2021 (8) TMI 69 - AT - Income Tax

Hotel management receipts not taxable as Fee for Technical Services under IT Act.

ACIT International Taxation, Circle-3 (1) (2), New Delhi Versus Starwood (M) International Inc. And DCIT International Taxation, Circle-3 (1) (1), Delhi Versus M/s Westin Hotel Management LP

The Tribunal dismissed the Revenue's appeals, affirming that the receipts from various hotel management activities were not taxable as 'Fee for Technical ... Income accrued in India - receipts of the assessee from various activities of hotel management ranging interalia from ticketing, reservation, marketing, advertising, operation, administration, catering, network support services, Starwood Portal Services, imparting of skill sets through trainings etc. - whether taxable as 'Fee for Technical Services' (FTS) within the meaning and scope of section 9 of the Income Tax Act, 1961 as well as Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA) - HELD THAT:- AO has simplicitor made addition in respect of FTS under Article 12 but no limb of Article 12 was given by the Assessing Officer and there is no specification which comes out from the assessment order as contemplated by the Ld. DR during the hearing. The main contentions of the Ld. DR which are totally new in the present assessment year and not presented before either of the Revenue Authorities in Assessment Year 2013-14 as well as 2014-15. These contentions are coming for the first time and are not emerging from the actual assessment order which is contested before this forum. Services in the nature of FTS whether constitutes FTS or not and whether the assessee has PE in India or not, was very well settled and was undisputed as per the submissions and records before the Assessing Officer as well as before the CIT(A). The Revenue is projecting a new case which was not part of assessment order as well as order of the CIT(A). Therefore, the written submissions made by the Ld. AR are just afterthought and cannot be taken into account as the same are not plausible. The issue involved is squarely covered by the Tribunal’s decision in Assessment Year 2013-14 in case of Westin Hotel [2020 (1) TMI 1484 - ITAT DELHI] as well as by the decision of the Hon’ble Delhi High Court in case of Sheraton [2009 (1) TMI 27 - DELHI HIGH COURT] and hence both the appeals of the Revenue are dismissed. The appeals of the Revenue are dismissed. Issues Involved:1. Whether the receipts from various hotel management activities are taxable as 'Fee for Technical Services' (FTS) under Section 9 of the Income Tax Act, 1961, and Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA).Issue-Wise Detailed Analysis:1. Taxability of Receipts as FTS:The primary issue was whether the receipts from activities like ticketing, reservation, marketing, advertising, operation, administration, catering, network support services, Starwood Portal Services, and training were taxable as 'Fee for Technical Services' (FTS) under Section 9 of the Income Tax Act, 1961, and Article 12 of the India-US DTAA. The assessee, a company incorporated in the USA, provided various centralized services to hotels globally, including in India, and received income in the form of marketing fees and fees for programs like Frequent Flier Program (FTP) and Starwood Preferred Guest (SPG). The Assessing Officer (AO) categorized these receipts as FTS, relying on similar cases involving the assessee's group company, M/s Sheraton International Inc., where such payments were considered FTS under the DTAA and Section 115A of the Income Tax Act.2. CIT(A)'s Decision:The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's appeal, holding that the receipts were not taxable as FTS. The CIT(A) relied on the Tribunal's decision in the case of M/s Westin Hotel Management for the assessment year 2013-14 and the Delhi High Court's decision in DCIT vs. Sheraton International Inc. The CIT(A) concluded that the services provided were not in the nature of making available technical knowledge, experience, skill, know-how, or processes to the recipient, which is a requirement under Article 12(4)(b) of the DTAA.3. Revenue's Argument:The Revenue argued that the services rendered by the assessee were ancillary and subsidiary to the enjoyment of the right, property, or information for which royalty payments were received, thus falling under Article 12(4)(a) of the DTAA. The Revenue contended that the Tribunal's earlier decisions did not consider this argument and that the facts of the Sheraton case were distinguishable as it did not involve royalty income.4. Tribunal's Analysis:The Tribunal noted that the AO did not specify which limb of Article 12 was applicable in the assessment order. The Tribunal found that the issue of whether the services constituted FTS and whether the assessee had a Permanent Establishment (PE) in India was settled and undisputed in the previous assessment years. The Tribunal held that the Revenue was presenting a new case not part of the original assessment order or the CIT(A)'s order. The Tribunal concluded that the issue was squarely covered by its decision in the case of Westin Hotel Management for the assessment year 2013-14 and the Delhi High Court's decision in Sheraton International Inc., which held that such receipts were not taxable as FTS.Conclusion:The Tribunal dismissed the Revenue's appeals, affirming that the receipts from the various hotel management activities were not taxable as FTS under Section 9 of the Income Tax Act, 1961, or Article 12 of the India-US DTAA. The Tribunal's decision was consistent with its earlier rulings and the Delhi High Court's judgment in similar cases, emphasizing that the services did not make available technical knowledge or skills to the recipient, a key requirement for categorization as FTS under the DTAA.