Centralized service receipts were treated as business income, not technical fees, absent a permanent establishment in India.

Centralized service receipts from sales and marketing, reservation, loyalty programmes and related support were treated as part of an arrangement for advertisement, publicity, marketing and sales promotion, not as fees for technical services or fees for included services. The Tribunal applied its earlier ruling in the assessee's own case, affirmed by the jurisdictional High Court, and held that the services were neither ancillary or subsidiary to any royalty-bearing right nor within the treaty conditions for fees for included services. Accordingly, the receipts fell outside section 9(1)(vii) and Article 12(4) of the India-USA DTAA and, in the absence of a permanent establishment in India, were taxable only as business income.

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Issues: Whether receipts from centralized services rendered by the non-resident assessee to Indian hotel customers constituted fee for technical services or fees for included services, or were taxable only as business income in the absence of a permanent establishment in India.

Analysis: The receipts arose from centralized services such as sales and marketing, reservation, loyalty programmes and related support. The Tribunal followed its earlier decision in the assessee's own case, as affirmed by the jurisdictional High Court, and held that the arrangement was essentially one for advertisement, publicity, marketing and sales promotion. The services were not ancillary or subsidiary to any royalty-bearing right and did not satisfy the treaty requirements for fees for included services. The payments therefore did not fall within section 9(1)(vii) of the Income-tax Act, 1961 or Article 12(4) of the India-USA Double Taxation Avoidance Agreement. In the absence of a permanent establishment in India, the receipts could be assessed only as business income and not brought to tax in India.

Conclusion: The centralized service receipts were not taxable as fee for technical services or fees for included services and, in the absence of a permanent establishment in India, the addition was liable to be deleted.

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