ACIT, International Taxation, Circle-3(1)(2), New Delhi V. Statwood (M) International Inc., Noida

ITA 5191/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9463 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 10-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST TH E DATED PASSED
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 201; 115A; 13; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 5191/DEL/2017 (A.Y 2014-15) (THROUGH VIDEO CONFER ENCING) A CIT INTERNATIONAL TAXATION, CIRCLE- 3(1)(2), ROOM NO. 418, E-2, DR. SPM CIVIC CENTRE, NEW DELHI (APPELLANT) VS STARWOOD (M) INTERNATIONAL INC. C/O. NANGIA & CO. A-109, SECTOR-136, NODIA, UTTAR PRADESH PAN:AANCS4030J (RESPONDENT) I.T.A. NO. 5336/DEL/2017 (A .Y 2014-15) DCIT INTERNATIONAL TAXATION, CIRCLE- 3(1)(1), ROOM NO. 419, BLOCK, E- DR. SPM CIVIC CENTRE, J. L. N DELHI (APPELLANT) VS M/S WESTIN HOTEL MANAGEMENT LP C/O. M/S NANGIA & CO. A- 109 SECOTR-136, NOIDA UTTAR PRADESH PAN:AAAFW9088N (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS TWO APPEALS ARE FILED BY THE REVENUE AGAINST T HE ORDER DATED 06/06/2017 PASSED BY CIT(A)-43, NEW DELHI FOR ASSE SSMENT YEAR 2014-15. APPELLANT BY SH. SATPAL GULATI, CIT DR RESPONDENT BY SH. AMIT ARORA, CA DATE OF HEARING 20.07.2021 DATE OF PRONOUNCEMENT 30.07.2021 2. THE GROUNDS OF APPEAL ARE AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE RECEIPTS OF TH E ASSESSEE FROM VARIOUS ACTIVITIES OF HOTEL MANAGEMENT RANGING INTE RALIA FROM TICKETING, RESERVATION, MARKETING, ADVERTISING, OPE RATION, ADMINISTRATION, CATERING, NETWORK SUPPORT SERVICES, STARWOOD PORTAL SERVICES, IMPARTING OF SKILL SETS THROUGH TRAININGS ETC. WERE NOT TAXABLE AS 'FEE FOR TECHNICAL SERVICES' (FTS) WITHI N THE MEANING AND SCOPE OF SECTION 9 OF THE INCOME TAX ACT, 1961 AS W ELL AS ARTICLE 12 OF THE INDIA-US DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). I.T.A. NO. 5336/DEL/2017 (A.Y 2014-15) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE CIT(A) HAS ERRED IN HOLDING THAT THE RECEIPTS OF THE ASSES SEE FROM VARIOUS ACTIVITIES OF HOTLE MANAGEMENT RANGING INTERALIA FR OM TICKETING, RESERVATION, MARKETING, ADVERTISING, OPERATION, ADM INISTRATION, CATERING, NETWORK SUPPORT SERVICES, STARWOOD PORTAL SERVICES, IMPARTING OF SKILL SETS THROUGH TRAININGS ETC. WERE NOT TAXABLE AS 'FEE FOR TECHNICAL SERVICES' (FTS) WITHIN THE MEANING AN D SCOPE OF SECTION 9 OF THE INCOME TAX ACT 1961 AS WELL AS ARTICLE 12 OF THE INDIA - US DOUBLE TAXATION AVOIDANCE AGREEMENT ('DTAA'). 3. WE ARE FIRSTLY TAKING FACTS OF M/S STARWOOD (M) INTENRTINAL INC. FOR ASSESSMENT YEAR 2014-15 AS THE FACTS ARE IDENTICAL AS WELL IN CASE OF WESTIN HOTEL MANAGEMENT WHICH IS A GROUP COMPANY. THE ASSE SSEE COMPANY IS INCORPORATED IN USA AND CARRIES ON THE BUSINESS OF PROVIDING VARIOUS CENTRALIZED SERVICES TO THE HOTELS IN SEVERAL COUNT RIES ACROSS THE WORLD. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD PRO VIDED WORLDWIDE MARKETING AND ADVERTISING SERVICES OF THE HOTELS THROUGH STAR WOODS WORLDWIDE SYSTEM OF SALES , ADVERTISING, PROMOTION, PUBLIC RELATIONS AND RESER VATIONS IN THE USUAL COURSE OF ITS BUSINESS TO SOME HOTELS OWNED/MANAGED BY THE INDIAN COMPANIES, ALL SUCH SERVICES ARE PROVIDED FROM OUTS IDE INDIA. THE ASSESSEE COMPANY HAS AGREED TO PROVIDE THE FOLLOWING SERVICE S TO VARIOUS HOTELS OPERATING IN INDIA. THE RANGE OF THESE SERVICES HA VE BEEN BROADLY CLASSIFIED AS UNDER:- SALES & MARKETING LOYALTY PROGRAMS RESERVATIONS SERVICE TECHNOLOGICAL SERVICES OPERATIONAL SERVICES TRAINING PROGRAMS/HUMAN RESOURCE THE ABOVE SERVICES, ACCORDING TO THE ASSESSEE COMPA NY, WERE PROVIDED BY THE ASSESSEE COMPANY OUTSIDE INDIA AND THE INCOME WAS R ECEIVED IN THE FORM OF MARKETING FEES, AND FEES FOR 'FREQUENT FLIER PROGRA M (FTP), AND 'STARWOOD PREFERRED GUEST' (SPG). THE ASSESSEE COMPANY DOES N OT HAVE A P.E. IN INDIA. THE SAID FACT HAS NOT BEEN DISPUTED BY THE ASSESSIN G OFFICER. AS PER THE CONTENTIONS OF THE ASSESSEE COMPANY BEFORE THE ASSE SSING OFFICER, THE ASSESSEE COMPANY SUBMITTED THAT THE REVENUE DERIVED BY IT IS IN THE NATURE OF BUSINESS PROFITS AS DEFINED IN ARTICLE 7 OF THE DOUBLE TAXAT ION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE USA. THE ASSESSING OFFICER HE LD THAT THE ASSESSEE COMPANY HAD RECEIVED INCOME FROM FEES FROM TECHNICA L SERVICES AS PER PROVISION OF BOTH DTAA AND SECTION 115A OF THE INCO ME TAX ACT, 1961. THE ASSESSING OFFICER RELYING ON THE ASSESSMENT ORDER O F GROUP CONCERN I.E. M/S SHERATON INTERNATIONAL INC. WHEREIN THE SIMILAR PAY MENTS WERE ALSO HELD TO BE COVERED BY THE DEFINITION OF 'FEES FOR TECHNICAL SE RVICES' AS DTAA AND AS PER EXPLANATION 2 OF SECTION 9(L)(VII)OF THE ACT, BEING A CONSIDERATION FOR THE RENDERING OF TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES. THE REVENUES RECEIVED FROM RENDERING SERVICES OF ADVERTISEMENT, NETWORKING AND PROMOTION WAS ALSO HELD TO BE TAXABLE AS FEES FOR TECHNICAL S ERVICES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) ALLOWED THE APPEAL OF THE A SSESSEE. 5. AT THE TIME OF HEARING THE LD. AR SUBMITTED THAT THE DECISION IN CASE OF M/S WESTIN HOTEL MANAGEMENT FOR ASSESSMENT YEAR 201 3-14 BY THE TRIBUNAL IN (ITA NO. 5146/DEL/2016 ORDER DATED 07/01/2020) S QUARELY COVERS THE ISSUE CONTESTED IN BOTH THESE APPEALS AND ALSO RELIED UPO N THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN CASE OF DCIT VS. SHERAT ON INTERNATIONAL INC. (2009) 313 ITR 267. 6. THE DR SUBMITTED THAT THE DECISION IN CASE OF WE STIN HOTEL MANAGEMENT IS NOT APPLICABLE IN THE PRESENT CASE IN RELATION T O THE FOLLOWING WRITTEN SUBMISSIONS:- ISSUE INVOLVED- 1. THE ISSUE INVOLVED IN AFORESAID CASES ARE SIMILAR IN NATURE. THE ASSESSEE HAS OFFERED ROYALTY INCOME IN RETURN OF INCOME (REF ER PARA 1 OF THE AO ORDER IN CASE OF WESTIN, PARA 3.2 OF THE AO ORDER IN CASE OF STARWOOD). THE ASSESSEE HAS EARNED SERVICE INCOME WHICH HAS NOT BEEN OFFERE D TO TAX ON TWO GROUNDS A) THE SERVICES DO NOT CONSTITUTE FTS AS PER ARTICLE 12(4)(B) OF DTAA AND B) THE ASSESSEE DOES NOT HAVE PE IN INDIA. 2. HOWEVER, THE AO CONSIDERED IT TO BE FTS AS PER I.T. ACT AS WELL AS ARTICLE 12(4)(B) OF DTAA AS THE SERVICES DO MAKE AVAILABLE THE SKILL SET TO THE RECIPIENT. 3. IT IS CLAIMED THAT THE HON'BLE TRIBUNAL HAS ALREADY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THIS ISSUE WHEREIN IT IS HELD THAT THE SERVICES ARE NOT IN THE NATURE OF MAKE AVAILABLE. 4. IN THIS REGARD, IT IS SUBMITTED THAT THE ARGUMENT O F TREATING THE SERVICES IN THE NATURE OF FTS UNDER ARTICLE 12(4)(A) WAS NOT TA KEN UP BEFORE HON'BLE TRIBUNAL IN THE CASES RELIED UPON BY THE ASSESSEE. THEREFORE, THE SAME MAY NOT BE APPLIED IN THE CASES IN HAND. 5. IT IS ALSO NOTED THAT HON'BLE TRIBUNAL HAS RELIE D ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF SHERATON INTERNATIONAL INC 178 TAXMAN 84 (DELHI). HOWEVER, IT IS PRAYED THAT THE FACTS OF TH E CASE DECIDED BY HON'BLE HIGH COURT ARE DISTINGUISHABLE AS THE ASSESSEE IN T HE CITED CASE WAS NOT HAVING ANY ROYALTY INCOME FROM THE CLIENTS IN INDIA . THE RELEVANT FACTS OF THE CITED CASE ARE REPRODUCED AS UNDER FOR READY REFERE NCE- 'THE ASSESSEE, A NON-RESIDENT COMPANY INCORPORATED IN THE USA, WAS ENGAGED IN PROVIDING SERVICES TO HOTELS IN VARIOUS PARTS OF THE WORLD. TOWARDS THAT END, IT ENTERED INTO AGREEMENTS WITH I TC HOTELS LTD. (ITC) FOR PROVIDING SERVICES TO SOME OF ITS HOTELS. THE SCOPE OF SERVICES ENVISAGED IN THE AGREEMENTS WAS PUBLICITY; ADVERTISEMENT AND SAL ES PROMOTION INCLUDING RESERVATION SERVICES. IN CONSIDERATION OF THE SERVICES WHICH THE ASSESSEE WAS REQUIRED TO RENDER, ITC AGREED TO PAY A FEE AT THE RATE OF 3 PER CENT OF THE ROOM SALES TO THE ASSESSEE. THE ASS ESSEE CLAIMED THAT THE FEE RECEIVED BY IT WAS BUSINESS INCOME AND SAME WAS NOT TAXABLE IN INDIA, AS IT HAD NO PERMANENT ESTABLISHMENT IN INDIA. THE ASSESSING OFFICER HELD THAT WHAT THE ASSESSEE WAS MAKING AVAILABLE TO THE ITC WERE TECHNICAL AND CONSULTANCY SERVICES; PROVISION OF TRAINING TO ITS EMPLOYEES; AND THE USE OF ITS TRADEMARK; TECHNICAL KNOW-HOW, DOCUMENTA TION AND MANUALS AND THE RESERVATION NETWORK AND, THEREFORE, THE ENT IRE FEE/AMOUNT RECEIVED BY THE ASSESSEE FROM THE ITC, INCLUDING CONTRIBUTIO N TOWARDS SHERATON CLUB INTERNATIONAL (SCI) AND FREQUENT FLIER PROGRAM ME (FFP) WAS ROYALTY AND/OR FEE FOR INCLUDED SERVICES AS PROVIDED IN ART ICLE 12(4)(B) OF THE DTAA.' 6. AS PER THE AFORESAID FACTS OF THE CASE, THERE IS NO ROYALTY INCOME CLAIMED TO.HAVE BEEN RECEIVED BY THE CITED ASSESSEE. AS AGA INST THIS, THE CASES IN HAND DO HAVE ROYALTY INCOME AND THE SAME HAS BEEN O FFERED TO TAX IN ITR. HOW THE RECEIPT OF ROYALTY INCOME CHANGES THE TAXAB ILITY OF SERVICES IN QUESTION? 7. IT MAY BE RELEVANT TO TAKE NOTE OF THE ARTICLE 1 2(4) OF DTAA AT THIS JUNCTURE- 12(4) 'THE TERM 'FEES FOR TECHNICAL SERVICES' AS US ED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE (INCLUD ING THE PROVISION OF SUCH SERVICES THROUGH TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 3 IS RECEIVED, OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES, WHICH ENABLES THE PERSON ACQUIRING THE S ERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN.' OR (C) CONSIST OF THE DEVELOPMENT AND TRANSFER OF TECH NICAL PLAN OR DESIGN, BUT EXCLUDES ANY SERVICE THAT DOES NOT ENABLE THE PERSO N ACQUIRING THE SERVICE TO APPLY THE TECHNOLOGY CONTAINED THEREIN. 8. PERUSAL OF ARTICLE 12(4)(A) SHOWS THAT IN A CASE WHERE THE SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF THE RI GHT, PROPERTY OR INFORMATION FOR WHICH A ROYALTY PAYMENT DESCRIBED IN PARAGRAPH 3 OF ARTICLE 12 IS RECEIVED, THE SAME WOULD BE IN THE NATURE OF FEE FO R TECHNICAL SERVICES. 9. IT IS PRAYED THAT THE CASES IN HAND DO HAVE ADMI TTED POSITION OF ROYALTY INCOME AND THE SERVICES RENDERED IN THE CASE (SALES AND MARKETING, LOYALTY, RESERVATION, TECHNOLOGICAL, OPERATIONAL AND TRAININ G PROGRAMS) ARE WITH AN OBJECTIVE TO ENSURE THE END TO END DELIVERY OF QUAL ITY SERVICES BY INDIAN HOTELS TO THE END CONSUMERS OF THE HOTELS AND SUCH SERVICE S IN TURN WOULD UPKEEP THE BRAND VALUE OF THE ASSESSEE FOR WHICH ROYALTY I NCOME HAS BEEN RECEIVED. THUS, SUCH SERVICES ARE ANCILLARY TO THE ROYALTY IN COME RECEIVED IN THE CASES IN HAND. HON'BLE TRIBUNAL BEING THE FINAL FACT FIND ING AUTHORITY MAY LIKE TO CALL FOR EXAMINATION OF LICENSE/ROYALTY AGREEMENT AND SE RVICES AGREEMENT WITH INDIAN CLIENTS WHICH WILL THROW LIGHT IN THIS REGAR D. 10. IT MAY BE NOTED THAT HON'BLE DELHI HIGH COURT IN THE CASE OF M/S JANSAMPARK ADVERTISING AND MARKETING (P) LTD. ITA 5 25/2014 CATEGORICALLY HELD AT PARA 38 OF THE ORDER THAT 'WH ILST IT IS TRUE THAT IT IS THE OBLIGATION OF THE AO TO CONDUCT PROPER SCRUTINY OF THE MATERIAL, GIVEN THE FACT THAT THE TWO APPELLATE AUTHORITIES ABOVE ARE ALSO F ORUMS FOR FACT-FINDING, IN THE EVENT OF AO FAILING TO DISCHARGE HIS FUNCTIONS PROP ERLY, THE OBLIGATION TO CONDUCT PROPER INQUIRY ON FACTS WOULD NATURALLY SHI FT TO THE DOOR OF THE SAID APPELLATE AUTHORITY' ACCORDINGLY, HON'BLE TRIBUNAL MAY LIKE TO ENSURE THAT CLEAR CUT FACTS OF THE CASE ARE ON RECORD AS PER TH E ROYALTY AGREEMENT AND SERVICES AGREEMENT AND THE DECISION MAY BE TAKEN ON THE BASIS OF THE SAME. 11. IT IS SUBMITTED THAT HON'BLE TRIBUNAL MAY DULY CONSIDER THE AFORESAID WRITTEN SUBMISSION AND IT IS ALSO PRAYED THAT THIS SUBMISSION MAY BE MADE PART OF THE ORDER. 7. THE LD. AR SUBMITTED THAT THE ISSUE OF ARTICLE 1 2 HAS BEEN DECIDED BY THE HONBLE DELHI HIGH COURT IN CASE OF SHERATON (S UPRA) AND THE SAME WAS TAKEN INTO ACCOUNT BY THE CIT(A) IN THE ORDER AND T HE LD. AR RELIED UPON THE ORDER OF THE CIT(A). THE LD. AR FURTHER SUBMITTED THAT THERE IS NO DISTINGUISHABLE FACT WHICH WAS MADE IN THE SUBMISSI ONS OF THE LD. DR. HENCE, THE APPEAL OF THE REVENUE BE DISMISSED. THE LD. AR HAS ALSO GIVEN THE WRITTEN SUBMISSIONS WHICH IS REPRODUCE AS UNDER: A. ISSUE IN DISPUTE: WHETHER CENTRALIZED SERVICES FEES RECEIVED BY RESPO NDENT-ASSESSEE IS TAXABLE AS ROYALTY/ FEE FORTECHNICAL SERVICES UNDER SECTION 9(L)(VI) OR SECTION 9(L)(VII) OFTHE INCOME TAX ACT, 1961 ('ACT') AND / OR ARTICLE 12 OF INDIA-.USA DTAA? B. OUR SUBMISSIONS: AT THE OUTSET, IT IS RESPECTFULLY SUBMITTED THAT TH E TAXABILITY OF CENTRALIZED SERVICES FEES (NAMELY SALES & MARKETING SERVICES, R ESERVATIONS, LOYALTY PROGRAMS ETC.) IS DULY COVERED BY DECISION OF THIS HON'BLE T RIBUNAL ASSESSEE'S OWN CASE FOR AY 2013-14 IN ITA NO. 5146/DEL/2016 IN IDENTICAL FACTS. COPY OF DECISION OF HON'BLE TRIBUNAL IS ENCLOSED HE REWITH AS ANNEXURE-1 FOR YOUR KIND REFERENCE AND RECORDS. IT IS FURTHER SUBMITTED THAT IN THE PRESENT CASE, B OTH LD. AO AND LD. CIT(A) HAVE HELD THE NATURE' OF SERVICES TO BE SAME AS THO SE RENDERED BY THE ASSESSEE IN THE EARLIER YEARS AND ALSO SAME AS NATU RE OF SERVICES RENDERED BY A GROUP ENTITY, NAMELY SHERATON INTERNA TIONAL INC, WHICH HAS BEEN EXAMINED IN DETAILED AND FOUND TO BE 'NOT TAXA BLE' IN HANDS OF THE ASSESSEE BY THIS HON'BLE TRIBUNAL IN SHERATON INTERNATIONAL INC. VS DDIT [(2007) 106 TTJ 620 (DELHI TRIBUNAL)] - COPY ENCLOSED AS ANNEXURE-2 AND CONFIRMED BY HON'BLE DELHI HIGH COURT IN CASE OF DIT VS SHERATON INTERNATIONAL INC. [(2009) 313 ITR 267 (DELHI HC)] - COPY ENCLOSED AS ANNEXURE-3. SPECIFIC REFERENCE IS BEING MADE TO RELEVANT EXTRAC TS OF THE JUDGMENT OF HON'BLE TRIBUNAL IN CASE OF, SHERATON INTERNATIONAL INC. VS DDIT F(2007) 106 TTJ 620 (DELHI)L, WHEREIN, THE HON'BLE ITAT HAS SPECIFICALLY HELD THA T THE PAYMENTS RECEIVED BY THE ASSESSEE FOR SERVICES PROVIDED WERE NEITHER IN THE NATURE OF 'ROYALTY' AS DEFINED UNDER SECTION 9(L)(VI) READ WITH EXPLANA TION 2, NOR WERE THEY IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES' AS DEFI NED UNDER SECTION 9(L)(VII) READ WITH EXPLANATION 2 OF THE ACT. RELEVANT EXTRAC TS OF DECISION OF HON'BLE DELHI TRIBUNAL IN CASE OF SHERATON INTERNATIONAL, I NC. HAVE BEEN REPRODUCED HEREUNDER: '85. AS SUCH, CONSIDERING ALL THE FACTS OF THE CASE , THE RELEVANT PROVISIONS OF THE INCOME-TAX ACT, 1961 AS WELL AS T HAT OF DTAA BETWEEN INDIA AND USA AND KEEPING IN VIEW THE LEGAL POSITIO N EMANATING FROM VARIOUS JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE, WE ARE OF THE OPINION THAT THE AMOUNT RECEIVED BY THE ASSESSEE FR OM THE INDIAN HOTELS/CLIENTS FOR THE SERVICES RENDERED UNDER THE RELEVANT AGREEMENTS WAS NOT IN THE NATURE OF 'ROYALTIES' WITHIN THE MEA NING GIVEN IN SECTION 9(L)(VI) READ WITH EXPLANATION 2 THERETO OF THE INC OME-TAX ACT, 1961 OR AS GIVEN IN ARTICLE 12(3) OF INDO-AMERICAN DTAA. TH E SAME WAS ALSO NOT 'FEES FOR TECHNICAL SERVICES' OR 'FEES FOR INCL UDED SERVICES' AS DEFINED IN SECTION 9(L)(VII) READ WITH EXPLANATION 2 THERET O OF THE INCOME-TAX ACT, 1961 OR ARTICLE 12(4) OF THE INDO-AMERICAN DTAA RES PECTIVELY. HAVING REGARD TO THE INTEGRATED BUSINESS ARRANGEMENT BETWE EN THE ASSESSEE- COMPANY AND THE INDIAN HOTELS/CLIENTS AS EVIDENT FR OM THE RELEVANT AGREEMENTS AS WELL AS THE NATURE OF ASSESSEE'S OWN BUSINESS, THE SAID AMOUNT CLEARLY REPRESENTED ITS 'BUSINESS PROFIT' WH ICH 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. FURTHER, IT IS SUBMITTED THAT THE ABOVE JUDGMENT OF THE JURISDICTIONAL ITAT HAS ALSO BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT IN PIT VS SHERATON INTERNATIONAL INC. [(2009) 313 ITR 267 (DELHI)L. RELEVANT EXTRACTS HAVE BEEN REPRODUCED AS BELOW (PARA 12): '(IV) IT FOUND AS A MATTER OF FACT THAT THE PAYMENT S RECEIVED BY THE ASSESSEE WERE NEITHER IN THE NATURE OF ROYALTY UNDER SECTION 9(L)(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(L)(VII) R EAD WITH EXPLANATION 2 OR ARTICLE 12(4) OF THE DTAA. SEE OBSERVATIONS IN PARA GRAPH 85 OF THE IMPUGNED JUDGMENT. THE RELEVANT PORTION OF THE FIND ING IS EXTRACTED BELOW .................................................. .................. 13. IN VIEW OF THE AFORESAID FINDINGS OF THE TRIBUNAL T HAT THE MAIN SERVICE RENDERED BY THE ASSESSEE TO ITS CLIENTS-HOTELS WAS ADVERTISEMENT, PUBLICITY AND SALES PROMOTION KEEPING IN MIND THEIR MUTUAL IN TEREST AND, IN THAT CONTEXT, THE USE OF TRADEMARK, TRADE NAME OR THE ST YLIZED 'S' OR OTHER ENUMERATED SERVICES REFERRED TO IN THE AGREEMENT WI TH THE ASSESSEE WERE INCIDENTAL TO THE SAID MAIN SERVICE, IT RIGHTLY CON CLUDED, IN OUR VIEW, THAT THE PAYMENTS RECEIVED WERE NEITHER IN THE NATURE OF ROYALTY UNDER SECTION 9(L)(VI) READ WITH EXPLANATION 2 OR IN THE NATURE O F FEE FOR TECHNICAL SERVICES UNDER SECTION 9(L)(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 T HE ASSESSEE ADMITTEDLY DOES NOT HAVE A PERMANENT ESTABLISHMENT UNDER THE A RTICLE 7 OF THE DTAA 'BUSINESS INCOME' RECEIVED BY THE ASSESSEE CANNOT B E BROUGHT TO TAX IN INDIA ' C. RESPONSE TO SUBMISSION OF LD. CIT-DR ON APPLICABILI TY OF ARTICLE 12(4)(A) OF INDIA- USA DTAA AT PARAGRAPH 8 OF HIS WRITTEN SUBMISSION, REFERRING TO ARTICLE 12(4)(A) OF INDIA- USA DTAA, LD. CIT- DR HAS SUBMITTED AS UNDER: '8. PERUSAL OF ARTICLE 12(4)(A) SHOWS THAT IN A CAS E WHERE THE SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF THE RI GHT, PROPERTY OR INFORMATION FOR WHICH A ROYALTY PAYMENT DESCRIBED I N PARAGRAPH 3 OF ARTICLE 12 IS RECEIVED, THE SAME WOULD BE IN THE NA TURE OF FEE FOR TECHNICAL SERVICES.' IN RESPONSE TO THE ABOVE, IT IS RESPECTFULLY SUBMIT TED THAT THIS SPECIFIC ASPECT HAS ALREADY BEEN DULY CONSIDERED AND DECIDED IN ASSESSE E'S FAVOUR BY HON'BLE DELHI TRIBUNAL AT PARA 81 AND CONFIRMED BY HON'BLE DELHI HIGH COURT AT PARA 12 AND PARA 13 IN CASE OF SHERATON INTERNATIONAL, INC. (SUPRA), FACTS OF WHICH ARE IDENTICAL TO THOSE OF R ESPONDENT-ASSESSEE, AS ADMITTED BY LD. AO AND LD. CIT(A) AS WELL. HON'BLE ITAT IN CASE OF SHERATON INTERNATIONAL, INC . (SUPRA) HAS TAKEN A VIEW THAT ARTICLE 12(4)(A) OF THE INDIA-USA DTAA CANNOT BE AP PLIED TO ANY OF THE SERVICES RENDERED BY THE ASSESSEE TO THE RESPECTIVE INDIAN H OTELS/ CLIENTS. THE JURISDICTIONAL ITAT HAS TAKEN A VIEW THAT THE ACTIV ITIES OF ADVERTISEMENT, PUBLICITY AND SALES PROMOTION ARE THE MAIN ACTIVITI ES OF THE BUSINESS AND THE USE OF TRADEMARK AND TRADENAME ARE INCIDENTAL TO THE SA ID MAIN SERVICE. ARTICLE 12(4)(A) IS SPECIFICALLY APPLICABLE TO THOSE CASES WHERE THE MAIN SERVICE FALLS WITHIN THE AMBIT OF ARTICLE 12(3), I.E. ROYALTY. TH E HON'BLE ITAT HAS ACCORDINGLY HELD THAT SINCE THE PRIMARY CONDITION OF CLASSIFYIN G THE FEES FOR MAIN ACTIVITY AS ROYALTY IS NOT SATISFIED, THERE IS NO QUESTION OF A PPLICABILITY OF ARTICLE 12(4)(A). RELEVANT EXTRACT OF THE DECISION OF HON'BLE TRIBUNA L HAS BEEN REPRODUCED AS FOLLOWS: '81. AS REGARDS ARTICLE 12(3)(B) COVERING THE PAYMENTS R ECEIVED AS CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE AN Y INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, WE HAVE ALREADY NOTED THAT NE ITHER THE REVENUE HAS INVOKED THE PROVISIONS OF THIS ARTICLE IN THE ASSES SEE'S CASE NOR THE SAME OTHERWISE ALSO IS APPLICABLE TO THE FACTS OF THE PR ESENT CASE SINCE THERE WAS NO SUCH USE OR THE RIGHT TO USE ANY INDUSTRIAL, COM MERCIAL OR SCIENTIFIC EQUIPMENT. THIS TAKES US TO ARTICLE 12(4)(A) OF THE DTAA WHICH COVERS ONLY THE PAYMENTS MADE FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES WHICH ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATI ON OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED. AS CLARIFIED AND EXPLAINED IN THE ME MORANDUM OF UNDERSTANDING DATED 15TH MAY, 1989, PARAGRAPH 4(A) OF ARTICLE 12 THUS INCLUDES TECHNICAL AND CONSULTANCY SERVICES THAT AR E ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF AN IN TANGIBLE FOR WHICH A ROYALTY IS RECEIVED UNDER A LICENSE OR SALE AS DESC RIBED IN PARAGRAPH 3(A) AS WELL AS THOSE ANCILLARY AND SUBSIDIARY TO THE AP PLICATION OR ENJOYMENT OF INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT FOR WHICH A ROYALTY IS RECEIVED UNDER A LEASE AS DESCRIBED IN PARAGRAPH 3( B). IN THIS REGARD, WE HAVE ALREADY HELD THAT THE PAYMENTS RECEIVED BY THE ASSESSEE IN THE PRESENT CASE FROM THE INDIAN HOTELS/CLIENTS WERE NO T IN THE NATURE OF ROYALTIES WITHIN THE MEANING GIVEN IN PARAGRAPH 3(A ) OR 3(B) OF ARTICLE 12. IT, IS THEREFORE, FOLLOWS THAT PARAGRAPH 4(A) OF ARTICL E 12 ALSO CANNOT BE APPLIED TO COVER ANY OF THE SERVICES RENDERED BY THE ASSESS EE-COMPANY TO THE INDIAN HOTELS/CLIENTS IN THE PRESENT CASE.' PRAYER IN VIEW OF THE ABOVE, IT IS PRAYED THAT YOUR HONOUR S MAY GRACIOUSLY BE PLEASED TO KINDLY DISMISS THE APPEAL FILED BY THE I NCOME TAX DEPARTMENT AND UPHOLD THE DECISION OF LD. CIT(A) DELETING THE ADDITIONS MADE BY THE LD. AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSIN G OFFICER HAS SIMPLICITOR MADE ADDITION IN RESPECT OF FTS UNDER ARTICLE 12 BUT NO LIMB OF ARTICLE 12 WAS GIVEN BY THE ASSESSING OFFICER AND THERE IS NO SPECIFICA TION WHICH COMES OUT FROM THE ASSESSMENT ORDER AS CONTEMPLATED BY THE LD. DR DURING THE HEARING. THE MAIN CONTENTIONS OF THE LD. DR WHICH ARE TOTALLY NE W IN THE PRESENT ASSESSMENT YEAR AND NOT PRESENTED BEFORE EITHER OF THE REVENUE AUTHORITIES IN ASSESSMENT YEAR 2013-14 AS WELL AS 2014-15. THESE CONTENTIONS ARE COMING FOR THE FIRST TIME AND ARE NOT EMERGING FROM THE AC TUAL ASSESSMENT ORDER WHICH IS CONTESTED BEFORE THIS FORUM. SERVICES IN THE NA TURE OF FTS WHETHER CONSTITUTES FTS OR NOT AND WHETHER THE ASSESSEE HAS PE IN INDIA OR NOT, WAS VERY WELL SETTLED AND WAS UNDISPUTED AS PER THE SUB MISSIONS AND RECORDS BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE CIT(A). THE REVENUE IS PROJECTING A NEW CASE WHICH WAS NOT PART OF ASSESSM ENT ORDER AS WELL AS ORDER OF THE CIT(A). THEREFORE, THE WRITTEN SUBMISSIONS MADE BY THE LD. AR ARE JUST AFTERTHOUGHT AND CANNOT BE TAKEN INTO ACCOUNT AS TH E SAME ARE NOT PLAUSIBLE. THE ISSUE INVOLVED IS SQUARELY COVERED BY THE TRIBU NALS DECISION IN ASSESSMENT YEAR 2013-14 IN CASE OF WESTIN HOTEL (SUPRA) AS WEL L AS BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF SHERATON (SUPRA ) AND HENCE BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 9. IN RESULT, THE APPEALS OF THE REVENUE ARE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30TH DA Y OF JULY, 2021. SD/- SD/- (ANIL CHATURVEDI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED : 30/07/2021 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI