Appeal details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 75693 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-03-2014
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
L
Next Hearing Date
21-01-2014
Assessment Year
2008-2009
Appeal Filed On
13-05-2011
Judgement Text
L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI .. , , BEFORE SHRI P.M. JAGTAP, AM AND SHRI. SHRI AMIT SHU KA, JM ./ I.T.A. NO. 3136/MUM/2010 ( / ASSESSMENT YEAR : 2006-07 ./ I.T.A. NO. 3936/MUM/2011 ( / ASSESSMENT YEAR : 2008-09 INTERNATIONAL HOTEL LICENSING COMPANY SARL, C/O BMR & ASSOCIATES LLP, BMR HOUSE, 36B DR. R.K. SHIRODKAR MARG, PAREL, MUMBAI-400012 / VS. THE ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)- 3(1), IST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 ./ PAN : AABC10511N ( # / APPELLANT ) .. ( $%# / RESPONDENT ) # & / APPELLANT BY : SHRI S.E. DASTUR & SHRI NIRAJ SHETH $%# & / RESPONDENT BY : S MT. NEERAJA PRADHAN & + / DATE OF HEARING : 26-2-2014 & + / DATE OF PRONOUNCEMENT :5-3-2014 / O R D E R PER P.M. JAGTAP, A.M . .. , THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) 10, MUMBAI DATED 11-2-2010 AND 4-3-2011 FOR ASSESSMENT YEARS 2006-07 AND 2008-09 I NVOLVE 2 ITA NO.3136 /MUM/2010 & 3936/MUM/11 COMMON ISSUES AND THE SAME THEREFORE HAVE BEEN HEAR D TOGETHER AND ARE BEING DISPOSED OF BY SINGLE CONSOLIDATED OR DER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY IN CORPORATED IN THE GRAND DUCHY OF LUXEMBOURG AND IS A TAX RESID ENT OF LUXEMBOURG. IT MAINTAINS AND OPERATES THE SYSTEM MA RKETING FUND FOR THE COURTYARD INTERNATIONAL HOTEL SYSTEM ( FUND) WHICH IS ADMINISTERED BY MARRIOTT INTERNATIONAL INC. ON BEHA LF OF VARIOUS AFFILIATED SUBSIDIARIES PURSUANT TO CONTRACTS WITH OWNERS OR FRANCHISEES OF THE HOTELS. ALL COURTYARD HOTELS LO CATED OUTSIDE OF THE USA AND CANADA ARE COLLECTIVELY REFERRED TO AS COURTYARD INTERNATIONAL HOTELS. THE PRIMARY ACTIVITIES OF THE FUND ARE TO PROVIDE GENERAL BRAND ADVERTISING AS WELL AS SALES AND PROMOTION SERVICES AND MATERIALS INTENDED TO MAXIMIZE GENERAL PUBLIC RECOGNITION, ACCEPTANCE AND USE OF COURTYARD INTERN ATIONAL HOTELS. DURING THE YEARS UNDER CONSIDERATION, 58 COURTYARD INTERNATIONAL HOTELS PARTICIPATED IN THE FUND INCLUDING PALM GROV E BEACH HOTELS PVT. LTD. (PGBHPL) IN INDIA. DURING THE PREVIOUS YE ARS RELEVANT A.Y. 2006-07, PGBHPL MADE A TOTAL CONTRIBUTION OF R S. 49,16,203/- WHICH, AS CLAIMED BY THE ASSESSEE, WAS COMPRISING OF A SUM OF RS. 3,50,751/- AS MARKETING FEES AND THE B ALANCE AMOUNT OF RS. 45,65,452/- TOWARDS REIMBURSEMENT OF EXPENSE S ACTUALLY INCURRED ON MARKETING. IN THE PREVIOUS YEAR RELEVAN T TO A.Y. 2008- 09, THE AMOUNT CLAIMED TO BE RECEIVED BY THE ASSESS EE FROM PGBHPL WAS RS. 39,52,845/- ON ACCOUNT OF MARKETING FEES AND RS. 1,10,83,868/- TOWARDS REIMBURSEMENT OF MARKETIN G EXPENSES. IN THIS