DDIT, New Delhi V. M/s. Sheraton International Inc., New Delhi

ITA 2305/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58597 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 23-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 06-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA
• Assessee Lawyers: ASHUTOSH JAIN
• Keywords: Business income; Double taxation relief; Permanent establishment; Question of law

Judgement Text

ITA NOS. 2305 & 2306/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 2305 & 2306/DEL/2011 A.YRS. : 2005-06 & 2006-07 DDIT, INTL. TAXATION, CIRCLE 2(2), NEW DELHI VS. M/S SHERATON INTERNATIONAL INC., C/O NANGIA & CO. B-57, SOAMI NAGAR, NEW DELHI 110 057 (PAN/GIR NO. : AAGCS6140J) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. ASHUTOSH JAIN, CA & SH. AMIT ARORA, CA DEPARTMENT BY : SH RI KRISHNA, C.I.T.(D.R.) ORDER ORDER ORDER ORDER PER BENCH PER BENCH PER BENCH PER BENCH THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE RESPECTIVE ORDERS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS)- XXII, NEW DELHI PERTAINING TO ASSESSMENT YEARS 200 5-06 & 2006-07. SINCE THE ISSUES ARE COMMON IN THESE APPEALS, HENCE , HEARD TOGETHER AND THEREFORE, THESE ARE BEING CONSOLIDATED AND D ISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE GROUNDS RAISED IN ITA NO. 2305/DEL/2011 READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HO LDING THAT THE RECEIPTS OF THE ASSESSEE WERE IN NATURE OF BUSINESS PROFITS AS AGAINST ROYALTIES /FIS. ITA NOS. 2305 & 2306/DEL/2011 2 II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESS EE FORM INDIAN CUSTOMERS WAS TOWARDS USE OF TRADEMARK AND CONSTITUTES ROYALTY IN TERMS OF ARTICLE 12 OF DTAA. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HA S ERRED IN NOT APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESSEE FROM INDIAN CUSTOMERS WAS MAKING AVAILABLE TECHNICAL KNOWHOW, SKILLS AND MANAGERIAL PRACTICE ETC. AND THEREFORE CONSTITUTES FIS/ ROYALTY IN TERMS OF DTAA. IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NO T APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESS EE FROM INDIAN CUSTOMERS FOR USE OF HIGHLY SOPHISTICATED CRS SYSTEMS AND TOWARDS MARKETING, PUBLICITY, FREQUENT F LIER PROGRAM, STARWOOD PREFERRED GUEST PROGRAM AND RESERVATION FEES WOULD CONSTITUTE FIS/ROYALTY IN TER M OF DTAA. V) THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MOD IFY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HE ARING OF THE APPEAL. 3. THE GROUNDS RAISED IN ITA NO. 2306/DEL/2011 READ AS UNDER:- I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD . COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HO LDING THAT THE RECEIPTS OF THE ASSESSEE WERE IN NATURE OF BUSINESS PROFITS AS AGAINST ROYALTIES /FIS. ITA NOS. 2305 & 2306/DEL/2011 3 II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESS EE FORM INDIAN CUSTOMERS WAS TOWARDS USE OF TRADEMARK AND CONSTITUTES ROYALTY IN TERMS OF ARTICLE 12 OF DTAA. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, HA S ERRED IN NOT APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESSEE FROM INDIAN CUSTOMERS WAS MAKING AVAILABLE TECHNICAL KNOWHOW, SKILLS AND MANAGERIAL PRACTICE ETC. AND THEREFORE CONSTITUTES FIS/ ROYALTY IN TERMS OF DTAA. IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NO T APPRECIATING THAT PART OF PAYMENT RECEIVED BY ASSESS EE FROM INDIAN CUSTOMERS FOR USE OF HIGHLY SOPHISTICATED CRS SYSTEMS AND TOWARDS MARKETING, PUBLICITY, FREQUENT F LIER PROGRAM, STARWOOD PREFERRED GUEST PROGRAM AND RESERVATION FEES WOULD CONSTITUTE FIS/ROYALTY IN TER M OF DTAA. V) THE APPELLANT PRAYS FOR LEAVE TO ADD, AMEND, MODI FY OR ALTER ANY GROUNDS OF APPEAL AT THE TIME OR BEFORE THE HE ARING OF THE APPEAL. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING VARIOUS HOTEL RELATED SERVICES TO HOTELS ACROSS THE WORLD. THE ASSESSEE HAD ENTERED INTO AGREEMENTS WITH THE ITC HOTELS LTD. CHAIN OF HOTELS, AND CERTAIN OTHER HOTELS IN INDIA, TO PROVIDE MARKE TING AND ADVERTISING SERVICES THROUGH ITS SYSTEM OF SALES, PROMOTION, PUB LIC RELATIONS AND RESERVATIONS. THESE SERVICES WERE PROVIDED BY THE ASSESSEE OUTSIDE ITA NOS. 2305 & 2306/DEL/2011 4 INDIA, AND THE INCOME WAS RECEIVED IN THE FORM OF MA RKING FEES, AND FEES FOR FREQUENT FLIER PROGRAM (FFP), AND STARWOOD PREFERRED GUEST (SPG). THE ASSESSEE STATED THAT IT DOES NOT HAVE A P.E. IN INDIA, AND THE REVENUE DERIVED BY IT IS IN THE NATURE OF BUSI NESS PROFITS AS DEFINED IN ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEM ENT BETWEEN INDIA AND THE USA. THE ASSESSING OFFICER HELD, HOWEVER, THAT THE ASSESSEE HAD RECEIVED INCOME FROM ROYALTY AND / OR FEES FROM T ECHNICAL SERVICES. THE ASSESSING OFFICER, RELYING ON THE ASSESSMENT ORDER OF A.Y. 1998- 99, HELD THAT THE REVENUE EARNED FOR THE USE OF TRA DEMARK, TRADE NAME AND THE STYLIZED S OWNED BY THE ASSESSEE, WAS TAX ABLE AS ROYALTY, AS DEFINED IN EXPLANATION 2(I) OF SECTION 9(1)(VI) OF THE INCOME TAX ACT, BEING PAYMENT OF THE USE OR RIGHT TO USE A TRADEMAR K, PATENT OR SIMILAR PROPERTY. THE PAYMENT WAS ALSO HELD TO BE COVERED B Y THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS PER EXPLANATION 2 OF SECTION 9(1)(VII), BEING A CONSIDERATION FOR THE RENDERING OF TECHNICA L, MANAGERIAL AND CONSULTANCY SERVICES. IN PARTICULAR, THE PAYMENT FO R THE USE OF THE SOPHISTICATED CRS SYSTEMS FOR MAKING BOOKINGS WAS COV ERED UNDER FEES FOR TECHNICAL SERVICES. THE REVENUES REC EIVED FROM RENDERING SERVICES OF ADVERTISEMENT, NETWORKING, AND PROMOTION, WAS ALSO HELD TO BE TAXABLE AS ROYALTY AND / OR FEES FOR TECHNICAL S ERVICES. IT IS SEEN FROM THE BODY OF THE ORDER THAT IT WAS BROUGHT TO TH E NOTICE OF THE ASSESSING OFFICER THAT THE ITAT, DELHI, HAD PASSED AN ORDER ON 4.10.2006 IN THE ASSESSEES OWN CASE, FOR THE A.YRS . 1995-96 TO 2000- 01, HOLDING THAT THE AMOUNT RECEIVED BY THE ASSESSE E FROM THE INDIAN HOTELS/ CLIENTS COULD NOT BE TREATED AS ROYALTY OR FEES FOR TECHNICAL OR INCLUDED SERVICES. THE ASSESSING OFFICER OBSERVED THAT APPEAL HAD BEEN FILED TO THE HIGH COURT BY THE DEPARTMENT AGAI NST THE JUDGEMENT OF THE ITAT, AND HE PROCEEDED TO BRING TO TAX THE R EVENUES RECEIVED ITA NOS. 2305 & 2306/DEL/2011 5 FROM THE INDIAN HOTELS, AT 15% AS PER THE PROVISIONS OF ARTICLE 12 OF THE DTAA BETWEEN INDIAN AND THE USA. 5. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE AND HELD AS UNDER:- I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS, AND THE CONTENTIONS OF THE ASSESSEE. I HAVE ALSO PERUSED T HE ASSESSMENT ORDER AND THE ORDERS OF THE HONBLE IT AT AND THE HONBLE DELHI HIGH COURT FOR THE A.Y.RS. 1995-96 TO 2000-01 IN THE ASSESSEES OWN CASE. THE ISSUE OF TAXABILITY OF THE ASSESSEES INCOME FROM HOTEL RELATED SERVICES PROVIDED TO HOTELS IN INDIA, AS ROYALTY / FEES FOR TECHNICAL SERVICES, STANDS SQUARELY COVERED BY THE JUDGEMENT OF THE ITAT, DELHI AT ITA NOS. 50 TO 55/DEL/2006 DATED 4.1 0.2006. IT IS ALSO OBSERVED THAT THE APPEALS OF THE REVENU E HAVE BEEN DISMISSED BY THE DELHI HIGH COURTS ORDER DATED 30.1.2009, WHEREIN THE LEARNED COURT HELD THAT THE TRIBUNAL HAD RIGHTLY CONCLUDED THAT THE PAYMENTS RECEIVED WE RE IN THE NATURE OF BUSINESS INCOME, AND NOT IN NATURE O F ROYALTY OR FEES FOR TECHNICAL SERVICES. IT WAS ACCEPTED T HAT THE ASSESSEE DID NOT HAVE A PERMANENT ESTABLISHMENT IN I NDIA, AND HENCE THE BUSINESS INCOME COULD NOT BE BROUGHT TO TAX UNDER ARTICLE 7 OF THE INDIA-USA DTAA. MOREOVER, NO ITA NOS. 2305 & 2306/DEL/2011 6 QUESTION OF LAW HAD ARISEN FOR THEIR CONSIDERATION, AS THESE ARE FINDINGS OF FACT BY THE TRIBUNAL. THEREFORE, R ESPECTFULLY FOLLOWING THE ORDERS OF THE HIGHER JUDICIAL AUTHORI TIES, THE BRINGING TO TAX OF THE BUSINESS RECEIPTS OF THE ASS ESSEE IN INDIA, IS DELETED. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPE AL BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENTS RELIED UPON. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN F AVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL DATED 4.10.2006 R EPORTED IN 107 ITD 120(DEL). REVENUE APPEALED AGAINST THE ITAT ORDER , HAS BEEN DISMISSED BY THE HONBLE JURISDICTIONAL HIGH COURT V IDE ORDER DATED 30.1.2009 REPORTED IN 313 ITR 267. 7.1 LD. DEPARTMENTAL REPRESENTATIVE COULD NOT CONTRO VERT THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE. 7.2 RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS FRO M THE HONBLE JURISDICTIONAL HIGH COURT AND THE ORDER OF THE IT AT, WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NOS. 2305 & 2306/DEL/2011 7 8. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/1/2012 UPO N CONCLUSION OF HEARING. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 31/1/2012 SRB COPY COPY COPY COPY FORWARDED TO: FORWARDED TO: FORWARDED TO: FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES +