HYATT INTERNATIONAL SOUTHWEST ASIA LTD., DUBAI V. ACIT, CIRCLE- 2(1)(1), NEW DELHI

ITA 6179/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9629 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 04-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Opportunity of being heard; Permanent establishment
• Section: 143(3); 44DA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: D NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.6179/DEL/2017 ASSESSMENT YEAR: 2014-15 HYATT INTERNATIONAL SOUTHWEST ASIA LTD. OFFICE 301, LEVEL-3, PRECINCT 3, DUBAI INTERNATIONAL FINANCIAL CENTRE (DIFC), PO BOX -506727, DUBAI, UNITED ARAB EMIRATES, DUBAI VS. ACIT, CIRCLE-2(1)(1), INTERNATIONAL TAXATION, NEW DELHI PAN : AACCH2598H (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THE PRESENT APPEAL BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 28.07.2017 PASSED BY THE ASSISTANT COMM ISSIONER OF INCOME TAX, CIRCLE-2(1)(1), INTERNATIONAL TAXATION, NEW DELHI (HEREINAFTER REFERRED TO AS THE ASSESSING OFFICE) UNDER SECTION APPELLANT BY SH. AJIT JAIN, CA RESPONDENT BY SH. BHASKAR GOSWAMI, CIT DATE OF HEARING 27.07.2021 DATE OF PRONOUNCEMENT 27.07.2021 2 ITA NO.6179/DEL/2017 144C(13) R.W.S. 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) IN PURSUANCE TO THE DIRECTION OF DISPUTE RESO LUTION PANEL, NEW DELHI. THE GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER: GROUND NO. 1 - ALLEGED PERMANENT ESTABLISHMENT (PE ) IN INDIA OF THE APPELLANT UNDER ARTICLE 5(1) AND 5(2)(T) OF THE INDIA - UAE TAX TREATY (TAX TREATY) 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE ASSESSING OFFICER (AO) ERRED IN CONCLUDING AND THE DISPUTE RESOLUTION PANEL (DRP) ERRED IN HOLDING THAT THE APPELLANT HAS A P E IN INDIA UNDER ARTICLE 5(1) AND 5(2)(I) OF THE TAX TREATY WITHOUT APPRECIATING THAT (I) THE APPELLANT HAS NO FIXED PLACE OF BUSINESS OR PRESENC E IN INDIA; (II) ITS PERSONNEL IN INDIA WERE NOT ON SECONDMENT BUT FOR R ENDERING SERVICES TO THIRD PARTY CUSTOMERS AND THEIR PRESENCE IN INDIA W AS FOR LESS THAN 9 MONTHS AS STIPULATED UNDER THE TAX TREATY; (III) TH E EMPLOYEES DO NOT RENDER ANY SERVICES IN INDIA ON SUNDAYS AND ON HOLI DAYS DURING THEIR VISITS IN INDIA; (IV) THE HOTEL PREMISES OR EMPLOYE ES OF THE HOTEL OWNERS ARE NOT AT THE DISPOSAL OF THE APPELLANT; (V) THE A PPELLANT DOES NOT PROVIDE ANY CENTRAL RESERVATION SERVICES; AND (VI) THE APPELLANT IS NOT INVOLVED IN ANY DAY TO DAY OPERATIONS OF HOTELS AND PROVIDES ONLY STRATEGIC OVERSIGHT SERVICES. THE APPELLANT PRAYS THAT ALL THE CONCLUSIONS REACHE D BY THE AO / DRP OF THE APPELLANT CONSTITUTING A PE IN INDIA UNDER ARTI CLE 5 OF THE TAX TREATY ARE ERRONEOUS, UNWARRANTED AND BE DELETED. GROUND NO. 2- ERRONEOUSLY ATTRIBUTION OF PROFITS TO ALLEGED PE OF THE APPELLANT IN INDIA INSPITE OF ENTITY LEVEL OPERAT ING LOSSES 2. WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP ERRED IN ARBITRARILY ADOPTING 25 PERCENT OF THE GROSS RECEIPTS AS TAXABL E INCOME ATTRIBUTABLE TO THE APPELLANTS ALLEGED PE IN INDIA UNDER ARTICL E 7 OF THE TAX TREATY WITHOUT APPRECIATING THAT (I) THE ENTIRE ACTIVITIES ARE NOT