2023 (12) TMI 90 - AT - Income Tax

Income taxable in India - Management Support Charges - taxable as Fee for Technical Services ( FTS ) - PE in India - India-Singapore DTAA - determinative factors/parameters to qualify as FIS - whether the services rendered by the assessee under Management Support Service Agreement are ancillary and subsidiary to the license granted for user of brand name charges received from which are in the nature of royalty? - HELD THAT - The issue of Management Support Charges/FTS and the issue of make available stands adjudicated by the order of the Tribunal in assessee s own case for the A.Y. 2012-13 in 2021 (10) TMI 443 - ITAT DELHI and in A.Ys. 2013-14 and 2014-15 in 2023 (3) TMI 1187 - ITAT DELHI as held undisputedly the assessee is neither the owner of the trademark nor has received any payment as a consideration for the use of or right to use of trademark in terms of Article 12(3)(a). The payment was received by the group affiliates under a distinct and separate license agreement. Whereas the assessee provided centralized services relating to marketing advertisement promotion etc. under a distinct and separate agreement. So when the assessee is not the owner of the property there is no question of allowing a third party to use or right to use of the property. That being the case the services for which payments are received cannot be considered to be ancillary and subsidiary to the application or enjoyment of the right of property or information for which royalty has been paid. Thus we have no hesitation in holding that the fee received by the assessee under the Centralized Services Agreement cannot be treated as FIS either under Article 12(4)(a) or 12(4)(b) of the India US Tax Treaty. As a natural corollary it can only be treated as business income of the assessee. Hence in absence of a PE in India it will not be taxable. Appeal of assessee allowed.

Summary

Issues Involved:
1. Taxability of Management Support Service as Fee for Technical Services (FTS).
2. Whether the services rendered "make available" technology, knowledge, skill, or experience to the recipient.

Summary of Judgment:

Issue 1: Taxability of Management Support Service as Fee for Technical Services (FTS)
The assessee challenged the addition of INR 14,47,42,517 to its income, arguing that the amount received for Management Support Service from InterContinental Hotels Group (India) Pvt. Ltd. (IHG India) should not be treated as Fee for Technical Services (FTS) under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA). The Tribunal referred to its previous decisions in the assessee's own case for A.Y. 2012-13, 2013-14, and 2014-15, where it was held that the services provided were managerial consultancy services and not technical services that "make available" technology for the recipient to use or replicate.

Issue 2: Whether the Services Rendered "Make Available" Technology, Knowledge, Skill, or Experience
The Tribunal examined whether the services rendered under the Management Support Service Agreement were ancillary and subsidiary to the license granted for the use of the brand name, which would classify the charges as royalty. The Tribunal concluded that the agreements for the use of the brand name and for Management Support Services were independent of each other. It was established that the services provided did not "make available" technology, knowledge, skill, or experience to the recipient, as required under Article 12(4)(b) of the India-Singapore DTAA.

The Tribunal also considered the decision in the case of Starwood Hotels & Resorts Worldwide Inc. vs. CIT, where it was held that centralized services provided for publicity, marketing, and reservation were not ancillary and subsidiary to the license agreement and thus did not fall under FTS as per Article 12(4)(a) of the DTAA.

Conclusion:
The Tribunal allowed the appeal, ruling that the Management Support Service fees received by the assessee do not qualify as FTS under Article 12 of the India-Singapore DTAA. The decision was based on the precedent set in the assessee's previous cases and similar judgments, confirming that the services provided did not "make available" the required technology or knowledge to the recipient. Therefore, the addition made by the AO was deleted, and the appeal was allowed.