2022 (5) TMI 1615 - AT - Income Tax

Taxability of income in India or not - income of royalty arising out of the above trademark of brand Marriott taxability - Who may be regarded as agent u/s 163? - whether the provision of section 163 can be invoked or not considering assessee as an agent of Non-resident? - HELD THAT - As assessee has given a registration certificate dated 21 st august, 2006 and covers above assessment years 2006-07 to 2009-10 . No doubt, as held by the Hon'ble Delhi High Court in the case of CUB Pty Limited vs. 2016 (7) TMI 1094 - DELHI HIGH COURT that since the brand owner not located in India, the situs of the brand would also be outside India and naturally, the income arising there from would be chargeable to tax in the hands of the owner of the brand. In fact, Marriott International Inc. (assessee) in these appeals is not the owners of the brand as per certificate of ownership produce before us. Therefore, it is chargeable to tax in the hands of the person who owns the brand. Nevertheless, it is not the contention of the assessee that no tax should have been deducted under section 195 of the Act on the payments made by, Juhu Beach Resorts Limited, V.M. Salgaonkar and Brothers Pvt. Ltd. and Chalet Hotels Limited and we are also conscious of the fact that sum is received by the assessee and provision of section 163 of the act also needs to be examined. However, there is a substantive provision for that. We set aside all these four appeals back to the file of AO with a direction to consider the certificate of registration on trademark dated 21 August 2006, which was applied for on 24 November 2003. AO may re-consider that in whose hands the above income is chargeable to tax as royalty income. AO may also consider that who received the above sum on behalf of the non- resident tax payers and whether the provision of section 163 of the Act can be invoked or not considering assessee as an agent of Nonresident. AO may also consider that if the tax is required to be deducted u/s 195 , then whether the tax has been deducted by the payer or not and whether they can be held to be agent of the non-resident. AO before proceeding against any other assessee or this assessee may issue requisite notice. We set aside all the grounds of appeal back to the file of the learned Assessing Officer for deciding the taxability of royalty. Appeals filed by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of amounts received under the International Sales and Marketing Agreement (ISMA) as royalty.
2. Whether the amounts received should be taxed in the hands of the appellant or another group company.
3. Validity of the Assessing Officer's and CIT(A)'s conclusions on the nature of the receipts.
4. Applicability of penalties under section 271(1)(c) for concealment and furnishing inaccurate particulars of income.

Issue-wise Detailed Analysis:

1. Taxability of ISMA Receipts as Royalty:
The primary issue is whether the amounts received under the ISMA should be taxed as royalty. The assessee initially declared these amounts as taxable royalty in its original return but later revised the return, claiming the amounts as non-taxable reimbursements. The Assessing Officer and CIT(A) held the amounts as taxable royalty based on the nature of the agreements and the interdependence of the marketing and royalty agreements. The ITAT emphasized that the marketing activities under ISMA contribute to the brand value and should be considered royalty under Article 12 of the Indo-US DTAA.

2. Taxation in the Hands of the Appellant or Another Group Company:
The ITAT had previously directed the Assessing Officer to determine whether the amounts should be taxed in the hands of the appellant or another group company. The appellant argued that the trademark "Marriott" is owned by Marriott Worldwide Corporation (MWC) and not by the appellant. The ITAT noted that the appellant failed to produce documentary evidence to substantiate the ownership of the trademark during the assessment proceedings. The ITAT restored the matter to the Assessing Officer to reconsider the taxability based on the registration certificate of the trademark.

3. Validity of the Assessing Officer's and CIT(A)'s Conclusions:
The Assessing Officer concluded that the appellant acted as a facade for MWC, engaging in tax planning by splitting royalty income. The CIT(A) upheld this view, noting that the appellant failed to provide necessary documentation and that the agreements were interdependent, indicating a tax avoidance scheme. The ITAT directed the Assessing Officer to reconsider the matter, taking into account the trademark registration certificate and the provisions of section 163 of the Act regarding the appellant as an agent of the non-resident.

4. Applicability of Penalties under Section 271(1)(c):
The Assessing Officer initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealment. The ITAT did not directly address the penalties but implied that the reassessment of the taxability might affect the penalty considerations. The ITAT directed the Assessing Officer to issue requisite notices before proceeding against the appellant or any other entity.

Conclusion:
The ITAT set aside the orders of the lower authorities and remanded the matter back to the Assessing Officer to reconsider the taxability of the ISMA receipts, taking into account the trademark registration certificate and the provisions of section 163 of the Act. The ITAT emphasized the need for a thorough examination of the ownership of the brand and the role of the appellant as an agent of the non-resident. All four appeals for the assessment years 2006-07 to 2009-10 were allowed for statistical purposes, with directions for the Assessing Officer to re-evaluate the taxability and related issues.