Sheraton International , LLC, New Delhi V. DCIT, circle-3(1)(2) International Texation, New Delhi

ITA 4773/DEL/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3995 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 23-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Question of law; Set aside
• Section: 234B; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘D’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.4772/Del./2019 (ASSESSMENT YEAR : 2013-14) ITA No.4773/Del./2019 (ASSESSMENT YEAR : 2014-15) ITA No.4774/Del./2019 (ASSESSMENT YEAR : 2015-16) Sheraton International, LLC vs. JCIT, Circle 3(1)(2), A-109, Sector 136, International Taxation, Noida – 201 304 (Uttar Pradesh). New Delhi. (PAN : AAGCS6140J) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Amit Arora, CA Shri Vishal Misra, CA REVENUE BY : Shri Sanjay Kumar, Sr. DR Date of Hearing : 25.07.2022 Date of Order : 23.09.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : These are appeals by the assessee against the respective orders of the ld. CIT (Appeals) for the concerned assessment years. 2. Since the issues are common and connected and the appeals were heard together, these are being disposed off by this common order. ITA Nos.4772, 4773 & 4774/Del./2019 2 3. For the sake of reference, we are referring to grounds of appeal for AY 2013-14 :- “The Appellant prefers the present appeal on the below mentioned grounds which are mutually exclusive and without prejudice to one another: 1. The order of the Ld. CIT(A) is contrary to the facts, law and principle of Stare decisis and is, therefore, bad in law. 2. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the addition to income amounting to Rs. 20,13,09,505 made by Ld. Assessing Officer (hereinafter referred to as 'Ld. AO'), towards Centralized Services fees received by the Appellant primarily in the nature of Sales & Marketing charges, Reservation charges, Loyalty programs and fees for other centralized services rendered outside India. 3. That on the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in treating the fees of Rs. 20,13,09,505 received for rendering various Centralized Services as ancillary and subsidiary to the license fee. a. That the Ld. CIT(A) has violated the principles of natural justice while holding that the income arising to the Appellant is through a business connection in India under Section 9(1)(i) of the Act without granting opportunity to Appellant/ Assessee to present its case regarding non-applicability of such provision/ reason. b. That the Ld. ClT(A) has erred in arbitrarily applying considering a very high profit percentage of 50% in terms of Rule 10 of the Income Tax Rules, 1962. c. That the Ld. ClT(A) has erred in arbitrarily attributing 50% of such profits (i.e., 25% of total consideration) as profits arising from the Indian connection without appreciating the fact that only such income can be taxable in India as is reasonably attributable to operations carried out in India in terms of clause (a) of Explanation 1 to Section 9(1)(i) of the Act and further, in not appreciating that it is an undisputed fact that all the operations of the Appellant have been completely carried out outside India. 8. That on the facts and the circumstances of the case and in law, the Ld. ClT (A) has erred in not deleting interest levied by Ld. AO under Sections 234B and 234C of the Act, treating the same as mere consequential. ITA Nos.4772, 4773 & 4774/Del./2019 3 All of the above Grounds of Appeal are independent of and without prejudice to each other.” 4. At the outset, in this case, ld. Counsel of the assessee contended that the issue involved is squarely covered in favour of the assessee by the decision of ITAT in the assessee’s own case for earlier years as well as that of Hon’ble jurisdictional High Court. In this regard, ld. Counsel pointed out that in para 27 of the order of AO, AO himself was recognizing this aspect and claiming that this has been so assessed by him as the matter is pending before Hon’ble Supreme Court. Para 27 of the AO’s order reads as under :- “2.7 It is however, pertinent to mention that the afore cited judgment of the Hon'ble Delhi High Court has not been accepted by the Department and SLPs have been filed before the Hon'ble Supreme Court for all the Assessment Years 1995-96 to 2000-01. Further, the matter is already pending before the Hon'ble Supreme Court by way of Special Leave Petitions in case of Sheraton International Inc. In order to keep the issue alive, it is held that revenue received by the assessee for providing centralized services is liable to tax as FTS both under the Act and under the Treaty. Therefore the payments received by assessee in respect of such services are covered under the provisions of Article 12 of the double taxation Avoidance Agreement.” 5. Thus, it is patently clear that this issue is squarely covered in favour of the assessee by ITAT decision in assessee’s own case as well as by Hon’ble jurisdictional High Court. As regards decision of Hon’ble Supreme is concerned, ld. Counsel of the assessee stated that this matter is pending before the Hon’ble Supreme Court. 6. Ld. DR for the Revenue did not dispute this proposition. ITA Nos.4772, 4773 & 4774/Del./2019 4 7. We have heard both the parties and perused the record. We are of the considered opinion that following the judicial discipline, we have to follow the Hon’ble High Court’s decision as well as ITAT decision in assessee’s own case. Hence, ld. CIT (A) has erred in distinguishing these decisions, which is not in accordance with the principles of judicial discipline. We may briefly refer to the ITAT order for AY 2012-13 vide order dated 17.10.2019 wherein ITAT has referred to Hon’ble High Court’s order in assessee’s own case and held as under:- “(i) the main purpose of the agreement entered into between the assessee and its clients-hotels was to promote business keeping in mind their mutual interests, through worldwide publicity, marketing and advertisement. All other services rendered by the assessee as encapsulated in various articles of the agreement were incidental and/or ancillary to its main object. The permission to use the trade mark, brand name, as well as the stylized " S" given by the assessee to its clients-hotels was examined by the Tribunal. It returned a finding that there was nothing on record for it to come to conclusion that the real transaction was other than what was stated in the agreement, that is, the use of the trade mark, etc., was not free of cost but was camouflaged in the composite payment made for various services ; (ii) the assessee, ITC Ltd. had its own brand by the name of "Welcomegroup" which, as noted in the impugned judgment, was used along- side the assessee` s brand name ` Sheraton` . Furthermore, ITC Hotels Ltd., like the assessee also had its own network by the name of " Welcomenet" which was used for reservations within the country ; (iii) the entire transaction entered into between the assessee and its clients-hotels was an " integrated business arrangement" under which the main purpose was to carry out advertisement, publicity and sales promotion for mutual benefit, in this context all other services, i.e., use of trade mark, trade name, computer reservations were incidental to the main purpose as stated above; (iv) it found as a matter of fact that the payments received by the assessee were neither in the nature of royalty under section 9(1)(vi) read with Explanation 2 or article 12(3) of the DTAA nor fee for technical services or fee for included services under section 9(1)(vii) read with Explanation 2 or article 12(4) of the DTAA. See observations in paragraph ITA Nos.4772, 4773 & 4774/Del./2019 5 85 of the impugned judgment. The relevant portion of the finding is extracted below : " As such, considering all the facts of the case, the relevant provisions of the Income-tax Act, 1961, as well as that of the DTAA between India and the USA and keeping in view the legal position emanating from various judicial pronouncements discussed above, we are of the opinion that the amount received by the assessee from the Indian hotels/clients for the services rendered under the relevant agreements was not in the nature of ` royalties` within the meaning given in section 9(1)(vi) read with Explanation 2 thereto of the Income-tax Act, 1961, or as given in article 12(3) of the Indo-American DTAA. The same was also not ` fees for technical services` or ` fees for included services` as defined in section 9(1)(vi) read with Explanation 2 thereto of the Income-tax Act, 1961, or article 12(4) of the Indo-American DTAA respectively. Having regard to the integrated business arrangement between the assessee-company and the Indian hotels/clients as evident from the relevant agreements as well as the nature of the assessee` s own business, the said amount clearly represented its ` business profit` which was not liable to tax in terms of article 7 of the Indo-American DTAA. We, therefore, allow the relevant grounds raised in the assessee` s appeals on this issue and dismiss the additional grounds raised by the Revenue in its appeals." (v) it found that article 12(4)(b) had no applicability and for this purpose it relied upon the memorandum of understanding dated May 15, 1989, and the examples set out therein. After perusing the examples given therein, it came to the conclusion that it had no applicability to the hotel industry. It held that article 12(4)(b) applied to those services which related to areas where technology was made available, whereas what the assessee in the present case was extending was services to the hotel industry in relation to advertisement, publicity and sales promotion, which were not in the nature of technical or consultancy service involving " making of any technology available" . The finding to this effect is given in paragraph 83 of the impugned judgment. The relevant extract is given hereinbelow : " It is also further clarified in the memorandum of understanding that technical and consultancy services as envisaged under paragraph 4(b) of article 12 could make technology available in a variety of settings, activities and industries and some of the areas to which such services may relate are also enumerated in the memorandum of understanding which do not include the hotel industry. One of such areas as indicated in the memorandum of understanding is ` communication through satellite or otherwise` and relying on the same, learned special counsel for the Revenue has contended that the interface between the reservation system of the assessee-company and that of the Indian hotels/clients was covered in this category. We, however, find it difficult to agree with this contention of the learned special counsel for the Revenue. First of all, it is the area which has been specified in the ITA Nos.4772, 4773 & 4774/Del./2019 6 memorandum of understanding for ascertaining the services relating thereto being of technical and consultancy nature making technology available whereas the services rendered by the assessee in the present case are in the field of hotel industries and such services are in relation to advertisement, publicity and sales promotion which are not in the nature of technical and consultancy services involving making of technology available. Secondly, the interface between the computerized reservation system of the assessee and the computerized reservation system of the Indian hotels/ clients was provided to facilitate the reservation of hotel rooms by the customers worldwide as an integral part of the integrated business arrangement between the assessee and the Indian hotels/clients. This interface thus was not separable from and independent of the main integrated job undertaken by the assessee-company of rendering services in relation to marketing, publicity and sales promotion and the same, in any case, was not in the nature of technical and consultancy services making any technology available to the Indian hotels/clients in the field/area of communication through satellite or otherwise. Moreover, as pointed out by the learned counsel for the assessee before us, no communication through satellite was involved in the interface between the computerized reservation system of the assessee and that of the Indian hotels/clients. What is transferred to the Indian company through the service contract is commercial information and the mere fact that technical skills were required by the performer of the service in order to perform the commercial information services does not make the service a technical service within the meaning of paragraph (4)(b) of article 12. Since the facts of the present case are almost similar to the facts of this case given in example 7 of the memorandum of understanding, it leaves no doubt that the payment in question received by the assessee-company from the Indian hotels/clients or any part thereof could not be treated as ` fees for included services` within the meaning of paragraph (4)(b) of article 12." 12.2 As regards the agreement being a colourable device the Tribunal noted that nothing was brought on record by the revenue authorities to show that the intention of the said arrangement or even the action of the parties, as reflected in the agreement, was at variance with the terms of the agreement. It noted that since both the assessee and its clients were operating at arm` s length, no collusion could be attributed to the parties to the agreement since, no evidence whatsoever to support or substantiate the said allegation was placed before them. It also noted the fact that not only all statutory requirements have been fulfilled and compliances had been obtained by the assessee from time to time, but that even the income-tax authorities had given a " no objection" under section 195(2) of the Act (see observations in paragraph 90 of the impugned judgment). As regards the payments received on account of SCI and FFP the Tribunal noted that since the job undertaken by the assessee-company was in the nature of ` integrated business` arrangement, whereby services were rendered to its clients-hotels in relation to advertisements, publicity ITA Nos.4772, 4773 & 4774/Del./2019 7 and sales promotion of hotel business worldwide to further their mutual interest all services including the use of trade mark and other services enumerated in the article including the programmes, in issue, such as SCI and FFP were incidental to the said business arrangement between the assessee and its clients-hotels. It concluded by holding that these programmes were not independent or separate from the main job undertaken by the assessee and since the entire amount towards the service had been held by the Tribunal as business income, the contributions received by the assessee towards the said programmes, i.e., SCI and FFP were also in the nature of business income. It thus rejected the contention of the Revenue that these contributions were in the nature of included services under article 12(4)(a) of the DTAA (see paragraph 114). 13. In view of the aforesaid findings of the Tribunal that the main service rendered by the assessee to its clients-hotels was advertisement, publicity and sales promotion keeping in mind their mutual interest and, in that context, the use of trade mark, trade name or the stylized " S" or other enumerated services referred to in the agreement with the assessee were incidental to the said main service, it rightly concluded, in our view, that the payments received were neither in the nature of royalty under section 9(1)(vi) read with Explanation 2 or in the nature of fee for technical services under section 9(1)(vii) read with Explanation 2 or taxable under article 12 of the DTAA. The payments received were thus, rightly held by the Tribunal, to be in the nature of business income. And since the assessee admittedly does not have a permanent establishment under article 7 of the DTAA " business income" received by the assessee cannot be brought to tax in India. The findings of the Tribunal on this account cannot be faulted. The Tribunal pointedly observed that there was no evidence brought on record by the Revenue to enable them to hold that the agreement was a colourable device, in particular, that the payments received were for use of trade mark, brand name and stylized mark " S" . We agree with reasoning adopted by the Tribunal. Moreover, these are findings of fact which could be gone into only if a question was proposed impugning the findings of the Tribunal as perverse. We find that no such question has been proposed in the appeal. The observations of the Supreme Court in the case of K. Ravindranathan Nair v. CIT [2001] 247 ITR 178 being relevant are extracted below (page 181) : "The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of ITA Nos.4772, 4773 & 4774/Del./2019 8 fact reached by the Tribunal and to give an answer in law to the question of law that is before it. The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is challenged as being perverse, in the sense set out above, that a question of law can be said to arise." (p.181) 14. In these circumstances, we are of the view that no fault can be found with the impugned judgment. No question of law, much less a substantial question of law, has arisen for our consideration. In the result the appeals are dismissed. 8. Since, the issue stands settled by the judgment of the Hon’ble High Court, we hereby decline to interfere in the order of the ld. CIT (A).” 8. Since the issue is covered by the aforesaid decision of ITAT, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 9. Our above order applies mutatis mutandis to the appeals for AYs 2014-15 & 2015-16. 10. In the result, all the appeals filed by the assessee stand allowed. Order pronounced in the open court on this 23 rd day of September, 2022. Sd/- sd/- (KUL BHARAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 23 rd day of September, 2022 TS ITA Nos.4772, 4773 & 4774/Del./2019 9 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.DRP 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.