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TMI Blog2024 (6) TMI 817X X X X Extracts X X X X X X X X Extracts X X X X ..... tion related services). 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 services through its team of employees in India and has also entered into agreements with the Assessee to seek its support for provision of marketing and reservation related services (which IHG India is unable to provide to the Hotels on its own). For the System fund support services provided by SCHI, IHG India shall pay to SCHI a fee equal to amount payable by Indian third-party hotel owners to IHG India in respect of such services less all the expenses incurred by IHG India with respect to such services. Further, in consideration for reservation system support services, IHG India pays to SCHI, a fee equal to 95% of the total fees payable by third- party Indian hotels to IHG India. As relying on own case Marketing, Distribution and Marketing and Frequency Marketing program and SCHI Facility Service charges is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Id. DRP is binding on the AO and hence, the impugned assessment order dated 28 September 2023 passed under section 143(3) r.w.s. 144C(13) is bad in law and thus deserves to be quashed. 1.2 That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in not following the past years favorable Tribunal decisions in Appellant's own case on taxability of centralized marketing and reservation related receipts, without appreciating the fact that the matter attained finality in said years, as tax department did not challenge the Tribunal's decision before the High Court. Ground No. 2: DRP Directions issued u/s 144C(5) is bad in law due to invalid Document Identification Number (DIN) in view of CBDT Circular No. 19/2019 dated 14.08.2019. 2.1 On the fact and in the circumstances of the case and in law, the Hon'ble DRP erred in not quoting valid computer-generated DIN on the body of the DRP Directions dated 04 August 2023 passed order section 144C(5) of the Act, thus such directions are in contravention to the CBDT Circular No. 19 of 2019 and hence liable to be quashed/ annulled as invalid. 2.2 On the fact and in the circumstances of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from IHG India is taxable as FIS under Article 12(4)(a) of India-USA DTAA. 3.5 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 Royalty accrues to the Appellant. 3.6 On the facts and in 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 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. 3.7 On the facts and in circumstances of the case and in law, the Id. AO and the Hon'ble DRP have erred in concluding that the System Fund support fee and Technology Services Fees is taxable as FIS under Article 12(4)(a) of India-USA DTAA based on following incorrect assertions: a. That the Appellant has artificially bifurcated the royalty and centralized services receipts; and b. That arrangement has been organized in a manner to avoid taxability as FIS under Article 12(4)(a) of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IS 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. 4.5 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 1,23,46,336 in the final assessment order. 4.6 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. 5. That on the facts and in the circumstances of the case and in law, the Id. AO erred in initiating the penalty proceedings under section 270A of the Act on account of underreporting of income by way of misreporting. 6. The above grounds of appeal are independent and without prejudice to one another. 3. Brief facts of the case: The assessee company, SCHI, is incorporated and a tax resident of USA and beneficial provisions of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India in the hands of IHG India as business income. 9. Accordingly, from 1 st 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). 10. 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 services through its team of employees in India and has also entered into agreements with the Assessee to seek its support for provision of marketing and reservation related services (which IHG India is unable to provide to the Hotels on its own). 11. With the above background, to be able to provide services to third party hotel owners, IHG India has entered into following inter-company agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings. The relevant directions of the DRP in para 4.3 of this order is reproduced as under:- Since the legal and factual matrix remains unchanged, the DRP reiterates its directions given on this issue for the assessment year 2020-21 and rejects the assessee s objections on this ground. However, assessee has mentioned that there is favourable judgments from the ITAT Mumbai, in assessee s case. The AO is directed to verify the above fact from the available record and ascertain whether the department has filed or in the process of filing appeal against the above order and give effect to the ITAT s directions if the matter has attained finality in judicial proceedings. 15. Thus, the ld. 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 subject to the verification of the favorable order of the ITAT by the AO . 16. However, on perusal of the assessment order dated 28.09.2023 passed u/s 143(3) r.w.s. 144C(13) of the Act, it is seen that the AO did not follow the above direction of the DRP t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable in India. Therefore, the matter is squarely covered by the above decisions and hence, the appeal of the assessee on this ground is allowed. The addition of Rs. 6,13,91,631/- is hereby deleted. Ground no.1.2 and 3 are allowed. 20. Ground No.2 is regarding challenging the order due to invalid Document Identification Number (DIN) in view of CBDT Circular No.19/2019 dated 14.08.2019. During the course of hearing, the ld. AR did not press this ground and hence, this ground is dismissed as not pressed. 21. Ground No.4 : Additions in relation to Travel Agent Commission ( TACP ) amounting to Rs. 1,23,46,336/- received from third-party Indian hotels. 22. In the draft assessment order as well as in the final assessment order, the AO disallowed this amount by observing as under:- 15. In respect of the reimbursement of the Travel Agent expenses amounting to Rs. 1,23,46,336/-, the assessee did not provide the break-up of such reimbursement and also did not provide the copy of bank statement highlighting these entries. Therefore, in absence of any such submission and relevant contract/agreement in respect of these reimbursements, the amount of Rs. 1,23,46,336/- is taxable as FIS/FTS under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding back-up statement received with respect to such commissions/fees (refer to Annexure 13). 25. Further, it is seen that the assessee has also placed copy of invoices in relation to TACP on page no.346 to 348 of the paper book and also copy of back-up statements of TACP on page no.349 to 448 of the paper book. Further, it is also certified by the assessee that these documents are already on the records of the AO/DRP or in the public domain. Therefore, it is seen that the AO is not correct in observing that the necessary details/invoices were not submitted during the assessment proceedings. Further, the AO also did not follow the directions of the DRP, which had directed the AO to verify from the available record as to whether the receipt on account of recovery of travel agent commission (TACP), is reimbursement or not, and directed the AO to delete the above addition, in case, it was found to be reimbursement in nature. 26. In this regard, the ld. AR further relied upon a decision of the Coordinate Bench in assessee s own case in ITA No.2355/Del/2023, for AY 2020- 21, which allowed the appeal of the assessee and submitted that the facts being similar, the addition made by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 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 o f any managerial , technical or consultancy services including the provision of services of technical or other personnel , but does not include consideration for any construction , assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries The content of the Explanation unmistakably is that the payment must be made as quid pro quo for such services rendered as have been enumerated therein. It postulates that the remitter of the amount has received the benefit of the technical services and that the technical services have been rendered by the recipient of the amount . (emphasis supplied) 24. Thus, 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 chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see during the course of assessment proceedings and therefore, there is a merit in this ground of the assessee. Further, the AO also did not follow the directions of the DRP, which had directed the AO to verify from the available record as to whether the receipt on account of recovery of travel agent commission (TACP), is reimbursement or not, and directed the AO to delete the above addition, in case, it was found to be reimbursement in nature. Therefore, the AO is directed to verify the above claim/documents of the assessee and to decide the matter keeping in view the directions of the ITAT that the same was an allowable expense, if it was in the nature of reimbursement as decided by the Co-ordinate Bench vide its order dated 09.05.2024 in ITA No.2355/Del/2023 in assessee s own case. Further, the assessee is allowed to submit any details/explanations/documents in support of its claim. The AO may also call for any further details to satisfy himself in deciding the matter keeping in view the above directions that the amount of Rs. 1,23,46,336/- will not be taxable, if the assessee establishes that the same is reimbursement of expenses as claimed by it. Ground no.3 of the appeal is d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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