TMI Blog2022 (5) TMI 1615X X X X Extracts X X X X X X X X Extracts X X X X ..... us. Therefore, it is chargeable to tax in the hands of the person who owns the brand. Nevertheless, it is not the contention of the assessee that no tax should have been deducted under section 195 of the Act on the payments made by, Juhu Beach Resorts Limited, V.M. Salgaonkar and Brothers Pvt. Ltd. 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 AO 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 Nonresident. AO may also consider that if the tax is required to be deducted u/s 195 , then whether the tax has been deducted by the payer or not and whether they can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trademark owner and had not called for any documentary evidence to substantiate the same. The appellant had submitted the requisite trademark registration certificate before the Assessing Officer during the assessment proceedings for Assessment Year 2013-14 vide letter dated March 10, 2015 is before the final assessment order dated March 22, 2016 for Assessment Year 2006-07 was passed by the Assessing Officer. The trademark registration certificate was submitted by the Appellate vide submission dated October 26, 2017 before her office. In holding that Marriott Worldwide Corporation (MWC) has given license to the 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 bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. 07. Assessee filed appeal before the learned CIT (A), who confirmed the order of the learned Assessing Officer. 08. Assessee approached the ITAT who passed an order restoring matter back to the file of the learned Assessing Officer. The direction were given in Paragraph 72 of the order as under:- 72. Hence, we are of the view that the assessee company, being only an extended arm of Marriott group company owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffice letter dated 19th February 2016 asked to furnish explanation with reference to the ITAT order. The letter read as follows. On a perusal of the order the ITAT order it is seen that in para 52 of the order the Hon'ble ITAT has stated as follows The brands 'Marriott' and 'Renaissance is owned by a Company (hereinafter 'Owner of brand'). The name of the said company is not available on record. The said company has given license to M/s Marriott Worldwide Corporation (MWC) or M/s Renaissance International Inc to permit the use of brands citied above to other hotels on receipt of Royalty. The terms 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the hotels in general. We have already noticed that the assessee has collected charges under three different categories: (a) International Sales and Marketing Services. It is collected as a percentage of Gross revenue of the Hotels. (b) Special services allocated on a fair and reasonable basis. (c) Fee for services as percentage of gross revenue. iii) Thus, if can be seen that first company is the owner of brands, the second company is authorized by the first company to give license to the Hotels and collect Royalty and the third company (the assessee company) is entrusted with the job of 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 understanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) Royalty was proposed to be paid to M/s Marriott Worldwide Corporation 0.5% of gross revenue and also to M/s Renaissance International Inc. @ 0.5% of gross revenue. The expenses described as Franchise Marketing/Publicity Support Fee are proposed to be paid approximately at 2.5% of the gross revenue in addition to the contribution towards Frequent traveler programme (up to 5% of the amount paid by the guest), frequent flyer programme (US $ 8.00), Central Reservation system (US $ 9.40) and Special services for potential liabilities (0.15% of gross revenue). iv) The compensation 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 Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t paid by the Indian owner companies (Hotels) does not point out to any specific item of expenditure incurred on behalf of the hotel owner companies. (b) Merely because the assessee company and other company of the same group have signed two different agreements with the hotel companies, one for promoting global brand of the assessee company and the other one for payment of royalty does not change the true nature of the transaction. It is case of splitting of royalty amount by signing two different agreements with two different companies of the Marriott group. (c) The Three agreements 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the responsibility of the brand owner. Since the amount collected towards International Marketing activities have been collected on three heads, one portion was treated as royalty and other portion was treated Fee for included services by the Ld. CIT (A). x) The foregoing discussions would show that the real question in the instant case is-Whether the Marriott has bifurcated the royalty amount into more than one component or not. The discussions made in the previous paragraphs, viz., (a) All the group companies of Marriott group have entered into separate agreements with the 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 Marr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Marriott 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. 15. In pursuance of the directions of the Hon'ble ITAT the assessee on being given an opportunity to furnish the details of the name of the company who owns the brand and a copy of agreement between original 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 compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in support of the same. In view of the above the assessee has furnished inaccurate particulars with respect to the details of the brand ownership before the Assessing Officer and also before the Hon'ble Tribunal and further failed to produce the copy of agreement between such brand owner and MWC before the ITAT and also before the Assessing Officer. Even when the matter was set aside and repeated opportunities were granted to the assessee the assessee has again reiterated its stand that it is the owner of the brand 'Marriott' without any documentary evidence. The 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 ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that application for trademark registration was made on 24 th November, 2003 and registration is granted from that date vide certificate dated 21st day of August 2006. He therefore submitted that such income is not at all taxable in the hands of the assessee. In any way, the registration certificate is now available and therefore may be considered for these years. 012. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. It was submitted 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 gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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