9911796707
TMI Blog2022 (5) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, Mumbai [the CIT(A)], has in her order under section 250 of the income-tax Act, 1961, 1961 ('the Act') erred in disposing the appeal of the Appellant on the following grounds, which are without prejudice to one another: In not deciding the fundamental issue before herself as directed by the Income-tax Appellate Tribunal, Mumbai (ITAT) vide order dated January 14, 2015; namely, whether the amounts received under the International sales and marketing agreement (ISMA) should be taxed in the hands of any other group company and thus the order passed by the Deputy Commissioner of Income-tax (International taxation)-3(2) (1), Mumbai (Assessing Officer)/ CIT (A) is bad in law; In holding that the Assessing Officer was right in taxing the ISMA receipts in the hands of the appellant (in its own capacity), despite the fact that ITAT vide order dated January 14, 2015 held that the Appellant (in its own capacity) cannot be held liable to tax with respect to amounts received under ISMA. In not appreciating the following The Assessing Officer had only requested the Appellant to submit the name of the trademark owner and had not called for any documentary evidence to substantiate the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... February 2007 at Rs. nil. 05. It was found that assessee has received Rs.7,57,10,293/- from Juhu Beach Resorts Limited, and Rs.70,20,317/- from Chalet Hotels Limited on account of reimbursement of expenses of Rs.8,27,30,610/-. It further received Rs.8,50,72,792/- from Juhu Beach Resorts Ltd. and Rs.1,75,14,664/- from V.M. Salgaonkar and Brothers Pvt. Ltd. Of Rs.10,25,87,456/- on account of International Service Marketing Agreement (ISMA). In the original return assessee offered this sum as chargeable to tax in India as Royalty. However, in revised return it was not offered. Assessee contested that above amounts are in the nature of reimbursement of expenses and not taxable. The learned Assessing Officer held that Rs.18,53,18,070/- is chargeable to tax. 06. Ld AO held that receipt of Rs.10,25,87,456/- received under ISMA are chargeable to tax as royalty, reimbursement of expenses is also taxable as fees for included services. Therefore, the total receipt of Rs.18,53,18,070/- was assessed as income. 07. Assessee filed appeal before the learned CIT (A), who confirmed the order of the learned Assessing Officer. 08. Assessee approached the ITAT who passed an order restoring matter b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the hotels worldwide who have been licensed MHR brands (MHR Hotels). The assessee maintains and administers a centralised marketing fund (Marketing Fund) for the purpose of undertaking advertising, marketing, promotion and sales activities (ISM activities) on behalf of hotel owners who have been licensed MHR brands. To this end the Assessee enters into an International Sales and Marketing Agreement (ISMA) with such hotel owners." "Para 1.6: Separately it must be noted that the Indian hotels have executed a License and Royalty agreement with Marriott Worldwide corporation (MWC) an affiliate of the Assessee, for granting a license to use the MHR Brands. Under the said agreement, the Indian hotels have obtained a license to use the brand name "Marriott" from MWC". The royalty income received by MWC from the Indian hotels has been offered to tax in India and appropriate taxes have been deposited with the Income tax department" 12. The assessee was again vide this office letter dated 19th February 2016 asked to furnish explanation with reference to the ITAT order. The letter read as follows. "On a perusal of the order the ITAT order it is seen that in para 52 of the order the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter "Owner of brand"). The name of the said company is not available on record. The Said Company has given license to M/s Marriott Worldwide Corporation (MWC) or M/s Renaissance International Inc. to permit the use of brands citied above to other hotels on receipt of Royalty. The terms of Agreement between the original owner of the brand and M/s MWC are also not available on record. However, as per the authority obtained under the agreement entered with the original owner of the brand, M/s MWC has granted the hotels, permission to use the brands and it is stated that the Royalty received by M/s MWC has been duly offered to Income tax. ii) The assessee company has undertaken the job of undertaking International advertisement and marketing programs for "Marriott" and "Renaissance" brands on behalf of the hotels worldwide. The contention of the assessee is that it has undertaken the international marketing programs on behalf of all the hotels in general. We have already noticed that the assessee has collected charges under three different categories: (a) International Sales and Marketing Services. It is collected as a percentage of Gross revenue of the Hotels. (b) Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration. 6. Renaissance International Inc. 7. Marriott International Hotels Inc. Thus, it is seen that all the above said companies appear to have same address. The details of payments proposed to be made is given in Clause 4 of the approval, as per which (a) Lump sum Technical Services Fee was proposed to be paid to M/s Marriott International Design & Construction Services Inc. (b) Lump Sum Pre-opening technical assistance' amount was proposed to be paid to M/s Marriott Hotel Services Inc. (c) Lump Sum Pre-opening technical assistance' amount was proposed to be paid to M/s Renaissance Services B. V. (d) International Sales and Marketing fee (upto 2.5%) & Reimbursement of cost (as per prescribed rates) was proposed to be paid to M/s Marriott International Inc. (the assessee herein as per Article (2.05 and (2.01 to 2.04)) respectively. (e) Royalty was proposed to be paid to M/s Marriott Worldwide Corporation 0.5% of gross revenue and also to M/s Renaissance International Inc. @ 0.5% of gross revenue. The expenses described as "Franchise Marketing/Publicity Support Fee" are proposed to be paid approximately at 2.5% of the gross revenue in addition to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available on record. However, the case of the revenue is that the International Sales and Marketing Agreement (ISMA) entered by the assessee shows that the responsibility to promote the "Brand Value" has been entrusted with the assessee herein, since the marketing activities have been carried out in the name of "Marriott" and/or "Renaissance" only. Since the assessee has collected the charges from the Hotels for carrying out the marketing activities, the revenue has contended that the charges so collected should also be construed as part of "Royalty" only. The Ld. CIT (A) has held that two types of payments are in the nature of Royalty and another type of payment is in the nature of "Fee for included services". The following observations made by Ld. CIT (A) are relevant to understand the contentions of the revenue:- (a) The amount paid by the Indian owner companies (Hotels) does not point out to any specific item of expenditure incurred on behalf of the hotel owner companies. (b) Merely because the assessee company and other company of the same group have signed two different agreements with the hotel companies, one for promoting global brand of the assessee company and the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receiving royalty amount of Rs.30/- and the expenses of Rs.70/- would be collected by the company which took the responsibility of undertaking International marketing program. In this process, the brand owner shall be paying tax @ 15% on Rs.30/-, i.e., Rs.4.50. According to revenue, it is deprived of tax to the extent of Rs.10.50, when the brand owner adopts the second methodology, i.e., the case of the revenue is that the above said methodology is nothing but a clear tax planning by colorable device be bifurcating the royalty receipts. Hence, the revenue is contending that the amount received by the assessee company as reimbursement of expenses from the Indian Hotels should be considered as "Royalty" only, since the said amount has been spent on popularizing the "Brand name", which would otherwise be the responsibility of the brand owner. Since the amount collected towards International Marketing activities have been collected on three heads, one portion was treated as "royalty" and other portion was treated Fee for included services" by the Ld. CIT (A). X) The foregoing discussions would show that the real question in the instant case is-Whether the Marriott has bifurcated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es itself proves that the assessee company is only an extended arm of "Marriott Group Company" owning the brand name. xiii) Hence, we are of the view that the assessee company, being only an extended arm of 'Marriott Group Company' owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colorable device. Accordingly, we are of the view that the separate legal identity of the assessee company gets blurred and corporate veil should be lifted. Hence, the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. We have already noticed that all the advertisement/Marketing program are carried out in the name of "Marriott" and/or "Renaissance". Hence all of them go to swell the existing Brand names referred above. Hence they become taxable as royalty in terms of Article 12 of the Indo US DTAA. 15. In pursuance of the directions of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings u/s 271(1) (c) are initiated for furnishing inaccurate particulars of income. However without prejudice to the above, the assessee even after giving repeated opportunities has maintained its stand that Marriott Worldwide Corporation is the owner of the brand, when in reality it only owns the right to use the Marriott trademarks: The ITAT has also held in its order referred above that the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. The assessee has stated in its letter dated 23/02/2016 that the trademark registration for the 'Marriott' brand is owned by Marriott Worldwide Corporation. However the assessee has not produced any documentary evidence in support of the same. In view of the above the assessee has furnished inaccurate particulars with respect to the details of the brand ownership before the Assessing Officer and also before the Hon'ble Tribunal and further failed to produce the copy of agreement between such brand owner and MWC before the ITAT and also before the Assessing Officer. Even when the matter was set aside and repeated opportunities were granted to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee as nothing was submitted for Assessment Year 2006-07 to 2009-10. Accordingly, the appeal filed by the assessee was dismissed. Therefore, now assessee is in appeal before us. 011. The learned Authorized Representative submitted that in whose hands the royalty is chargeable to tax is the issue. According to him, it is chargeable to tax in the hands of the owner of the brand. He submitted that according to the certificate placed at page no. 76 and 77 of the Paper Book; 'Marriott' brand is registered in the name of Marriott Worldwide Corporation, a US resident and not in the hands of the assessee. He further submitted that application for trademark registration was made on 24th November, 2003 and registration is granted from that date vide certificate dated 21st day of August 2006. He therefore submitted that such income is not at all taxable in the hands of the assessee. In any way, the registration certificate is now available and therefore may be considered for these years. 012. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. It was submitted that assessee did not produce any certificate before lower aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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