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Facts
The assessee, a US-based company and part of the InterContinental Hotels Group, appealed against an assessment order for AY 2022-23. The appeal concerned additions related to marketing and distribution charges, and travel agent commissions.
Held
The Tribunal held that marketing, distribution, and frequency marketing program charges, as well as SCHI facility charges, are not taxable as royalty or FTS in India, following consistent past rulings. Similarly, Travel Agent Commission (TACP) was also found not to be in the nature of FTS, aligning with previous decisions.
Key Issues
Whether marketing, distribution, and frequency marketing charges, and travel agent commissions are taxable as Fees for Technical Services (FTS) or royalty in India, considering the India-USA Double Taxation Avoidance Agreement (DTAA) and past precedents.
Sections Cited
143(3), 144C(13), 9(1)(vii), Article 12(4)(a)
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Income Tax Appellate Tribunal, DELHI BENCH “D”, DELHI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the assessment order dated 26.11.2024 passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’), for assessment year 2022-23.
The assessee in appeal has assailed the assessment order on following two counts:
(AY 2022-23) i. Additions made in respect of receipts on account of Marketing, Distribution Marketing, and Frequency Marketing Programme (i.e. IHG Rewards) and SCHI Facility charges accrued to the Appellant from its group entity (i.e. InterContinental Hotels Group (India) Private Limited, amounting to INR 24,07,02,009/- holding it to be Fee for Technical Sevices (FTS) u/s. 9(1)(vii) of the Act and Fee for Included Services (FIS) under Article 12(4)(a) of India-USA DTAA. ii. Addition made in relation to Travel Agent Commission (‘TACP’) amounting to INR 1,63,44,518/- from third party Indian hotels treating it as FTS and FIS.
Brief facts of the assessee as emanating from records are: The assessee company was incorporated in United States of America and is a tax resident of USA. The assessee/Appellant is part of InterContinental Hotel Group ('IHG'), a global hospitality player. InterContinental Hotels Group (Asia Pacific) Pte Ltd, Singapore ('IHGAP Singapore'), group entity of the Appellant is the economic and beneficial owner of certain IHG brands including 'Holiday Inn', 'Holiday Inn Express' and 'Crowne Plaza'. IHG also has a group entity in India, InterContinental Hotels Group (India) Private Limited, ('IHG India'). Effective 01 April 2019, IHG India has been granted a non-exclusive license by IHG AP Singapore for allowing use of trademark/ brand rights to the third-party Indian hotels The license fee so received by IG India is taxable in their hands as business income. Assessee is required to provided Marketing, Distribution Marketing, Frequency Marketing Programme and assessee facility related support services (i.e. ‘Marketing and Reservation related services’) in respect of hotels using the group (AY 2022-23) brand name and receives the amount for marketing and reservation services from IHG India.
Shri S.K. Aggarwal, appearing on behalf of the assessee submits that both the above additions are legacy issues. In so far addition on account of marketing and reservation fee is concerned, the issue first traveled to the Tribunal in AY 1997-98. The Tribunal since then has been consistently holding that marketing, distribution marketing, frequency marketing program and SCHI facility charges are not taxable as royalty or FTS in India. He submitted that the Tribunal in a recent decision in for AY 2021-22 decided on 13.06.2024 taking a consistent view has decided the issue in favour of the assessee. 4.1. In respect of ground no. 2 relating to TACP held as FTS/FIS, the ld. AR pointed that the Tribunal in assessee’s appeal for AY 2020-21 in ITA No.2335/Del/2023 vide order dated 09.05.2024 held that amount charged by the assessee as TACP for booking hotel rooms for third party cannot said to be in the nature of managerial, technical, or consultancy in the nature for treating the same as FTS under the provisions of section 9(1)(vii) of the Act.
Shri Nikhil Kumar Govila, representing the department supported the impugned order. However, the ld. DR fairly stated that the issues raised by the assessee in the instant appeal have been considered by the Tribunal in assessee’s own case in the preceding assessment years.
Both sides heard, orders of the authorities below examined. The assessee in appeal has raised two issues. The first issue relates to addition made in respect of marketing, distribution marketing and frequency marketing program held to be FTS. We find that this a perennial issue arising in assessee’s case, wherein the fee (AY 2022-23) for providing such services have been consistently held as FTS by the Revenue. The Tribunal after considering the issue year after year has granted relief to the assessee holding that the payments received by the assessee in respect of marketing, distribution marketing, frequency marketing program and SCHI facility charges is not in the nature of royalty/FTS/FIS. The relevant extract of the findings of the Tribunal on this issue are as under:- “18. It was further submitted by the Ld. AR that the issue of taxability of Marketing and reservation related receipts has been subjected to scrutiny in the past years and the same has been consistently held in favour of the Assessee by (i) The ITAT in Assessee’s own case for A.Y. 1997-98, A.Y.2003-04, A.Y.2004- 05, AY 2005- 06. These orders of the ITAT were accepted by the tax department and no appeal was filed before Hon’ble High Court. (ii) The AO/DRP in the Assessment order(s) for A.Y . 2006-07 to A .Y. 2011-12 held that Marketing and reservation related receipts is not taxable as ‘Royalty’/ ‘Fees for Technical Services’ , following the aforesaid orders of the ITAT . (iii) The Mumbai ITAT in their combined order dated 08 February 2024 for A.Y. 2012-13 to A.Y. 2015-16 again held that Marketing and reservation related receipts is not taxable as ‘Royalty’/ ‘Fees for Technical Services’ under India-USA DTAA and deleted the additions made in the assessment order(s). (iv) The Delhi ITAT in the order dated 10 April 2024 for A.Y . 201617 again held that Marketing and reservation related receipts is not taxable as ‘Fees for Technical Services’ under Article 12(4)(a) of India USA DTAA and deleted the additions made in the assessment order. (v) For A.Y. 2017-18 and A.Y. 2018-19, the Delhi ITAT quashed the assessment orders on non-compliance of the DIN requirement. (vi) For A.Y. 2019-20, the matter was not picked up for scrutiny assessment and there was no assessment order.
(AY 2022-23) (vii) For AY 2020-21, the Delhi ITAT vide order dated 09.05.2024 in following the earlier decisions of the ITAT in assessee’s own case held that the marketing and reservation related receipts is not taxable as ‘Royalty’/ ‘Fees for Technical Services’ under India-USA DTAA and deleted the additions made in the assessment order.
The above decisions of the ITAT has held that the Marketing, Distribution and Marketing and Frequency Marketing program and SCHI Facility Service charges is not Royalty/FTS and hence not taxable in India. Therefore, the matter is squarely covered by the above decisions and hence, the appeal of the assessee on this ground is allowed. The addition of Rs.6,13,91,631/- is hereby deleted. Ground no.1.2 and 3 are allowed.” The history of past litigation and the result thereof has not been disputed by the Revenue. We see no reason to take a different view. No material has been placed on record by the Revenue to show that there is any change in the facts in the impugned assessment year. When facts remain unaltered the principle of consistency demands that relief which has been allowed to the assessee in the past should continue. Accordingly, ground no. 1 of appeal is allowed.
The second issue in appeal is with regard to addition in relation to Travel Agent Commission (TACP) amounting to Rs.1,63,44,518/- from third party Indian Hotels. We find that this issue is also covered by the order of Coordinate Bench in assessee’s own case for AY 2020-21 in (supra), wherein the Coordinate Bench after examining the issue and placing reliance on orders of the Tribunal in assessee’s own case for preceding assessment years held as under:- “18. At the outset, it was submitted that the Id. CIT (A) in Assessee’s own case in A.Y. 2013-14, A.Y. 2014-15 and A.Y. 2015-16 has held that the amount of TACP received by SCHI is not in the nature of FTS. The Id. CIT(A) in passing the above appellate order noted that the AO in the assessment order for A.Y. 2016-17 has held that TACP receipts are not taxable as FTS under the India-USA DTAA.
(AY 2022-23) 19. Further, the tax department has accepted the above order of Id. CIT(A) for A.Y. 2013-14, A.Y. 2014-15 and A.Y. 2015-16 and has not filed an appeal before the ITAT. Accordingly, the taxability of TACP receipts have already been settled in favour of the assessee in previous years and the same are not taxable in view of ‘Rule of consistency’. Further, no addition in relation to TACP was made by the Id. AO in A.Y. 2016-17 and A.Y. 2017-18. The AO deviated from the settled position and taxed the amount of TACP in A.Y. 2020-21 without taking cognizance of the earlier position and documents filed by the Assessee during the assessment proceedings.
The ld. CIT (A) in Assessee’s own case in A.Y. 2013-14, A.Y. 2014-15 and A.Y. 2015-16 has held that the amount of TACP received by SCHI is not in the nature of FTS basis the observation of the then AO made in the assessment order of AY 2016- 17. Accordingly, the taxability of TACP receipts have already been settled in favour of the assessee in previous years.
On perusal of definition 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 of FTS as per Explanation 2 of section 9(1)(vii) of the Income tax Act, 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 of 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 of the recipient chargeable under the head "Salaries The content of 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 of the amount has received the benefit of the technical services and that the technical services have been rendered by the recipient of the amount ……….”
(AY 2022-23) (emphasis supplied) 24. Thus, The services were rendered by the travel agents to the Indian Hotels i.e. the Assessee did not render any service to the Indian hotels, as envisaged under section 9(1)(vii) of the Act; The Assessee made payments to travel agents on behalf of the Indian hotels; and Subsequently, the Assessee recovered such payments made to distribution channels from Indian hotels on costto-cost basis without any element of income.
Thus, it can be found that the Assessee has rendered services in relation to booking of hotel rooms to the Indian Hotels in consideration of commission, it cannot be treated as FTS under the Act.
The following judicial precedents held that commission charged by commission agents outside India is not taxable in India: DIT (International Taxation) vs. Panalfa Autoelektrik Ltd. [2014] 49 taxmann.com (Delhi High Court) Group Ism (P.) Ltd. 57 taxmann.com 450 (Delhi High Court) CIT (Central) vs. Model Exims [2014] 42 taxmann.com 446 (Allahabad High Court) Le Passage to India Tours and Travel (P.) Ltd. 54 taxmann.com 138 (Delhi ITAT) Dy. CIT vs. Troikaa Pharmaceuticals Ltd. [IT Appeal No. 2028/Ahd./13 and CO No 13/Ahd./14] DCIT vs. Welspun Corporation Ltd. [2017] 77 taxmann.com 165 (Ahmadabad ITAT) Armayesh Global vs. ACIT 45 SOT 69 (ITAT Mumbai) DCIT, Chennai vs. Mainetti (India) (P.) Ltd. [2011] 12 taxmann.com (ITAT Chennai) CLSA Ltd. vs. ITO, (International Taxation) [2013] 31 taxmann.com 5 (ITAT Mumbai) Pahilajrai Jaikishin (66 taxmann.com 30) (ITAT Mumbai)
(AY 2022-23) 27. 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 of 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 of the assessee on this ground is allowed.” We find that even in the subsequent assessment year i.e. AY 2021-22 similar issue came up for consideration before the Tribunal, the Tribunal following the decision rendered in assessee’s case for AY 2020-21 granted relief to the assessee on this issue. No material is placed before us to take a different view, hence, ground no. 2 of appeal is allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on Wednesday the 24th day of September, 2025. Sd/- Sd/- (NAVEEN CHANDRA) (VIKAS AWASTHY) लेखाकार सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER िद�ी/Delhi, �दनांक/Dated 24.09.2025 NV/- �ितिलिप अ�ेिषतCopy of the Order forwarded to : अपीलाथ�/The Appellant , 1. 2. �ितवादी/ The Respondent. 3. The PCIT/CIT(A) िवभागीय �ितिनिध, आय.अपी.अिध., िद�ी /DR, ITAT, िद�ी 4. गाड� फाइल/Guard file. 5.