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TMI Blog2024 (3) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... States of America (USA) and carries on the business of providing various hotel related services in several countries across the world. The Appellant is a tax resident of USA in terms of the provisions of Double Taxation Avoidance Agreement between India and USA (India-USA DTAA). The Appellant has entered into agreements with various Indian hotel owners for providing worldwide marketing, advertising and other services to the hotels covered by the agreement through its worldwide system of sales advertising, promotion, public relations and reservations in the usual course of its business to some hotels owned/managed by the Indian companies. All such services are provided outside India. The Appellant filed its original return of income for the relevant assessment year under consideration, on March 12, 2022 declaring an income amounting to INR 11,11,600 and claiming a refund of INR 89,70,430 on account of TDS. As per the assessee revenues received from various Indian customers an account of Centralized Services aggregating to INR 12,40,10,904 does not constitute neither Fees for Included Services ("FIS") under provisions of Article 12 of the India-USA DTAA nor Fee for Technical Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acter of receipts has held that they cannot be treated as FTS/FIS, either under the provisions of the Act or under the treaty provisions. The observations of the Coordinate Bench in this regard are as under: "6. We have given a thoughtful consideration to the order so the authorities below. We find force in the contention of the counsel because identical grievance have been heard and decided by this Tribunal (supra) in favour of the assessee and against the revenue. The relevant findings read as under: 21. If one critically examines the determinative factors/parameters to qualify as FIS under Article 12(4)(a), it can be seen, most of the determinative factors/parameters do not apply to the centralized service fee received by the assessee. This is so, because, the services rendered by the assessee do not facilitate the use of trade name/trademark. Rather, as has been held by the Coordinate Bench in case of Sheraton International Inc. (supra) and affirmed by the Hon'ble Jurisdictional High Court, the predominant object is advertisement, marketing and promotion of the hotels. The assessee does not provide such services in ordinary course of business arrangement involving royalty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade applicable to the facts of the present appeal. Even if one agrees with learned Commissioner (Appeals) that the License Agreement and Centralized Services Agreement are related to each other and the Centralized Services Agreement actually flows out of the License Agreement but still the issue which requires examination is, whether the Centralized Services Agreement is ancillary or subsidiary to the License Agreement. In our view, the answer to the aforesaid question would be in the negative. Clearly, predominant purpose of the Centralized Service Agreement and the overall arrangement between the parties is to provide advertisement, marketing and promotion of the hotel business. Even, the quantum of fees received under both the agreements would demonstrate the aforesaid fact. 24. As could be seen from the materials placed on record, as against the license fee of Rs. 6,05,43,227/- received by the affiliates, the assessee has received centralized services fee of Rs. 6,93,56,315/-. Therefore, the quantum of fee received by the assessee in no way makes it ancillary and subsidiary to the licence fee received by the group affiliates. Further, the observations of learned Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the Indian hotels/clients was in the nature of 'royalty' or 'fees for included services' as per the DTAA between India and America, reliance thus has been placed by it mainly on the provisions of Articles 12(3)(a) as well as 12(4)(r/) and 12(4)( b). Article 12(3)(b) being specifically applicable only to payments received for the use of or the right to use of any equipment of industrial, commercial or scientific nature, in any case, is not applicable to the facts of the present case. It is, therefore, relevant to consider as to whether the payment received by the assessee from the Indian hotels/clients was in the nature of "royalties" or "fees for included services" within the meaning given in Article 12(3)(a), 12(4)(a) or 12(4){b) of the DTAA between India and USA or "fees for technical services" within the meaning given in Explanation 2 to section 9(1){vii). 73. In order to decide this issue relating to the applicability of Article 12(3)(a), 12(4)( a) or 12(4)(b) of the DTAA or the provisions of section 9(1)(vii) read with Explanation 2 to the payment received or receivable by the assessee from the Indian hotels/clients in pursuance of the agreements entered into with them, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest cannot be relied upon by picking and choosing the same in isolation so as to say that part of the consideration received by the assessee, as attributable to the said services, was in the nature of 'royalties' or 'fees for included services'. Such an approach adopted by the Revenue authorities, in our opinion, was neither permissible in law nor practicable in the facts of the case and the conclusion drawn by them on the basis of such approach to cover the said services taken individually or in isolation divorced from the main intention within the meaning of 'royalties' or 'technical services' as defined in Explanation 2 to section 9(1)(v/) or to section 9(1)(v») and/or that of "royalties" or "fees for included services" as defined in Article 12(3) and 12(4) of the DTAA between India and USA was neither well-founded nor justified. 74. On the other hand, the predominant object/purpose of the integrated business arrangement/between the assessee-company and its Indian clients/hotels as reflected in the relevant agreements so also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skill etc. 77. As already observed, a close reading of the relevant agreements especially the payment clause, the predominant nature of the services rendered, the integrated arrangement between assessee company and Indian hotels/clients as well as the nature of relationship between them as reflected in the relevant agreements so also as understood by both the sides leaves no doubt that the entire consideration was paid by the Indian hotels/clients to the assessee company for the services rendered in relation to advertisement, publicity and sales promotion of the hotel business worldwide and this being so as well as considering all the facts of the case including especially the fact that other services to be rendered by the assessee as enumerated in the various Articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will always be present and where such services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of FTS. It is only where services are separable and independent that the FTS will be assessable. In the present case, the services sought to be treated as 'fees for technical services' or 'fees for included services' were of ancillary or auxiliary in nature and being integral part of the job undertaken by the assessee-company, the same were neither independent of nor separable from the said job undertaken by the assessee in relation to publicity, advertisement and sales promotion of the hotel business worldwide. 79. Before us, the learned Special Counsel for the Revenue has referred to some of the Articles of the agreements between the assessee and the Indian hotels/clients to submit that the drawings, designs, documents, systems and other facilities agreed to be provided by the assessee to the Indian hotels/clients in terms of the said Articles are the components which have been provided/supplied in the process of rendering of the services in relation to advertisement, marketing and sales promotion. He has contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r desirable nor possible to apportion any portion of the consideration received by the assessee company from the Indian hotels/clients towards use of trademark, trade name etc. by the Indian hotels/clients. Having regard to all these facts and circumstances of the case borne out from the record including especially the relevant agreements between the parties, we find it difficult to accept the stand taken by the Revenue that the payments received by the assessee-company from the Indian hotels/clients in pursuance of the said agreements or any part was in the nature of royalties within the meaning of Article 12(3)(a). 81. As regards Article 12(3)(b) covering the payments received as consideration for the use of or the right to use any industrial, commercial or scientific equipment, we have already noted that neither the Revenue has invoked the provisions of this Article in the assessee's case nor the same otherwise also is applicable to the facts of the present case since there was no such use or the right to use any industrial, commercial or scientific equipment. This takes us to Article 12(4)(a) of the DTAA which covers only the "payments made for rendering of any technical or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. It is relevant to observe, while deciding the issue in assessment year 2010-11, the Tribunal in ITA No.202/Del./2016, dated 28.09.2017, has held as under: "5. We have heard the ld. Authorized Representative of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 6. Ld. DR for the revenue relied upon the order of the AO. However, the ld. AR for the assessee relied upon the order passed by the ld. CIT (A). 7. For the sake of ready reference, the findings returned by the ld. CIT(A) allowing the appeal is reproduced as under : "8. I have carefully considered the above submissions, and the contentions of the appellant. I have also perused the assessment order and the orders of the Hon'ble ITAT and the Hon'ble Delhi High Court for the A Vs. 1995-96 to 2000-2001 in the case of Sheraton International Inc (group concern). The issue of taxability of the appellant's income from hotel related services provided to hotels in India, as royalty fees for technical services, stands squarely covered by f the judgment of the ITAT, Delhi in the case of Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the assessee for providing centralized services is not in the nature of Fee for Technical Services (FTS) u/s 9(I)(vi) Explanation 2, but it is a business income. Since the assessee is not having any PE in India, its business income earned is not taxable in India. Under :- 10. So, in view of what has been discussed above, we find no illegality or perversity in the impugned order passed by the Id. CIT (A), hence present appeal filed by the Revenue is hereby dismissed." 26. The aforesaid decision was upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's Appeal. The same view was reiterated by the Tribunal while deciding assessee's appeal in assessment year 2011-12 in ITA No. 203/Del/2016, dated 18.12.2018. It is relevant to observe, the aforesaid decisions of the Coordinate Bench have been upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's appeals. Identical is the factual position in assessment year 2013-14, wherein, the Tribunal decided the issue in favour of the assessee in ITA No. 5144/Del/2016, dated 18.11.2019 and the Hon'ble Jurisdictional High Court has upheld the decision of the Tribunal. 27. Thus, keeping in view our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Coordinate Bench has been affirmed by the Hon'ble Jurisdictional High Court while deciding Revenue's appeal in judgment dated 22nd May, 2023 in ITA 294/2023. The observations of the Hon'ble Delhi High Court in the judgment are as under: "8. Mr Ruchir Bhatia, learned senior standing counsel, who appears on behalf of the appellant/revenue, concedes that the issue raised in the instant matter is covered in the respondent/assessee's own case in other AYs. 8.1 In this context, Mr Bhatia has placed before us, the order dated 05.04.2023 passed in ITA 197/2023 and ITA 200/2023. 9. The Tribunal, in short, has held that centralized services fee earned by the respondent/assessee is not taxable. The fee concerns various aspects, such as sales and marketing, loyalty programs, reservation service, technological service, operational service and training programs/human resources. 10. The Tribunal has noted, that the issue stands covered by the judgment of the coordinate bench in the case of Director of Income Tax v. Sheraton International Inc (2009) 178 taxmann 84 (Del). 11. Furthermore, in the respondent/assessee's case for other AYs, the coordinate bench has followed the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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