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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: SHRI G.S. PANNU & SHRI SANDEEP GOSAIN
The captioned appeal by the assessee is directed against the order of CIT(A)-55, Mumbai dated 30.11.2015, pertaining to the Assessment Year 2010-11, which in turn has arisen from the order passed by the ADIT (IT)- 4(1), Mumbai dated 17.05.2013 under section 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, the assessee has raised the following Grounds of appeal:-
“Based on the facts and circumstances of the case, the Marriott International Inc (the ‘Appellant’) respectfully submits that the learned Commissioner of Income Tax (Appeals) – 55, Mumbai *the ‘CIT(A)’+, has in his order under section 250 of the Income-tax Act, 1961 (the ‘Act’) erred in disposing the appeal of the Appellant on the following grounds :
1. In not deciding the fundamental issue before himself, namely, whether the Appellant could be subject to tax in respect of the amounts received under the International Sales and Marketing Agreement ('ISMA');
2. In holding that the amounts received by the Appellant under the ISMA are taxable as royalty under section 9(1)(vi) of the Act as well as Article 12(3) of the Double Taxation Avoidance Agreement between India and the United States of America ('India-US tax treaty');
In holding that the amounts received under the ISMA were a part and parcel of the royalty received for the use of the 'Marriott' brand and that the amounts receivable by the owner of the 'Marriott' brand, ie Marriott Worldwide Corporation ('MWC') were split-up by signing two different agreements with two different companies of the Marriott group;
4. In not appreciating that there was no question of splitting-up of royalty receipts, since even if the owner of the Marriott brand, ie MWC had itself undertaken the activities under the ISMA, it would have offered only the royalty income to tax and not the amounts received for activities undertaken under the ISMA;
In not considering that the Appellant was liable to repay the amounts received under the ISMA or adjust it against the future claims from the India hotels; however, this concept is wholly alien to a royalty arrangement;
6. In not appreciating that the receipts which do not have any income element cannot be regarded as royalty, since a royalty arrangement will always have a profit element;
In distinguishing the decisions in case of Marriott International Licensing Company BV, V M Salgaocar and Brothers Private Limited ('V M Salgaocar') and various other decisions relied upon by the Appellant. Further, in not appreciating that in case of V M Salgaocar, same amounts received by the Appellant were held not to be chargeable to tax in India as royalty or fees for included services under the India-US tax treaty;
8. In not considering that MWC is the owner of the 'Marriott' brand and the fact that the Indian hotels are already paying royalty to MWC for the license to use the 'Marriott' brand;
In not considering the Appellant's plea that the amounts received under the ISMA are governed by the "principle of mutuality" and hence, cannot be regarded as the Appellant's income;
In not appreciating that the amounts received by the Appellant are with a corresponding obligation to be spent for agreed purposes and hence, cannot be regarded as income in the hands of the Appellant;
In not considering that the amounts received by the Appellant under the ISMA are in the nature of business profits as per Article 7 of the India-US tax treaty and in the absence of a permanent establishment in India as per Article 5 of the India-US tax treaty, the same cannot be taxed in the hands of the Appellant;
In restoring the matter to the assessing officer to examine whether the Appellant could be assessed as a representative assessee of the owner of the 'Marriott' brand or whether the amounts received under the ISMA could be assessed in the hands of any other group company;
In not appreciating that the assessment as a representative assessee is different from a regular assessment and therefore, in an appeal from an assessment made on the Appellant in its own right, the CIT(A) could not have restored the matter to the assessing officer to assess the Appellant as a representative assessee;
In not appreciating that there was no question of restoration of the appeal, in view of the finding that the amounts received under the ISMA could not be assessed in the hands of the Appellant and therefore, the appeal of the Appellant ought to have been fully allowed;
In partly allowing the appeal of the Appellant when no ground was decided against the Appellant and having held that the receipts under the ISMA are not assessable in the hands of the Appellant since the Appellant was not the owner of the 'Marriott' brand; and
In holding that the amounts received by the Appellant from Viceroy Hotels Limited as consideration for certain 'design review' services are similar to the amounts received under the ISMA and taxable in the hands of the Appellant.”
3. At the time of hearing, it was a common point between the parties that the disputes raised in this appeal are primarily on same footing as in the Assessment Years 2006-07 to 2009-10 which have since travelled to the Tribunal vide & 1997/Mum/2011 & 1270, 1451 & 1452/Mum/2013 dated 14.01.2015. So, however, the plea of learned representative for the assessee is that the Assessing Officer as well as the CIT(A) have not taken into consideration one of the pertinent points raised by the assessee which was based on the principle of mutuality and, therefore, according to her, the appeal could not be disposed off summarily merely in the light of earlier precedent. In order to appreciate the points sought to be raised, and to impart completeness to the order, the following discussion is relevant.
The appellant before us is a foreign company, which is a tax resident of U.S.A. It transpires that the assessee has entered into international sales and marketing agreements with M/s. Juhu Beach Resorts Ltd., which owns the J.W. Marriott hotel in Mumbai and M/s. V.M. Salgaonkar and Brothers Pvt. Ltd., which owns the Goa Marriott Resort in the earlier years, which had also remained in operation during the year under consideration. In terms of the international sales and marketing agreement, assessee receives three categories of payments from the two aforesaid hotels, namely, contributions under the International Sales and Marketing Agreement (ISMA), International Sales and Marketing Fee (ISMF) and reimbursement of expenses incurred in connection with ISMA. In the year under consideration, assessee received Rs.2,65,52,072/- as contribution under ISMA; Rs.4,05,91,227/- under ISMF and Rs.5,34,07,417/- as reimbursement of expenses, in all totalling to Rs.12,05,50,770/-. The other element of receipt in this year was a sum of Rs.63,738/- from Viceroy Hotels Ltd. The contention of the assessee was that the aforesaid receipts are not taxable in India. The stand of the assessee, which has been reproduced by the Assessing Officer in para 6 of the assessment order, reveals that assessee, inter-alia, canvassed that the taxability of ISM contributions received by the assessee must be governed by the principle of mutuality inasmuch as there is complete identity between the contributors to the fund that is being maintained, which is termed as “System Marketing Fund for the Marriott Hotels and Resorts International Hotels System” (the ‘MHR Fund’). It was asserted that there was a complete identity between the contributors to the MHR Fund and the participants in the surplus, i.e. excess of amounts received in the fund over the expenditure incurred for undertaking the ISM activities. It was also asserted that the ISM contributions, being reimbursement of expenses was not in the nature of income at all.
5. A perusal of the orders of the Assessing Officer as well as that of CIT(A) reveal that the impugned sums have been held to be taxable as Royalty income. In fact, the CIT(A) has noted in para 5 of the impugned order that similar issues have been decided by the Tribunal in assessee’s own case vide order dated 14.01.2015 (supra) and directed the Assessing Officer to follow the directions of the Tribunal in this year too. Before us, it is pointed out in the aforesaid precedent, assessee’s plea based on the principle of mutuality has not been adjudicated, whereas in the instant year, specific Ground has been raised, i.e. Ground of appeal
no.
9. (before the ITAT) as also by way of Ground of appeal ‘B’ raised before the CIT(A).
The aforesaid factual matrix has not been controverted by the ld. CIT- DR, while he has placed reliance on the orders of the authorities below.
7. We have carefully considered the rival submissions. The action of the CIT(A) in directing the Assessing Officer to apply the order of the Tribunal dated 14.01.2015 (supra) is justified to the extent it deals with the nature of the payments received by the assessee from the two hotels stated aforesaid. So, however, the point which is sought to be raised is the non-consideratoin of the defence set-up by the assessee based on the principles of mutuality. The order of the Tribunal dated 14.01.2015 (supra) has not addressed that issue and so far as the instant year is concerned, the same was very much raised by the assessee before the lower authorities, which has also remained to be addressed. Considering the entirety of circumstances, we, therefore, deem it fit and proper to affirm the ultimate decision of the CIT(A) to remand the matter back to the file of Assessing Officer, but with directions that apart from considering the order of the Tribunal dated 14.01.2015 (supra), the Assessing Officer shall also address the issue raised by the assessee of mutuality or any other issue which the assessee may seek to raise in defence of its return of income. The Assessing Officer shall allow the assessee due opportunity of being heard and only thereafter pass an order afresh, as per law.
In the result, appeal of the assessee is treated as partly allowed for statistical purpose.
Order pronounced in the open court on 9th March, 2018.