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TMI Blog2024 (6) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA and deleted the additions made in the assessment order(s). . Keeping in view of the above, the issue of taxability of marketing and reservation related receipts as Royalty/FTS is squarely covered by the decision of ITAT, the appeal of the assessee on this ground is allowed. Taxability of Travel Agent Commission (TACP) - taxable as FTS/FIS under the Act and India-USA DTAA - HELD THAT:- The services were rendered by the travel agents to the Indian Hotels i.e. the Assessee did not render any service to the Indian hotels, as envisaged under section 9(1)(vii) of the Act, The Assessee made payments to travel agents on behalf of the Indian hotels; and Subsequently, the Assessee recovered such payments made to distribution channels from Indian hotels on costto-cost basis without any element of income. Thus, it can be found that the Assessee has rendered services in relation to booking of hotel rooms to the Indian Hotels in consideration of commission, it cannot be treated as FTS under the Act. The following judicial precedents held that commission charged by commission agents outside India is not taxable in India like Panalfa Autoelektrik Ltd [ 2014 (9) TMI 706 - DELHI HIGH COURT] , G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subsidiary to the application or enjoyment of the right, property or information for which royalty is received by the Appellant; and c. The said services do not make available any technical knowledge, experience, skill, know-how, or processes, etc. 1.4 On the facts and in the circumstances of the case and in law, the Ld. AO and the Hon ble DRP have erred in holding that System Fund support fee and Technology Services Fees received from IHG India is taxable as FIS under Article 12(4)(a) of India-USA DTAA. 1.5 On the facts and in circumstances of the case and in law, the Id. AO and the Hon'ble DRP while treating System Fund support fee and Technology Services Fees as FIS under Article 12(4)(a) of the India-US DTAA, have failed to appreciate that no fee in the nature of Royalty accrues to the Appellant. 1.6 On the facts and in circumstances of the case and in law, the Id. AO and the Hon ble DRP have erred in holding that System Fund support fee and Technology Services Fees is ancillary and subsidiary' to the license fee received by the affiliate group entity, for granting the rights to use the brands to the Indian Hotels. 1.7 On the facts and in circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complying with the directions of the Hon ble DRP, for verification of invoices and back-up statements of TACP filed during the assessment proceedings. Thus, making the additions bad in law and liable to be deleted. 2.4 On the facts and in circumstances of the case and in law, the Ld. AO has erred in holding that TACP amounting to INR 10,02,93,045 received from third party Indian hotels is taxable as FTS/ FIS under the Act and under the India-USA DTAA, without appreciating the fact that the same are reimbursement in nature, and therefore, do not partake the character of Income. 2.5 On the facts and in circumstances of the case and in law, the Id. AO violated the principle of natural justice by not providing any opportunity to furnish the balance invoices and back-up statements of TACP, before making the addition of INR 10,02,93,045 in the assessment order. 2.6 On the facts and in circumstances of the case and in law, the Id. AO has erred in not following the decision of Hon ble Commissioner of Income-tax (Appeals) ( CTT(A)) in Appellant s own case in earlier years, wherein taxability of TACP was held in favour of the Appellant on identical facts. 3. That on the facts and in the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty hotel owners for which it received marketing and reservation contribution from each of the IHG brand hotels in India. Business Model with effect from 1 April 2019: 7. With effect from 1st April 2019, IHG India has been granted a non-exclusive license by IHG AP Singapore for granting use of trademark/ brand rights to the third-party hotels owners and the license fees received is taxable in India in the hands of IHG India as business income. 8. Accordingly, from 01 April 2019, IHG India has entered into a Hotel Management Agreement ( HMA ) with third party IHG brand Hotel in India. Under the HMA, IHG India grants license to the third-party hotel owners for the use of brand name/ trademark, provides hotel management services and provision of system fund services (which is in relation to marketing and reservation related services). 9. As per above referred HMA, IHG India is required to provide/ procure marketing and reservation related services to the Indian Hotels. Such marketing and reservation services were earlier provided by SCHI to the hotel owners in India. For providing marketing and reservation related services, IHG India facilitates provision of marketing and reservation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP directions) and held as under: 5.3 Mere tweaking of business model doesn t change the nature of the receipts chargeable to tax. However, the AO may discuss the new business model, which has come into existence with effect from 01.04.2019, in the final assessment order . 14. Thus, the Id. DRP following the orders of earlier years held that marketing and reservation related receipts are ancillary and subsidiary to Royalty received by the group entity for the use of brand name and taxable as FIS under Article 12(4)(a) of India-USA DTAA. 15. In this regard, it is submitted that the Id. DRP has relied on its past years orders which have been decided in favour of the Assessee by the ITAT. 16. It was submitted that the issue of taxability of Marketing and reservation related receipts has been subjected to scrutiny in the past years and the same has been consistently held in favour of the Assessee by (i) The ITAT in Assessee s own case for A.Y. 1997-98, A.Y. 2003-04, A.Y. 2004-05, AY 2005- 06. These orders of the ITAT were accepted by the tax department and no appeal was filed before Hon ble High Court. (ii) The AO/DRP in the Assessment order(s) for A.Y. 2006-07 to A.Y. 2011-12 held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in A.Y. 2013-14, A.Y. 2014-15 and A.Y. 2015-16 has held that the amount of TACP received by SCHI is not in the nature of FTS basis the observation of the then AO made in the assessment order of AY 2016-17. Accordingly, the taxability of TACP receipts have already been settled in favour of the assessee in previous years. 21. On perusal of definition of FTS defined under the Act, there are broadly three components i.e. managerial, technical and consultancy services. 22. It was submitted that the expression 'managerial, technical and consultancy services' have not been defined either under the Act or under the General Clauses Act, 1897. Therefore, the said terms have to be read together with the word 'services' to understand and appreciate their purport and meaning. 23. In this respect the Delhi Tribunal, while interpreting the meaning of FTS as per Explanation 2 of section 9(1)(vii) of the Income tax Act, 1961 held as under: ..A look at the above Explanation shows that it contains a definition of FTS and says that FTS means any consideration for the rendering of any managerial, technical or consultancy services including the provision of services of technical or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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