2022 (7) TMI 628 - AT - Income Tax

Income accrued in India - taxation of payments received by the assessee from Indian hotels pursuant to International Marketing Program and Participation Agreement ( IMPPA ) as fees for technical services - HELD THAT - The International Marketing Program Participation Agreement ( IMPPA ) was initially entered into between International Hotel Licensing Company SARL ( IHLC ), which is the wholly owned, indirect subsidiary of Marriott International Inc. and Indian hotel owners. Under the IMPPA, IHLC was required to provide international advertising, marketing, promotion and sales program to the Indian hotels. Further, the hotel owner was required to contribute to costs and expenses associated with the international advertising, marketing, promotion and sales program for the Hotel at 1.5% of gross revenues, net of taxes, for each accounting period. The said IMPPA was subsequently assigned to the assessee pursuant to Assignment and Assumption Agreement dated 21/07/2008 entered into between IHLC and the assessee. We find that in the case of International Hotel Licensing Company 2006 (11) TMI 141 - AUTHORITY FOR ADVANCE RULINGS held that amounts received by the International Hotel Licensing Company SARI. (referred to as the applicant) from the Indian Hotel owner in connection with the marketing and business promotion activities said to be conducted outside India would be taxable in India. In the present case assessee is an assignee of the IMPPA entered into by IHLC with Indian hotels and under the said agreement, assessee rendered similar services as were considered by learned AAR in the aforesaid ruling. Further, no change in facts was alleged in the present case as were considered by the learned AAR in the aforesaid ruling. In view of the above, we find no infirmity in the impugned order passed by the learned CIT(A) following the learned AAR s ruling in International Hotel Licensing Company Co. (supra). As a result, grounds No. 1 to 5 raised in assessee s appeal are dismissed. Levy of interest under section 234A - HELD THAT - Assessing Officer is directed to carry out necessary verification whether the return of income was filed by the assessee within time and levy interest under section 234A of the Act, in case of delay, in accordance with law. Levy of interest under section 234B - No interest under section 234B of the Act is leviable, for the year under consideration the present case, in view of decision of Hon ble Supreme Court in DIT v. Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT . In view of above, addition ground No. 9 is allowed for statistical purpose.

Summary

Issues:
Taxation of payments received by the assessee from Indian hotels pursuant to International Marketing Program and Participation Agreement (IMPPA) as fees for technical services.

Analysis:

1. Taxation of Payments Received:
The main issue in the present appeal revolves around the taxation of payments received by the assessee from Indian hotels under the IMPPA as fees for technical services. The Assessing Officer held that the payments were taxable in India as royalty under section 9(1)(vi) of the Income Tax Act and as fees for technical services, based on the nature of services provided by the assessee. The learned CIT(A) upheld the AO's decision, stating that the services provided by the assessee were technical in nature and justified the taxation under the head of fee for technical services. The CIT(A) also rejected the appellant's claim of the principle of mutuality, stating that the payments were not merely for expenditure but for services provided, and the principle of mutuality does not apply in this scenario.

2. Application of AAR Ruling:
The learned AAR had previously ruled in a similar case involving International Hotel Licensing Company that the amounts received from Indian hotel owners for marketing and business promotion activities were taxable as fees for technical services. The AAR concluded that the services provided by the applicant, both within and outside India, amounted to managerial and consultancy services, satisfying the definition of fees for technical services. The present case involves the assessee being an assignee of the IMPPA and providing similar services, leading to the learned CIT(A) following the AAR's ruling. As a result, the grounds raised by the assessee challenging the taxation under fees for technical services were dismissed.

3. Additional Grounds of Appeal:
The assessee sought admission of additional grounds of appeal related to the limitation of assessment proceedings, TDS credit, and levy of interest under sections 234A and 234B of the Act. The AR decided not to press the ground related to the limitation of assessment proceedings. The Tribunal allowed the additional ground related to granting TDS credit and directed the Assessing Officer to comply with the CIT(A)'s directions. Regarding the levy of interest under sections 234A and 234B, the Tribunal directed the AO to verify the filing of the return within time and decided that no interest under section 234B was leviable based on the circumstances of the case and relevant legal precedents.

4. Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, dismissing certain grounds while allowing others related to TDS credit and interest levies. The decision was based on the assessment of the nature of services provided under the IMPPA, the application of the AAR ruling, and the additional legal issues raised by the assessee during the appeal process. The judgment provides a detailed analysis of the taxation implications of the payments received by the assessee from Indian hotels under the IMPPA, addressing various legal and factual aspects of the case.