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Income Tax Appellate Tribunal, ‘I‘ BENCH
आदेश / O R D E R PER M. BALAGANESH (A.M):
These appeals in 1629/Mum/2020 for A.Y.2010-11 & 2014-15 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No.CIT(A)- 58/Arr.75/2013-14 & CIT(A)-58,Mumbai/10123/2016-17 dated
1629/Mum/2020 M/s. Renaissance Services BV 28/06/2016 & 24/07/2019 respectively (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 23/05/2013 & 08/01/2017 respectively by the ld. Dy. Director of Income Tax (IT), Unit-2(1) / Dy. Commissioner of Income Tax (International Taxation-4(1)(1) Mumbai (hereinafter referred to as ld. AO).
1.1. As identical issues are involved in both the appeals and hence they are taken up together and disposed of by this common order for the sake of convenience. Let us take up the appeal for A.Y.2010-11 first.
The assessee has raised the following grounds of appeal:-
1. In holding that the amounts received by the Appellant under the Training and Computer Systems Agreement ('TCSA') on account of conducting core managerial training programs for managerial employees of the Indian hotels qualify as 'fees for technical services' under Article 12(5)(a) of the India- Netherlands tax treaty.
2. In holding that conducting core managerial training programs for managerial employees of the Indian hotels by the Appellant qualify as 'technical or consultancy services' without considering the training material submitted with the CIT(A) vide submission letter dated March 3, 2016; which evidences that the training programs conducted by the Appellant do not qualify as 'technical or consultancy services' under Article 12(5) of the India-Netherlands tax treaty.
3. In holding that the 'amounts received by the Appellant under the TCSA on account of providing access to the reservation system, property management system and other systems ('Centralized Reservation Facility') to the Indian hotels qualify as 'royalty' under Article 12(4) of the India-Netherlands tax treaty.
4. In stating that merely because the Appellant and another company of the Marriott Group have signed two different agreements with the Indian hotels (ie one for the use of the associated infrastructure of the Appellant and another for the payment of royalty), does not change the true nature of the transaction.
5. In holding that it is a case of splitting of the royalty amount since two different agreements are signed by the Indian hotels with two different companies of the Marriott Group.
1629/Mum/2020 M/s. Renaissance Services BV
6. In holding that the two different agreements were signed by different companies of the Marriott Group to reduce the gross royalty amount earned by the Marriott Group.
7. In not considering that the amounts received by the Appellant under the TCSA are in the nature of business profits as per Article 7 of the India- Netherlands tax treaty and in the absence of a permanent establishment in India as per Article 5 of the India-Netherlands tax treaty, the same cannot be taxed in the hands of the Appellant. 8. In placing reliance on the decision of the Mumbai Tribunal in case of Marriott International Inc vs Deputy Director of Income-tax (International Taxation) - 4(1) [(2016)69 taxmann.com 347] and thereby, treating the amounts received by the Appellant for providing Centralized Reservation Facility under the TCSA to the Indian hotels in the nature of 'royalty' under Article 12(4) of the India-Netherlands tax treaty.
We have heard rival submissions and perused the materials available on record. We find that assessee is a company incorporated in Netherlands and is a tax resident of Netherlands. The assessee is part of Marriott group. The assessee is engaged in conducting training programmes and providing access to various computers systems such as centralized reservation systems, property management systems and other systems to Marriott chain of hotels located worldwide. The assessee submitted that the cost and expenses incurred by the assessee for rendering the aforesaid services are allocated amongst hotels on a fair and reasonable basis. No separate fee of any other form of mark up was ever charged by or was payable to the assessee for such services. The assessee has entered into agreements with Viceroy Hotels Ltd., Hyderabad and Chalet Hotels Ltd., Mumbai “Indian Hotels” for conducting training programmes for employees of Indian Hotels and providing services to Indian Hotels. The assessee claimed that consideration received for these services from Indian Hotels are in the nature of reimbursement of expenses incurred by the assessee. Hence, the assessee has not offered any income which is taxable in India. During the 1629/Mum/2020 M/s. Renaissance Services BV year under consideration, the assessee has received the following amounts from Indian Hotels:-
Indian Hotels Training and Computer Reservation Receipts (in Rs.) Chalet Hotels Limited, Mumbai 2,268.272 Viceroy Hotels Limited, Hyderabad 6,965,793 Total 92,34,065 3.1. The ld. AO show-caused the assessee to explain as to why the amount received for training and computer systems should not be treated as its income. The assessee gave a detailed reply in response to show- cause notice. The ld. AO treated the income received by the assessee from training services to be taxable as fee for technical services (FTS) u/s.9(1)(vi) of the Act and also under Article 12 of the Indo- Netherlands Double Taxation Avoidance Agreement (DTAA). In respect of payments received by the assessee on account of computer reservation systems, the ld. AO held that the same would be covered under the provisions of Article 12(4) r.w. Article 12(5)(a) of the Indo-Netherlands DTAA and also taxable u/s.9(1)(vii) of the Act. Accordingly, the ld. AO determined the income of the assessee at Rs.92,34,065/- as income earned from Indian operations. On first appeal, the ld. CIT(A) enhanced the taxable income to Rs.4,59,71,208/- and directed the ld. AO to verify and take the correct turnover of the assessee.
