Marketing and reservation contribution fees were treated as non-taxable, not royalty or business income, due to restricted use and no permanent establishment.

Marketing and reservation contribution fees received from Indian hotels were treated as earmarked amounts subject to a corresponding obligation to use them for agreed marketing and reservation purposes, rather than as unrestricted income. The same receipts had earlier been held not to constitute income and not to be chargeable as business profits in the absence of a permanent establishment in India. On that basis, the later assessment also accepted that the amount was not chargeable in India, and the deletion of the addition was upheld in favour of the assessee.

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Issues: Whether the marketing and reservation contribution fees received by the assessee from Indian hotels were taxable as royalty or business income.

Analysis: The receipt was linked to a corresponding obligation to apply the amount for the agreed marketing and reservation purposes and was not an unrestricted amount in the assessee's hands. The same issue had already been decided in the assessee's own case, where such receipts were held not to constitute income and were also not chargeable as business profits in the absence of a permanent establishment in India. The assessment for the later year had also taken the view that the amount was not chargeable in India.

Conclusion: The marketing and reservation contribution fees were not taxable as royalty or business income, and the deletion of the addition was upheld in favour of the assessee.

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