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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’: NEW DELHI
Before: SHRI KUL BHARAT & SHRI M. BALAGANESH
ITA No:- 2105/Del/2022 (Assessment Year: 2017-18) Assistant Commissioner of M/s Westin Hotel Income Tax, Vs. Management LP, Circle-3(1)(1), C/o Nangia & Co., Suite -4A, Intl. Taxation, New Delhi. Plaza M6, Jasola, New Delhi-110025. PAN No: AAAFW9088N APPELLANT RESPONDENT Revenue by : Shri Vizay B. Vasanta, CIT(DR) Assessee by : Shri Amit Arora Shri Vishal Misra, CA Date of Hearing : 01.06.2023 Date of Pronouncement : 20.06.2023 ORDER
PER KUL BHARAT, JM
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-43, New Delhi vide order dated 28.06.2022 for Assessment Year 2017-18. The Revenue has raised the following grounds of appeal:
“1. Whether on the facts and circumstances f the case, the Ld. CIT(A) has erred in law in holding that the entire payments received by the assessee from its Indian customers on account of Centralized Services viz. sales and Page 1 of 9 ITA No.- 2105/Del/2022 Westin Hotel Management LP marketing, reservation fee, centralized services fee and loyalty programs did not constitute Fee for Technical Services as defined u/s 9(1)(vii) of the Income Tax Act, 1961 or “Fee for included Services as defined under Article 12(4)(a) of the Indo-US DTAA.
2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law by dismissing the appeal of the Revenue by relying upon the decision of the Hon’ble Delhi High Court in the case of DIT vs. Sheraton International Inc. (2009) 313 ITR 267 (Delhi HC) by ignoring the fact that the Department has not accepted the aforesaid decision of the Hon’ble Delhi High Court and has filed SLP before the Hon’ble Supreme Court against the said decision.
3. The appellant prays for leave to add, amend, modify or alter any grounds of appeal
at the time or before the hearing of the appeal.
4. Certified that the copy of the Order or the CIT(A) in the above mentioned case was communicated to me on 06.07.2022 and limitation to file appeal before the ITAT expires on 04.09.2022.”
The facts given rise to the present appeal are that the M/s Westin Hotel Management LP, the assessee, is a firm incorporated under the laws of United States of America. It is engaged in the business of providing hotel related services in several countries across the world. The assessee firm is group entity of Starwood group. In India, the assessee has entered into agreement with various Indian hotels for provision of hotel related services inter-alia worldwide publicity, marketing and advertising services through its system of sales, advertising, promotion, public relations and reservations. The assessee filed its return of income on 28.07.2017, declaring total income at ‘Nil’. The case was selected for complete scrutiny under CASS. The notice U/s 143(2) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was issued on 26.09.2018 and thereafter detailed questionnaire was issued and was duly served upon the assessee.
ITA No.- 2105/Del/2022 Westin Hotel Management LP 2.1 The Assessing Officer, during the course of assessment noticed that the assessee has offered the license fee of Rs. 2,88,58,648/-, it was offered for taxation. However, the other, Revenue receipt was not offered to tax. We noted that the issue is covered in favour of the assessee by the Judgement of Hon’ble jurisdictional High Court but the Assessing Officer made addition of Rs. 39,68,09,190/- in respect of centralized fees including loyalty program, reservation fee and sales & marketing fees, Technological services, Operational Services, Training Programs/ Human Resources Fee, stating that the Department has not accepted the decision of Hon’ble High Court and it has preferred Special Leave Petition before Hon’ble Apex Court against the decision of Hon’ble Delhi High Court.
3. Aggrieved by this, the Assessee preferred an appeal before the Ld. CIT(A), who, after considering the submissions and following the judgment of the Hon’ble Delhi High Court rendered in deleted the impugned addition.
Aggrieved against this, the Revenue is in appeal before this Tribunal.
On the other hand, the Ld. DR fairly conceded that the issue in question has been decided by the Hon’ble High Court in (supra).
