2022 (11) TMI 631 - HC - Income Tax

High Court affirms ITAT on payments from Indian Customers not 'Fee for Technical Services'

The Commissioner of Income Tax-International Taxation-3 Versus Westin Hotel Management LP, Sheraton Overseas Management Corporation

The High Court upheld the ITAT's order regarding payments received by the Assessee from Indian Customers, ruling that the payments did not constitute 'Fee ... Income deemed to accrue or arise in India - payments received by the Assessee from its Indian Customers on account of Centralized Services viz. sales and marketing, loyalty programs, reservation service, technological service, operational services and training programs/human resources do not constitute ‘Fee for Technical Services’ as defined under Section 9(l)(vii) of the Income Tax Act, 1961 or 'Fee for included services’ as defined under Articles 12(4) (a) of the Indo- US DTAA - HELD THAT:- Admittedly, this Court in Sheraton International Inc. [2009 (1) TMI 27 - DELHI HIGH COURT] has decided the issue involved in the present appeals in favour of the Assessee. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another [2000 (7) TMI 67 - SUPREME COURT] and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras [1992 (4) TMI 183 - SUPREME COURT] the present appeals are dismissed being covered by the judgment passed by the learned predecessor Division Bench in Sheraton International Inc. [2009 (1) TMI 27 - DELHI HIGH COURT] Issues:1. Challenge to the ITAT's order regarding payments received by the Assessee from Indian Customers.2. Interpretation of 'Fee for Technical Services' under Section 9(1)(vii) of the Income Tax Act, 1961.3. Interpretation of 'Fee for included services' under Articles 12(4)(a) of the Indo-US DTAA.4. Reference to the judgment in Director of Income Tax v. Sheraton International Inc.5. Pending appeal before the Supreme Court regarding the judgment in Sheraton International Inc.6. Application of the judgments in Kunhayammed and Others vs. State of Kerala and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat.Analysis:1. The High Court dealt with Income Tax Appeals challenging the ITAT's order on payments received by the Assessee from Indian Customers for various services. The Appellant argued that the ITAT wrongly concluded that these payments did not constitute 'Fee for Technical Services' or 'Fee for included services' as per the relevant provisions.2. The Appellant contended that the ITAT's decision contradicted the definition of 'Fee for Technical Services' under Section 9(1)(vii) of the Income Tax Act, 1961. They argued that the services provided, such as sales and marketing, loyalty programs, and technological services, should fall under this category.3. Additionally, the Appellant referred to the definition of 'Fee for included services' under Articles 12(4)(a) of the Indo-US DTAA. They highlighted the ITAT's error in not considering these payments as falling within this scope.4. The Appellant relied on the judgment in Director of Income Tax v. Sheraton International Inc., which favored the Assessee. However, the Revenue challenged this decision and appealed to the Supreme Court, which is currently pending.5. Despite the pending appeal, the High Court noted that there was no stay on the judgment in Sheraton International Inc. The Court cited previous rulings to dismiss the present appeals, stating that they were covered by the judgment in Sheraton International Inc.6. The High Court clarified that its decision would be subject to the final outcome of the Supreme Court's decision in Civil Appeal No. 3094/2010. This indicates that the present judgment is contingent upon the resolution of the pending appeal related to the Sheraton International Inc. case.