2024 (2) TMI 830 - AT - Income Tax

Income taxable in India or not - FTS/FIS - payments received by the assessee from its Indian customers on account of Centralized Services - absence of PE in India - Fee for Technical Services as defined u/s 9(1)(vii) of the Income Tax Act, 1961 or Fee for included services as defined under Article 12(4)(a) of the Indo-US DTAA - assessee is a non-resident company incorporated in USA engaged in the business of providing various services to hotels in different countries across the world, including India - assessee claimed that the receipts from Indian Hotel owners towards centralized services, are in the nature of business profit and in absence of Permanent Establishment ( PE ) in India are not taxable in terms of India USA DTAA HELD THAT - In assessee s own case in 2023 (9) TMI 1434 - ITAT DELHI for AY 2019-20 2020-21 wherein the Tribunal relying on the decision of the Tribunal in assessee s own case in 2022 (7) TMI 781 - ITAT DELHI for AY 2015-16 held that the impugned receipts in the hands of the assessee cannot be treated as FTS/FIS either under the provisions of the Act or under the India- USA DTAA. 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 the Revenue is dismissed.

Summary

Issues Involved:
1. Whether the payments received by the assessee from its Indian customers for Centralized Services constitute Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or "Fee for included services" under Article 12(4)(a) of the Indo-US DTAA.

Summary of Judgment:

1. Nature of Payments for Centralized Services:
The Revenue contended that the payments received by the assessee, a US-based company, from Indian hotel owners for providing Centralized Services should be classified as Fee for Technical Services (FTS) or Fee for Included Services (FIS) under both the Income Tax Act and the Indo-US DTAA. The Assessing Officer (AO) had treated these receipts as FTS/FIS and completed the assessment accordingly.

2. CIT(A)'s Findings:
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition made by the AO, observing that the issue was previously decided in favor of the assessee's group concern, Sheraton International Inc., by the Delhi High Court. The CIT(A) noted that the payments were in the nature of business income and not FTS/FIS, as the assessee did not have a Permanent Establishment (PE) in India, thus not taxable under Article 7 of the India-USA DTAA.

3. Tribunal's Analysis:
The Tribunal reviewed the CIT(A)'s decision, which referenced multiple judicial precedents, including the Delhi High Court's ruling in Sheraton International Inc. and Starwood Hotels and Resorts Worldwide Inc., confirming that similar payments were business income and not FTS/FIS. The Tribunal emphasized that the services provided by the assessee, such as marketing, reservation, and operational services, did not qualify as technical services under the treaty.

4. Judicial Precedents:
The Tribunal highlighted consistent rulings in favor of the assessee, including decisions by the Delhi High Court and ITAT in the assessee's own case for previous assessment years. The Tribunal reiterated that the payments for Centralized Services were business income, not taxable in India due to the absence of a PE.

5. Revenue's Appeal:
The Revenue's appeal was dismissed, with the Tribunal affirming that the issue was well-settled by higher judicial authorities. The Tribunal found no new arguments or evidence from the Revenue to warrant a different conclusion.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the payments received by the assessee for Centralized Services were business income and not FTS/FIS under the Income Tax Act or the Indo-US DTAA. The appeal by the Revenue was dismissed, and the Tribunal's decision was pronounced in the open court on 13th February 2024.