No AI summary yet for this case.
Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
स्थधमी रेखध सं./जीआइआय सं./PAN/GIR No. :AAECM8040K अऩीरधथी ओय से / Appellant by Shri Niraj Sheth प्रत्मथी की ओय से/Rspondent by Shri Jasbir Chauhan सुनवधई की तधयीख / Date of Hearing : 07/04/2016 घोषणध की तधयीख /Date of Pronouncement : 04 /07/2016 आदेश / O R D E R PER AMIT SHUKLA (JM) The aforesaid appeals has been filed by the assessee against the common impugned order dated 18.7.2013, passed by the ld.CIT(A)-11, Mumbai, in relation to the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961(The Act) for the assessment years 2006-07 and 2007-08. Since in both the appeals, facts and issues involved are common, arising out of similar set of facts, therefore, they were consolidated order.
The assessee is mainly aggrieved by the levy of penalty of Rs.1,91,61,819/- and Rs.31,993,893/- for the assessment years 2006-07 and 2007-08 respectively on account of taxability of “royalty” income in the hands of the assessee.
At the outset, the ld. Counsel, Shri Niraj Sheth, submitted that in the quantum proceedings, the Tribunal vide order dated 14.1.2015 had restored the matter to the file of the AO with a direction to consider the question of taxation of receipt of “royalty” into the hands of real owner of the brand. Thus, in view of this direction of the Tribunal, the present penalty levied by the AO and confirmed by the ld.CIT(A) cannot be sustained. On the other hand, the ld.DR admitted that the matter has been restored to the file of the AO with certain direction.
It has also been informed by both the parties that, in consequence of the Tribunal order, in the quantum proceedings, fresh assessment order has been passed by the AO vide order dated 22.3.2016 wherein after completing the assessment he has initiated a fresh penalty proceedings under section 271(1)(c) of the Act on the same issue. Thus, penalty initiated vide impugned proceedings does not survive.
After considering the aforesaid submissions and on perusal of the material placed before us, we find that the penalty has been levied on the additions made on account of receipt which has been treated to be in the nature of “royalty” and in the nature of “fees for including services”. The Tribunal in the quantum proceedings for both the assessment years, after detailed observations have finally restored the matter to the file of the AO after observing and holding as under: “72. Hence, we are of the view that the assessee company, being only an extended arm of “Marriott group company” owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colourable device. Accordingly, we are of the view that the separate legal identity of the assessee company gets blurred and corporate veil should be lifted. Hence, the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. We have already noticed that all the advertisement/marketing program are carried out in the name of “Marriot” and/or “Rennaissance”. Hence all of them go to swell the existing Brand names referred above. Hence they become taxable as royalty in terms of Article 12 of the Indo US DTAA. However as argued by ld. AR, the assessee in whose hands these amounts are to be assed is the question that needs to be answered. In our view this question requires examination at the end of the AO. hands of any other group company. The assessee should be given adequate opportunity in this regard.”