Apropo to grounds of appeal
the Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the judgement of the Hon’ble Delhi High Court and also by the decision of the Co-ordinate Bench of ITAT rendered in the case of Starwood Hotels & Resorts Worldwide Inc. vs. ACIT in ITA No.- 2105/Del/2022 Westin Hotel Management LP
7. We have heard the rival submissions and perused the materials available on records. We find that the Ld. CIT(A) has given his findings from Para 5.1 to 5.5 same is reproduced as under for the sake of clarity:
“5.1 I have examined the facts at hand, I have perused the submission of the appellant company. It is pertinent to mention here that the primary issue under consideration was decided by the undersigned in the case of group concern M/s W International Inc. for the A.Y 2017-2018 in appeal no. 10532/2019-20. Relevant extract of the order is as under:
5.1 The contentions of the appellant have been considered and the order dated 19.02.2020 passed by AO and the orders of Hon'ble Delhi High Court for AY 2000-01 in case of Sheraton international Inc (group-concern) have also been perused. The grounds in appeal relate to payment received for centralised services as the same were not offered to tax since such payment does not qualify as FTS/FIS in terms of section 9 of the Act as well as article 12 of the India USA-DTAA. 5.2 The appellant had filed its return of income on October 31, 2017 declaring income of Rs. 1,45,07,352 and claiming a refund of Rs.41,19,320. Further, the appellant had revised its return of income on March 20,2019 declaring income of Rs. 1,45,07,352 and claiming as refund of Rs.39,76,980 on account of Updating of form 26AS. The revenues received from various hotel owners for providing various centralized services outside India were claimed to be non-taxable in India provisions of section 9 of income tax Act 1961 as well as article 12 of India –USA DTAA. 5.3 The AO had finally completed assessment at an income of Rs.5,19,90,763/- after treating the centralised fees including loyalty program, reservation fees and sales in marketing fees, technological service, operation services, training program, human resource fees of Rs.3,74,83,411/- as taxable. 5.4 In support of tax position, the appellant has placed reliance on specific provisions of the Act, specific provisions of India- USA DTAA and principle laid down by various judicial precedents, including judicial Delhi Tribunal and Delhi High Court Decisions in case of group entities of the appellant rendering similar services namely Page 4 of 9 ITA No.- 2105/Del/2022 Westin Hotel Management LP Sheraton International Inc and Starwood Hotels and Resorts Worldwide Inc. The AO disregarding the detailed factual and legal submissions made by the appellant has held that the said amount were taxable as FTS /FIS in terms of Article 12 of the DTAA as well as under the Act. 5.5 The issues raised by the AO in the assessment proceedings is based on similar facts and circumstances which have been decided in favour of the appellant by the Hon'ble Delhi Tribunal and Hon'ble Delhi High Court in case of group entity namely Starwood hotels and Resort Worldwide Inc. for AY 2010-11 AY 2011-12 and AY 2012-13. 5.6 Further, the Appellant is of the view that the aforesaid issues raised by the AO in the assessment proceedings is based on similar facts and circumstances which have been decided in favour of the appellant by Delhi High Court in case of Sheraton International Inc (2009) 313 ITR 267 (Delhi). The assessing officer has not followed the decisions of the Hon'ble Delhi High Court on the ground that the said order of High Court has not been accepted by the department and is under challenge before the Hon'ble Supreme Court. Thus, the AO had failed in following the principles of judicial discipline. 5.7 As the issue of taxability of the appellants income from hotel related services provided to various hotels in India as royalty fees for technical service stands squarely covered by the judgement of the ITAT Delhi in case of Sheraton International Inc at to 55 /DEL/2006 dated 4.1 0.2006, It is observed that the appeals of the revenue have been dismissed by the Delhi High Court vide order dated 30.01.2009 where in the High Court held that the tribunal had rightly concluded that the payments received were in nature of business income and not in nature of Royalty or fees for technical services. Further, it was accepted by the AO that appellant did not have a permanent establishment in India and hence the business income could not be brought to tax under Article 7 of India-USA DTAA.
ITA No.- 2105/Del/2022 Westin Hotel Management LP 5.8 Thus, following the orders of higher judicial authorities, the action of the assessing officer in bringing to lax the business receipts of the appellant in India is not acceptable. Therefore, the grounds number 2 & 3 are allowed." 5.2 The issues raised by the appellant company have been decided by the Hon'ble Delhi High Court vide order dated 02.08.2019 in in the case of group concern wherein the Hon'ble High Court has held as under: "2. The question urged for consideration is whether the centralized services rendered by the Assessee would amount to technical services in terms of Section 9 of the Income Tax Act, 1961 as well as under Article 12 of India - US Double Taxation Avoidance Agreement.
