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TMI Blog2024 (2) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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. - Shri Om Prakash Kant, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : S/Shri S.K. Aggarwal a/w Siddesh Chaugule, Piyush Gupta and Himanshu Aggarwal For the Revenue : Shri Anil Sant ORDER PER BENCH The present appeals have been filed by the assessee challenging the separate impugned orders passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals) 58, Mumbai, [ learned CIT(A) ], for the assessment years 2012-13 to 2015-16. 2. Since these appeals involve a similar issue arising from the similar factual matrix, therefore these appeals were heard together and are being decided by way of this consolidated order. With the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner with the sole intention to reduce tax liability and therefore is a colourable device. 1.6 On the facts and in circumstances of the case and in law, the CIT(A) has erred in not appreciating that the Marketing and Reservation contribution received from Indian hotels cannot be held taxable as Fee for Included Services ('FIS') under Article 12(4) of the DTAA, as held by the Id. AO without appreciating that: The said services are neither technical nor consultancy in nature; The said services are not ancillary and subsidiary to the application or enjoyment of the right, property or information for which royalty is received by the Appellant; The said services do not make available any technical knowledge, experience, skill, know-how, or processes etc. 1.7 On the facts and in circumstances of the case and in law, the CIT(A) has erred in concluding that the amount of Marketing Contribution, Priority Club receipts and Reservation Contribution received from Indian hotels are taxable in India without appreciating that: The amount is not in the nature of income and cannot be subjected to tax on principles of mutuality. The amount is paid by Indian Hotels specifically toward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case are that the assessee is a company incorporated and a tax resident of the USA. The assessee is a part of InterContinental Hotel Group ( IHG ) and held the registered trademark of Holiday Inn for the first six months of the financial year 2011-12. The economic and beneficial ownership of the Holiday Inn and Crowne Plaza brands were assigned to another group entity, namely InterContinental Hotels Group (Asia Pacific) PTE Ltd., Singapore ( IHGAP ) with effect from 01/11/2010. The assessee entered into license agreements with various Indian hotels allowing them the use of these trademarks in the business. Further, the hotels were provided with various programs and other systems including reservation/sales and marketing support, which would enable them to provide the same standard quality of services as offered by Holiday Inn and Crowne Plaza worldwide. The assessee entered into license agreements with hotels in India and earned Royalty income, which was offered to tax in India. The Marketing Contribution and Reservation Fees received by the assessee from hotels in India were claimed as not taxable on the basis that the same is in the nature of reimbursement of common expenses. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd name Holiday Inn or Crowne Plaza . The AO also placed reliance upon the decision of the coordinate bench of the Tribunal in Marriott International Inc v/s DDIT, [2015] 41 ITR (T) 542 (Mumbai-Trib.). Accordingly, the AO came to the conclusion that Marketing Contribution and Reservation Fees received by the assessee are taxable in India as Royalty under the provisions of the Act as well as India-USA DTAA. The AO further held that the assessee has charged the Indian hotels for providing the right to use the systems developed by it or its affiliates specifically for the Indian hotels and also by providing technical services for the maintenance and use of such systems, which are ancillary and subsidiary to the application or enjoyment of the right to use the systems. Accordingly, the AO held that the aforesaid fees are also taxable as Fees for Technical Services under section 9(1)(vii) of the Act as well as Fees for Included Services under the provisions of India-USA DTAA. The AO also rejected the plea of the assessee that its income is reimbursement in nature and thus not taxable on the basis that the assessee has not provided any satisfactory submissions to support the aforesaid pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the brand name of Holiday Inn , Holiday Inn Express and Crowne Plaza and other brand names owned by the assessee. This expenditure is incurred for the common benefit of all the hotels and is therefore recovered from the hotels by way of marketing contribution, based on an agreed percentage of gross room revenue. (b) Priority Club Reward receipts ('PCR, earlier known as a Frequency marketing program and now known as IHG One Rewards): PCR is a frequent guest loyalty program where members earn points at the hotels based on their visits/stay. The amount is collected by the assessee from the hotels for the cost of points issued to members based on a percentage of revenue for each night of hotel stay by a guest. The revenue for computing priority club reward receipts comprises revenues on account of room reservations and other charges associated with those room reservations (e.g. in-room movies, laundry, food and beverage), etc. Members can redeem points accumulated (whether from Hotels or Co-partners) by availing of various rewards, including complimentary room nights, discounts, airline travel, rental cars, merchandise, etc. The receipts from hotels on account of priority club rew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid report, it is further stated that primarily due to the timing of revenue and expenses, the fund may spent in any fiscal year, an amount greater or less than the aggregate fees and contributions collected in that year. 10. We find that the taxability of similar receipts came up for consideration before the coordinate bench of the Tribunal in assessee s own case in Bass International Holdings NV v/s JCIT, in ITA No.4341/Mum./2002, for the assessment year 1997-98. Vide order dated 12/05/2006 the coordinate bench of the Tribunal 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 taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, 2006-07, 2007-08, 2008-09 to 2011-12, the AO/learned DRP treated the Marketing Contribution and Reservation Fees as not taxable in India. 12. It is evident from the record that in the year under consideration, the AO as well as the learned CIT(A) deviated from the settled position in the case of the assessee on the basis of the subsequent decision of the coordinate bench of the Tribunal in Marriott International Inc (supra). At the outset, it is pertinent to note that it is undisputed that the facts of the present case are similar to the preceding years, wherein the similar addition was either not made by the AO/learned DRP or the same was deleted by the coordinate bench. This fact is further corroborated by the sample agreement dated 26/11/2009, forming part of the paper book from pages 41-110, under which one of the Indian hotels has paid Marketing Contribution and Reservation Fees to the assessee in addition to, separate and distinct from the license fee which is payable specifically for the use of the brand. Further, the Marketing Contribution and Reservation Fees are found to be with a corresponding obligation to use it for the agreed purposes and it was held to be not an u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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