2024 (4) TMI 1132 - AT - Income Tax

Taxability of Marketing and Reservation Contributions as Royalty or Fees for Included Services (FIS) under the India-USA DTAA - HELD THAT - Respectfully following the decision of Mumbai Tribunal in the assessee s own case for the preceding AY(s) 2012-13 to 2015-16 2024 (2) TMI 582 - ITAT MUMBAI wherein held AO as well as the learned CIT(A) deviated from the settled position in the case of the assessee on the basis of the subsequent decision of the coordinate bench of the Tribunal in Marriott International Inc 2015 (1) TMI 659 - ITAT MUMBAI . At the outset it is pertinent to note that it is undisputed that the facts of the present case are similar to the preceding years wherein the similar addition was either not made by the AO/learned DRP or the same was deleted by the coordinate bench. Marketing Contribution and Reservation Fees received by the assessee are not Royalty and therefore the impugned addition is deleted. Decided in favour of assessee. Denial of TDS credit - We direct the Ld. AO to allow TDS credit after due verification and in accordance with law.

Summary

Issues Involved:
1. Taxability of Marketing and Reservation Contributions as Royalty or Fees for Included Services (FIS) under the India-USA DTAA.
2. Denial of TDS credit.

Summary:

Issue 1: Taxability of Marketing and Reservation Contributions as Royalty or Fees for Included Services (FIS) under the India-USA DTAA

The assessee challenged the CIT(A)'s order confirming the addition of INR 28,63,07,265 to its income, arguing that the Marketing and Reservation contributions were wrongly treated as Royalty under Article 12(3) of the India-USA DTAA and u/s 9(1)(vi) of the Act. The CIT(A) had followed the order for AY 2012-13, treating these contributions as Royalty and Fees for Technical Services (FTS) under Article 12(4)(a) of the DTAA. The assessee contended that these contributions were neither taxable as Royalty nor as FTS under the DTAA, and that the CIT(A) erred in invoking Article 3(2) of the DTAA to draw the meaning of royalty from the Act. The assessee also argued that the contributions were not ancillary and subsidiary to the license fee received by another group entity and did not make available any technical knowledge, experience, know-how, or processes.

The Tribunal noted that the issue was covered in favor of the assessee by previous orders of the Tribunal in the assessee's own case for AY 1997-98, AY 2003-04, AY 2004-05, and AY 2005-06, which were accepted by the Revenue. The Tribunal also referred to the Mumbai Tribunal's decision for AY 2012-13 to AY 2015-16, which held that the Marketing and Reservation contributions were not taxable as Royalty or FIS under the India-USA DTAA. The Tribunal observed that the contributions were received with a corresponding obligation to use them for agreed purposes and were not unfettered receipts in the hands of the assessee. The Tribunal concluded that the contributions were not taxable as Royalty or FIS and deleted the addition.

Issue 2: Denial of TDS Credit

The assessee also contested the denial of TDS credit of INR 1,03,59,525. The Tribunal directed the AO to allow TDS credit after due verification and in accordance with law.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the Marketing and Reservation contributions were not taxable as Royalty or FIS under the India-USA DTAA and directed the AO to grant TDS credit after verification. The order was pronounced in the open court on 10th April, 2024.