The Tribunal in the impugned order relied upon a decision of this Court in Director of Income Tax v. Sheraton International Inc (2009) 178 taxman 84 (Del) which answers the question in favour of Assessee and against the Revenue." 5.3 The issues raised by the appellant company has been decided by the Hon'ble ITAT vide its order dated 29.04.2022 in ITA No. 2013/DEL/2019 in the case of appellant's own case wherein the Hon'ble ITAT has reversed the order passed by my predecessor for the A.Y 2015-2016. Relevant extract of the order of Hon'ble ITAT are as under: 26. The aforesaid decision was upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's Appeal. The same view was reiterated by the Tribunal while deciding assessee's appeal in assessment year 2011-12 in ITA No.203/Del/2016, dated 18.12.2018. It is relevant to observe, the aforesaid decisions of the Coordinate Bench have been upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's appeals. Identical is the factual position in assessment year 2013-14, wherein, the Tribunal decided the issue in favour of the assessee in ITA No. 5144/Del/2016. dated 18.11.2019 and the Hon'ble Jurisdictional High Court has upheld the decision of the Tribunal.
Thus, keeping in view our detailed reasoning, here in above, and the ratio laid down in the binding judicial precedents rendered in assessee's own case as well as in case of group company, viz, Sheraton International Inc., cited before us, we have Page 6 of 9 ITA No.- 2105/Del/2022 Westin Hotel Management LP no hesitation in holding that the fee received by the assessee under the Centralized Services Agreement cannot be treated as FIS either under Article 12(4)(a) or 12(4)(b) of the India-US Tax Treaty. As a natural corollary, it can only be treated as business income of the assessee. Hence, in absence of a PE in India, it will not be taxable.
For the sake of completeness, we must observe, in course of hearing, learned Departmental Representative has relied upon some judicial precedents to drive home the point that the payment received towards centralized services fee is in the nature of FIS under Article 12(4)(a) of the Treaty. In this context, we must observe. after carefully examining the decisions of the Coordinate Bench in case of Marriott Hotel (supra), we are of the view that it is clearly distinguishable on facts. On a reading of the decision, it is very much clear that after examining the agreements entered into with the Indian hotels, the Bench has recorded a finding of fact that the agreements are interrelated/interlinked in essence that they refer to each other. Further, the Bench has observed that for all practical purposes, the clients (Indian hotels) have construed all the agreements as asingle agreement for the purpose to promote brand. Thus, in this factual context, the Bench has concluded that the assessee has split up the royally received into different segments. However, in the appeals before us, there are no such findings by the departmental authorities which can demonstrate that for all practical purposes the License Fee Agreement and Centralized Services Agreement are to be construed as one agreement and has been so understood by the Indian clients. The case of JC Bamford Excavators Ltd. (supra) is also factually distinguishable. Therefore, in our considered opinion, the decisions cited by learned Departmental Representative would be of no help to advance the case of the Revenue.
In view of the aforesaid, we direct the Assessing Officer to delete the addition. 5.4 As the issue of taxability of the appellant's income from hotel related services provided to various hotels in India as royalty/fees for technical service stands squarely covered by the judgement of the Hon'ble Delhi High Court in appellant's group company case. It is observed that the appeals of the revenue have been dismissed by the Hon'ble Delhi High Court vide order dated 02.08.2019 wherein the Page 7 of 9 ITA No.- 2105/Del/2022 Westin Hotel Management LP Hon'ble High Court held that the tribunal had rightly concluded that the payments received were in nature of business income and not in nature of Royalty or fees for technical services. Further, it was accepted by the AO that appellant did not have a permanent establishment in India and hence the business income could not be brought to tax under Article 7 of India-USA DTAA. 5.5 Thus, following the orders of higher judicial authorities, the action of the assessing officer in bringing to tax the business receipts of the appellant in India is not acceptable. Therefore, the grounds number 2 & 3 are allowed.” 7.1 The Revenue could not controvert the fact that the issue in question has already been decided by the Hon’ble jurisdictional High Court in favour of the assessee and same has been followed by the Co-ordinate Bench of the Tribunal. Therefore, we do not see any infirmity into the order of the Ld. CIT(A), the same is hereby affirmed. The grounds raised by the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 20th June, 2023.