3.2. At the outset, the ld. AR stated that this issue is covered by the order of this Tribunal in assessee’s own case for A.Yrs. 2009-10, 2011-12 and 2012-13. The relevant operative portion of the order of this Tribunal
1629/Mum/2020 M/s. Renaissance Services BV for A.Y.2009-10 in assessee’s own case reported in 171 ITD 381 is reproduced hereunder:-
“10. We shall now advert to the claim of the assessee that the consideration received for conducting training programs had wrongly been held by the CIT (A) as FTS in its hands. The assessee had assailed the observations of the CIT (A), viz. (i) the training programs conducted by the assesses did "make available" technical knowledge; and (ii) that as the conducting of training programs by the assessee was "ancillary and subsidiary" to the royalty agreement, hence the consideration received therefrom was liable to be assessed as FTS under Article 12(5)(a) of the India-Netherland tax treaty. We find that as per the agreement entered into between the assessee and the Indian Hotels the assessee was to provide (i) certain core-training programs for management level personnel; and (ii) other training for other employees of the above referred Indian Hotels. However, during the year under consideration the assessee had only provided certain core-training programs for management level personnel. We are of the considered view that the claim of the assessee before the lower authorities that as the training services provided to the management level personnel were in the nature of general managerial/leadership training and the same did neither involve 'make available' or transfer of any technology to the personnel, had neither been dislodged before the lower authorities, nor anything has been placed on record before us by the ld. D.R, which could persuade us to hold otherwise. We find ourselves to be in agreement with the view taken by the ITAT, Bangalore in the case of Veeda Clinic Research (P.) Ltd. (supra), that in order to successfully invoke the coverage of training fees by 'make available' clause in the definition of technical services, the onus is on the revenue authorities to demonstrate that the services do involve transfer of technology. We have further perused the case laws relied upon by the ld. A.R to impress upon us to return a finding that the consideration received by the assessee from providing training services being in the nature of managerial/leadership training, thus could not have been assessed as FTS in the hands of the assessee, as under: (i) Llyods Register Industrial Services (India) P. Ltd. v. ACIT (2010) 36 SOT 293 (Mum): The Tribunal observed that the expenses incurred by the assessee which was engaged in the business of survey of ships, on the training of its employees who would inspect various mechanical and electrical equipments in the ship and ultimately issued a fitness certificate, could not be held as payments made for technical services. The Tribunal while concluding as hereinabove, observed that the employees by taking training from the Principal company had acquired only inputs to enable them to perform their work with desired state of efficiency. (ii) Ershisanye Construction Group India (P) Ltd. v. DCIT (2017) 84 taxmann.com 108 (Kol):
1629/Mum/2020 M/s. Renaissance Services BV The Tribunal had observed that payments which were made by a Chinese company in respect of training of Chinese engineers of the assessee in english language would not constitute FTS. (iii) ACIT v. PCI Ltd. (2011) 12 taxmann.com 59 (Delhi): The High Court observed that payments made by the assessee to a non-resident party for training its personnel or customers to explain to the proposed buyers the salient features of the products imported by the assessee in India and to impart training to the customers to use the equipments cannot be held to be FTS. (iv) ITO v. Veeda Clinic Research P. Ltd. (2011) 13 taxmann.com21 (Bang): Where training services to the employees of the assessee company was general in nature, not involving any transfer of technology, the fees for providing such services was not taxable as FTS as per Article 13 of India-U.K tax treaty. (v) Wockhardt Ltd. v. ACIT (2011) 10 taxmann.com 208 (Mum): The services rendered by the employees of a non-resident company being in the nature of sharing management experiences and business strategies could not be termed as technical services. We have deliberated at length on the aforesaid judicial pronouncements in the backdrop of the facts involved in the case of the assessee before us, and are of the considered view that the consideration received by the assessee for the managerial/leadership training provided to the employees of the Indian Hotels cannot be held as FTS.
11. We have further deliberated on the reliance placed by the CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Oberoi Hotels (India) (P.) Ltd., (supra) wherein it was observed that 'technical services' included 'professional services'. Still further, we find that the A.O also had relied on certain judgments/orders,viz. (i) Intertek Testing Services (supra); (ii) G.V.K Industries (supra); (iii) Continental Construction Ltd. (supra); (iv) Oberoi Hotels (India) (P.) Ltd. (supra); and (v) Dr. Sudhir Kumar Solanki (supra), to support his view that 'technical services' included 'professional services'. We find substantial force in the contention of the ld. A.R that in case training services rendered by the assessee to the Indian Hotels were to be construed as professional services, than the same would fall within the sweep of Article 14 of the India-Netherland tax treaty, which exclusively pertained to "Independent Personal Services" and would automatically be excluded from Article 12 dealing with "Fees for technical services". Still further, a perusal of Article 14 reveals that the same could be assessed in the contracting state i.e India, subject to satisfaction by the assessee of either of the two conditions therein provided, viz. (a) fixed base for performing of the professional activities in the contracting state; or (b) stay for a period or periods exceeding 183 days in the fiscal year.
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12. We shall now advert to the observations of the CIT (A) that as the Training and Computer systems agreements (for short 'TCSA') entered into by the assessee with the Indian Hotels, viz. M/s Viceroy Hotels Ltd., Hyderabad and M/s Chalet Hotels Ltd., Mumbai were an integral part of the licensing/royalty agreement, thus both the agreements were complementary to each other. The CIT (A) was of the view that as the training services rendered by the assessee were "ancillary and subsidiary" to the enjoyment of the rights, property or information pursuant to the royalty agreement, thus the consideration received by the assessee from rendering such services could safely be held as FTS as per Article 12(5)(a) of the India-Netherland tax treaty. We have deliberated at length on Article 12(5)(a) of the tax treaty, which reads as under: 'Article 12(5): For the purposes of this Article, "fees for technical services" means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is receives; or' We find that for invoking Article 12(5)(a) and holding the consideration received by an assessee from certain "ancillary and subsidiary" technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that as the assessee was not the owner of any brand or trademark for which any royalty would have been received by it under Article 12(4) of the India-Netherland tax treaty, hence the services provided to the Indian Hotels were in the ordinary course of its business, and could not be brought within the sweep of "ancillary and subsidiary" services as provided in Article 12(5)(a) of the India-Netherland tax treaty. We thus, are of a strong conviction that the CIT (A) loosing sight of the fact that as the assessee was not in receipt of any royalty as per Article 12(4) of the India- Netherland tax treaty, hence had failed to appreciate that the training services rendered by it could not have been held to be "ancillary and subsidiary" services under Article 12(5)(a) We thus, are of the view that the consideration received by the assessee for providing training services to the Indian Hotels could not be held as FTS under Article 12(5)(a) of the India-Netherland tax treaty. We are of the considered view that in terms of our aforesaid observations, as neither the training services rendered by the assessee to the Indian Hotels could be held to be technical services, nor the same could have been characterised as "ancillary and subsidiary" services as per Article 12(5)(a), hence the consideration received by the assessee for rendering the training services could not be held as FTS in its hands. We thus, not being persuaded to subscribe to the view taken by the CIT (A) that the consideration received for providing training services to the Indian Hotels was chargeable as FTS in the hands of the assessee, set aside his order. The Ground of appeal No. 2 is allowed in terms of our aforesaid observations.
1629/Mum/2020 M/s. Renaissance Services BV
3.3. In respect of computer systems wherein the ld. AO had treated the income received thereon as “Royalty” in A.Y.2009-10, the Tribunal in A.Y.2009-10 reported in 171 ITD 381 held as under:-
“13. We shall now advert to the assailing of the order of the CIT (A) by the assessee, on the ground that he had erred in holding that the amounts received by the assessee for providing access to the international CRS, Property Management Systems and Other Systems was ancillary and subsidiary to the enjoyment of the right "Marriott" and hence, taxable as FTS under the India-Netherland tax treaty, as well as under the Act. We find that since inception, it has been the claim of the assessee that as the providing of access to CRS, Property Management Systems and Other Systems to the Indian Hotels, were standard facilities/services, thus they could not be characterised as 'technical services' and the consideration received in lieu thereof be subjected to tax as FTS receipts. We find from a perusal of the agreement entered into between the assessee and the Indian Hotels that the assessee had made available the CRS, Property Management Systems and Other Systems for use by the Indian Hotels in their business. We find that the ld. A.R in support of his contention that the consideration received by an assessee for granting license to use its copyrighted software for the licensees own business purpose only, could not be brought to tax as royalty, had relied on the judgment of the Hon'ble High Court of Delhi in the case of DIT v. Infrasoft Ltd. [2013] 39 taxmann.com 88/[2014] 220 Taxman 273 (Delhi) and host of other judicial pronouncements. However, as the CIT (A) had concluded that the consideration received by the assessee from the Indian Hotels for providing access to CRS, Property Management Systems and Other Systems was FTS in the hands of the assessee, hence we refrain from referring to and dealing with the contentions advanced by the ld. A.R in support of his claim that the same could not be held as royalty. We find that the High Court of Delhi in the case of Sheraton International Inc. (supra) had observed that consideration received by the assessee for providing access to reservation system could not be brought to tax as FTS in the hands of the assessee. We further find that the Hon'ble Supreme Court in the case of Kotak Securities Ltd. (supra) had in the backdrop of the facts involved in the case before it, had observed that services made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges were paid by members of BSE were for common services that every member of Stock Exchange was necessarily required to avail of to carry out trading in securities in Stock Exchange, thus such services did not amount to 'technical services' provided by Stock Exchange, as the same were not services which were specifically sought for by the user or consumer. The Hon'ble Apex Court following the aforesaid view, had thereafter observed in the case of A.P Moller Maersk A S (supra), that where the assessee, a foreign shipping company had set up a telecommunication system in order to enable its agents across globe including India to perform their role more effectively, the payment received for providing such facility was not taxable as fee for 1629/Mum/2020 M/s. Renaissance Services BV technical services. We have perused the facts of the case before us and after deliberating on the same in the backdrop of the aforesaid judicial pronouncements are of the considered view that as the access to CRS, Property Management System and Other Systems provided to the Indian Hotels by the assessee were common facilities provided to the members of the Marriott chain of hotels across the world by the assessee, and were not tailor made services to suit their specific requirements, thus the said facility could not be construed as 'technical services'.
14. We shall now advert to the observations of the CIT (A) that as the consideration received by the assessee on account of providing access to CRS, Property Management Systems and Other Systems facility was ancillary and subsidiary to the enjoyment of the right to use the brand "Marriott", thus the same would be taxable as FTS under Article 12(5)(a) of the India-Netherlands tax treaty. We are of the considered view that as observed by us hereinabove, invoking of Article 12(5)(a) and holding the consideration received by an assessee from certain "ancillary and subsidiary" technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, itself presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that now when the assessee was not the owner of any brand or trademark for which any royalty would have been received by it under Article 12(4) of the India-Netherland tax treaty, hence the services of providing access to CRS, Property Management System and Other Systems to the Indian Hotels were provided by it in the ordinary course of its business and could not be brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a) of the tax treaty. We thus, are of a strong conviction that the CIT (A) loosing sight of the fact that as the assessee had neither granted any right of enjoyment of the brand "Marriott" to the Indian Hotels and thus was not in receipt of any royalty as provided in Article 12(4) of the India-Netherland tax treaty, thus the consideration received by it from the Indian Hotels for providing access to CRS, Property Management System and Other Systems, could not have been brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as "ancillary and subsidiary" services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT (A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations.
3.4. As far as the treatment of the income received from computer reservation systems as “Royalty”, this Tribunal in assessee’s own case for 1629/Mum/2020 M/s. Renaissance Services BV A.Yrs 2011-12 and 2012-13 in and ITA No.764/Mum/2017 dated 09/08/2019 respectively had held as under:-
We have considered the submission of both the parties and perused the order of lower authorities. During the assessment the assessing officer apart from treating the treated the payment received for providing access to the computer software as FTS also treated as " software royalty" under section 9(1)(vi) as well as under Article 12(4) of India-Netherland tax treaty. The assessing officer concluded that for providing the right to use the system developed by assessee or its affiliates specifically for the Indian Hotels and also providing technical services for the maintenance and use of such system, which is ancillary and subsidiary to the application or enjoyment of the right to use the computer reservation system, which is covered under the provisions of Article 12(4) read with 12(5) (a) of India -Netherlands Tax Treaty. And the payments also falls under section 9(1)(vi) of Income - tax Act. The ld CIT(A) confirmed the action of the assessing officer holding that the assessee is providing specialized reservation / property management / other system to the Indian Hotels. The system have been specially design and developed for Marriott Group for use of Renaissance Chain of hotels or MEA Chain of services Apartment and from the standard developed with the Mariette Trademark. The service agreement mandates that the system standard require that the hotel owner setup the facilities at their own cost and use the system as a part of the agreement and it is not open to the hotel owner to discontinue this system and continue with licensing agreement. The right to use system farms a part of the royalty agreement as TSCA is dependent on royalty agreement and cannot be entered into unless the licensing agreement has been completed. The claim of the assessee that the amount remitted to it by the hotel owner is a reimbursement is not taxable was also repudiated by ld CIT(A).
We have noted that the payment received on account of computer reservation system (CRS) is FTC has already been decided by Tribunal in appeal for AY 2009-10, that the same is cannot be treated as FTS. The relevant part of the order is extracted below: "13. ---- we have perused the facts of the case before us and after deliberating on the same in the backdrop of aforesaid judicial precedents are of the considered view that the assess to CRS, property management system and other systems provided to the Indian hotels by the assessee were common facilities provided to the members of the Marriot chain of hotels across the board by the assessee, and what not tailor made services to suit their specific requirements, thus the said facility could not be construed as "technical services". 21. The other contention of the revenue that TCSA being integral part of the license /royalty agreement, providing access to computer systems were "ancillary and subsidiary" to the enjoyments of the rights, property or information pursuant to the Royalty agreement were also rejected by tribunal
1629/Mum/2020 M/s. Renaissance Services BV in its order for assessment year 2009-10. Where further noted that the the revenue has not filed appeal against the claim of assessing officer for assessment year 2009-10 that the payments access to computer system qualify as royalty, when CIT appeal said concluded that the same qualifies as FTS. In our view the tribunal had refrain from dealing with the contention of the assessee that payment received or access to computer system could not be treated in the nature of royalty. However, during the year under consideration i.e. assessment year 2011-12, the assessing officer concluded that payment received for access to computer system qualifies as software royalty, however the learned CIT(A) concluded that such payments qualifies as brand royalty. The case of assessee throughout the proceeding either before assessing officer, landed Commissioner (appeals) as well as before the tribunal that the said receipt cannot qualify as software royalty as the amount is received to RSS to computer software/system to a copyrighted article and there is no transfer of copyright or use of copyright itself and hence cannot be taxed as royalty. Centralized regeneration system, property management system and other systems are standard facilities. In our view in order to create the consideration received by assessee as royalty, it is to be established that the payer by making such payment, obtains any of the copyrights of such work. Further, while dealing such issue, the distance and has to be made between the acquisition of a copyright right and a copyrighted article. In our view, in the present case, the copyright has not been transferred, rather the assessee has allowed to use standard services to the Hotel owners, which does not give rise to any royalty income, but in estate would be in the nature of business income. 22.The Hon'ble Delhi High Court in DIT vs. Infrasoft Ltd. (supra) also held that when they right transfer is not the right to use the copyright but it is limited to right to use the copyrighted material and the same does not give rise to Royalty Income and would be business income. It was also held that consideration received by assessee on grant of licence for use of software is not Royalty within the meaning of Article 12(13) of India-US Tax Treaty. The decision relied by ld. DR in Samsung Electronics (supra) has been distinguished by Hon'ble Delhi High Court in DIT vs. Infrasoft Ltd. (supra). The relevant part of decision of Hon'ble Delhi Court is extracted below: "98. We are not in agreement with the decision of the Karnataka High Court in the case of Samsung Electronics Co. Ltd (supra) that right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss,
1629/Mum/2020 M/s. Renaissance Services BV destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software."
Further, in our view the said receipt also cannot qualify as brand royalty at the same amount is received merely access to computer software/system and such payment are clearly not related to Marriott brand. The assessing officer relied upon the order of Tribunal Six continents Hotel Inc (supra) wherein it has been held that, when, the assessee does not promote any international brand and is purely providing right to use of system and related services along with training to the Indian hotels. It is not in dispute that in relation to the services provided under the TCSA, the assessee does not undertake any brand - related activity. Therefore, any receipt to be characterised as royalty should be for the use or right to use of any intellectual property. It has to be given the meaning as per the Income tax Act and the applicable double taxation avoidance agreement. In our view each and every business receipt cannot be treated as royalty receipt.
Where further noted that ld. CIT-(A) while holding that payment received to access to computer system qualifies as brand royalty relied upon the decision of Marriott International Inc (MII) Vs DDIT (2016) 69 taxmann.com 347 (Mum Trib). In our view this decision in the case of Marriott International Inc Vs DDIT (supra) based on different set of facts. In the said case MII executed 'International Sales Agreement' with respective hotels; however, the assessee in the present case executed agreement for 'training and computer system agreement'. The services rendered in the case of MII were entirely different. In case of MII the services rendered were predominantly include international advertising, marketing and sales promotion. Other services include services in relation to frequent travelers and assess to regeneration system. In case of assessee services rendered predominantly include providing non-technical training and access to computer system. Training rendered in case of assessee comprise of soft skills, development of leadership, team management, system comprise of standardized regeneration system, property management system and other system. We have noted that this fact is accepted by assessing officer in assessment year for 2011-12. Further in case of MII the receipt is from hotel owner comprise; contribution and fees as percentage of gross revenue of respective hotels, reimbursement of cost is allocated to the hotels on fair and equitable basis. However in case of assessee receipt from hotel owner comprise; training receipt recovered based on a number of entity of the hotels participating in training, caused providing assessed to system are located to the respective hotel owner on fair and reasonable basis. Further in case of MII the services entail promotion of Marriott brand as whole and do not envisage promoting or advertising any specific individual hotel property. However in case of assessee services rendered are directly relatable to each individual hotel property.
In view of aforesaid factual and legal discussion, we are of the view that while using computer software, which is copyrighted article and there is no 1629/Mum/2020 M/s. Renaissance Services BV transfer of copyright or use of copyright itself particularly when there is no transfer of a patent, invention, model, design, secret formula or process or trade mark or similar property or imparting of any information concerning thereof.
Further we have noted that on remaining contention raised by lower authorities, the Tribunal in assessee's own case for Assessment Year 2009- 10 on similar set of fact passed the following order: "13. We shall now advert to the assailing of the order of the CIT(A) by the assessee, on the ground that he had erred in holding that the amounts received by the assessee for providing access to the international CRS, Property Management Systems and Other Systems was ancillary and subsidiary to the enjoyment of the right "Marriott" and hence, taxable as FTS under the India-Netherland tax treaty, as well as under the Act. We find that since inception, it has been the claim of the assessee that as the providing of access to CRS, Property Management Systems and Other Systems to the Indian Hotels, were standard facilities/services, thus they could not be characterised as 'technical services' and the consideration received in lieu thereof be subjected to tax as FTS receipts. We find from a perusal of the agreement entered into between the assessee and the Indian Hotels that the assessee had made available the CRS, Property Management Systems and Other Systems for use by the Indian Hotels in their business. We find that the ld. A.R in support of his contention that the consideration received by an assessee for granting license to use its copyrighted software for the licensees own business purpose only, could not be brought to tax as royalty, had relied on the judgment of the Hon'ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com88 (Delhi) and host of other judicial pronouncements. However, as the CIT(A) had concluded that the consideration received by the assessee from the Indian Hotels for providing access to CRS, Property Management Systems and Other Systems was FTS in the hands of the assessee, hence we refrain from referring to and dealing with the contentions advanced by the ld. A.R in support of his claim that the same could not be held as royalty. We find that the High Court of Delhi in the case of DIT Vs. Sheraton International Inc.(2009) 313 ITR 267 (Del) had observed that consideration received by the assessee for providing access to reservation system could not be brought to tax as FTS in the hands of the assessee. We further find that the Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd. (2016) 383 ITR 1 (SC) had in the backdrop of the facts involved in the case before it, had observed that services made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges were paid by members of BSE were for common services that every member of Stock Exchange was necessarily required to avail of to carry out trading in securities in Stock Exchange, thus such services did not amount to 'technical services' provided by Stock Exchange, as the same were not services which were specifically sought for by the user or consumer. The Hon'ble Apex Court following the aforesaid view, had thereafter observed in the case of CIT (IT)-1 Vs. A.P Moller Maersk A S (2017) 392
1629/Mum/2020 M/s. Renaissance Services BV ITR 186 (SC), that where the assessee, a foreign shipping company had set up a telecommunication system in order to enable its agents across globe including India to perform their role more effectively, the payment received for providing such facility was not taxable as fee for technical services. We have perused the facts of the case before us and after deliberating on the same in the backdrop of the aforesaid judicial pronouncements are of the considered view that as the access to CRS, Property Management System and Other Systems provided to the Indian Hotels by the assessee were common facilities provided to the members of the Marriott chain of hotels across the world by the assessee, and were not tailor made services to suit their specific requirements, thus the said facility could not be construed as 'technical services'.
We shall now advert to the observations of the CIT(A) that as the consideration received by the assessee on account of providing access to CRS, Property Management Systems and Other Systems facility was ancillary and subsidiary to the enjoyment of the right to use the brand "Marriott", thus the same would be taxable as FTS under Article 12(5)(a) of the India-Netherlands tax treaty. We are of the considered view that as observed by us hereinabove, invoking of Article 12(5)(a) and holding the consideration received by an assessee from certain "ancillary and subsidiary" technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, itself presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that now when the assessee was not the owner of any brand or trademark for which any royalty would have been received by it under Article 12(4) of the India- Netherland tax treaty, hence the services of providing access to CRS, Property Management System and Other Systems to the Indian Hotels were provided by it in the ordinary course of its business and could not be brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a) of the tax treaty. We thus, are of a strong conviction that the CIT(A) loosing sight of the fact that as the assessee had neither granted any right of enjoyment of the brand "Marriott" to the Indian Hotels and thus was not in receipt of any royalty as provided in Article 12(4) of the India-Netherland tax treaty, thus the consideration received by it from the Indian Hotels for providing access to CRS, Property Management System and Other Systems, could not have been brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as "ancillary and subsidiary" services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT(A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as 1629/Mum/2020 M/s. Renaissance Services BV
FTS in the hands of the assessee. The Ground of appeal
No. 3 is allowed in terms of our aforesaid observations."
27. Considering the decision of Tribunal in assessee's own case for Assessment Year 2009-10 on similar set of fact, and our aforesaid detailed discussions on the issues, these grounds of appeal are allowed in favour of assessee.
3.5. It is not in dispute that the facts prevailing in A.Yrs. 2009-10, 2011-12 and 2012-13 are identical with the facts prevailing in A.Y. 2010-11 as they form part of the same agreement and same nature of activities carried out by the assessee. Hence, we hold that the decision rendered by this Tribunal for A.Yrs. 2009-10, 2011-12 and 2012-13 as detailed supra shall apply mutatis mutandis to A.Y.2010-11 also. Accordingly, the ground Nos. 1-3 raised by the assessee are allowed.
The ground Nos.4-8 raised by the assessee are supportive of ground Nos.1-3 as they are merely argumentative in nature. Accordingly, the same are also allowed.
The assessee has raised additional grounds on 22/10/2018. The ground No.9 raised vide additional ground was stated to be not pressed by the ld. AR at the time of hearing, as in his opinion, the same would be academic in nature. Accordingly, the said ground is hereby dismissed as not pressed.
The ground No.10 raised by the assessee vide additional ground is seeking direction to the ld. AO for granting correct TDS credit to the assessee.
6.1. The facts relevant for this adjudication of this additional ground are already on record before the lower authorities and hence, this additional
1629/Mum/2020 M/s. Renaissance Services BV ground raised by the assessee is hereby admitted and the ld. AO is hereby directed to grant correct TDS credit in accordance with law. Accordingly, the ground No.10 raised by the assessee is allowed for statistical purposes.
The ground No.11 raised by the assessee vide additional ground is for seeking deduction for primary, secondary and higher education cess when tax is charged as per the Indo-Netherlands treaty. The facts relevant for this adjudication of this additional ground are already on record before the lower authorities and hence, this additional ground raised by the assessee is hereby admitted. We find that ultimately tax liability is determined by the ld. AO only as per the Indo-Netherlands Treaty @10%. Hence, there cannot be any levy of education cess on such tax when tax is determined under treaty provisions. This issue is no longer res integra in view of the decision of this Tribunal in assessee’s own case for A.Y.2009-10 reported in 171 ITD 381 wherein this Tribunal by placing reliance on the Co-ordinate Bench decision of the Mumbai Tribunal in the case of Capgemini SA vs. Dy. CIT (International Taxation) reported in 160 ITD 13 had held that rate of tax provided in the tax treaty cannot be enhanced by including surcharge and education cess separately. Accordingly, the ground No.11 raised by the assessee vide additional ground is hereby allowed.
In the result, appeal of the assessee for A.Y.2010-11 in is partly allowed for statistical purposes.
Let us take up the appeal for A.Y.2014-15 in ITA No.1629/Mum/2020.
1629/Mum/2020 M/s. Renaissance Services BV
At the outset there is a delay of 57 days in filing of the appeal by the assessee. We find that the order of the ld. CIT(A) was received by the assessee on 04/03/2020 and the appeal is filed before us on 29/06/2020. The due date of filing of appeal expired on 03/05/2020. In between nationwide lock down was announced by the Government and in view of the taxation and other laws (relaxation of certain provisions ordinance, 2020 dated 31/03/2020, the delay of 57 days is hereby condoned and the delay is admitted for adjudication.
The assessee has raised the following grounds of appeal:-
“Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Commis`sioner of Income-tax (Appeals) - 58, Mumbai, has in his order dated July 24, 2019 under section 250 of the Income-tax Act, 1961 ("the Act') erred in disposing the appeal of the Appellant on the following grounds , which are without prejudice to one another:
1. In taxing the receipts earned by the Appellant pursuant to the Training and Computer Systems Agreement ('TCSA') despite of the favorable orders passed by the Income-tax Appellate Tribunal, Mumbai ("ITAT) in the Appellant's own case" for AYs 2009-10, 2011-12 and 2012-13 wherein the ITAT held that the receipts are not taxable in India;
2. In holding that the receipts earned by the Appellant pursuant to the TCSA entered with the Indian hotel owners are taxable in India under the Act as well as under the India-Netherlands tax treaty;
3. In not accepting the claim of non-taxability of amounts received for conducting training programs for the employees of the Indian hotel owners; and 4. In not considering that the amounts received by the Appellant under the TCSA could at best be considered to be in the nature of business profits as per Article 7 of the India-Netherlands tax treaty and in the absence of a permanent establishment in India as per Article 5 of the India-Netherlands tax treaty, the same cannot be taxed in the hands of the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend any of the above grounds of appeal, at any time before or at, the time of appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide this appeal according to law. Tax effect:
1629/Mum/2020 M/s. Renaissance Services BV
The tax effect arising on account of grounds of 1 to 4 is Rs 2,00,58,377. The Appellant has not provided tax effect for each of these grounds separately, since grounds 1 to 4 are in relation to a single addition of Rs 2,00,58,377. We request you to kindly take the appeal on record.”
11.1. The aforesaid grounds have already been adjudicated by this Tribunal in A.Y.2010-11 supra wherein it was held that amounts received by the assessee towards training and computer systems agreement and not taxable in India both under the Act as well as under Indo-Netherlands treaty. But there is a small change on facts during the year under consideration. We find that in A.Y.2014-15, the assessee itself had offered receipts from training services as FTS on the basis of earlier year assessment orders. This was sought to be reversed by the assessee during the course of assessment proceedings which was denied. The ld. CIT(A) also did not agree to this contention of the assessee. In fact the assessee had raised an additional ground before the ld. CIT(A) on this count. We find that the ld. CIT(A) had denied admission of the additional ground raised by him. We find that the ld. CIT(A) had rejected the admission of additional ground raised by the assessee seeking reduction of income from training services from taxable income, on the ground that assessee had not made this claim in the return of income. The ld. CIT(A) in this regard had placed in the decision of the Hon’ble Jurisdictional High Court in the case of Ultratech Cements Ltd., vs. Additional Commissioner of Income Tax, Range 2(2) in Income Tax Appeal No.1060 of 2014 dated 18/04/2017 in support of his decision of refusing to admit additional ground.
