Hotel franchise contributions used for common marketing and reservations were held not taxable in India under the Indo-US DTAA.

Marketing and reservation contributions received under a hotel franchise arrangement for common marketing and centralized reservation facilities were held not to be taxable in India. The receipts were earmarked for agreed purposes and were not an unfettered income stream. Following the assessee's earlier case, the same view was applied that, in the absence of a permanent establishment in India, the amounts could not be taxed as business profits under Article 7 of the Indo-US DTAA and did not constitute royalty or fee for included services under Article 12.

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Issues: Whether the marketing and reservation contribution received from Indian hotel owners was taxable in India as royalty or fee for included services under Article 12 of the Indo-US DTAA, or as business income in the absence of a permanent establishment in India.

Analysis: The contribution was received under the franchise arrangement for common marketing and centralized reservation facilities and was required to be used for the agreed purposes. It was not an unfettered receipt. The earlier decision in the assessee's own case had held that such receipts were not income and could not be taxed as business profits under Article 7 in the absence of a permanent establishment. The same view was followed, and the receipts were held not to constitute royalty or fee for included services.

Conclusion: The marketing and reservation contribution was not taxable in India.

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