. He submitted that the issue under consideration is squarely covered by the Judgements of the Hon ble Jurisdictional Delhi High Court in DIT vs. Sheraton Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (vi) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the programmes, in issue, such as SCI and FFP were incidental to the said business arrangement between the assessee and its clients-hotels. It concluded by holding that these programmes were not independent or separate from the main job undertaken by the assessee and since the entire amount towards the service had been held by the Tribunal as business income, the contributions received by the assessee towards the said programmes, i.e., SCI and FFP were also in the nature of business income. It thus rejected the contention of the Revenue that these contributions were in the nature of included services under article 12(4) (a) of the I3.TAA (see paragraph 114). 32. In view of the aforesaid findings of the Tribunal that the main service rendered by the assessee to its clients-hotels was advertisement, publicity and sales promotion keeping in mind their mutual interest and, in that context, the use of trade mark, trade name or the stylized S or other enumerated services referred to in the agreement with the assessee were incidental to the said main service, it rightly concluded, in our view, that the payments received were neither in the nature of royalty under section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India, the proceedings in question had been initiated against the respondent assessee herein. However, once the said order of the Assessing Officer itself has been set aside by the Delhi High Court, the very foundation of Initiating proceedings against the respondent assessee disappears and once the foundation goes, the structure cannot remain, i.e., proceedings against the respondent assessee cannot go on. 11.4 Respectfully following the decisions (supra), we hold that the payments made to the HSCL by the assessee are not in the nature of royalty under the provisions of section 9(1)(vi) of the Act and thus not chargeable to tax and not requiring the assesee to withhold any tax on such payments. 12. It is a settled position of law that under section 195 of the Act, tax is not required to be withheld on remittance made by the assessee in respect of the income of the payee which is not chargeable to tax under the provisions of the Act. In support, reliance is placed on the judgements of the Hon ble Supreme Court in Transmission Corporation of A.P. Ltd. Anr. vs. CIT (1999) 239 ITR 587 (SC) and GE India Technology Cen. (P) Ltd. vs. CIT Civil Appeal Nos. 7541-7542 of 2010. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
