2021 (9) TMI 498 - AT - Income Tax

Income accrued in India - Fee for Technical Services (FTS) within the meaning and scope of section 9 of the Income Tax Act, 1961 as well as Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA). - PE in India or not - receipts of the assessee from various activities of hotel management ranging inter alia from ticketing, reservation, marketing, advertising, operation, administration, catering, network support services, Starwood Portal Services, imparting of skill sets through trainings etc. - HELD THAT - Revenue does not dispute the facts of the present assessment year is different that the facts discussed in assessee's own case by the Hon'ble High Court as well as by the Tribunal in A.Y. 2013-14 2019 (11) TMI 1675 - ITAT DELHI wherein took the view that the payments for advertising, publicity and the sales promotion services rendered by the assessee, a company incorporated and tax resident in USA to Indian company, was advisement, publicity and sales promotion keeping in mind the mutual interests and in the context, the use of trademark, trade name etc. and other enumerated services referred to in the agreement with the assessee were incidental to main services and, therefore, the payments received were neither in the nature of royalty under section 9(1)(vi) of the Act, Explanation 2, nor in the nature of 'Fee for Technical Services' (FTS) under section 9(1)(vii) of the Act, Explanation 2, but business income and assessee not having any PE in India such business income was not taxable in India - Decided in favour of assessee.

Summary

Issues:
Whether the receipts of the assessee from various activities of hotel management, including ticketing, reservation, marketing, advertising, operation, administration, catering, network support services, Starwood Portal Services, and imparting of skill sets through trainings, were taxable as "Fee for Technical Services" (FTS) under section 9 of the Income Tax Act, 1961 and Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA).

Analysis:
The appeal was filed by the Revenue against the order passed by CIT(A)-02, New Delhi for assessment year 2014-15. The assessee, a US-based company, provided centralized services to hotels worldwide, including in India, such as marketing and advertising services through a global system. The services provided were categorized into sales & marketing, loyalty programs, reservations service, technological services, operational services, and training programs. The Assessing Officer treated the income received by the assessee as fees for technical services under DTAA and section 115A of the Income Tax Act, 1961, based on the definition of 'fees for technical services' as per Explanation 2 of section 9(1)(vii). The CIT(A) allowed the appeal of the assessee against the assessment order.

During the hearing, it was highlighted that similar issues had been decided in favor of the assessee in previous years by the Tribunal and the Delhi High Court. The Tribunal noted that the payments received were considered business income and not taxable in India as they were not in the nature of royalty or fees for technical services. The Tribunal referred to the decision in the case of Sheraton International Inc. and held that the payments for advertising, publicity, and sales promotion services were business income and not subject to taxation in India. Since the facts were identical to previous cases, the Tribunal dismissed the appeal of the Revenue.

The Tribunal found no reason to interfere with the findings of the CIT(A) as the Revenue did not present any distinguishing facts for the present assessment year. Therefore, the appeal of the Revenue was dismissed, and the decision was pronounced on August 31, 2021.