At the outset, we find that the issue in dispute as far as the taxability of receipts from training services and computer reservation systems had already been decided by this Tribunal in favour of the assessee holding
1629/Mum/2020 M/s. Renaissance Services BV that the said receipts are not taxable in India either as FTS or as royalty as per the Act and as per Indo-Netherlands treaty. Merely because the assessee had offered income from training services to tax in the return of income for the A.Y.2014-15 (i.e. the year under consideration), the assessee should not be unjustly taxed on a receipt which is otherwise not chargeable to tax both as per the Act and as per the treaty. We find that the Hon’ble Supreme Court in the case of Goetze India Ltd., reported in 284 ITR 323 had held that any claim of the assessee could be made only by way of a valid return. In the instant case, the assessee could not file a revised return within the time prescribed under the Act. It is a fact that assessee had offered the income while filing its return for A.Y.2014-15. Thereafter, during the course of assessment proceedings, in view of the subsequent development that had cropped up in assessee’s own case wherein the Tribunal for A.Y.2009-10 had taken a decision in favour of the assessee on the very same taxability of receipts from training services, the assessee made a claim before the ld. AO that the said receipt should not be taxed in the hands of the assessee. We find that the decision of Goetze India categorically states in the final paragraph that the restriction of entertaining a claim otherwise than by way of valid return shall not apply to appellate authorities. Hence, we hold that the ld. CIT(A) ought to have entertained the said claim of the assessee. In any case, there is no estoppel against the statute and law is very well settled on the same. As on date, this Tribunal in assessee’s own case for A.Yrs 2009-10, 2011-12 and 2011-12 had categorically held that receipts from training services are not taxable in the hands of the assessee either as FTS as per Act as well as under the Indo-Netherlands treaty. The decision relied upon by the ld. CIT(A) on the decision of the Hon’ble Jurisdictional High Court in the case of Ultratech Cement does not apply to the facts of the instant case in view of the fact that in the case before
1629/Mum/2020 M/s. Renaissance Services BV the Hon’ble Jurisdictional High Court, the assessee raised an additional ground for claiming deduction u/s.80 IA of the Act before the Tribunal for the first time when no claim was made before the lower authorities. In that case the facts relevant for adjudication of the claim of deduction u/s.80IA of the Act were not available on record before the lower authorities. Hence, the Tribunal had rejected the claim of admission of additional ground in the case of Ultratech, which was upheld by the Hon’ble Jurisdictional High Court. In the instant case, the entire facts relevant for taxability of receipts from training services are already on record which have already been culled out by the ld. AO in pages 2 & 3 of the assessment order. In these circumstances, the ld. CIT(A) ought to have admitted the additional ground raised by the assessee, even though it results in assessed income below the returned income. Hence, we hold that income from training services should not be brought to tax in the hands of the assessee in A.Y.2014-15. Even though this would result in a situation where it would go below the returned income, still the assessee would be entitled for the relief. Reliance in this regard is made on the decision of the Hon’ble Gujarat High Court in the case of Gujarat Gas Limited vs. JCIT reported in 245 ITR 84 and Milton Laminates Ltd., vs. CIT reported in 37. Taxmann.com 249 (Hon’ble Gujarat High Court).
12.1. On merits, the ld. DR also pointed out that during the year, the ld. AO treated the receipts from computer reservation system as equipment royalty which was not decided by the Tribunal in earlier years and accordingly he argued that the decision of the Tribunal in earlier years would not be applicable for this assessment year. Per contra, the ld. AR argued that the term “equipment” referred to by the ld. AO only means “server”. The very same server was available in earlier years also for rendering the computer reservation system services by the assessee.
1629/Mum/2020 M/s. Renaissance Services BV Hence, there is absolutely no change in the facts. We also find that servers are owned and used by the assessee and not by the Indian entity. The servers are not given on rent to Indian Hotels. Hence, we are in agreement with the argument advanced by the ld. AR in this regard and hold that the year under consideration is no way factually different from earlier years and hence, the decision rendered by this Tribunal in A.Y.2010-11 supra shall apply mutatis mutandis to this assessment year also.
12.2. In view of the aforesaid observations, we hold that receipts of the assessee from training services and computer reservation system services shall not be chargeable to tax both under the Act as well as under the treaty. Accordingly, the grounds raised by the assessee are allowed.
In the result, appeal of the assessee for A.Y.2010-11 is partly allowed for statistical purposes and the appeal of the assessee for A.Y.2014-15 is allowed.
Order pronounced on 24/02/2022 by way of proper mentioning in the notice board.