9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (6) TMI 817 - AT - Income TaxTaxability of income in India - Royalty/FTS - Additions made in respect of receipts on account of Marketing, Distribution Marketing, Frequency Marketing Programme (IHG Rewards) collectively referred to as System Fund support fee' and SCHI Facility charges (also referred as Technology Service Fees) - HELD THAT - With effect from 1st April 2019, IHG India has been granted a non-exclusive license by IHG AP Singapore for granting use of trademark/ brand rights to the third-party hotels owners and the license fees received is taxable in India in the hands of IHG India as business income. Accordingly, from 1 st April 2019, IHG India has entered into a Hotel Management Agreement ( HMA ) with third party IHG brand Hotel in India. Under the HMA, IHG India grants license to the third-party hotel owners for the use of brand name/ trademark, provides hotel management services and provision of system fund services (which is in relation to marketing and reservation related services). As per above referred HMA, IHG India is required to provide/ procure marketing and reservation related services to the Indian Hotels. Such marketing and reservation services were earlier provided by SCHI to the hotel owners in India. For providing marketing and reservation related services, IHG India facilitates provision of marketing and reservation services through its team of employees in India and has also entered into agreements with the Assessee to seek its support for provision of marketing and reservation related services (which IHG India is unable to provide to the Hotels on its own). For the System fund support services provided by SCHI, IHG India shall pay to SCHI a fee equal to amount payable by Indian third-party hotel owners to IHG India in respect of such services less all the expenses incurred by IHG India with respect to such services. Further, in consideration for reservation system support services, IHG India pays to SCHI, a fee equal to 95% of the total fees payable by third- party Indian hotels to IHG India. As relying on own case Marketing, Distribution and Marketing and Frequency Marketing program and SCHI Facility Service charges is not Royalty/FTS and hence not taxable in India. Therefore, the matter is squarely covered by the above decisions and hence, the appeal of the assessee on this ground is allowed. Additions in relation to Travel Agent Commission ( TACP ) received from third-party Indian hotels - HELD THAT - AO did not examine the explanation/documents submitted by the assessee during the course of assessment proceedings and therefore, there is a merit in this ground of the assessee. AO also did not follow the directions of the DRP, which had directed the AO to verify from the available record as to whether the receipt on account of recovery of travel agent commission (TACP), is reimbursement or not, and directed the AO to delete the above addition, in case, it was found to be reimbursement in nature. Therefore, the AO is directed to verify the above claim/documents of the assessee and to decide the matter keeping in view the directions of the ITAT that the same was an allowable expense, if it was in the nature of reimbursement as decided by the Co-ordinate Bench 2024 (6) TMI 697 - ITAT DELHI Assessee is allowed to submit any details/explanations/documents in support of its claim. AO may also call for any further details to satisfy himself in deciding the matter keeping in view the above directions that the amount will not be taxable, if the assessee establishes that the same is reimbursement of expenses as claimed by it. Ground no.3 of the appeal is disposed.
Issues Involved:
1. Validity of the final assessment order under Section 144C of the Income Tax Act. 2. Validity of the Document Identification Number (DIN) in the DRP Directions. 3. Taxability of System Fund support fee and Technology Services Fees. 4. Taxability of Travel Agent Commission (TACP). 5. Initiation of penalty proceedings under Section 270A of the Income Tax Act. Detailed Analysis: Ground No. 1: Validity of the final assessment order under Section 144C of the Income Tax Act The assessee challenged the final assessment order dated 28.09.2023, arguing it was not in conformity with Section 144C of the Act. The assessee contended that the AO failed to follow the directions of the Dispute Resolution Panel (DRP) and did not consider past favorable Tribunal decisions on the taxability of centralized marketing and reservation-related receipts. The Tribunal held that the AO's failure to follow the DRP's directions and past Tribunal decisions rendered the assessment order invalid and thus quashed the addition of INR 6,13,91,631. The Tribunal allowed Ground No. 1.2 and 3. Ground No. 2: Validity of the Document Identification Number (DIN) in the DRP Directions The assessee argued that the DRP Directions were invalid due to an invalid DIN, as per CBDT Circular No. 19/2019. However, during the hearing, the assessee did not press this ground. Consequently, the Tribunal dismissed Ground No. 2 as not pressed. Ground No. 3: Taxability of System Fund support fee and Technology Services Fees The assessee contended that the additions made in respect of System Fund support fee and Technology Services Fees amounting to INR 6,13,91,631 were erroneous. The AO and DRP had treated these fees as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act and as Fees for Included Services (FIS) under Article 12 of the India-USA DTAA. The Tribunal noted that past Tribunal decisions in the assessee's favor consistently held that these receipts were not taxable as 'Royalty' or 'Fees for Technical Services' under the India-USA DTAA. The Tribunal allowed the assessee's appeal on this ground, deleting the addition of INR 6,13,91,631. Ground No. 4: Taxability of Travel Agent Commission (TACP) The AO had disallowed INR 1,23,46,336, treating it as taxable FTS/FIS under the Act and the India-USA DTAA, citing the lack of break-up and supporting documents. The assessee argued that it had provided the necessary details and invoices during the assessment proceedings. The Tribunal verified the submissions and found that the AO had not examined the provided documents and did not follow the DRP's directions for verification. The Tribunal directed the AO to verify the assessee's claim and documents, stating that the amount would not be taxable if established as reimbursement. The Tribunal disposed of Ground No. 4 accordingly. Ground No. 5: Initiation of penalty proceedings under Section 270A of the Income Tax Act The assessee challenged the initiation of penalty proceedings under Section 270A for underreporting of income by way of misreporting. The Tribunal did not provide a detailed analysis on this ground, as the primary issues were related to the validity of the assessment order and the taxability of specific receipts. Conclusion: The Tribunal allowed the appeal partly, quashing the addition of INR 6,13,91,631 related to System Fund support fee and Technology Services Fees and directing the AO to verify the TACP receipts. The appeal was disposed of on 13th June, 2024.
|
