9911796707
TMI Blog2025 (4) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Financial Year [FY] 2019-20 received a sum of Rs. 28,11,42,298/- which comprised of marketing contribution, Priority Club receipts and Reservation Contribution aggregating to Rs. 21,22,52,199/-; and the Holidex fees amounting to Rs. 6,88,90,099/- from Indian affiliate being Inter Continental Hotels Group (India) Private Limited [IHG India] towards the centralised marketing and reservation related services. 3. The Assessee filed its revised return of income for AY 2020-21 on 31.03.2021 declaring a total income of Rs. 1,05,20,740/- which was picked up for scrutiny and the Assessing Officer [AO] passed a draft assessment order dated 15.09.2022. The AO held that the amounts paid by the Indian hotels for marketing contribution and reservation fees were taxable as Royalty under the Act as well as under the India-USA Double Taxation Avoidance Treaty [the DTAA]. In the alternative, the AO held that the same would be taxable as Fees for Included Services under Section 9 (1) (vii) of the Act as well as under Article 12 (4) (a) and Article 12 (4) (b) of the DTAA. Accordingly, the AO determined the total taxable income at Rs. 39,19,56,083/- after making an addition of Rs. 28,11,42,298/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices related to management of third party Hotels in India including the provisioning of Hotel Management services, granting right to use the trademark/brand license, and the procurement and provision of system fund services (which is in relation to marketing and reservation related services). 10. Thus, under the new HMAS IHG India is required to provide hotel management services and the rights to use IHG brand, for the operation of the third-party hotels. Further, IHG India is also required to provide marketing und reservation related services to the Indian Hotels, which the Applicant (as an affiliate of IHG AP, being the Licensor under the HMAS) was earlier obligated to provide to the third-party hotels in India. It is also relevant to note that IHG India has its own sales and marketing team which provides marketing and reservation related services to the Indian Hotels. The fees collected from the Indian hotels by IHG India in relation to Marketing, Distribution Marketing, Frequency Marketing Programme is used to defray the sale and marketing costs incurred by IHG India. Further, IHG India has entered into contracts with the Applicant to seek its support for provision of market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, or consist of the development and transfer of a technical plan or technical design 2.12 In the present case, it is not disputed that the consideration on account of license fee arising from the right to use the brand in India is royalty. As discussed in the preceding paragraphs, the various activities in relation to the system contribution fund are essentially of the nature of marketing and brand development activities for the purpose of brand enhancement and hence are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the royalty is received under the said license within the mearing of sub-paragraphs (a) of paragraph 3 and 4 of Article 12 of the DTAA. This can be seen from the following extract of the Memorandum of Understanding dated 15.05.1989 between India and USA concerning Fees for Included Services in Article 12 thereof "It is understood that, in order for a service fee to be considered "ancillary and subsidiary" to the application or enjoyment of some right, property, or information for which a payment described in paragraph 3(a) or (6) is received, the service must be related to the application or enjoyment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of supply for materials needed in the manufacturing process, and on development of sales and service literature for the manufactured product. The payments allocable to such services do not form a substantial part of the total consideration payable under the contractual arrangement. Are the payments for these services fees for "included services"? Analysis: The payments are fees for included services. The services described in this example are ancillary and subsidiary to the use of a manufacturing process protected by law as described in paragraph 3la) of Article 12 because the services are related to the application or enjoyment of the intangible and the granting of the right to use the intangible is the clearly predominant purpose of the arrangement. Because the services are ancillary and subsidiary to the use of the manufacturing process, the fees for these services are considered fees for included services under paragraph Ha) of Article 12, regardless of whether the services are described in paragraph 4(b)" 2.13 The conditions specified above and the examples squarely apply to the assessee's case as the services provided to the Indian hotels are clearly related to the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law urged by the Revenue, were covered by the decisions rendered by the learned ITAT. Whilst the learned counsel had stated that no appeal was filed by the Revenue, the learned counsel for the Revenue had contended that appeals were filed before the Bombay High Court but had not been listed. 7. The learned ITAT observed that with effect from 01.04.2019, there was a change in business model of the Assessee and under the new business model, 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 was taxable in India in the hands of IHG India as business income. IHG India from 01.04.2019 had entered into a Hotel Management Agreement [HMA] with third party IHG brand Hotel in India under which IHG India granted license to the third-party hotel owners for the use of brand name/trademark, provided hotel management services and provision of system fund services which were in relation to the marketing and reservation related services. 8. IHG India provided marketing and reservation related services under the HMA by facilitating provision of marketing and reservation se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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