2024 (2) TMI 582 - AT - Income Tax

Taxable Income in India or not - Royalty receipt - PE in India or not? - amount received towards Marketing Contribution, Priority Club receipts, Reservation Contribution, and Holidex Fee - Reimbursement of expenses - assessee is a company incorporated and a tax resident of the USA - HELD THAT - We find that the taxability of similar receipts came up for consideration before the coordinate bench of the Tribunal in assessee s own case as held that money was received by the assessee, on account of Marketing and Reservation fees, with a corresponding obligation to use it for the agreed purposes and it was not an unfettered receipt in the hands of the assessee and therefore it was a kind of a trust money received in fiduciary capacity. It was further held that the receipt cannot be termed as a consideration for the use of any intellectual property asset of the company, even though the receipt may have been incidental to the same. Accordingly, the coordinate bench came to the conclusion that the receipt is not taxable as a Royalty or Fees for Technical Services and therefore is not taxable in the hands of the assessee in the absence of any PE in India. Marketing Contribution and Reservation Fees received by the assessee are not Royalty and therefore, the impugned addition is deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of Marketing Contribution, Priority Club receipts, Reservation Contribution, and Holidex Fees as Royalty.
2. Levy of interest under section 234B of the Income Tax Act.

Summary:

Issue 1: Taxability of Marketing Contribution, Priority Club receipts, Reservation Contribution, and Holidex Fees as Royalty

The assessee challenged the addition made by the AO and confirmed by the CIT(A), treating the amounts received towards Marketing Contribution, Priority Club receipts, Reservation Contribution, and Holidex Fees as Royalty. The AO argued that these receipts were part of a composite agreement for the license and management of hotels, and thus taxable as Royalty under the Income Tax Act and the India-USA DTAA. The CIT(A) upheld this view, stating that the payments were inseparable from the Royalty and deeply interlinked.

The assessee contended that these contributions were reimbursements for common marketing and reservation expenses, not taxable as Royalty. The Tribunal noted that similar issues in the assessee's previous years were decided in favor of the assessee, where it was held that these receipts were not unfettered and were used for agreed purposes, thus not taxable as Royalty or Fees for Technical Services. The Tribunal found no merit in the reliance placed by the lower authorities on a different case (Marriott International Inc.) as the facts were not similar.

Respectfully following the judicial precedence in the assessee's own case, the Tribunal concluded that the Marketing Contribution and Reservation Fees received by the assessee are not Royalty. Consequently, the impugned addition was deleted.

Issue 2: Levy of interest under section 234B

This issue was deemed consequential and required no separate adjudication.

Conclusion:

The appeals for the assessment years 2012-13 to 2015-16 were allowed, with the Tribunal ruling that the Marketing Contribution and Reservation Fees are not taxable as Royalty.