2023 (9) TMI 1434 - AT - Income Tax

Income taxable in India or not - FTS/FIS - payments received by the assessee from its Indian customers on account of Centralized Services - Fee for Technical Services as defined u/s 9(1)(vii) of the Income Tax Act 1961 or Fee for included services as defined under Article 12(4)(a) of the Indo-US DTAA - assessee is a non-resident company incorporated in USA engaged in the business of providing various services to hotels in different countries across the world including India - assessee claimed that the receipts from Indian Hotel owners towards centralized services are in the nature of business profit and in absence of Permanent Establishment ( PE ) in India are not taxable in terms of India USA DTAA HELD THAT - We find while deciding identical issue in assessee s own case 2022 (7) TMI 781 - ITAT DELHI after analyzing in detail the nature and character of receipts has held that they cannot be treated as FTS/FIS either under the provisions of the Act or under the treaty provisions. Thus we find no reason to interfere with the decision of learned first appellate authority in declaring the receipts from centralized services to be not in the nature of FTS/FIS. Decided against revenue.

Summary

Issues Involved:

1. Whether the payments received by the assessee from its Indian customers on account of Centralized Services constitute Fee for Technical Services (FTS) as defined under Section 9(1)(vii) of the Income Tax Act, 1961 or "Fee for Included Services" (FIS) under Article 12(4)(a) of the Indo-US DTAA.

Summary:

Issue 1: Whether the payments received by the assessee from its Indian customers on account of Centralized Services constitute Fee for Technical Services (FTS) or Fee for Included Services (FIS):

The assessee, a non-resident company incorporated in the USA, provided centralized services such as sales and marketing, reservation, loyalty programs, and other services to various Indian hotels. The services were rendered from outside India, and the assessee declared nil income in its tax returns, claiming that the receipts were business profits not taxable in India due to the absence of a Permanent Establishment (PE) under the India-USA DTAA.

The Assessing Officer (AO) disagreed, treating the receipts as FTS/FIS under both the Income Tax Act and Article 12(4) of the India-USA DTAA. The first appellate authority reversed this decision, noting that similar issues in previous years had been resolved in favor of the assessee by the Tribunal and upheld by the Delhi High Court.

The Tribunal, after hearing both parties, confirmed that the issue was covered by previous decisions, including the Tribunal's order dated 29.04.2022, which analyzed the nature of the receipts and concluded they could not be treated as FTS/FIS under the Act or the treaty. The Tribunal emphasized that the services provided by the assessee were primarily for publicity, marketing, and reservation, which were ancillary to the main objective of promoting hotel business.

The Tribunal rejected the AO's reliance on Article 12(4)(a), stating that the centralized services agreement was not ancillary and subsidiary to the license agreement for the use of the trade name. The Tribunal reiterated that the predominant purpose of the centralized services was advertisement, marketing, and promotion, not technical or consultancy services as defined under Article 12(4)(a).

The Tribunal upheld the first appellate authority's decision, stating that the receipts from centralized services were business income and not taxable in India due to the absence of a PE. The Tribunal dismissed the Revenue's appeals, directing the AO to delete the addition.

The Tribunal's decision was affirmed by the Hon'ble Delhi High Court, which dismissed the Revenue's appeal, noting that the issue was covered by the judgment in Sheraton International Inc., and there was no stay on the said judgment by the Supreme Court.

Conclusion:

The Tribunal concluded that the payments received by the assessee for centralized services do not constitute FTS/FIS under Section 9(1)(vii) of the Income Tax Act or Article 12(4)(a) of the Indo-US DTAA. The receipts were considered business income not taxable in India in the absence of a PE. The appeals by the Revenue were dismissed.