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Income Tax Appellate Tribunal, DELHI BENCH ‘F’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI KULDIP SINGH
(PAN : AAOCS2525F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/Shri Amit Arora & Vishal Misra, CAs REVENUE BY : Shri Atiq Ahmad, Senior DR Date of Hearing : 21.09.2017 Date of Order : 28.09.2017 O R D E R
PER KULDIP SINGH, JUDICIAL MEMBER :
The appellant, Deputy Commissioner of Income-tax, Circle 3(1)(2), New Delhi (hereinafter referred to as ‘the Revenue’), by filing the present appeal, sought to set aside the impugned order dated 12.10.2015 passed by the Commissioner of Income-tax-43, New Delhi qua the assessment year 2010-11on the grounds inter alia that :-
“ Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the Centralized services fee received by the appellant for rendering various marketing, advertisement & other services to customers in India, were not taxable as "Fees for Technical Services" (,FTS'), in terms of Section 9 of the Income Tax Act, 1961 as well as Article 12 of the India-US Double Taxation Avoidance Agreement (‘DTAA').”
Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Starwood Hotels & Resorts Worldwide Inc., the assessee, is a company incorporated under laws of United States of America (USA) and resident thereof. It is into the business of providing hotel related services in several countries around the world. Assessee company is also obliged to provide centralized services like sales and marketing, loyalty programs, reservation service, technological services, operational services and training programs. The assessee earned revenue under various heads for which the assessee has not provided any centralized services receipt for taxation during the year under assessment, which are as under :-
S.No. Deductor Hotel Centralized Service Fee 1 Bramha Bazaz Le Meridien Pune 94,18,529 Hotels Limited 2 Mayank Sharma Le Meridien Jaipur 50,81,173 Enterprises Private Limited 3 BD&P Hotels (India) Le Meridien Mumbai 1,19,27,456 P Ltd
4 M-Far Hotels Ltd. Le Meridien Kochi 46,25,612 5 Associated Hotel Le Meridien 41,57,323 Ltd Ahmedabad 6 MAC Charles (India) Le Meridien 73,31,568 Limited Bangalore 7 Classic Citi Westin Pune 8,04,879 Investment Pvt. Ltd. 8 Chalet Hotels Westin Hyderabad 8,26,680 Limited 9 Kingston Properties Westin Mumbai 8,58,292 Private Limited 10 Vatika Hospitality Westin Sohna 5,85,689 Pvt. Ltd. Total 4,56,17,202
Assessee was called upon to explain as to why the revenue earned by the assessee for rendering centralized services be not taxed as Fee for Technical Services (FTS). Finding the explanation given by the assessee not tenable, the AO proceeded to hold that centralized services fee of Rs.4,56,17,202/- received by the assessee is taxable in India both under the provisions of Income-tax as well as Indo-USA, DTAA, and added the same to the total income of the assessee to be taxed u/s 115A of the Act.
Assessee carried the matter by way of filing appeal before the ld. CIT (A) who has allowed the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of challenging the impugned order passed by ld. CIT (A).
We have heard the ld. Authorized Representatives 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.
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).
For the sake of ready reference, the findings returned by the ld. CIT (A) allowing the appeal are 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 AYs. 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 the judgment of the ITAT, Delhi in the case of Sheraton International Inc. at to 55/Del/2006 dated 04.10.2006, It is also observed that the appeals of the Revenue have been dismissed by the Delhi High Court vide order dated 30.01.2009, therein the Hon'ble High Court held that the Tribunal had rightly concluded that the payments received were in the nature of business income, and not in nature of royal or fees for technical services. It was accepted by the Ld. Assessing Officer that the appellant did not have a permanent establishment in India, and hence the business income could not be brought to tax under Article 7 of the India- USA DTAA, Moreover, no question of law had arisen for their consideration, as these are findings of fact by the Tribunal. Therefore, respectfully following the orders of the higher judicial authorities, the bringing to tax of the business receipts of the appellant in India, is deleted. Thus, the appellant succeeds in grounds 1 to 4”.
The issue in controversy has also been set at rest by the Hon’ble Delhi High Court in case cited as Director of Income-tax vs. Sheraton International Inc. – (2009) 313 ITR 267 (Del.) as under:-
Double taxation relief-Agreement between India and USA-Payment for advertising, publicity and sales promotion services-Tribunal found as a final fact finding authority that main services rendered by assessee, a company incorporated and tax resident in USA, to Indian company, was 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 nor 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- 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
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(1)(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.
So, in view of what has been discussed above, we find no illegality or perversity in the impugned order passed by the ld. CIT (A), hence present appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 28th day of September, 2017.