DCIT (International Taxation), New Delhi V. M/s Starwood Hotels & Resorts Worldwide Inc., New Delhi

ITA 202/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4509 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 14-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATIQ AHMAD SENIOR
• Assessee Lawyers: VISHAL MISRA CAS
• Keywords: Business income; Double taxation relief; Permanent establishment; Question of law
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.202/DEL./2016 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE 3 (1)(2), VS. M/S. STARWOOD HOTELS & R ESORTS NEW DELHI. WORLDWIDE INC. C/O M/S. NANGIA & CO., CAS, SUITE 4A, PLAZA M 6, JASOLA, NEW DELHI-110 025. (PAN : AAOCS2525F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI AMIT ARORA & VISHAL MISRA, CA S REVENUE BY : SHRI ATIQ AHMAD, SENIOR DR DATE OF HEARING : 21.09.2017 DATE OF ORDER : 28.09.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX, C IRCLE 3(1)(2), NEW DELHI (HEREINAFTER REFERRED TO AS THE REVENUE), BY FILING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 12.10.2015 PASSED BY THE COMMISSIONER OF INCO ME-TAX-43, NEW DELHI QUA THE ASSESSMENT YEAR 2010-11ON THE GRO UNDS INTER ALIA THAT :- ITA NO.202/DEL./2016 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE CENTRALIZED SERVICES FEE RECEIVED BY THE APPELLANT FOR RENDERING VARIOUS MARKETING, ADVERTISEMENT & OTHER SERVICES TO CUSTOMERS IN INDIA, WERE NOT TAXABLE AS 'FEES FOR TECHNICAL SERVICES' (,FTS'), IN TERMS OF SECTION 9 OF THE INCOME TAX ACT, 1961 AS WELL AS ARTICLE 12 OF THE INDIA-US DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA'). 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : M/S. STARWOOD HOTELS & RE SORTS WORLDWIDE INC., THE ASSESSEE, IS A COMPANY INCORPOR ATED UNDER LAWS OF UNITED STATES OF AMERICA (USA) AND RESIDENT THEREOF. IT IS INTO THE BUSINESS OF PROVIDING HOTEL RELATED SERVIC ES IN SEVERAL COUNTRIES AROUND THE WORLD. ASSESSEE COMPANY IS AL SO OBLIGED TO PROVIDE CENTRALIZED SERVICES LIKE SALES AND MARKETI NG, LOYALTY PROGRAMS, RESERVATION SERVICE, TECHNOLOGICAL SERVIC ES, OPERATIONAL SERVICES AND TRAINING PROGRAMS. THE ASSESSEE EARNE D REVENUE UNDER VARIOUS HEADS FOR WHICH THE ASSESSEE HAS NOT PROVIDED ANY CENTRALIZED SERVICES RECEIPT FOR TAXATION DURING TH E YEAR UNDER ASSESSMENT, WHICH ARE AS UNDER :- S.NO. DEDUCTOR HOTEL CENTRALIZED SERVICE FEE 1 BRAMHA BAZAZ HOTELS LIMITED LE MERIDIEN PUNE 94,18,529 2 MAYANK SHARMA ENTERPRISES PRIVATE LIMITED LE MERIDIEN JAIPUR 50,81,173 3 BD&P HOTELS (INDIA) P LTD LE MERIDIEN MUMBAI 1,19,27,456 ITA NO.202/DEL./2016 3 4 M - FAR HOTELS LTD. LE MERIDIEN KOCHI 46,25,612 5 ASSOCIATED HOTEL LTD LE MERIDIEN AHMEDABAD 41,57,323 6 MAC CHARLES (INDIA) LIMITED LE MERIDIEN BANGALORE 73,31,568 7 CLASSIC CITI INVESTMENT PVT. LTD. WESTIN PUNE 8,04,879 8 CHALET HOTELS LIMITED WESTIN HYDERABAD 8,26,680 9 KINGSTON PROPERTIES PRIVATE LIMITED WESTIN MUMBAI 8,58,292 10 VATIKA HOSPITALITY PVT. LTD. WESTIN SOHNA 5,85,689 TOTAL 4,56,17,202 3. ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO WHY TH E REVENUE EARNED BY THE ASSESSEE FOR RENDERING CENTRALIZED SE RVICES BE NOT TAXED AS FEE FOR TECHNICAL SERVICES (FTS). FINDING THE EXPLANATION GIVEN BY THE ASSESSEE NOT TENABLE, THE AO PROCEEDED TO HOLD THAT CENTRALIZED SERVICES FEE OF RS.4,56,17,20 2/- RECEIVED BY THE ASSESSEE IS TAXABLE IN INDIA BOTH UNDER THE PRO VISIONS OF INCOME-TAX AS WELL AS INDO-USA, DTAA, AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE TO BE TAXED U/S 11 5A OF THE ACT. 4. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS ALLOWED THE APPEAL. FEELIN G AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF C HALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT (A) . 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ITA NO.202/DEL./2016 4 ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. LD. DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AO. HOWEVER, THE LD. AR FOR THE ASSESSEE RELIED UPON TH E ORDER PASSED BY THE LD. CIT (A). 