2022 (3) TMI 140 - AT - Income Tax

Tax Tribunal: Training Fees Not Taxable

The Tribunal ruled that amounts received under the Training and Computer Systems Agreement were not 'fees for technical services' or 'royalty' under the ... Income accrued or deemend to accrue in India - Fees for technical services' under Article 12(5)(a) of the India-Netherlands tax treaty - amounts received by the Appellant under the Training and Computer Systems Agreement ('TCSA') on account of conducting core managerial training programs for managerial employees of the Indian hotels - assessee is a company incorporated in Netherlands and is a tax resident of Netherlands. The assessee is part of Marriott group engaged in conducting training programmes and providing access to various computers systems such as centralized reservation systems, property management systems and other systems to Marriott chain of hotels located worldwide - HELD THAT:- As decided in own case [2018 (6) TMI 605 - ITAT MUMBAI] CIT(A) loosing sight of the fact that as the assessee had neither granted any right of enjoyment of the brand 'Marriott' to the Indian Hotels and thus was not in receipt of any royalty as provided in Article 12(4) of the India-Netherland tax treaty, thus the consideration received by it from the Indian Hotels for providing access to CRS, Property Management System and Other Systems, could not have been brought within the sweep of 'ancillary and subsidiary' services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as 'ancillary and subsidiary' services under Article 12(5)(a), hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS in its hands. We thus, set aside the order of the CIT(A) holding that the consideration received by the assessee for providing of access to CRS, Property Management Services and Other Systems was chargeable as FTS in the hands of the assessee It is not in dispute that the facts prevailing in A.Yrs. 2009-10 [2018 (6) TMI 605 - ITAT MUMBAI], 2011-12 and 2012-13 [2019 (8) TMI 1797 - ITAT MUMBAI] are identical with the facts prevailing in A.Y. 2010-11 [2018 (6) TMI 605 - ITAT MUMBAI] as they form part of the same agreement and same nature of activities carried out by the assessee. Hence, we hold that the decision rendered by this Tribunal for A.Yrs. 2009-10 [2018 (6) TMI 605 - ITAT MUMBAI], 2011-12 and 2012-13 as detailed shall apply mutatis mutandis to A.Y.2010-11 also. Accordingly, the ground Nos. 1-3 raised by the assessee are allowed. Seeking direction to the ld. AO for granting correct TDS credit to the assessee - HELD THAT:- The facts relevant for this adjudication of this additional ground are already on record before the lower authorities and hence, this additional ground raised by the assessee is hereby admitted and the ld. AO is hereby directed to grant correct TDS credit in accordance with law. Accordingly, the ground No.10 raised by the assessee is allowed for statistical purposes. Seeking deduction for primary, secondary and higher education cess when tax is charged as per the Indo-Netherlands treaty - HELD THAT:- The facts relevant for this adjudication of this additional ground are already on record before the lower authorities and hence, this additional ground raised by the assessee is hereby admitted. We find that ultimately tax liability is determined by the ld. AO only as per the Indo-Netherlands Treaty @10%. Hence, there cannot be any levy of education cess on such tax when tax is determined under treaty provisions. This issue is no longer res integra in view of the decision of this Tribunal in assessee’s own case for A.Y.2009-10 [2018 (6) TMI 605 - ITAT MUMBAI] wherein this Tribunal by placing reliance on the Co-ordinate Bench decision of the Mumbai Tribunal in the case of Capgemini SA vs. Dy. CIT (International Taxation) [2016 (7) TMI 712 - ITAT MUMBAI] had held that rate of tax provided in the tax treaty cannot be enhanced by including surcharge and education cess separately. Accordingly, the ground No.11 raised by the assessee vide additional ground is hereby allowed. Issues Involved:1. Classification of amounts received under the Training and Computer Systems Agreement (TCSA) as 'fees for technical services' under Article 12(5)(a) of the India-Netherlands tax treaty.2. Classification of amounts received for providing access to the reservation system and other systems as 'royalty' under Article 12(4) of the India-Netherlands tax treaty.3. Determination of whether the amounts received should be considered business profits under Article 7 of the India-Netherlands tax treaty.4. Application of the Tribunal's previous decisions in the assessee's own cases for earlier assessment years.5. Consideration of additional grounds raised by the assessee regarding TDS credit and education cess.Detailed Analysis:1. Classification of Amounts Received Under TCSA as 'Fees for Technical Services':The Tribunal examined whether the amounts received by the assessee for conducting core managerial training programs for Indian hotels qualify as 'fees for technical services' (FTS) under Article 12(5)(a) of the India-Netherlands tax treaty. The assessee contended that the training programs did not involve the transfer of technical knowledge or technology, and thus should not be classified as FTS. The Tribunal referred to its previous decisions in the assessee's own cases for A.Ys. 2009-10, 2011-12, and 2012-13, where it was held that the training services provided were general managerial/leadership training and did not involve 'making available' technical knowledge. The Tribunal reiterated that the consideration received for such training services could not be assessed as FTS.2. Classification of Amounts Received for Providing Access to Reservation System as 'Royalty':The Tribunal also addressed whether the amounts received for providing access to the reservation system, property management system, and other systems should be classified as 'royalty' under Article 12(4) of the India-Netherlands tax treaty. The Tribunal referred to its previous decisions, where it was held that providing access to these systems constituted standard facilities/services and did not amount to technical services or royalty. The Tribunal emphasized that the services provided were common facilities for the Marriott chain of hotels and not tailor-made services for specific requirements. Consequently, the consideration received for these services could not be classified as 'royalty'.3. Determination of Business Profits Under Article 7:The assessee argued that the amounts received under the TCSA should be considered business profits under Article 7 of the India-Netherlands tax treaty. The Tribunal noted that the assessee did not have a permanent establishment in India as per Article 5 of the treaty. Therefore, the amounts received could not be taxed in India as business profits. The Tribunal upheld this view based on its previous decisions in the assessee's own cases.4. Application of Previous Tribunal Decisions:The Tribunal emphasized that the facts and issues in the current assessment years (A.Y. 2010-11 and A.Y. 2014-15) were identical to those in the earlier assessment years (A.Ys. 2009-10, 2011-12, and 2012-13). Therefore, the decisions rendered in the earlier years were applicable to the current assessment years. The Tribunal allowed the grounds raised by the assessee based on the consistency of its previous rulings.5. Consideration of Additional Grounds:The assessee raised additional grounds seeking correct TDS credit and deduction for education cess. The Tribunal admitted these additional grounds, directing the Assessing Officer to grant correct TDS credit in accordance with the law. The Tribunal also held that there could be no levy of education cess on tax determined under the treaty provisions, following its previous decision in the assessee's own case for A.Y. 2009-10.Conclusion:The Tribunal concluded that the amounts received by the assessee under the TCSA for training services and access to the reservation system could not be classified as 'fees for technical services' or 'royalty' under the India-Netherlands tax treaty. These amounts should be considered business profits and not taxable in India due to the absence of a permanent establishment. The Tribunal allowed the grounds raised by the assessee and directed the Assessing Officer to grant correct TDS credit and disallow the levy of education cess. The appeals for A.Y. 2010-11 and A.Y. 2014-15 were accordingly allowed.