Separable hotel-system receipts were not royalty or fees for included services, and the tax addition was deleted.

ITAT Mumbai held that Marketing Contribution, Priority Club receipts, Reservation Contribution and Holidex Fees were not taxable as royalty or fee for included services where they were collected under separate arrangements for common marketing, loyalty programme, reservation support and central reservation system costs, with an obligation to apply the funds for those specified purposes. Prior coordinate bench decisions in the assessee's own case had treated similar receipts as not constituting an unfettered income stream, and the later precedent relied on by the revenue was found inapplicable on these facts. The addition was deleted.

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Issues: Whether the receipts described as Marketing Contribution, Priority Club receipts, Reservation Contribution and Holidex Fees were taxable as royalty or fee for included services, or whether they were mere reimbursements and not taxable in the assessee's hands.

Analysis: The receipts were shown to be collected under separate arrangements for common marketing, loyalty programme, reservation support and central reservation system costs, with a corresponding obligation to apply the funds for the agreed purposes. The earlier coordinate bench decisions in the assessee's own case had treated similar receipts as not constituting an unfettered income stream and had held that such amounts could not be characterised as consideration for use of intellectual property or for technical services merely because they arose alongside licensing arrangements. The later reliance placed by the lower authorities on a different precedent was found inapplicable on the facts, as the present record established a distinct and separable funding mechanism and an obligation to spend the collections for specified hotel-related purposes.

Conclusion: The receipts were not taxable as royalty or fee for included services and the addition was deleted in favour of the assessee.

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