CARRIED ON FROM INDIA; (II) THERE ARE NO PROFITS ATTRIBUTABLE TO TH E ALLEGED PE IN INDIA; (III) EVEN IF IT IS HELD THAT PROFITS ARE ATTRIBUTABLE TH EN THE SAME SHOULD BE RESTRICTED TO ONLY IN RELATION TO ACTIVITIES CARRIE D OUT IN INDIA; (IV) THE APPELLANT HAS INCURRED OVERALL LOSSES DURING THE CA LENDAR YEAR ENDED 31 DECEMBER 2013 AND 31 DECEMBER 2014. THE APPELLANT PRAYS THAT THE CONCLUSION REACHED BY THE AO / DRP WITH RESPECT TO ATTRIBUTION OF PROFITS TO THE ALLEGED PE IN INDIA UNDER ARTICLE 7 OF THE TAX TREATY IS ERRONEOUS, UNWARRANTED AND BE REVERSED. GROUND NO. 3 - ERRONEOUS ALTERNATIVE TAXATION OF IN DIA SOURCE INCOME AS ROYALTY UNDER SECTION 9(L)(VI) OF THE I NCOME TAX ACT, 1961 (THE ACT) AND ARTICLE 12 OF THE TAX TREATY 3. WITHOUT PREJUDICE TO GROUND NO. 1 AND 2 ABOVE, O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP ERRED IN EQUATING RENDERING OF CONSULTANCY SERVICES TO BE IN THE NATURE OF 3 ITA NO.6179/DEL/2017 ROYALTY UNDER THE TAX TREATY AND THE ACT ON THE C ONTENTION THAT IT RELATES TO PROVISION OF' KNOW-HOW, SKILL, EXPERIENC E, COMMERCIAL INFORMATION AND INTANGIBLES. THE AO / DRP FAILED TO APPRECIATE THAT THE ESSENCE OF THE AGREEMENT IS FOR THE APPELLANT TO INDEPENDENTLY PROVIDE STRATEGI C OVERSIGHT AND CONSULTANCY SERVICES TO THE HOTEL OWNER(S) AND THE PROVISION OF KNOW- HOW, ETC. IS A SEPARATE ARRANGEMENT WHICH IS ONLY I NCIDENTAL AND FURTHERANCE TO THIS OBJECTIVE WITH NO INDEPENDENT U TILITY/VALUE AND SO, THE ALTERNATIVE TAXATION ON GROSS BASIS AS ROYALTY IS UNWARRANTED AND IS REQUESTED TO BE QUASHED. 2. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE BR OUGHT TO OUR NOTICE THAT THE ISSUE RAISED IN GROUND NO. 1 IN THE PRESENT APPEAL OF THE ASSESSEE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE CO-ORDINATE BENCH OF THE ITAT FOR ASSESSMENT YEAR 2 013-14. 3. THE LEARNED DR HAS NOT DISPUTED THE FACTUAL POSITI ON. 4. WE HAVE HEARD BOTH THE PARTIES THROUGH VIDEO CONFER ENCING FACILITY AND PERUSED THE RELEVANT MATERIAL ON RECOR D. WE FIND THAT IDENTICAL ISSUE RAISED IN THE PRESENT APPEAL HAS BE EN ADJUDICATED IN ITA NO. 727/DEL/2017 FOR ASSESSMENT YEAR 2013-14 . THE RELEVANT PORTION OF THE ORDER OF TRIBUNAL (SUPRA) I S REPRODUCED AS UNDER: 4. FOR THE SAKE OF READY REFERENCE AND CONVENIENCE , OPERATIVE PART OF THE ORDER DATED 04.12.2019 IN ITA NO. 579/DEL/20 13, 779/DEL/2014, 1762/DEL/2015 AND 957/DEL/2016 IS BEI NG REPRODUCED HEREWITH. '56. WE FIND THAT FROM THE CONCURRENT READING OF TH E STRATEGIC OVERSIGHT AGREEMENTS (SOA), THE ASSESSEE HAS BEEN TECHNICALLY OPERATING THE HOTEL BELONGING TO THE OW NERS NAMELY, ASIAN HOTELS LTD. (AHL) THROUGH THE EMPLOYE ES WHO ARE RECRUITED BY THEM. THE HOTEL PREMISES HAVE BEEN AT THE DISPOSAL OF THE ASSESSEE DURING THEIR PERIOD OF STA Y. THE EMPLOYEES HAS STAYED FOR A PERIOD OF 158 DAYS AS PE R THE ASSESSEE IN INDIA WHILE RENDERING THE SERVICES. IN TERMS OF OECD COMMENTARY ON ARTICLE 5(1) THE ASSESSEE CAN BE SAID TO BE HAVING A PERMANENT ESTABLISHMENT OWING TO EXISTE NCE OF A PLACE OF BUSINESS I.E. A FACILITY SUCH AS PREMISES, AND THAT PLACE WAS FIXED AND ESTABLISHED AS A DISTINCT PLACE WITH CERTAIN DEGREE OF PERMANENCE AND THE FOREIGN ENTERP RISE (THE 4 ITA NO.6179/DEL/2017 ASSESSEE) IS CARRYING THE BUSINESS THROUGH THIS FIX ED PLACE I.E. THE PREMISES OF THE HOTEL. THE ASSESSEE CAN BE SAID TO BE DEPENDENT ON THE PERSONNEL TO CONDUCT THE BUSINESS OF THE FOREIGN ENTERPRISE IN THE STATE IN WHICH THE FIXED PLACE SITUATED. THE ASSESSEE IS FOUND TO BE MEETING ALL T HESE REQUIREMENTS STIPULATED IN THE OECD COMMENTARY UNDE R PARA 2. FURTHER, THE ASSESSEE IS ALSO FOUND TO BE MEETIN G THE REQUIREMENTS SPECIFIED IN PARA 4 OF THE OECD MC THA T THE TERM PLACE OF BUSINESS COVERS IN THE PREMISES, FACILITIE S, INSTALLATIONS USED FOR CARRYING ON THE BUSINESS OF THE ENTERPRISE WHETHER OR NOT THEY ARE USED EXCLUSIVELY FOR THAT PURPOSE. IN THE INSTANT CASE, THE ASSESSEE HAS BEEN USING PERMANENTLY THE PREMISES BELONGING TO THE HOTEL FOR DOING THEIR BUSINESS. THE PLACE OF BUSINESS MAY ALSO EXIST WHER E NO PREMISES ARE AVAILABLE REQUIRED FOR CARRYING ON THE BUSINESS OF THE ENTERPRISE. IT IS SUFFICIENT TO HAVE CERTAIN AM OUNT OF SPACE AT THEIR DISPOSAL TO CONDUCT THEIR BUSINESS OPERATI ONS. FURTHER, THE PLACE OF BUSINESS MAY ALSO BE SITUATED IN THE B USINESS FACILITIES OF ANY OTHER ENTERPRISE TOO. THUS, IT CA N BE SAID THAT THE ASSESSEE WHO IS RUNNING THE BUSINESS OPERATIONS AT THE PREMISES AVAILABLE FOR CONSTANT DISPOSAL IN THE HOT EL CAN BE SAID TO BE A PLACE OF BUSINESS. THE AVAILABILITY OF AN OFFICE PREMISES TO A FOREIGN COMPANY IN THE PREMISES OF TH E CONTRACTING PARTY IN ORDER TO ENSURE THAT BOTH THE PARTIES COMPLY WITH THEIR OBLIGATIONS TO THE CONTRACT FOR A LONG PERIOD OF TIME WILL CONSTITUTE A PERMANENT ESTABLISHMENT. AS LONG AS, THE PREMISES IS AT THE DISPOSAL OF THE ASSESSEE AND HAVING THE RIGHT TO USE THE PREMISES FOR THE PURPOSE OF THE AS SESSEE'S BUSINESS ON BEHALF OF THE PARTY TO THE AGREEMENT CA N CONSTITUTE A FIXED PLACE PE. WE ALSO FIND THAT THE PHYSICAL CRITERIA (EXISTENCE OF A GEOGRAPHICAL LOCATION), SU BJECT TO CRITERIA (RIGHT TO USE THE PLACE) AND THE FUNCTIONAL CRITERI A (CARRYING ON THE BUSINESS THROUGH THAT PLACE) AS MENTIONED IN TH E OECD PRINCIPLES WITH RELATION TO THE EXISTENCE AND DETER MINATION OF PE AS HELD BY THE MUMBAI TRIBUNAL IN THE CASE OF AI R LINES ROTABLES L/S JDIT 131 TTJ 385 HAVE BEEN FOUND TO BE MET BY THE ASSESSEE BEFORE US, SO AS TO TREAT THEM AS HAVI NG A PE IN INDIA. THOUGH, IT WAS ARGUED THAT THE ASSESSEE HAS GOT NO RIGHT TO USE THE PREMISES AND NO PREMISES OF AHL WA S AT THEIR DISPOSAL, WE FIND ON GOING TO THE AGREEMENTS AND TH E WORK EXECUTED, THAT THE PREMISES OF AHL WAS VERY MUCH AT THE DISPOSAL OF THE ASSESSEE FOR CARRYING ON THEIR BUSI NESS. THUS, WE FIND THAT THE ASSESSEE HAS MET THE TWIN CRITERIO N OF EXISTENCE OF A FIXED PLACE OF BUSINESS AND CARRYING OUT OF BUSINESS FROM SUCH FIXED PLACE OF BUSINESS AS ENUNC IATED OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F MORGAN STANLEY & CO. 292 ITR 416 (SC). THE CLAIM OF THE AS SESSEE THAT THEY DID NOT HAVE A PLACE AT THEIR DISPOSAL CA NNOT BE 5 ITA NO.6179/DEL/2017 ACCEPTED IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF FORMULA ONE WORLD CHAMPIONSHIPS LTD. 39 4 ITR 80, IN THE CASE OF AZADI BACHAO ANDOLAN AND ALSO E- FUNDS IT SOLUTIONS 86 TAXMAN 240. THE FACTS ON RECORD UNDISP UTEDLY PROVE THAT THE PREMISES AHL ARE AT THE DISPOSAL OF THE ASSESSEE FOR CONDUCT OF THEIR BUSINESS. WHILE COMIN G TO THE ISSUE OF 'AT THE DISPOSAL' IN THE PREMISES IS AVAIL ABLE FOR THE ASSESSEE FOR RUNNING OF THEIR BUSINESS EVEN FOR A L IMITED TIME IT CONSTITUTES A PE.' 4.1 ACCORDINGLY, FOLLOWING THE FINDING OF TRIBUNAL (SUP RA), THE GROUND NO.1 OF THE APPEAL IS DECIDED AGAINST THE AS SESSEE. THE GROUND NO. 1 IS ACCORDINGLY DISMISSED. 5. AS REGARDS THE GROUNDS NO. 2 & 3 OF THE APPEAL OF THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE FURT HER SUBMITTED THAT THIS IDENTICAL ISSUE HAS BEEN RESTORED TO THE AO BY THE ORDER OF THE CO-ORDINATE BENCH OF THE ITAT FOR ASSESSMENT YEAR 2013- 14. 6. THE LEARNED DR HAS NOT DISPUTED THE FACTUAL POSITI ON. 7. WE FIND THAT THE IDENTICAL ISSUE RAISED IN THE PRE SENT APPEAL, HAS ALREADY BEEN ADJUDICATED IN ITA NO. 727/DEL/201 7 FOR ASSESSMENT YEAR 2013-14. THE RELEVANT PORTION OF TH E ORDER OF TRIBUNAL (SUPRA) IS REPRODUCED AS UNDER: 7. FOR THE SAKE OF READY REFERENCE AND CONVENIENCE , OPERATIVE PART OF THE ORDER DATED 04.12.2019 IN ITA NO. 579/DEL/20 13, 779/DEL/2014, 1762/DEL/2015 AND 957/DEL/2016 IS BEI NG REPRODUCED HEREWITH. '60. BASED ON THE CLAUSES OF THE STRATEGIC SERVICE AGREEMENT AND STRATEGIC OVERSIGHT AGREEMENTS, WE HOLD THAT TH E REVENUE'S EARNED BY THE ASSESSEE ARE TAXABLE UNDER ARTICLE 12 OF THE DTAA. REGARDING THE DETERMINATION OF THE PRO FIT, TAKEN UP AT GROUND NO. 4 BY THE ASSESSEE, WE HEREBY HOLD THAT THE TAXABLE PROFITS MAY BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 44DA OF INDIAN INCOME TAX ACT AND ARTICLE 12 OF INDO-UAE, DTAA. DURING THE ARGUMENTS, IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS INCURRED LOSSE S IN THE ASSESSMENT YEAR 2008-09. THE ASSESSEE BE GIVEN AN 6 ITA NO.6179/DEL/2017 OPPORTUNITY OF SUBMITTING THE WORKING OF APPORTIONM ENT OF REVENUE, LOSSES ETC. ON FINANCIAL YEAR BASIS WITH R ESPECT TO THE WORK DONE IN ENTIRETY BY FURNISHING THE GLOBAL PROF ITS EARNED BY THE ASSESSE, SO THAT THE PROFITS ATTRIBUTABLE TO THE WORK DONE BY THE PE CAN BE DETERMINED JUDICIOUSLY. THE S AME MAY BE CONSIDERED WHILE DETERMINING THE TAXABLE PROFITS IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF SECTION 90(2) OF INDIAN INCOME TAX ACT, 1961.' 7.1 SINCE THE ISSUES IN DISPUTE RAISED IN GROUNDS NO. 2 & 3 IN THE PRESENT APPEAL ARE IDENTICAL TO THE ISSUES DECI DED BY THE TRIBUNAL (SUPRA), THE ISSUE OF ATTRIBUTION OF PROFI T TO THE PERMANENT ESTABLISHED (PE) IS ACCORDINGLY RESTORED TO THE FILE OF ASSESSING OFFICER FOR DECIDING IN THE LIGHT OF THE DIRECTION OF THE TRIBUNAL IN AY 2013-14, AS REPRODUCED ABOVE. IT IS NEEDLESS TO MENTION THAT ADEQUATE OPPORTUNITY OF BEING HEARD SH ALL BE PROVIDED TO THE ASSESSEE. THE GROUNDS NO. 2 AND 3 O F THE APPEAL ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (KUL BHARAT) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH JULY, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI