MARRIOTT INTERNATIONAL INC, MUMBAI V. ASST DIT (IT) 4(1), MUMBAI

ITA 5673/MUM/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3520 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 05-04-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/SHRI G.S.PANNU (AM) AND AMIT SHUKLA, (JM) ./ I.T.A. NO. 5672 AND 5673/ / MUM/20 1 3 ( / ASSESSMENT YEA RS : 20 0 6 - 07 AND 2007 - 08 ) MARRIOTT INTERNATIONAL INC., C/O BMR AND ASSOCIATES LLP, BMR HOUSE, 36 B, DR. R K SHIRODKAR MARG, PAREL, MUMBAI - 400012 / VS. ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - 4(1), 13 3 , 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400038 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAECM8040K / APPELLANT BY SHRI NIRAJ SHETH / RSPONDENT BY SHRI JASBIR CHAUHAN / DATE OF HEARING : 07/04/2016 / DATE OF PRONOUNCEMENT : 04 /07/ 201 6 / O R D E R PER AMIT SHUKLA ( J M) THE AFORESAID APPEALS HAS BEEN FILED BY THE ASSESSEE AGAINST THE COMMON IMPUGNED ORDER DATED 18.7.2013 , PASSED BY THE LD.CIT(A) - 11, MUMBAI , IN RELATION TO THE PENALTY PROCEEDINGS UNDER SECTION 271 (1 )(C) OF T HE INCOME TAX ACT , 1961(THE ACT) FOR THE ASSESSMENT YEARS 2006 - 07 AND 2007 - 08. SINCE IN BOTH THE APPEALS , FACTS AND ISSUES INVOLVED ARE COMMON , ARISING OUT OF SIMILAR SET OF FACTS , THEREFORE , THEY WERE ITA NO. 5672 AND 5673 / MUM/20 1 3 2 HEARD TOGETHER AND ARE BEING DISP O SED OF F BY WAY OF THIS CONSOLIDATED ORDER. 2 . THE ASSESSEE IS MAINLY AGGRIEVED BY THE LEVY OF PENALTY OF RS.1,91,61,819/ - AND RS.31,993,893/ - FOR THE ASSESSMENT YE A R S 2006 - 07 AND 2007 - 08 RESPECTIVELY ON ACCOUNT OF TAXABILITY OF ROYALTY INCOME IN THE HANDS OF T HE ASSES S EE. 3 . AT THE OUTSET , THE LD. COUNSEL , SHRI NIRAJ SHETH, SUBMITTED THAT IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL VIDE ORDER DATED 1 4.1.2015 HAD RESTORED THE MATTER TO THE FILE OF T HE AO WITH A DIRECTION TO CONSIDER THE QUESTION OF TAXATION OF RECEIPT OF ROYALTY INTO THE HANDS OF REAL OWNER OF THE BRAND. THUS, IN VIEW OF THIS DIRECTION OF THE TRIBUNAL, THE PRESENT PENALTY LEVIED BY THE AO AND CONFIRMED BY T HE LD.CIT(A) CANNOT BE SUSTAINED. ON THE OTHER HAND, THE L D.DR ADMITTED THAT THE MATTER HAS BEEN RESTORED TO THE FILE OF THE AO WITH CERTAIN DIRECTION. 4. IT HAS ALSO BEEN INFORMED BY BOTH THE PAR T IES THAT , IN CONSEQUENCE OF THE TRI BUNAL ORDER , IN THE QUANTUM PROCEEDINGS, FRESH ASSESSMENT ORDER HAS BEEN PASSED BY THE AO VIDE ORDER DA T ED 22.3.2016 WHEREIN AFTER COMPLET ING THE ASSESSMENT HE HAS ITA NO. 5672 AND 5673 / MUM/20 1 3 3 INITIATED A FRESH PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF TH E ACT ON THE S AME ISS UE . THUS, PENALTY INITIATED VIDE IMPUGNED PROCEEDINGS DOES NOT SURVIVE. 5 . AFTER CONSIDERING THE AFORES AID SUBMISSIONS AND ON PERUSAL OF THE MATERIAL PLACED BEFORE US, WE FIND TH AT THE PENALTY HAS BEEN LEVIED ON T HE ADDITIONS MADE ON ACCOUNT OF RE CEIPT WHICH HAS BEEN TREATED TO BE I N THE NATURE OF ROYALTY AND IN THE NATURE OF FEES FOR INCLUDING SERVICES . THE TRIBUNAL IN THE QUANTUM PROCEEDINGS FOR BOTH THE ASSESSMENT YE A RS, AFTER DETAILED OBSERVATIONS HAVE FINALLY RESTORED THE MATTER TO THE FI LE OF THE AO AFTER OBSERVING AND HOLDING A S UNDER: 72. HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE COMPANY, BEING ONLY AN EXTENDED ARM OF MARRIOTT GROUP COMPANY OWNING THE BRAND NAME, CAN BE CONSIDERED AS A FACADE OF THAT COMPANY. WE HAVE ALREADY NOTICE D THAT ONE OF THE GROUP COMPANIES OF MARRIOTT HAS RECEIVED ROYALTY PAYMENT @ 0.5% OF GROSS REVENUE AND THE ASSESSEE COMPANY HAS RECEIVED ABOUT 3% GROSS REVENUE TOWARDS MARKETING PROGRAM. IN OUR VIEW, IT IS CLEAR TAX PLANNING BY ADOPTING COLOURABLE DEVICE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE SEPARATE LEGAL IDENTITY OF THE ASSESSEE COMPANY GETS BLURRED AND CORPORATE VEIL SHOULD BE LIFTED. HENCE, THE AMOUNT RECEIVED BY THE PRESENT ASSESSEE COMPANY SHOULD BE EXAMINED FROM THE POINT OF VIEW OF THE ORIGINAL OWNER OF THE BRAND. WE HAVE ALREADY NOTICED THAT ALL THE ADVERTISEMENT/MARKETING PROGRAM ARE CARRIED OUT IN THE NAME OF MARRIOT AND/OR RENNAISSANCE. HENCE ALL OF THEM GO TO SWELL THE EXISTING BRAND NAMES REFERRED ABOVE. HENCE THEY BECOME TAXABLE AS ROY ALTY IN TERMS OF ARTICLE 12 OF THE INDO US DTAA. HOWEVER AS ARGUED BY LD. AR, THE ASSESSEE IN WHOSE HANDS THESE AMOUNTS ARE TO BE ASSED IS THE QUESTION THAT NEEDS TO BE ANSWERED. IN OUR VIEW THIS QUESTION REQUIRES EXAMINATION AT THE END OF THE AO. ITA NO. 5672 AND 5673 / MUM/20 1 3 4 ACCORDIN GLY, WE RESTORE THIS MATTER TO THE FILE OF AO WITH THE DIRECTION TO CONSIDER THE QUESTION OF TAXATION OF RECEIPTS AS ROYALTY IN THE HANDS OF THE ASSESSEE AS REPRESENTATIVE ASSESSEE OR IN THE HANDS OF ANY OTHER GROUP COMPANY. THE ASSESSEE SHOULD BE GIVEN AD EQUATE OPPORTUNITY IN THIS REGARD. 6 . AS STATED ABOVE, I T HAS ALSO BEEN BROUGHT ON RECORD THAT IN PURSUANCE OF THE TRIBUNAL ORDER, FRESH ASSESSMENT ORDER HAS BEEN PASSED , U/SS 143(3)/254 OF THE ACT BY THE AO AND FRESH PENALTY PROCEEDINGS U/S 271(1)(C) O F THE ACT HAVE BEEN INITIATED . THUS , THE IMPUGNED PENALTY WHICH HAS BEEN LEVIED BY THE AO AND CONFIRMED BY THE LD.CIT(A) IN RESPECT OF ORIGINAL ASSESSMENT ORDER HAS NO LEGS TO STAND , BECAUSE THE QUANTUM HAS BEEN SET ASIDE BY THE TRIBUNAL IN THE AFORESAI D MANNER . A CCORDINGLY , T HE PENALTY LEVIED FOR BOTH THE YEARS IS HEREBY CANCELLED. 7 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 4HT JULY, 2016 4TH JULY, 2016 SD SD (G.S.PANNU) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 4TH JULY, 2016 . . . ./ SRL , SR. PS ITA NO. 5672 AND 5673 / MUM/20 1 3 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI