2011 (3) TMI 1837 - AT - Income Tax

Summary

Issues involved: Taxability of marketing and reservation fees received by the assessee for the assessment year 2005-06.

Summary:
The appeal by the assessee challenges the order of CIT(A) regarding the taxability of marketing and reservation fees received. The assessee, a foreign company resident in the USA, received royalty for the use of trademarks "Holiday Inn" and "Crowne Plaza" from Indian hotels. Additionally, the assessee received marketing and reservation contribution fees. The AO treated this amount as royalty income, alleging the development of a secret system by the assessee. However, CIT(A) found no evidence to support this claim. Referring to a previous tribunal order, CIT(A) concluded that such receipts cannot be treated as royalty or taxed as business profit without a Permanent Establishment (PE) in India. Consequently, CIT(A) deleted the addition made by the AO, leading to the revenue's appeal before the tribunal.

Upon hearing both parties, the tribunal noted that a previous tribunal order had already considered the taxability of similar fees received by the assessee in a prior assessment year. The tribunal held that these fees were not unfettered receipts but were to be used for agreed purposes, thus not constituting income. Moreover, without a PE in India, these receipts could not be taxed as business profit under Article-7 of DTAA. Given the consistency of decisions and the AO's stance in a subsequent assessment year, the tribunal upheld CIT(A)'s decision to delete the addition. Consequently, the appeal of the revenue was dismissed, affirming CIT(A)'s order.

The decision was pronounced in open court on 30.03.2011.