TMI Blog2024 (3) TMI 1254X X X X Extracts X X X X X X X X Extracts X X X X ..... t can only be treated as business income of the assessee. Hence, in absence of a PE in India, it will not be taxable. Decided in favour of assessee. - Sh. Shamim Yahya, Accountant Member And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Amit Arora And Shri Vishal Misra, C.A. For the Revenue : Shri Vizay B. Vasanta, CIT-D.R. ORDER PER SHAMIM YAHYA, AM : This appeal filed by the Revenue is directed against the order of learned Commissioner of Income Tax (Appeals) - 43, New Delhi dated 19.05.2023 pertaining to Assessment Year 2021-22. 2. The ground of appeal filed by Revenue, reads as under: 1. Whether the Ld. CIT(A) has erred in law in holding that the entire payments received by the assessee from it Indian customers on account of Centralized Services did not constitute Fee for Technical Services as defined u/s 9(1)(vii) of the Income Tax Act, 1961 or Fee for included Services as defined under Article 12(4)(a) of the Income-Tax US DTAA. 3. Brief facts of the case are that Starwood (M) international Inc. ('the Appellant or the Company') is a Company incorporated in United States of America (USA) and carries on the business of providing various hotel related serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter of Sheraton International Inc. (supra). Further, it was accepted by the AO that appellant did not have a permanent establishment in India and hence the business income could not be brought to tax under Article 7 of India-USA DTAA. 5. Against the above order, the Revenue is in appeal before us. 6. We have heard both the parties and perused the material on record. Both the parties fairly agreed that the issue involved in this case is covered in favour of the assessee by the decision of ITAT and Hon ble High Court in assessee s own case. In this regard, we may gainfully refer to the order of ITAT in assessee s own case in ITA No.1627/Del/2023 for A.Y. 2018-19 and ITA No.1628/Del/2023 for A.Y. 2019-20 vide order dated 22.09.2023. The ITAT decided the issue in favour of the assessee by holding as under: 5. Having considered the submissions of the parties, we find, while deciding identical issue in assessee s own case in ITA No.397 398/Del/2022 for assessment years 2016-17 and 2017- 18, the Tribunal, in order dated 15.09.2022, after analyzing in detail the nature and character of receipts has held that they cannot be treated as FTS/FIS, either under the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng is required. Are the payments for the services fees for included services? Analysis : In this example, the provision of cleaning services by the U.S. company and the rental of the monitoring equipment are related to each other. However, the clearly predominant purpose of the arrangement is the provision of cleaning services. Thus, although the cleaning services might be considered technical services, they are not ancillary and subsidiary to the rental of the monitoring equipment. Accordingly, the cleaning services are not included services within the meaning of paragraph 4(a). 22. As could be seen from the aforesaid illustration, though, both the services are interlinked, however, the predominant purpose of the arrangement is provision of cleaning services, hence, will not be ancillary or subsidiary to the rental of monitoring machine. Hence, the cleaning services are not to be regarded as FIS under Article 12(4)(a) of the Tax Treaty. 23. The factual position, in a way, is quite similar in the present case. The aforesaid illustration to some extent can be made applicable to the facts of the present appeal. Even if one agrees with learned Commissioner (Appeals) that the License A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case that the amount in question being in the nature of fees for included services' was liable to tax in India also. The learned counsel for the assessee has raised a strong objection for admission of these additional grounds stating that neither the Assessing Officer nor the learned CIT(A) having applied Article 12(4)(a) of the DTAA in their orders passed in the assessee s case, the Revenue cannot rely on the said Articles to support its case at this stage during the course of appellate proceedings before the Tribunal. Keeping in view that the issues sought to be raised by the Revenue in these additional grounds are purely legal and all the facts relevant to consider and adjudicate the same are on record, we. however, find no merits in the objection raised by the learned, counsel for the assessee and admitting the additional grounds raised by the Revenue, we now proceed to consider and decide the issues raised in these additional grounds also on merits. In support of the Revenue s case that the impugned amount received by the assessee from the Indian hotels/clients was in the nature of royalty or fees for included services as per the DTAA between India and America, reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee-company had undertaken to provide services in connection with advertising, publicity and sales promotion including reservations for the Indian hotels/clients. Even the payment was entirely made as expressly stipulated in the agreement for these services and this is the way in which the entire arrangement was not only made but was also understood by both the sides. Even the use of trademark, trade names etc. of the assessee-company by the Indian hotel /clients was an integral part of this arrangement and such use was allowed at no cost as expressly provided in the relevant agreements. Moreover the rationale behind providing such use at no cost has been explained on behalf of the assessee which is found to be satisfactory by us for the detailed reasons given in the foregoing portion of this order. Having regard to all these aspects, we have come to a conclusion that the various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson acquiring the services to apply the technology contained therein. Explaining further, it was also observed by the Tribunal that so far as the provisions of India-Singapore DTAA as well as the provisions of Indo-American DTAA are concerned, payments for services which are non-technical in nature or, in other words, payment for services not containing any technology, are required to be treated as outside the scope of fees for technical services . It was further held by the Tribunal that the scope of fees for technical services under Article 12(4)(b ) does not cover consultancy services unless these services are technical in nature. 76. In the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791. Mumbai Bench of ITAT held that the normal, plain and grammatical meaning of the language employed using the expressions making available and making use of is that the mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and sales promotion of hotel business. The payment made by the Indian hotels/clients to the assessee-company on account of such job or any part thereof, therefore, cannot be attributed to the use of a patent, invention, model, design, secret formula or process or trademark or similar property or for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. The decision of Hon ble Madras High Court in the case of Nayveli Lignite Corpn. Ltd. (supra) and that of Hon ble Andhra Pradesh High Court in the case of Klayman Porcelains Ltd. (supra) fully support this view. Even the decision of Authority for Advance Ruling in the case of Rotem Co. In re |2005| 279 1TR 165 (AAR - New Delhi) is to the similar effect wherein after discussing the various judicial pronouncements, it was held that the principle which emerges from the various decisions is that in a contract for manufacture, installation, sale or supply of goods, the element of services 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that its trademark, trade name etc. were made available by the assessee-company to the Indian hotels/clients as an integral part of the business arrangement between them and the same, therefore, was merely incidental to carry out the job of advertisement, publicity and sales promotion undertaken by the assessee-company. Moreover, the said use was allowed for mutual benefit and the exact benefits derived by the assessee- company from such use have already been discussed by us. As expressly provided in the relevant agreements, it was agreed that no cost is to be paid by the Indian hotels/clients to the assessee-company for such use and the entire payment/consideration was on account of the services rendered in relation to advertisement, publicity etc. This was the arrangement between the parties as is evident from the relevant terms and conditions of the agreements and this is the way in which both the sides had apparently understood and acted upon such arrangement. It was thus neither 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be treated as FIS under Article 12(4)(a) of the Treaty. Undisputedly, the aforesaid observations of the Coordinate Bench have been upheld by the Hon ble Jurisdictional High Court in case of DIT Vs. Sheraton International Inc (supra). In view of the aforesaid, the observations of learned Commissioner (Appeals) that the applicability of Article 12(4)(a) was never examined has to be rejected at the threshold. In fact, we are constrained to observe, learned Commissioner (Appeals), being conscious of the fact that the centralized service fee received by the assessee cannot be treated as FIS under Article 12(4)(b) due to failure of make available condition, has made an unsuccessful attempt to bring it within the ambit of Article 12(4)(a) of the Treaty and in the processes has misrepresented certain facts. 25. Be that as it may, the fact on record reveal that the taxability of centralized services fee as FIS is a recurring issue between the assessee and the Revenue from the past 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 Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as advertisement, publicity and sales promotion keeping in mind their mutual interests and in that context, the use of trademark, trade name etc, and other enumerated services referred to in the agreement with the assessee were incidental to main service- Tribunal thus rightly concluded that the payments received were neither in the nature of royalty under s. 9(l)(vi), Expln. 2 not in the nature of fee for technical services under s. 9(1) (vii), Expln. 2, but business income and assessee not having any PE in India such business income was not taxable in India- j There was nothing on record to show that the agreement was a colourable device- Such findings of fact having not been challenged as perverse, no substantial question of law arose out of the order of the Tribunal 9. So, following the decision rendered by Hon ble Delhi High Court in case of Director of Income-tax vs. Sheraton International Inc. (supra), we are of the considered view that the revenue received 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 bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments as a single agreement for the purpose to promote brand. Thus, in this factual context, the Bench has concluded that the assessee has split up the royalty received into different segments. However, in the appeals before us, there are no such findings by the departmental authorities which can demonstrate that for all practical purposes the License Fee Agreement and Centralized Services Agreement are to be construed as one agreement and has been so understood by the Indian clients. The case of JC Bamford Excavators Ltd. (supra) is also factually distinguishable. Therefore, in our considered opinion, the decisions cited by learned Departmental Representative would be of no help to advance the case of the Revenue. 29. In view of the aforesaid, we direct the Assessing Officer to delete the addition. 7. Respectfully following the decision of the coordinate Bench (supra, we direct the AO to delete the addition. 6. Notably, the aforesaid decision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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