MARRIOTT INTERNATIONAL LICENSING COMPANY BV,MUMBAI vs. DCIT 3(2)(1), MUMBAI

2 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, आदेश / O R D E R Sandeep Gosain, Judicial Member: The present three (3) Appeals have been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-57, Mumbai, dated 30.11.16 for AY 2003-04, 2004- 05 & 2007-08 respectively.

(AY 2003-04) 3. First of all we take up assessee’s appeal in (AY 2003-04) on the grounds mentioned herein below:-

GROUNDS OF APPEAL Based on the facts and circumstances of the case, the Marriott International Licensing Company BV ('the Appellant') respectfully submits that the learned Commissioner of Income Tax (Appeals) - 57, Mumbai, has in his order dated November 30, 2016 under 3 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, section 250 of the Income-tax Act, 1961 erred in disposing the appeal of the Appellant on the following grounds (without prejudice to each other):

1. In holding that the Appellant has a permanent establishment in India as per the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and the Netherlands;

2. In holding that the Indian hotels constitute 'dependent agents' of the Appellant in India, merely on the basis that the Appellant had supervision / control over the operations of the Indian hotels which were using the brand name 'Marriott', logo and symbol as per the terms and conditions of the agreements entered into by the Appellant with the Indian hotels;

3. In holding that the Appellant characterized the amounts received under the International Sales and Marketing Agreement from the Indian hotels as 'reimbursement of expenses' and not 'royalty' only to avoid the payment of taxes in India; disregarding the fact the that the Government of India has accorded its approval to the Marriott Group to enter into different agreements with the Indian hotels; and 4. In assuming the following:

4 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, • The Appellant has incurred expenses in relation to office and personnel in India; however, as a matter of fact, neither the Appellant has an office in India nor the Appellant has any personnel in India; • The Appellant has lent funds to corporates in India and has derived 'interest income' from Indian operations; whereas the Appellant has no operations in India and thereby, did not (i) lend any money to any person in India; or (ii) earn any interest from any person in India; and • The Appellant has a bank account in India for parking its receipts awaiting transfer; however, as a matter of fact, the Appellant did not have a bank account in India.

The Appellant wishes to mention that each of the above ground is without prejudice to the other. Further, 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.

4. At the very outset, Ld. AR appearing on behalf of the assessee drawn our attention to letter dated 10th Oct 2018 filed by 5 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, the assessee for seeking admission of additional ground, which are reproduced below:-

5. On the facts and circumstances of the case and in law, the assessment order dated March 30, 2015 passed by the Assessing Officer OAO') without passing draft assessment order, is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income-Tax Act, 1961 ('the Act').

6. On the facts and circumstances of the case and in law, the assessment proceedings have been abated, since the AO has failed to pass the order giving effect to the direction in Commissioner of Income-Tax (Appeals) order within the period of limitation as provided by the Act.

The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at, the time of appeal, so as to enable the Honourable Income-tax Appellate Tribunal to decide the appeal accordingly.

Ld. AR submitted that the additional grounds are purely question of law and no new facts are required to be investigated or brought on record. Therefore, applicant be allowed to raise 6 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, additional grounds as the same goes to the roots of the matter and in support of his arguments, Ld. AR relied upon the decision of Hon’ble Supreme Court in the case of Jute Corporation of India Ltd. Vrs. CIT 187 ITR 688 (SC).

5. On the other hand Ld. DR submitted that the application dated 10.10.18 is misconceived and is liable to be dismissed.

Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, partly allowed the appeal of the assessee. Now before us, the assessee has preferred the present appeal on the grounds mentioned herein above.

Additional Ground No. 5 & 6. 8. Since these grounds raised by the assessee are inter connected and inter related and goes to roots of the case, therefore we thought it fit to dispose of these grounds firstly. These grounds raised by the assessee relates to challenging the 8 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, order of Ld. CIT(A) in confirming the action of AO in passing assessment order, which is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income- Tax Act, 1961.

9. Ld. AR appearing on behalf of the assessee submitted before us that the assessment order dated March 30, 2015 passed by the AO without passing draft assessment order, is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income-Tax Act, 1961. It was submitted that pursuant to the order of ITAT in the first round of proceedings, the matter was set aside to the file of AO to determine afresh the taxability of income of the assessee. However, AO without passing a draft assessment order had straight way passed the final assessment order dated 30.03.15, which is against the provision of section 144C(1) of the Act. Thus all the proceedings initiated by the AO are liable to be quashed. In this respect Ld. AR relied upon the judgment in the case of Dimension Data Asia Pacific PTE Ltd. Vrs. DCIT (2018) 96 taxman.com 182 (Mum), Turner International India Pvt. Ltd. Vrs. DCIT (2017) 82 taxman.com

10. On the other hand, Ld. DR relied upon the orders passed by revenue authorities. It was submitted that the Hon’ble Tribunal had restored the matter to the file of AO for a limited purpose only i.e. receipts were in the nature of revenue receipts and were held as business profit which could be covered under article 7 of the DTAA, in the above circumstances, requirement of passing a draft order in terms of section 144C of the Act is not called for as the order in second round of the AO was in the nature of appeal effect order of the order of the Tribunal.

in this appeal is as under:- “On the facts and in the circumstances of the case and in law, the Ld. CIT(A)erred in holding that the payments made under Article 3.1 of the Franchise Agreement and the International sales & Marketing Agreement (ISMA) with M/s Ansal Hotels Limited(AHL) is “Royalty” and the payments made under Article 3.2 of the said agreement is purely reimbursement of expenses on sales promotion and marketing and hence the payments made as per Articles 3.2 and 3.3 is not “Royalty” and not taxable in India.”

2. Both the sides in agreement that the facts and circumstances of this appeal are mutatis mutandis 11 I.T.A. No. 2479, 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, similar to those for AY. 2004-05, which appeal was argued along with the instant appeal. In fact, no separate arguments were made by the rival parties, who chose to adopt the arguments made for the other appeal. We have passed a separate detailed order for the AY 2004-05. Following the view taken therein, we set-aside the impugned order and remit the matter to the file of AO for deciding this issue afresh in terms of `Business profits’ under Article 7 of the DTAA in consonance with our directions contained in the order for the AY.2004-05.

3. In the result, the appeal is allowed for statistical purposes.

12. In AY 2003-04, the Tribunal had followed its own order in assessee’s own case for AY 2004-05 and had set aside the matter to the file of AO for determining the taxability of the receipts afresh as ‘business profit’ in terms of Article 7 of DTAA. However, AO made variation to the relevant income and passed the final order on 30.03.15 without passing the draft assessment order. Since the assessee being a foreign company is an eligible assessee, therefore on or after 01.10.09, it was mandatory for the AO to forward the draft assessment order to the assessee, if he 12 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, proposes to make any variation to the income or loss, which is prejudicial to the interest of eligible assessee. Since in the present case, the original assessment order merged with the order of Tribunal and hence once the matter is remanded back to the AO, then in that circumstances, it goes back to the stage of assessment. Therefore, in our view, order dated 30.03.15 passed by AO was not merely an order giving effect to the Tribunal order, but it was an assessment order u/s 143(3) of the Act and provision of section 144C of the Act must be mandatorily complied with. In this respect, we rely upon the decision of Hon’ble Bombay High Court in the case of Dimension Data Asia Pacific PTE ltd. Vrs. DCIT (2018)96 taxman.omc 182 (Bom) has held as under:-

(a) The petitioner is Foreign Company and .entitled to the procedure provided under Section 144C of the Act as it is an eligible Assessee as defined therein.

(b) On 30th November, 2011 the petitioner filed its return of income for the Assessment Year 2011 -12. In its return, it declared Nil income.

13 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, (c) Thereafter, on 20th March, 2015 a draft assessment order as required under Section 144C(1) of the Act was passed for Assessment Year 2011-12. The petitioner filed its objections in terms of Section 144C(2)(b) of the Act to the Friday, 6.7.2018 Dispute Resolution Panel (DRP).

(d) On 4th December, 2015 the DRP issued directions on the petitioner's objection to the draft assessment order dated 20th March, 2015. (e) Consequent to the directions of the DRP, an order of assessment dated llth January, 2016 was passed under Section 143(3) read with Section 144(C)(13) of the Act. ^

6. As against the above, it is the respondent's contention that the order dated 5th May, 2017 of the Tribunal does not set aside the original assessment order dated llth January, 2016 and merely restores it to the Assessing Officer to give effect to its order dated 5th May, 2017. This restoration to the Assessing Officer is only to determine the profits attributable to the RE in India. In above circumstances, it is contended by the Revenue that the requirement of passing a draft assessment order in terms of Section 144C of the Act is not called for, as the order dated 31st January, 2018 is only an order giving effect to the 15 I.T.A. No. 2479, 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, order dated 5th May, 2017 of the Tribunal. The remedy, if any, of the petitioners according to the Revenue is filing an Appeal from the impugned order dated 31st January, 2018 to the Income Tax Appellate Tribunal and/or \i the Commissioner of Income-Tax (Appeals).

7. We note that, it is an undisputed position before us, that the petitioner is a Foreign Company and an eligible assessee as defined in Section 144C(15)(b)(ii) of the Act. It has been held by this Court in International Air Transport Association (supra) that a Foreign Company is entitled to being assessed in accordance with Section 144C of the Act. It is the above Section 144C of the Act, which provides a separate scheme for the manner in which the Assessing Officer would pass assessment orders under the Act and a separate procedure to challenge an draft order i.e. before an assessment order which is subject to appeal under the Act is passed. The entire object is to ensure that the disputes of Foreign Companies are resolved expeditiously and final assessment orders are not passed without a re-look to the proposed order (draft order), if so desired by the Foreign Company. In essence, it obliges the Assessing Officer to first pass a draft of the proposed assessment order indicating the proposed variation in the income returned. This draft 16 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, Assessment Order is to be passed under Section 144C(1) of the Act, which entitles an eligible assessee such as a Foreign Company to approach the DRP with its objection to the Draft Assessment order. This is so provided, so that an eligible assessee can have his grievance addressed before the final assessment order is passed. In case, an assessee does not object to the draft assessment order, then a final assessment order is passed in terms of the draft assessment order by the Assessing Officer. It is only on passing of the final assessment order that the assessee, if aggrieved by it, would be able to approach the appellate authorities under the Act. These special rights are made available under Section 144C of the Act to an eligible assessee such as the petitioner. Therefore, it cannot be ignored by passing an final order under Section 144(13) of the Act without preceding it with a Draft Assessment order as required therein.

18 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, 9. This "fresh adjudication" itself would imply that it would be an order which would decide the lis between the parties, may not be entire lis, but the dispute which has been restored to the Assessing Officer. According to us, the order dated 31 st January, 2018 is not an order merely giving an effect to the order of the Tribunal, but it is an assessment order which has invoked Section 143(3) of the Act and also Section 144C of the Act. This invocation of Section 144C of the Act has taken place as the Assessing Officer is of the view that it applies, then the requirement of Section 144C(1) of the Act has to be complied with before he can pass the impugned order invoking Section 144C(13) of the Act. Infact, Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub-Section 144(C)(2)(b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case, the assessment order has invoked Section 144C(13) of the Act without having passed the necessary draft Assessment Order under Section 144C(1) of the Act, which alone would make an direction u/s 144C(5) of the Act by the DRP possible. Thus, the impugned order is completely without jurisdiction.

11. In the above view, the impugned order is without jurisdiction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts.

ITA No. 2480 & 2481/Mum/2017 17. Now we take up assessee’s appeals in (AY 2004-05 & 2007-08). Since we have already decided the similar grounds of appeal in AY 2003-04 on merits. Therefore, following 22. I.T.A. No. 2479, 2480 & 2481/Mum/2017 Marriott International Licensing Company BV, our own decision in ITA No. 2479/Mum/17, we apply the same findings in the present appeal in order to maintain judicial consistency which is applicable mutatis mutandis.