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2018 (6) TMI 605 - AT - Income TaxTaxability in India - consideration for conducting Training programs and providing access to CRS, Property Management Systems and Other Systems were towards reimbursement of expenses incurred by the assessee - Held that - As the assessee had failed to substantiate on the basis of any clinching evidence that the consideration received for the services rendered by it to the Indian Hotels were in the nature of reimbursement of expenses incurred by the assessee and there was no mark up or profit made by rendering the said services, therefore, its claim that the same not being in the nature of income was not liable to be taxed in India cannot be accepted. We thus reject the aforesaid claim of the assessee. The Ground of appeal No. 1 is dismissed. Consideration received for conducting training programs - held by the CIT(A) as FTS in its hands - whether training programs conducted by the assesses did make available technical knowledge? - India- Netherland DTAA - Held that - The consideration received by the assessee for the managerial/leadership training provided to the employees of the Indian Hotels cannot be held as FTS under Article 12(5)(a) of the India- Netherland tax treaty. As neither the training services rendered by the assessee to the Indian Hotels could be held to be technical services, nor the same could have been characterised as ancillary and subsidiary services as per Article 12(5)(a), hence the consideration received by the assessee for rendering the training services could not be held as FTS in its hands. We thus, not being persuaded to subscribe to the view taken by the CIT(A) that the consideration received for providing training services to the Indian Hotels was chargeable as FTS in the hands of the assessee, set aside his order. The Ground of appeal No. 2 is allowed in terms Whether amounts received by the assessee for providing access to the international CRS, Property Management Systems and Other Systems was ancillary and subsidiary to the enjoyment of the right Marriott and hence, taxable as FTS under the India-Netherland tax treaty, as well as under the Act? - Held that - As the access to CRS, Property Management System and Other Systems provided to the Indian Hotels by the assessee were common facilities provided to the members of the Marriott chain of hotels across the world by the assessee, and were not tailor made services to suit their specific requirements, thus the said facility could not be construed as technical services . As neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as ancillary and subsidiary services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT(A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee. The Ground of appeal No. 3 is allowed Interest under Sec. 234B - Held that - Now when a duty is cast upon the payer to deduct and pay tax at source, then on the payers failure to do so interest under Sec. 234B could not be imposed on the payee assessee. We find that the said issue is squarely covered by the judgment of the Hon ble High Court of Bombay in the case of DIT (Intl. Taxation) Vs. NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT). Tax rate provided in the India-Netherland tax treaty by a further amount of surcharge, education cess and secondary and higher education cess - Held that - We find that the issue that the of rate of tax provided in the tax treaty cannot be enhanced by including surcharge and education cess separately, is covered by an order of a coordinate bench of the Tribunal in the case of Capgemini SA vs. DCIT (Intl. Taxation)-2(10(1), Mumbai (2016 (7) TMI 712 - ITAT MUMBAI).Direct the A.O not to enhance the rate of tax provided in the tax treaty by including surcharge and education cess separately.
Issues Involved:
1. Taxability of amounts received under the Training and Computer Systems Agreement (TCSA). 2. Classification of training programs as technical services. 3. Taxability of amounts received for providing access to the international centralized reservation facility. 4. Levy of interest under Section 234B. 5. Abatement of assessment proceedings due to delay. 6. Non-granting of TDS credit within the period of limitation. 7. Addition of surcharge, education cess, and secondary and higher education cess to the tax rate under the India-Netherlands Tax Treaty. Detailed Analysis: 1. Taxability of amounts received under TCSA: The assessee, a tax resident of the Netherlands and part of the Marriott group, received ?1,15,35,498 from Indian Hotels for conducting training programs and providing access to various computer systems. The assessee claimed these receipts were reimbursements and not taxable. The Assessing Officer (A.O) disagreed, characterizing the receipts as 'Fees for Technical Services' (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961, and Article 12 of the India-Netherlands tax treaty. The CIT(A) upheld the A.O's view, stating the services were ancillary and subsidiary to the royalty agreement, thus taxable as FTS. 2. Classification of training programs as technical services: The assessee argued that the training provided was managerial/leadership training, not technical services, and did not involve the transfer of technology. The CIT(A) disagreed, considering the training as ancillary to the royalty agreement, thus taxable as FTS. The Tribunal found that the training did not make available technical knowledge or involve the transfer of technology, aligning with precedents like ITO Vs. Veeda Clinic Research P. Ltd. The Tribunal concluded that the training services were not technical services and could not be taxed as FTS. 3. Taxability of amounts received for providing access to CRS: The CIT(A) held that the receipts for providing access to CRS, Property Management Systems, and Other Systems were ancillary to the enjoyment of the brand 'Marriott' and taxable as FTS. The Tribunal disagreed, noting that these services were common facilities provided to all Marriott hotels and not tailor-made technical services. Citing cases like DIT Vs. Sheraton International Inc. and CIT vs. Kotak Securities Ltd., the Tribunal concluded that these services were not technical services and could not be taxed as FTS. 4. Levy of interest under Section 234B: The A.O levied interest of ?3,52,486 under Section 234B. The assessee contended that since the payer was responsible for deducting tax at source, interest under Section 234B could not be imposed on the payee. The Tribunal agreed, referencing the judgment in DIT (Intl. Taxation) Vs. NGC Network Asia LLC, and directed the A.O to delete the interest charged. 5. Abatement of assessment proceedings: The assessee claimed the assessment proceedings were abated due to the A.O's failure to pass the order within the period of limitation. The Tribunal noted that this issue did not emanate from the CIT(A)'s order and thus could not be adjudicated. 6. Non-granting of TDS credit: The assessee argued that the A.O failed to grant TDS credit as directed by the CIT(A) within the period of limitation. The Tribunal observed that this issue did not arise from the CIT(A)'s order and thus dismissed it. 7. Addition of surcharge and cess to the tax rate: The A.O added surcharge, education cess, and secondary and higher education cess to the tax rate under the India-Netherlands tax treaty. The Tribunal, referencing the case of Capgemini SA vs. DCIT, directed the A.O not to enhance the tax rate by including surcharge and education cess separately. Conclusion: The Tribunal partly allowed the appeal, setting aside the CIT(A)'s order on the classification of training services and access to CRS as FTS, directing the deletion of interest under Section 234B, and disallowing the addition of surcharge and cess to the tax rate. The issues regarding the abatement of assessment proceedings and non-granting of TDS credit were dismissed.
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