2022 (11) TMI 32 - AT - Income Tax

Royalty/FTS/FIS - Taxability of payment received by the assessee under Master Franchise Agreement as Royalty/Fee for Technical Services (FTS), both under the Domestic Law as well as India-USA Double Taxation Avoidance Agreement - (DTAA) - HELD THAT - The factual position relating to the disputed issue being identical in the impugned assessment year, respectfully following the decision of the Tribunal in assessment year 2016-17 2022 (7) TMI 781 - ITAT DELHI we hold that the amount received by the assessee under the Master Franchise Agreement, cannot be treated either as a royalty/FTS/FIS. Accordingly, addition is deleted. Appeal is allowed.

Summary

Issues:
Taxability of payment received by the assessee under Master Franchise Agreement as Royalty/Fee for Technical Services (FTS) under Domestic Law and India-USA Double Taxation Avoidance Agreement (DTAA).

Analysis:
The appeal was filed by the assessee challenging the final assessment order for the assessment year 2018-19, concerning the taxability of payment received under a Master Franchise Agreement. The assessing officer added back the amount received by the assessee under the agreement to their income, considering it as either royalty or FTS. The assessee contended that the amount was not in the nature of royalty or FTS but related to third-party reservation, marketing fee, and other services. Despite the assessee's objections before the Dispute Resolution Panel (DRP), the addition was upheld based on previous decisions. The Tribunal noted that the issue was covered in favor of the assessee by a previous decision in the assessee's own case for the assessment year 2016-17. The Tribunal highlighted the relevance of the earlier decision and the incorrect application of the law by the departmental authorities in the current case.

The Tribunal referred to the observations made in the previous order related to the assessee's case for the assessment year 2016-17. The Tribunal emphasized that the service fee received by the assessee should not be considered ancillary or subsidiary to the license fee, based on an in-depth analysis of the facts and relevant provisions. The Tribunal concluded that the payment received under the Master Franchise Agreement did not fall under the categories of royalty, FTS, or Fees for Included Services (FIS) under the India-USA DTAA. Therefore, the addition made by the assessing officer was deleted, following the decision in the earlier case for the assessment year 2016-17.

In conclusion, the Tribunal allowed the appeal, holding that the amount received by the assessee under the Master Franchise Agreement could not be treated as royalty, FTS, or FIS. The decision was based on the findings of the Tribunal in the assessee's previous case for the assessment year 2016-17. The addition made by the assessing officer was deemed incorrect, and therefore, it was deleted in favor of the assessee.