SIX CONTINENTS HOTELS INC.,USA vs. ACIT CIRCLE- 3 (1)(2) - INTERNATIONAL TAXATION, NEW DELHI

The Ld. AO while passing the draft assessment order for both the years, proposed the addition of MRC, treating the same taxable as Fees for Technical Services ('FTS') under the provisions of the Income- tax Act, 1961 (‘Act’ for short) and Fees for Included Services ('FIS') under India-USA Double DTAA. Further, AO proposed an addition of INR 8,10,38,864/- in relation to reimbursements in AY 2018-19.

The Ld. DRP in its directions for both the years, upheld the findings of the Ld. AO and held that MRC is taxable as FTS/ FIS under the provisions of the Act as well as under the DTAA. Further, DRP directed the AO to verify the invoices and back-up statements of TACP and other reimbursements in AY 2018-19. Thereafter, the Ld. AO while issuing the final assessment order for both the years, held that MRC and other reimbursements related receipts are taxable as FTS/ FIS under the Act and India-USA DTAA.

Aggrieved by the Final Assessment Orders dated 14/02/2021 and 26/04/2022 for Assessment Year 2017-18 and 2018-19 respectively, the Assessee preferred Appeal before this Tribunal. The Co-ordinate Bench of the Tribunal vide order dated 17th November, 2023, quashed the Final Assessment Orders in both the years on the ground that DRP direction did not bear document Identification No. (DIN). The Revenue preferred Appeals before the Hon'ble High Court of Delhi by challenging the orders of the Tribunaldated 17th November, 2023, wherein the Assessee requested the Hon'ble High Court to restore the Appeals to the Tribunal for consideration on merit and not pressed the Ground on DIN. The Hon'ble High Court of Delhi vide Judgment dated 15/05/2025 in and 262/2024 remanded the Appeals in both the years to the Tribunal for considering the Appeals on merits.

The Ground No. 1 of the Assessee in the captioned Appeals reads as under:-

The Ld. Counsel for the Assessee addressing on Ground No. 1 in both the Appeals submitted that issue of taxability of MRC has been subject to scrutiny in the past years and it has been consistently held that MRC receipts are not taxable as royalty/FIS by the Hon’ble Jurisdictional High Court and the said issue is covered by the order of the Co-ordinate Bench of the Tribunal, sought for allowing Ground No. 1 of both the Appeals.

Per contra, the Ld. Departmental Representative though relied on the orders of the Lower Authorities, however, has not brought any contrary proposition put forth by the Assessee.

We have heard both the parties and perused the material available on record. The Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2020-21 in vide order dated 09/05/2024 held as under:-

By respectfully following the ratio laid down, we allow Ground No. 1 of the Appeals of the Assessee filed for Assessment Year 2017- 18 and 2018-19 respectively.

The Ground No. 2in Assessment Year 2018-19 (ITANo.

Per contra, the Ld. Departmental Representative relying on the findgigns and the conclusions of the Lower Authorities sought for dismissal of the Ground No. 2 in Assessment Year 2018-19.

Heard the parties and perused the material. The Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year vide order dated 09/05/2024 held as under:-

On perusal of de finition of FTS defined under the Act, there are broadly three components i.e .managerial, technical and consultancy services.

It was submitted that the expression 'managerial, technical and consultancy services' have not been defined either under the Act or under the General Clauses Act, 1897. Therefore , the said terms have to be read together with the word 'services' to understand and appreciate their purport and meaning.

In this respect the Delhi Tribunal, while interpreting the meaning o f FTS as per Explanation 2 of section 9(1)(vii) of the Income tax Ac t, 1961 held as under: “…… ..A look at the above Explanation shows that it contains a definition of FTS and says that FTS means any consideration for the rendering o f any managerial , technical or consultancy services including the provision of services of technical or other personnel , but does not include consideration for any construction , assembly, mining or like project undertaken by the recipient or consideration which would be income o f the recipient chargeable under the head "Salaries The content o f the Explanation unmistakably is that the payment must be made as quid pro quo for such services rendered as have been enumerated therein. It postulates that the remitter o f the amount has received the benefit of the technical services and that the technical services have been rendered by the recipient o f the amount ……… .”(emphasis supplied)

In view of the principles emerging from the above judicial precedents, it can be concluded that the amount charged by the Assessee as TACP for booking hotel rooms for third-party Indian Hotels cannot be said to be in the nature o f managerial, technical or consultancy in nature for treating the same as FTS under the provisions of section 9(1)(vii) of the Act.

The appeal o f the assessee on this ground is allowed.”

By respectfully following the order of the Co-ordinate Bench of the Tribunal in Assessee’s own case for Assessment Year 2020-21 (supra) we allow Ground No. 2 of the Assessee’s Appeal in ITA No. 1459/Del/2022.

Considering the submission made by the Assessee's Representative, we remand the issue to the file of the A.O. to examine the claim of the Assessee and direct the A.O. to grant TDS Credit in accordance with law in both the Assessment Years after considering the submissions of the Assessee.

Further, the Assessee is also at liberty to claim/press the claim already madefor income tax refund or TDS credit, which shall be considered by the A.O. in accordance with law.