TMI Blog2009 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment dated 04.10.2006 of the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") passed in ITA Nos. 50/Del/2006 to 55/Del/2006 pertaining to assessment years 1995-96 to 2000-01 and ITA Nos. 168/Del/2006 to 171/Del/2006 in respect of assessment years 1995-96, 1996-97, 1999-2000 and 2000-01. The Tribunal by the impugned judgment has disposed of ten appeals, out of which six appeals were filed by the assessee i.e., Sheraton International Inc. while the remaining four appeals were filed by the Revenue. As is evident from the impugned judgment of the Tribunal, both the assessee, as well as, the Revenue had filed four cross appeals each for assessment years 1995-96, 1996-97, 1999-2000 and 2000-01. The remaining two, were the appeals of the assessee, for assessment years 1997-98 and 1998-99. 2. The Revenue being aggrieved by the impugned judgment has preferred the present appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). Even though the Revenue, in these appeals, has proposed a total of ten questions, at the time of hearing the learned counsel for the Revenue, Mr Sanjeev Sabharwal confined his submissions to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B can be charged in such a case if income is subsequently assessed in its hands? (J) Whether while deleting the addition to the extent of 25% made by the AO in the set aside proceedings for the assessment years 1996-97 and 1997-98, the Tribunal has correctly interpreted the relevant statutory provisions with regard to scope of remand proceedings? 3. We propose to dispose of these appeals by a common judgment as the issues raised in these appeals are inter-related and based on a common set of facts. In order to dispose of these appeals it would be important to note the following undisputed facts. 3.1 The assessee is a company incorporated in USA and a non-resident under the Indian Tax Laws. The assessee is engaged in providing service to hotels in various parts of the world. Towards this end, the assessee, on 27.01.1979 entered into, one such, agreement with ITC Ltd for providing services to three of its hotels, viz., Welcomegroup Mourya Sheraton, New Delhi, Welcomegroup Mugal Sheraton, Agra and Welcomegroup Chola Sheraton, Madras. The scope of services envisaged in the agreement was publicity, advertisement and sales including reservation services. The tenure of the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the terms and conditions contained in the agreement that, what the assessee was making available to the ITC Hotels Ltd was: technical and consultancy services; provision of training to its employees; the use of its trade mark (even though they were free of cost these were services according to him linked to the trade mark); making available technical know-how, documentation and manuals for which while the assessee was not charging a lump sum fee the consideration received by the assessee was relatable to the business concluded by its client-hotels; and the reservation network. 4.3 Based on the aforesaid findings the Assessing Officer came to the conclusion that the payments received by the assessee were fee for included services as provided in Article 12(4)(b) of the DTAA. The Assessing Officer also concluded that the assessee had a business connection with India and hence, fee received on account of services rendered by the assessee were deemed to accrue, or arose in India and therefore, the assessee's case was covered under Section 9 of the Act. In the alternative he held that the assessee's income was taxable as per the provisions of Article 12 of the DTAA. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sified the income into four(4) categories as indicated above and out of the four(4) categories three(3) categories were brought to tax on the basis that payments constituted royalty under Article 12(3)(a) and/or as fee for included services as per Article 12(4)(b) of the DTAA. The last category, that is, payments received towards advertisement, publicity and promotion was treated as business income and since, the assessee did not have a permanent establishment in India, they were not chargeable to tax in India. Thus 75% of Rs 7,78,26,499/- was brought to tax at the rate of 15% as per Article 12 of the DTAA. 6.1 The assessee being aggrieved carried the matter in appeal to the CIT(A). The CIT(A) vide order dated 11.11.2001 disposed of the appeal for assessment year 1998-99 based on the reasoning given in its order dated 22.03.2001 in respect of assessment year 1997-98. The aforesaid events prompted the Assessing Officer to re-open the proceeding for assessment years 1995-96, 1996-97, 1999-2000 and 2000-01. Accordingly, a notice under Section 148 was issued on 25.01.2002. The reasons recorded in re-opening the assessment under Section 148 as extracted in the Tribunal's orders are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the view that the taxability of income of a non-resident had to be first determined in the light of the provisions of Sections 4, 5 and 9 of the Act. According to the Tribunal the provisions of DTAA would come into play only if the assessee, which is admittedly a non-resident, was required to pay tax, both under the Indian Income Tax Act, as well as, that of U.S.A. In its view the approach adopted by the authorities was thus, faulty because they had proceeded to examine the matter from the point of view of the provisions of the DTAA, whereas the approach ought to have been the other way round. 8. On remand the Assessing Officer held that the entire amount received by the assessee constituted royalty and/or fee for included services and was thus, taxable with reference to the charging provisions of section 4, 5 and 9 of the Act and since, the assessee did not have a permanent establishment in India the same was taxable in India as royalty and/or fee for included service as per article 12(3) and/or article 12(4)(b) of the DTAA. The Assessing Officer thus, brought to tax in India the entire amount of Rs 7,83,36,687/- and Rs 7,78,26,449/- received by the assessee during the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee preferred appeals to the Tribunal for the following six years i.e. assessment years 1995-96 to 2000-01, while the Revenue preferred the appeals to the Tribunal in respect of the relief granted on SCI/FFP contributions in respect of assessment years 1995-96, 1996-97, 1999-2000 and 2000-01. Consequently, the cross-appeals, were filed as noted hereinabove; four each by the assessee and the Revenue, apart from two appeals by the assessee, in respect of, the assessment year 1997-98 and 1998-99. As noted in the beginning the Tribunal by the impugned judgment disposed of the eight cross-appeals and two appeals filed by the assessee. SUBMISSIONS OF THE COUNSEL 9. Before us the learned counsel for the Revenue Mr Sanjeev Sabharwal, Advocate, submitted that the entire payments received by the assessee were in the nature of royalty and/or fee for included services. For this purpose he referred to various clauses of the agreement to demonstrate that the assessee had a vast knowledge and experience in the field of hotel business. This experience, according to the learned counsel for the Revenue, which the assessee acquired in the hospitality industry, is in the nature of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by the assessee entirely outside India and this being so, the income which has been received by the assessee had neither accrued nor arisen to the assessee in India. It was submitted, since the assessee did not have any business connection in India, the income received by it could not be brought to tax by resorting to the deeming provision of Section 9(1)(i) of the Act. It was further submitted that the assessee had rendered its service in the nature of advertisement, publicity and sales to its clients, that is, the hotels in India through systems and facilities located outside India. It was the contention of the learned Senior counsel for the assessee that the income of the assessee was in the real sense a business income and, in view of the fact that the assessee did not have a permanent establishment in India, the said income could not be brought to tax in India by virtue of Article 7 of the DTAA. It was strenuously urged by the learned Senior counsel for the assessee, that the primary service rendered by the assessee under the agreement was marketing, publicity and reservation services and it was only to facilitate this primary objective that the assessee permitted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee, however, was that Article 12(4)(a) would be applicable, only if, payments received by the assessee are covered under Article 12(3)(a) or Article 12(4)(b). Since this was not so; Article 12(4)(a) had no application. It was contended that, in so far as, Article 12(4)(b) was concerned the same was not applicable as, in order to fall within the purview of the said Article the payment should be one which is received for technical and consultancy services which are of technical nature. It was the learned counsel's contention that advisory services, marketing advice, etc., were not the kind of technical and consultancy services as envisaged under Article 12(4)(b) of the DTAA. 11. The submission of the learned Senior counsel for the assessee was that in any event no substantial question of law arose for consideration of this court. The Tribunal, according to him, had returned the findings of fact based on the material before it, which ought not to be disturbed as there was no perversity attached to any of the findings returned by it. 12. Having heard both the learned counsel for the Revenue, as well as, the assessee we are of the view that the impugned judgment of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the Indian hotels/clients for the services rendered under the relevant agreements was not in the nature of "royalties" within the meaning given in Section 9(1)(vi) read with Explanation-2 thereto of the Income Tax Act, 1961 or as given in Article 12(3) of Indo-American DTAA. The same was also not "fees for technical services" or "fees for included services" as defined in Section 9(10(vii) read with Explanation-2 thereto of the Income-Tax Act, 1961 or Article 12(4) of the Indo-American DTAA respectively. Having regard to the integrated business arrangement between the assessee company and the Indian hotels/clients as evident from the relevant agreements as well as the nature of assessee's own business, the said amount clearly represented its "business profit' which was not liable to tax in terms of Article 7 of the Indo-American DTAA. We, therefore, allow the relevant grounds raised in the assessee's appeals on this issue and dismiss the additional grounds raised by the Revenue in its appeals.' (v) it found that Article 12(4)(b) had no applicability and for this purpose it relied upon the Memorandum of Understanding dated 15.05.1989 and the examples set out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to marketing, publicity and sales promotion and the same, in any case, was not in the nature of technical and consultancy services making any technology available to the Indian hotels/clients in the field/area of communication through satellite or otherwise. Moreover, as pointed out by the learned counsel for the assessee before us, no communication through satellite was involved in the interface between the computerized reservation system of the assessee and that of the Indian hotels/clients." 'What is transferred to the Indian company through the service contract is commercial information and the mere fact that technical skills were required by the performer of the service in order to perform the commercial information services does not make the service a technical service within the meaning of paragraph 4(b) of Article 12. Since the facts of the present case are almost similar to the facts of this case given in Example 7 of the memorandum of Understanding, it leaves no doubt that the payment in question received by the assessee company from the Indian hotels/clients or any part thereof could not be treated as "fees for included services' within the meaning of paragraph 4( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said main service, it rightly concluded, in our view, that the payments received were neither in the nature of royalty under Section 9(1)(vi) read with explanation 2 or in the nature of fee for technical services under Section 9(1)(vii) read with explanation 2 or taxable under Article 12 of the DTAA. The payments received were thus, rightly held by the Tribunal, to be in the nature of business income. And since the assessee admittedly does not have a permanent establishment under the Article 7 of the DTAA "business income' received by the assessee cannot be brought to tax in India. The findings of the Tribunal on this account cannot be faulted. The Tribunal pointedly observed that there was no evidence brought on record by the Revenue to enable them to hold that the agreement was a colourable device, in particular, that the payments received were for use of trade mark, brand name and stylized mark 'S'. We agree with reasoning adopted by the Tribunal. Moreover, these are findings of fact which could be gone into only if a question was proposed impugning the findings of the Tribunal as perverse. We find that no such question has been proposed in the appeal. The observations of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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