2022 (7) TMI 674 - AT - Income Tax

Income accrued in India - Taxability of payment received by the assessee from Indian hotel owners pursuant to the International Marketing Program Participation Agreement ( IMPPA‟) - HELD THAT - From the perusal of comparative table of agreements involved in Marriott International Inc. and in the case of assessee, which is forming part of the impugned order, it is evident that both the agreements are broadly similar in respect of nature of services and consideration received. Thus, respectfully following the aforesaid decision in MARRIOTT INTERNATIONAL INC C/O. MARRIOTT HOTELS INDIA PRIVATE LIMITED 2022 (5) TMI 730 - ITAT MUMBAI we deem it appropriate to set aside all the grounds raised in assessee‟s appeal to the file of the assessing officer with similar directions, as passed in the aforesaid decision.

Issues Involved:
1. Determination of total income by CIT(A).
2. Taxability of marketing contribution and reimbursement of expenses (IMPPA receipts) as 'royalty'.
3. Taxability of IMPPA receipts as fees for technical services.
4. Nature of marketing contribution and reimbursement of expenses as pure cost reimbursements.
5. Consideration of IMPPA receipts as income under the Act.
6. Application of the principle of mutuality to the appellant's case.
7. Classification of IMPPA receipts as business income and its taxability in India.
8. Rejection of additional claims before appellate authorities.
9. Reliance on incorrect facts by CIT(A).

Issue-wise Detailed Analysis:

1. Determination of Total Income by CIT(A):
The CIT(A) determined the total income of the appellant at Rs. 9,63,05,200. The appellant challenged this determination, arguing that the receipts under the IMPPA were not taxable as they were pure cost reimbursements without any profit element.

2. Taxability of Marketing Contribution and Reimbursement of Expenses (IMPPA Receipts) as 'Royalty':
The CIT(A) held that the marketing contribution and reimbursement of expenses received by the appellant from Indian hotel owners pursuant to the IMPPA were taxable as 'royalty'. The Assessing Officer observed that the payments were made for the use of the international brand "Marriott" and thus constituted royalty under section 9(1)(vi) of the Act. The Tribunal, however, referred to the decision in Marriott International Inc. Vs DCIT, which indicated that the income from the brand is chargeable to tax in the hands of the brand owner, not the appellant.

3. Taxability of IMPPA Receipts as Fees for Technical Services:
The Assessing Officer also held that the services provided under the IMPPA amounted to managerial and consultancy services, thus taxable as fees for technical services under section 9(1)(vii) of the Act. The appellant argued that the payments did not qualify as consideration for technical services as they were not for the use of any patent, trademark, etc.

4. Nature of Marketing Contribution and Reimbursement of Expenses as Pure Cost Reimbursements:
The appellant contended that the marketing contribution and reimbursement of expenses were pure cost reimbursements without any profit element and thus not liable to tax in India. The CIT(A) rejected this argument, stating that the receipts were tagged with the payment of royalty for the licensed use of the Marriott brand.

5. Consideration of IMPPA Receipts as Income under the Act:
The appellant argued that the IMPPA receipts did not constitute income under the Act as they were received with the obligation to be spent for specific marketing activities. The CIT(A) held that the receipts were taxable as they were linked to the use of the Marriott brand, and thus, the appellant could not unbundle the receipts to claim certain parts as non-taxable.

6. Application of the Principle of Mutuality to the Appellant's Case:
The CIT(A) held that the appellant's case was not covered by the principle of mutuality. The appellant's argument that the receipts were for the mutual benefit of the members was dismissed as the transactions were deeply interlinked with the use of the Marriott brand, taking the matter out of the realm of mutuality.

7. Classification of IMPPA Receipts as Business Income and Its Taxability in India:
The appellant argued that the IMPPA receipts should be considered as business income and, in the absence of a business connection or permanent establishment in India, should not be chargeable to tax in India. The CIT(A) rejected this argument, stating that the receipts were inextricably linked to the use of the Marriott brand and thus taxable as royalty.

8. Rejection of Additional Claims Before Appellate Authorities:
The CIT(A) disagreed with the appellant's contention that additional claims could be made before the appellate authorities. The Tribunal did not delve into this issue separately as the appeal was dismissed on merits.

9. Reliance on Incorrect Facts by CIT(A):
The appellant argued that the CIT(A) relied on incorrect facts, surmises, and conjectures. The Tribunal noted that the CIT(A) based its decision on the latest decisions of the jurisdictional ITAT, which were more specific and closer to the facts of the appellant's case.

Conclusion:
The Tribunal, following the decision in Marriott International Inc., set aside the grounds raised in the appellant's appeal to the file of the Assessing Officer with directions to reconsider the taxability of the receipts. The appeal was allowed for statistical purposes, and the application for admission of additional ground was dismissed as not pressed.

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