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TMI Blog2013 (7) TMI 725X X X X Extracts X X X X X X X X Extracts X X X X ..... etherlands. Return of income was filed declaring total income of Rs. 43,98,410/- accompanied, inter alia, by exhibit 'A'. Note no.4 of this Exhibit read as under:- "MILC has entered into International Sales and Marketing Agreement with AHL for providing marketing services outside India. During the year under consideration, AHL has paid marketing fees of Rs. 90,06,525/- on which taxes of Rs. 9,41,264/- have been deducted. MILC has adopted a position that these amounts are not taxable in India and accordingly has claimed a refund of taxes withheld". 4. The assessee was called upon to explain as to why the amount received from Ansal Hotels Ltd. (AHL) for providing marking services outside India should not be taxed in India as per the Double Taxation Avoidance Agreement between India and Netherlands (hereinafter called 'the DTAA') and also under the Income-tax Act 1961 (Act). The assessee submitted that the amount was received for undertaking to perform the advertisement and marketing activities viz., Purchase of advertisement space in magazines, newspaper and other similar media ; advertisement on radio, television and other electronic media; advertising in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clauses 3.1 to 3.3 of the Agreement. The first part of the amount, being the receipt under clause 3.1 of the Agreement was held to be royalty and the second part of the amount under clauses 3.2 and 3.3 was held to be towards 'Reimbursement of expenses' on sales promotions and marketing and hence not chargeable to tax in India. The Revenue is in appeal against the direction of the ld. CIT(A) in relation to the payment made under clauses 3.2 and 3.3 of the Agreement treating it as 'Reimbursement of expenses' and not 'Royalty'. The ld AR fairly conceded that the impugned order in directing to tax the receipt under clause 3.1 of the Agreement as 'Royalty' has been accepted by the assessee. We are, therefore, required to adjudicate upon the nature of receipt under clauses 3.2 and 3.3 of the Agreement. 6. We have heard the rival submissions and perused the relevant material on record. As we have been called upon to determine the correct nature of the receipt under clauses 3.2 and 3.3 of the Agreement, it would be in the fitness of things to go through the relevant clauses of the Agreement dated 26.09.2000, a copy of which has placed on record. Preamble of the Agreement provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimburse Marriott for the Hotel's allocable share of all costs and expenses incurred by Marriott and its Affiliates in providing such special services which shall be charged to all participating MHRS International Hotels on a fair and reasonable basis, with payments to be made for each calendar year as provided in Section 3.4. The basis on which the costs and expenses of such special services are charged may change from time to time as reasonably determined by Marriott." 8. Total receipt of Rs. 90.06 lacs comprises of two components, viz., Marketing Fee of Rs. 51.46 lacs (towards clause 3.1 of the Agreement) and International Marketing Fee of Rs. 38.59 lacs (towards clauses 3.2 and 3.3 of the Agreement). The ld. AR submitted that the assessee has accepted the decision of the ld. CIT(A) qua the Marketing Fee of Rs. 51.46 lacs as having been held as 'Royalty'. The Revenue is in appeal against the other amount of Rs. 38.59 lacs towards clause 3.2 and 3.3 of the Agreement as having been held as 'Reimbursement of expenses' and thus thwarting taxation on it. 9. Before embarking upon the taxability or otherwise of the amount of Rs. 38.59 lacs, it is sine qua non to understand the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related activities and materials deemed appropriated by Marriott." 11. A conjoint reading of the definitions of the expressions 'International Marketing Activities' and 'International Marketing Fund' along with clause 3.2 of the Agreement makes it manifest that AHL agreed to contribute at the rate of 1.5% of its gross revenue on quarterly basis to the assessee for 'International Marketing Activities', which are in the nature of purchase of advertising space in magazines, newspapers and similar printed media etc., direct advertising, marketing, promotional, public relations and sales campaigns etc, designated by Marriot. 12. In the backdrop of such circumstances the primary question which arises for our consideration is as to whether the contribution of 1.5% made by AHL can be characterized as 'Royalties' under Article 12 of the DTAA. Para 4 of the Article 12 defines 'royalties' as under: - "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films, any patent, trade mark, design or model, pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ambit of Article 12 of the DTAA. The ld. DR referred to para 5 of the Agreement to bolster her submission of the amount being in the nature of royalty. It is beyond our comprehension as to how this para advances her case. It talks of 'Confidential information' and provides that the Franchisee shall not during the term of this Agreement or thereafter copy, duplicate, record or reproduce etc. the confidential information to any person without the assessee's consent. There is no consideration for maintaining such confidential information. The amount with which we are presently concerned is undisputedly contribution for international marketing activities, which is in the nature of advertisement and marketing etc. This amount cannot be tagged with any other clause of the Agreement when it has been stated to be for international marketing activities. It is further noticed that the AO also tried to link this amount with "brand Marriott/brand preference/brand awareness". In other words, he canvassed a view that with such payment AHL facilitated in building and strengthening the brand 'Marriott'. We have noticed above that the term 'royalties' as per Article 12 of the DTAA can always be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of contribution. In such a situation, there is every possibility of the assessee having some mark up on the costs incurred by it on advertisement. Or alternatively, it may be the other way around also. No material has been placed on record to demonstrate that the actual expenses incurred by the assessee were equal to the amount received. In our considered opinion, the ld. CIT(A) was not justified in deleting the addition by holding that it represented 'reimbursement of expenses', which does not appear to be correct in the light of our above discussion. 17. When the CIT(A) reverses assessment order on a point and the Revenue prefers appeals, it becomes the duty of the tribunal to vet the view point of the first appellate authority. The rule is that the allowing or dismissing of the Revenue's appeal by the tribunal has the direct effect of judging the correctness or otherwise of the CIT(A)'s opinion, which indirectly and automatically results in evaluating and examining the AO's opinion. If the conclusion of the CIT(A) is echoed, it means that the AO was incorrect on that point. Per contra, where the view of the first appellate authority is overturned, it means that the AO was cor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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