7. FOR THE SAKE OF READY REFERENCE, THE FINDINGS RE TURNED BY THE LD. CIT (A) ALLOWING THE APPEAL ARE REPRODUCED AS U NDER :- 8. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS, AND THE CONTENTIONS OF THE APPELLANT. I HAVE ALSO PERUSED THE ASSESSMENT ORDER AND THE ORDE RS OF THE HON'BLE ITAT AND THE HON'BLE DELHI HIGH COUR T FOR THE AYS. 1995-96 TO 2000-2001 IN THE CASE OF SHERATON INTERNATIONAL INC (GROUP CONCERN). THE ISS UE OF TAXABILITY OF THE APPELLANT'S INCOME FROM HOTEL RELATED SERVICES PROVIDED TO HOTELS IN INDIA, AS RO YALTY /FEES FOR TECHNICAL SERVICES, STANDS SQUARELY COVER ED BY THE JUDGMENT OF THE ITAT, DELHI IN THE CASE OF SHER ATON INTERNATIONAL INC. AT ITA NOS. 50 TO 55/DEL/2006 DA TED 04.10.2006, IT IS ALSO OBSERVED THAT THE APPEALS OF THE REVENUE HAVE BEEN DISMISSED BY THE DELHI HIGH COURT VIDE ORDER DATED 30.01.2009, THEREIN THE HON'BLE HI GH COURT HELD THAT THE TRIBUNAL HAD RIGHTLY CONCLUDED THAT THE PAYMENTS RECEIVED WERE IN THE NATURE OF BUSINES S INCOME, AND NOT IN NATURE OF ROYAL OR FEES FOR TECH NICAL SERVICES. IT WAS ACCEPTED BY THE LD. ASSESSING OFFI CER THAT THE APPELLANT DID NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA, AND HENCE THE BUSINESS INCO ME COULD NOT BE BROUGHT TO TAX UNDER ARTICLE 7 OF THE INDIA- USA DTAA, MOREOVER, NO QUESTION OF LAW HAD ARISEN FOR THEIR CONSIDERATION, AS THESE ARE FINDINGS OF F ACT BY THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE ORDERS OF THE HIGHER JUDICIAL AUTHORITIES, THE BRIN GING TO TAX OF THE BUSINESS RECEIPTS OF THE APPELLANT IN IN DIA, IS DELETED. THUS, THE APPELLANT SUCCEEDS IN GROUNDS 1 TO 4. ITA NO.202/DEL./2016 5 8. THE ISSUE IN CONTROVERSY HAS ALSO BEEN SET AT RE ST BY THE HONBLE DELHI HIGH COURT IN CASE CITED AS DIRECTOR OF INCOME-TAX VS. SHERATON INTERNATIONAL INC. (2009) 313 ITR 26 7 (DEL.) AS UNDER:- DOUBLE TAXATION RELIEF-AGREEMENT BETWEEN INDIA AND USA-PAYMENT FOR ADVERTISING, PUBLICITY AND SALES PROMOTION SERVICES-TRIBUNAL FOUND AS A FINAL FACT FINDING AUTHORITY THAT MAIN SERVICES RENDERED BY ASSESSEE, A COMPANY INCORPORATED AND TAX RESIDENT I N USA, TO INDIAN COMPANY, WAS ADVERTISEMENT, PUBLICIT Y AND SALES PROMOTION KEEPING IN MIND THEIR MUTUAL INTERESTS AND IN THAT CONTEXT, THE USE OF TRADEMARK , TRADE NAME ETC. AND OTHER ENUMERATED SERVICES REFERRED TO IN THE AGREEMENT WITH THE ASSESSEE WERE INCIDENTAL TO MAIN SERVICE- TRIBUNAL THUS RIGHTLY CONCLUDED THAT THE PAYMENTS RECEIVED WERE NEITHER IN THE NATURE OF ROY ALTY UNDER S. 9(L)(VI), EXPLN. 2 NOR IN THE NATURE OF FE E FOR TECHNICAL SERVICES UNDER S. 9(1) (VII), EXPLN. 2, B UT BUSINESS INCOME AND ASSESSEE NOT HAVING ANY PE IN INDIA SUCH BUSINESS INCOME WAS NOT TAXABLE IN INDIA - THERE WAS NOTHING ON RECORD TO SHOW THAT THE AGREEMENT WAS A COLOURABLE DEVICE- SUCH FINDINGS OF FACT HAVING NOT BEEN CHALLENGED AS PERVERSE, NO SUBSTANTIAL QUESTION OF LAW AROSE OUT OF THE ORDER OF THE TRIBUNAL 9. SO, FOLLOWING THE DECISION RENDERED BY HONBLE D ELHI HIGH COURT IN CASE OF DIRECTOR OF INCOME-TAX VS. SHERATON INTERNATIONAL INC. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE REVENUE RECEIVED BY THE ASSESSEE FOR PROVIDING CENT RALIZED SERVICES IS NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES (FTS) U/S 9(1)(VI) EXPLANATION 2, BUT IT IS A BUSINESS INCOME. SINCE THE ASSESSEE IS NOT ITA NO.202/DEL./2016 6 HAVING ANY PE IN INDIA, ITS BUSINESS INCOME EARNED IS NOT TAXABLE IN INDIA. 10. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E FIND NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER PASS ED BY THE LD. CIT (A), HENCE PRESENT APPEAL FILED BY THE REVENUE IS H EREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER, 2017. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 28 TH DAY OF SEPTEMBER, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-43, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.