2022 (12) TMI 245 - AT - Income Tax

Royalty receipt - FTS/ FIS - HELD THAT - It is engaged in the business of providing hotel related services in several countries around the world. Assessee is group entity of Starwood. In India the assessee has entered into agreements with various Indian hotels for provision of hotel related services interalia worldwide publicity, marketing and advertising services through its system of sales, advertising, promotion, public relations and reservations. During the course of scrutiny assessment proceedings and taking leaf out of the earlier assessment years in respect of the payments received by the assessee for such services - Thus as relying in assessee s own case 2022 (7) TMI 781 - ITAT DELHI . we direct the AO to delete the impugned additions. The appeal of the assessee is accordingly allowed.

Issues Involved:
1. Validity of the CIT(A)'s order.
2. Taxability of Centralized Services fees.
3. Classification of fees as Fees for Technical Services (FTS) or Fees for Included Services (FIS) under the India-USA DTAA.
4. Application of the Principle of Stare Decisis.
5. Invocation of Article 12(4)(a) of the India-USA DTAA.
6. Violation of principles of natural justice.
7. Levy of interest under Section 234B of the Act.
8. Levy of interest under Section 234A of the Act.

Detailed Analysis:

1. Validity of the CIT(A)'s Order:
The assessee contended that the order of the CIT(A) was contrary to the facts, law, and principle of Stare Decisis, thus rendering it bad in law. The Tribunal noted that the CIT(A) had followed his previous findings from A.Y. 2015-16 without considering the Tribunal's earlier decisions in favor of the assessee.

2. Taxability of Centralized Services Fees:
The CIT(A) upheld the addition of Rs. 39,28,87,342 made by the AO towards Centralized Services fees, treating them as taxable under the Act. The Tribunal, however, found that the issue had already been decided in favor of the assessee in previous years, where such fees were not considered taxable in India.

3. Classification of Fees as FTS or FIS:
The CIT(A) treated the fees received for rendering various Centralized Services as taxable FTS under Section 9(1)(vii) of the Act or FIS under the India-USA DTAA. The Tribunal, referencing its earlier decisions and the Delhi High Court's rulings, held that such fees could not be classified as FTS or FIS, but rather as business income not taxable in India due to the absence of a Permanent Establishment (PE).

4. Application of the Principle of Stare Decisis:
The assessee argued that the CIT(A) did not follow the Principle of Stare Decisis by ignoring decisions of the Jurisdictional Delhi Tribunal and Delhi High Court in similar cases involving group entities. The Tribunal agreed, noting that the CIT(A) should have adhered to the established precedents.

5. Invocation of Article 12(4)(a) of the India-USA DTAA:
The CIT(A) invoked Article 12(4)(a) of the India-USA DTAA, treating the Centralized Services fees as ancillary and subsidiary to the License fee and thus taxable as FIS. The Tribunal found this invocation incorrect, as previous rulings had established that these fees did not fall under Article 12(4)(a) or 12(4)(b) of the Treaty.

6. Violation of Principles of Natural Justice:
The assessee claimed that the CIT(A) violated principles of natural justice by confirming the addition on a completely different basis without providing an opportunity to present its case. The Tribunal did not explicitly address this issue, but its decision to follow previous rulings implicitly supports the assessee's claim.

7. Levy of Interest under Section 234B:
The CIT(A) upheld the interest amounting to Rs. 11,530,912 under Section 234B of the Act. The Tribunal's decision to delete the additions implies that the interest levied under Section 234B would also be affected.

8. Levy of Interest under Section 234A:
An additional ground was raised regarding the erroneous levy of interest under Section 234A despite timely filing of the return. The Tribunal did not specifically address this ground, but the deletion of the primary additions would likely impact the interest calculations.

Conclusion:
The Tribunal directed the AO to delete the impugned additions, thereby allowing the appeal of the assessee. The Tribunal's decision was based on the established precedents and the consistent treatment of similar issues in the past. The decision was announced in the open court on 21.07.2022.

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