9911796707
TMI Blog2019 (8) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... held as FTS under Article 12(5)(a) of the India- Netherland tax treaty. We are of the considered view that in terms of our aforesaid observations, as neither the training services rendered by the assessee to the Indian Hotels could be held to be technical services, nor the same could have been characterised as ancillary and subsidiary services as per Article 12(5)(a), hence the consideration received by the assessee for rendering the training services could not be held as FTS in its hands. As decided in own case [ 2018 (6) TMI 605 - ITAT MUMBAI] we are of the view that the payments received programme cannot be treated as FTS as clearly held by the Tribunal, hence, the Ground No.1 2 7 of the appeal are allowed in favour of assessee. Treating the payment for providing access to computer system as Royalty in term of the Act and India-Netherlands tax treaty - AO concluded that for providing the right to use the system developed by assessee or its affiliates specifically for the Indian Hotels and also providing technical services for the maintenance and use of such system, which is ancillary and subsidiary to the application or enjoyment of the right to use the computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of tax provided in the tax treaty by including surcharge and education cess separately - Decided in favour of assessee. - ITA No. 5678/Mum/2016, ITA No. 764/Mum/2017 - - - Dated:- 9-8-2019 - SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER For the Appellant : Shri Paras Savla with Shri Pratik Poddar (AR) For the Respondent : Shri Nishant Samaiya Order Under Section 254(1)of Income-tax Act PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeal by assessee are directed against the order of ld. Commissioner of Income Tax (Appeals)-58 [the ld. CIT(A)], Mumbai dated 28.06.2016 24.10.2016 for Assessment Year 2011-12 2012-13 respectively. In both the appeals, the assessee has raised certain common grounds of appeal, therefore, both the appeals were clubbed, heard together and are decided by common order for the sake of brevity and convenience. The appeal for Assessment Year 2011-12 is treated as lead case. The assessee has raised the following grounds of appeal: 1. In holding that the amounts received by the Appellant under the Training and Computer Systems Agreement ('TCSA') on account of conducting core managerial tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the India-Netherlands tax treaty. 2. The assessee vide application dated 22.10.2018 has raised following additional ground of appeal: 9. On the facts and circumstances of the case and in law, the assessment proceedings have been abated, since the learned assessing officer CAO') has failed to pass the order giving effect to the direction in Commissioner of Income-Tax (Appeals) order within the period of limitation as provided by the Income-Tax Act, 1961. 10. On the facts and in the circumstances of the case, and in law, the AO has erred in adding surcharge and education cess and secondary and higher education cess to the tax on income charged as per the provisions of the double taxation avoidance agreement between India and Netherlands. 3. Brief facts of the case are that the assessee is a company incorporated and tax resident of Netherlands and is a part of Marriott group. The assessee is engaged in conducting training programme and providing access to computer system viz Centralized Reservation System (CRS), Property Management and other system of Marriott chain of hotels. The assessee filed return of income during the relevant Assessment Year on 30.09.2011 declari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts relating to the additional grounds of appeal are emanating from the order of the lower authorities to adjudicate the additional ground. Therefore, the additional grounds of appeal raised by assessee are allowed. 8. On merit, the ld. AR of the assessee submits that Ground No. 1, 2 7 of the appeal relates to treating the payment towards training programme as FTS. The ld. AR of the assessee submits that these ground of appeal are covered in favour of assessee by the decision of Tribunal in assessee s own case for Assessment Year 2009-10 in ITA No. 7195/Mum/2012 dated 08.06.2012. 9. On the other hand, the ld. DR for the revenue strongly supported the order of authorities below. 10. We have considered the rival submission of the parties and have gone through the orders of authorities below and the decision of Tribunal in assessee s own case for Assessment Year 2009-10. We have noted that on identical grounds of appeal, the Tribunal in assessee s own case for Assessment Year 2009-10 passed the following order: 10. We shall now advert to the claim of the assessee that the consideration received for conducting training programs had wrongly been held by the CIT(A) as FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a fitness certificate, could not be held as payments made for technical services. The Tribunal while concluding as hereinabove, observed that the employees by taking training from the Principal company had acquired only inputs to enable them to perform their work with desired state of efficiency. (ii). Ershisanye Construction Group India (P) Ltd. vs. DCIT (2017) 84 taxmann.com 108 (Kol): The Tribunal had observed that payments which were made by a Chinese company in respect of training of Chinese engineers of the assessee in english language would not constitute FTS. (iii). ACIT Vs. PCI Ltd. (2011) 12 taxmann.com 59 (Delhi): The High Court observed that payments made by the assessee to a nonresident party for training its personnel or customers to explain to the proposed buyers the salient features of the products imported by the assessee in India and to impart training to the customers to use the equipments cannot be held to be FTS. (iv). ITO Vs. Veeda Clinic Research P. Ltd. (2011) 13 taxmann.com21 (Bang): Where training services to the employees of the assessee company was general in nature, not involving any transfer of technology, the fees for providing suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee with the Indian Hotels, viz. M/s Viceroy Hotels Ltd., Hyderabad and M/s Chalet Hotels Ltd., Mumbai were an integral part of the licensing/royalty agreement, thus both the agreements were complementary to each other. The CIT(A) was of the view that as the training services rendered by the assessee were ancillary and subsidiary to the enjoyment of the rights, property or information pursuant to the royalty agreement, thus the consideration received by the assessee from rendering such services could safely be held as FTS as per Article 12(5)(a) of the India-Netherland tax treaty. We have deliberated at length on Article 12(5)(a) of the tax treaty, which reads as under: Article 12(5): For the purposes of this Article, fees for technical services means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is receives; or We find that for invoking A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly held by the Tribunal, hence, the Ground No.1 2 7 of the appeal are allowed in favour of assessee. 12. Ground No. 3,4,5,6 8 relates to treating the payment for providing access to computer system as Royalty in term of the Act and India-Netherlands tax treaty as well as under section 9(1)(vi) of the Income tax Act. The ld. AR of the assessee submits that in appeal for Assessment Year 2009-10, the Tribunal held that payment for providing access to computer system cannot be taxed as FTS , wherein it was held that the common facilities provided to the Indian Hotels by the assessee were common facilities provided to the members of the Marriot Chain of Hotels across the world by the assessee, and were not tailor made services to suit their specific requirement, thus, the said facilities could not be construed as technical services . 13. In relation to the stand of the revenue that TSCA being integral to the license / Royalty agreement, providing access to computer system were ancillary and subsidiary to the enjoyment of the right, property or information pursuant to the royalty agreement, the Tribunal rejected the contention of the department in para 14 of the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V [2017] 80 yaxman.com 64 (Mum) 3 ADIT v. First Advantage (P.) Ltd. [2017] 163 ITD 165 (Mum) 4 ADIT v. Baan Global BV [2016] 71 taxmann.com 213 (Mum) 5 DDIT v. Reliance Industries Ltd. [2016} 159 ITD 208 (Mum) 6 DCIT v. Atmel R D India (P.) Ltd. [2016] 74 Taxmann.com 106 (Chennai) 7 Kotak Mahindra Old Mutual Insurance Ltd. vs. JCIT ITA No. 3819, 3820 3821/Mum/2014, Mumbai ITAT, dated 24.05.2017 8 Bharat Bijlee Ltd. vs. ACIT ITA No.5326-5329/Mum/2014 Mumbai ITAT, dated 03.11.2017 9 Colgate Palmolive Marketing SDN BHD v. JDIT ITA No. 2130/Mum/2004 10 Mc Kinsey Knowledge Centre India (P.) Ltd. v. ITO [2018] 92 taxmann.com 226 (Delhi-Trib.) 11 DDIT v. Reliance Communication Ltd. [2018] 90 taxmann.c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel owners. Further, Meriat International rendered predominantly includes international advertising, marketing, promotion and sales program. Other services include service in relation to frequent travel program and assessed original vision system. The services predominantly include providing non-technical training and access to computer system. Training rendered comprise of soft skill development leadership, the management communication etc. Systems comprise of a standardize regeneration system, property management system and other systems. The assessing officer in assessment year 2011-12 has acknowledged that assessee does not undertake any sales or marketing activity in para 3.3.4 of the order. The learned AR also distinguished the said case on various other points and would submit that the facts of the said decision are not applicable on the present case. The learned AR further submits that the decisions of hotel industry which are directly applicable to the facts of the present case, wherein it was held that fees for reservation systems cannot be treated as royalty (i) DIT Versus Shelton international INC 313 ITR 263 (Delhi ) (ii) Bass International Holding NV Vs JCIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal for AY 2009-10, that the same is cannot be treated as FTS. The relevant part of the order is extracted below: 13. ---- we have perused the facts of the case before us and after deliberating on the same in the backdrop of aforesaid judicial precedents are of the considered view that the assess to CRS, property management system and other systems provided to the Indian hotels by the assessee were common facilities provided to the members of the Marriot chain of hotels across the board by the assessee, and what not tailor made services to suit their specific requirements, thus the said facility could not be construed as technical services . 21. The other contention of the revenue that TCSA being integral part of the license /royalty agreement, providing access to computer systems were ancillary and subsidiary to the enjoyments of the rights, property or information pursuant to the Royalty agreement were also rejected by tribunal in its order for assessment year 2009-10. Where further noted that the the revenue has not filed appeal against the claim of assessing officer for assessment year 2009-10 that the payments access to computer system qualify as royalty, when CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to make a copy of the software and storing the same in the hard disk of the designated computer and taking backup copy would amount to copyright work under section 14(1) of the Copyright Act and the payment made for the grant of the licence for the said purpose would constitute royalty. The license granted to the licensee permitting him to download the computer programme and storing it in the computer for his own use was only incidental to the facility extended to the licensee to make use of the copyrighted product for his internal business purpose. The said process was necessary to make the programme functional and to have access to it and is qualitatively different from the right contemplated by the said provision because it is only integral to the use of copyrighted product. The right to make a backup copy purely as a temporary protection against loss, destruction or damage has been held by the Delhi High Court in Nokia Networks OY (supra) as not amounting to acquiring a copyright in the software. 23. Further, in our view the said receipt also cannot qualify as brand royalty at the same amount is received merely access to computer software/system and such payment are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... participating in training, caused providing assessed to system are located to the respective hotel owner on fair and reasonable basis. Further in case of MII the services entail promotion of Marriott brand as whole and do not envisage promoting or advertising any specific individual hotel property. However in case of assessee services rendered are directly relatable to each individual hotel property. 25. In view of aforesaid factual and legal discussion, we are of the view that while using computer software, which is copyrighted article and there is no transfer of copyright or use of copyright itself particularly when there is no transfer of a patent, invention, model, design, secret formula or process or trade mark or similar property or imparting of any information concerning thereof. 26. Further we have noted that on remaining contention raised by lower authorities, the Tribunal in assessee s own case for Assessment Year 2009- 10 on similar set of fact passed the following order: 13. We shall now advert to the assailing of the order of the CIT(A) by the assessee, on the ground that he had erred in holding that the amounts received by the assessee for providing access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices did not amount to technical services provided by Stock Exchange, as the same were not services which were specifically sought for by the user or consumer. The Hon ble Apex Court following the aforesaid view, had thereafter observed in the case of CIT (IT)-1 Vs. A.P Moller Maersk A S (2017) 392 ITR 186 (SC), that where the assessee, a foreign shipping company had set up a telecommunication system in order to enable its agents across globe including India to perform their role more effectively, the payment received for providing such facility was not taxable as fee for technical services. We have perused the facts of the case before us and after deliberating on the same in the backdrop of the aforesaid judicial pronouncements are of the considered view that as the access to CRS, Property Management System and Other Systems provided to the Indian Hotels by the assessee were common facilities provided to the members of the Marriott chain of hotels across the world by the assessee, and were not tailor made services to suit their specific requirements, thus the said facility could not be construed as technical services . 14. We shall now advert to the observations of the CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations. 27. Considering the decision of Tribunal in assessee s own case for Assessment Year 2009-10 on similar set of fact, and our aforesaid detailed discussions on the issues, these grounds of appeal are allowed in favour of assessee. 28. Ground No. 9 was not pressed by ld. AR for the assessee, therefore dismissed. 29. Ground No.10 (additional ground) relates to adding of surcharge on education, secondary higher education cess. The ld. AR for the assessee submits that India- Netherlands tax treaty prescribes a cap of 10% on rate of tax, which would prevail over provision of domestic income tax and thus, rate of tax cannot be enhanced to include surcharge or education cess or secondary and higher education cess. The ld. AR of the assessee further submits that this ground of appeal is also covered by the decision of Tribunal for Assessment Year 2009-10. 30. On the other hand, the ld. DR for the revenue supported the order of lower authorities. 31. We have considered the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