YEAR, CHALET HOTELS LIMITED (CHL) AND VICER OY HOTELS LTD. (VHL) ALSO PARTICIPATED IN THE FUND AND THE AMOUNT RECEIVED BY THE ASSESSEE FROM CHL AND VHL ON ACCOUNT OF MARKETI NG FEES WAS RS. 3,04,23,756/- AND RS. 1,20,32,137/- RESPECTIVEL Y. THE AMOUNT 3 ITA NO.3136 /MUM/2010 & 3936/MUM/11 RECEIVED TOWARDS REIMBURSEMENT OF EXPENSES FROM CHL AND VHL WAS RS. 2,98,16,096/- AND RS. 2,73,11,652/- RESPECT IVELY. ACCORDING TO THE ASSESSEE, IT HAD NO PERMANENT ESTA BLISHMENT IN INDIA DURING THE YEARS UNDER CONSIDERATION AND THE AMOUNT OF MARKETING FEES RECEIVED IN THESE YEARS BEING NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES, THE SAME WAS NOT CHA RGEABLE TO TAX IN INDIA IN ITS HAND. SIMILARLY, THE AMOUNT RECEIVED T OWARDS REIMBURSEMENT OF EXPENSES WAS CLAIMED TO BE NOT CHA RGEABLE TO TAX IN INDIA BY THE ASSESSEE BEING NOT IN THE NATUR E OF INCOME. ACCORDINGLY, RETURNS OF INCOME FOR BOTH THE YEARS U NDER CONSIDERATION WERE FILED BY THE ASSESSEE DECLARING TOTAL INCOME AT NIL. 3. IN THE ASSESSMENTS COMPLETED U/S 143(3) OF THE A CT FOR BOTH THE YEARS UNDER CONSIDERATION, THE A.O. HELD THAT T HE PAYMENTS MADE BY THE OWNERS OF THE HOTEL TO THE ASSESSEE WER E FOR THE USE OF INTERNATIONAL BRAND OF MARRIOT AND THE AMOUNT OF SU CH PAYMENTS THEREFORE WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE IN INDIA AS ROYALTY. HE ALSO HELD THAT THE SAID AMOUNT RECEIVED BY THE ASSESSEE FOR THE SERVICES RENDERED BY WAY OF ADVERT ISEMENTS AND WORLDWIDE BUSINESS PROMOTION OF THE BRAND WAS ALTER NATIVELY COVERED WITHIN THE WIDE SCOPE OF FEES FOR TECHNICA L SERVICES AND THE SAME WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE IN INDIA. ACCORDINGLY, THE TOTAL AMOUNT OF RS. 49,16,2 03/- AND RS. 11,46,30,350/- RECEIVED BY THE ASSESSEE ON ACCOUNT OF MARKETING FEES AND REIMBURSEMENT OF EXPENSES IN BOTH THE YEAR S UNDER CONSIDERATION I.E A.Y. 2006-07 AND 2008-09 RESPECTI VELY WAS BROUGHT TO TAX BY THE A.O. IN THE HANDS OF THE ASSE SSEE @ 20% ON GROSS BASIS U/S 115A OF THE ACT. ON APPEAL, THE LD. CIT(A) UPHELD THE ORDERS OF THE A.O. FOR BOTH THE YEARS UNDER CON SIDERATION AND DISMISSED THE APPEALS FILED BY THE ASSESSEE. 4 ITA NO.3136 /MUM/2010 & 3936/MUM/11 4. AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), THE A SSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS:- FOR A.Y. 2006-07: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 10, MUMBAI H AS IN ORDER UNDER SECTION 250 OF THE INCOME-TAX ACT, 1 961 (THE ACT) ERRED ON THE FOLLOWING GROUNDS: (I) IN ADJUDICATING THAT THE PAYMENTS RECEIVED BY T HE APPELLANT UNDER THE INTERNATIONAL MARKETING PROGRAM PARTICIPATION AGREEMENT (IMPPA) ARE NOT IN THE NA TURE OF REIMBURSEMENT OF EXPENSES WITHOUT ASSIGNING ANY REA SONS. (II) IN HOLDING THAT THE APPELLANT HAS BUSINESS CON NECTION IN INDIA AND CONSEQUENTLY THE PAYMENTS RECEIVED BY APP ELLANT UNDER THE IMPPA ARE DEEMED TO ACCRUE OR ARISE IN IN DIA. (III) IN HOLDING THAT THE APPELLANT HAS A SOURCE OF INCOME IN INDIA AND CONSEQUENTLY THE PAYMENTS RECEIVED BY THE APPELLANT UNDER THE IMPPA ARE DEEMED TO ACCRUE OR A RISE IN INDIA. (IV) IN NOT CONSIDERING THAT NONE OF THE APPELLANT S ACTIVITIES WERE PERFORMED IN INDIA AND CONSEQUENTLY NOT TAXABL E IN INDIA. (V) IN RELATION TO THE PAYMENTS RECEIVED UNDER THE IMPPA, HOLDING THAT THE PAYMENT RECEIVED BY THE APPELLANT IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND ALSO IN T HE NATURE OF ROYALTY FOR THE USE OF INTERNATIONAL BRAND. (VI) IN HOLDING THAT THE APPELLANT HAS RECEIVED SAL ES AND MARKETING FEES FROM PALM GROVE HOTELS PVT LTD, HOTE L RAJ PARK PVT LTD AND ADVANI HOTELS & RESORTS LTD. HOWEV ER, FACTUALLY THE APPELLANT HAS RECEIVED SALES AND MARK ETING FEES IN THE SUBJECT ASSESSMENT YEAR ONLY FROM PALM GROVE HOTELS PVT LTD. (VII) IN CONFIRMING THE LEVY OF INTEREST UNDER SECT ION 2348 OF THE ACT. FOR A.Y. 2008-09: BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) 10, MUMBAI H AS, 5 ITA NO.3136 /MUM/2010 & 3936/MUM/11 IN ITS ORDER UNDER SECTION 250 OF THE INCOME-TAX AC T, 1961 (THE ACT), ERRED ON THE FOLLOWING GROUNDS: 1. IN APPLYING THE RULING RENDERED BY THE AUTHORIT Y FOR ADVANCE RULINGS IN THE APPELLANTS CASE WITHOUT GIV ING COGNIZANCE TO THE FACT THAT A SPECIAL LEAVE PETITIO N HAS BEEN FILED WITH THE HONORABLE SUPREME COURT OF INDIA AND THAT THE MATTER IS PENDING BEFORE THE HONORABLE SUPREME COURT FOR HEARING 2. IN HOLDING THAT PAYMENTS RECEIVED BY THE APPELLA NT TOWARDS REIMBURSEMENT OF EXPENSES UNDER THE INTERNA TIONAL MARKETING PROGRAM PARTICIPATION AGREEMENT (IMPPA) ARE NOT IN THE NATURE OF REIMBURSEMENT OF EXPENSES. 3. IN HOLDING THAT THE APPELLANT HAS BUSINESS CONNECTION IN INDIA AND CONSEQUENTLY THE PAYMENTS RECEIVED BY APPELLANT UNDER THE IMPPA ARE DEEMED TO ACCRUE OR ARISE IN INDIA. 4. IN HOLDING THAT THE APPELLANT HAS A SOURCE OF IN COME IN INDIA AND CONSEQUENTLY THE PAYMENTS RECEIVED BY THE APPELLANT UNDER THE IMPPA ARE DEEMED TO ACCRUE OR A RISE IN INDIA. 5. IN NOT CONSIDERING THAT NONE OF THE APPELLANTS ACTIVITIES WERE PERFORMED IN INDIA AND CONSEQUENTLY NOT TAXABLE IN INDIA. 6. IN HOLDING THAT THE PAYMENT RECEIVED BY THE APPELLANT TOWARDS MARKETING FEES PURSUANT TO THE IM PPA ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS WELL AS ROYALTY UNDER THE PROVISIONS OF THE ACT. 7. IN HOLDING THAT THE PAYMENTS RECEIVED BY THE APPELLANT TOWARDS REIMBURSEMENT OF EXPENSES UNDER T HE IMPPA ARE IN THE NATURE OF FEES FOR TECHNICAL SERVI CES AS WELL AS ROYALTY UNDER THE PROVISIONS OF THE ACT. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E THE TRIBUNAL, THE ASSESSEE HAS FILED APPLICATIONS SEEKING ADMISSION O F THE FOLLOWING ADDITIONAL GROUND OF APPEAL WHICH IDENTICAL IN BOTH THE YEARS UNDER CONSIDERATION:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LD. COMMISS IONER OF INCOME-TAX (APPEALS) 10, MUMBAI HAS IN ITS ORDER UNDER 6 ITA NO.3136 /MUM/2010 & 3936/MUM/11 SECTION 250 OF THE INCOME-TAX ACT 1961 (THE ACT) ERRED ON THE FOLLOWING GROUND: 1. IN NOT APPRECIATING THAT THE PAYMENTS RECEIVED BY THE APPELLANT UNDER THE IMPPA WERE NOT TAXABLE AS PER THE PRINCIPLE OF MUTUALITY. 6. WE HAVE HEARD THE ARGUMENTS OF THE LD. REPRESENT ATIVES OF BOTH THE SIDES ON THE ISSUE OF ADMISSION OF ADDITIO NAL GROUND. ALTHOUGH, THE LD. D.R. HAS AGREED THAT THE ISSUE RA ISED BY THE ASSESSEE IN THE ADDITIONAL GROUND IS PURELY A LEGAL ISSUE, SHE HAS STRONGLY OBJECTED TO THE ADMISSION OF THE SAID ADDI TIONAL GROUND ON THE BASIS THAT ALL THE RELEVANT FACTS TO DECIDE THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND ARE NOT AVAIL ABLE ON RECORD. SHE HAS CONTENDED THAT THE HONBLE SUPREME COURT HA S LAID DOWN CERTAIN SPECIFIC GUIDELINES FOR APPLYING THE PRINC IPLE OF MUTUALITY IN THE CASE OF BANGALORE CLUB VS. CIT 350 ITR 509. SHE HAS SUBMITTED THAT SOME OF THE CONDITIONS LAID DOWN BY THE HONBLE SUPREME COURT IN THIS REGARD ARE THAT THERE SHOULD NOT BE ANY TAINT OF COMMERCIALITY AND THERE MUST BE A COMPLETE IDENTITY BETWEEN THE CONTRIBUTORS AND PARTICIPANTS. SHE HAS CONTENDED THAT SINCE THIS ISSUE WAS NOT RAISED BY THE ASSESSEE EIT HER BEFORE THE A.O. OR BEFORE THE LD. CIT(A), THE OCCASION TO EXAM INE/VERIFY AS TO WHETHER THE ASSESSEE SATISFIED ALL THE CONDITIONS T O CLAIM THE BENEFIT OF PRINCIPLE OF MUTUALITY DID NOT ARISE. SH E HAS CONTENDED THAT THE ADJUDICATION OF THE ISSUE AS TO WHETHER TH E PRINCIPLE OF MUTUALITY IS APPLICABLE IN THE CASE OF THE ASSESSEE AS RAISED IN THE ADDITIONAL GROUND MAY REQUIRE INVESTIGATION INTO TH E NEW FACTS WHICH ARE NOT AVAILABLE ON RECORD AND URGED THAT TH E ADDITIONAL GROUND RAISED BY THE ASSESSEE SHOULD NOT BE ADMITTE D. 7. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, HAS SUBMITTED THAT ALTHOUGH THE ISSUE REGARDING APPLICA BILITY OF PRINCIPLE OF MUTUALITY IN THIS CASE HAS BEEN RAISED BY THE ASSESSEE 7 ITA NO.3136 /MUM/2010 & 3936/MUM/11 FOR THE FIRST TIME BEFORE THE TRIBUNAL, THE SAID CL AIM IS BEING MADE ON THE BASIS OF TERMS AND CONDITIONS OF THE RELEVAN T AGREEMENTS AND OTHER DOCUMENTS WHICH ARE ALREADY PART OF RECOR D BEFORE THE A.O. HE HAS CONTENDED THAT NO NEW MATERIAL OR INVE STIGATION INTO NEW FACTS IS REQUIRED TO ADJUDICATE UPON THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND. HE URGED THAT TH E ADDITIONAL GROUND RAISED BY THE ASSESSEE MAY THEREFORE BE ADMI TTED AND THE MATTER CAN BE RESTORED TO THE FILE OF THE A.O. FOR DECIDING THE ISSUE RAISED BY THE ASSESSEE THEREIN RELATING TO APPLICAT ION OF PRINCIPLE OF MUTUALITY AFTER NECESSARY VERIFICATION. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL AVAILABLE ON RECORD, WE ARE OF TH E VIEW THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IN ITS APP EALS FOR BOTH THE YEARS UNDER CONSIDERATION DESERVES TO BE ADMITTED. THE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS A LEGAL IS SUE AND THIS POSITION HAS BEEN ACCEPTED BY THE LD. D.R. SHE, HO WEVER, HAS OBJECTED TO THE ADMISSION OF THE ADDITIONAL GROUND BY SUBMITTING THAT THE ADJUDICATION OF THE ISSUE RAISED THEREIN M AY REQUIRE INVESTIGATION INTO NEW FACTS. SHE, HOWEVER, HAS NOT BEEN ABLE TO POINT OUT SPECIFICALLY WHAT EXACTLY ARE THE NEW FAC TS OR MATERIAL WHICH MAY BE REQUIRED TO ADJUDICATE THE ISSUE RAISE D BY THE ASSESSEE IN THE ADDITIONAL GROUND. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE FOR THE APPLICABILITY OF PRINCIPLE OF MUTU ALITY IN ITS CASE AS MADE IN THE ADDITIONAL GROUND IS BASED ON THE RELEV ANT AGREEMENTS AND OTHER DOCUMENTS WHICH ARE ALREADY PART OF THE R ECORD OF THE A.O. IN OUR OPINION, WHETHER THE ASSESSEE SATISFIES THE CONDITIONS FOR APPLICATION OF PRINCIPLE OF MUTUALITY AS PER TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF BANGALORE CLUB (SUPRA) IS THE MATTER OF VERIFICATION/EXAMINATION WHICH CAN BE DON E BY THE A.O. 8 ITA NO.3136 /MUM/2010 & 3936/MUM/11 INDEPENDENTLY. IN SO FAR AS THE ADMISSION OF ADDITI ONAL GROUND IS CONCERNED, WHAT IS TO BE SEEN AT THIS STAGE IS WHET HER THE ISSUE INVOLVED THEREIN IS A LEGAL ISSUE AND ALL THE RELEV ANT FACTS REQUIRED TO DECIDE THE SAID ISSUE IS AVAILABLE ON RECORD. AF TER HAVING CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES, WE AR E OF THE VIEW THAT THESE CONDITIONS ARE SATISFIED IN THE PRESENT CASE. WE, THEREFORE, ADMIT THE ADDITIONAL GROUND RAISED BY TH E ASSESSEE IN BOTH THE PRESENT APPEALS AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO DECIDE THE SAME ON MERIT A FTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 9. SINCE THE ISSUE RAISED IN THE ADDITIONAL GROUND BY THE ASSESSEE IS A PRELIMINARY ISSUE WHICH GOES TO THE R OOT OF THE MATTER, THE LD. REPRESENTATIVES OF BOTH THE SIDES H AVE AGREED THAT THE OTHER ISSUES INVOLVED IN BOTH THESE APPEALS AS RAISED IN THE ORIGINAL GROUNDS NEED NOT BE DECIDED AT THIS STAGE AND THE SAME MAY BE KEPT OPEN WITH A LIBERTY TO THE ASSESSEE TO RAISE THE SAME AGAIN IF IT FAILS ON THE PRELIMINARY ISSUE RELATING TO ITS CLAIM FOR APPLICABILITY OF PRINCIPLE OF MUTUALITY. 10. IN THE RESULT, APPEALS OF THE ASSESSEE ARE TREA TED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH MARCH, 2014. & 0 1 & SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 5-3-2014 ../ R.K. SR. PS 9 ITA NO.3136 /MUM/2010 & 3936/MUM/11 ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $%# / THE RESPONDENT. 3. () / THE CIT (A) - 10 , MUMBAI 4. /CIT DIT(INTER NATIONAL TAXATION) R.G. 3, MUMBAI 5. 6 $8 , + 8 , / DR, ITAT, MUMBAI L BENCH 6. ; / GUARD FILE. / BY ORDER, %6 $ //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI
