2024 (3) TMI 1254 - AT - Income Tax

US hotel services company's centralized service payments not taxable as technical fees under section 9(1)(vii)

ITAT Delhi held that payments received by a US-incorporated hotel services company from Indian customers for centralized services do not constitute Fee ... Income deemed to accrue or arise in India - Payments received by the assessee from it Indian customers on account of Centralized Services - Fee for Technical Services as defined u/s 9(1)(vii) of the Income Tax Act, 1961 or “Fee for included Services as defined u/Article 12(4)(a) of the India - US DTAA - absence of a PE in India - Assessee Company is a Company incorporated in United States of America (USA) and carries on the business of providing various hotel related services in several countries across the world - HELD THAT:- As decided in assessee own case [2023 (9) TMI 1448 - ITAT DELHI] for A.Y. 2018-19 and A.Y. 2019-20 we agree with the decision of learned first appellate authority in declaring the receipts from centralized services to be not in the nature of FTS/FIS. Fee received by the assessee under the Centralized Services Agreement cannot be treated as FIS either under Article 12(4)(a) or 12(4)(b) of the India–US Tax Treaty. As a natural corollary, it can only be treated as business income of the assessee. Hence, in absence of a PE in India, it will not be taxable. Decided in favour of assessee. Issues Involved:1. Whether the payments received by the assessee from Indian customers on account of Centralized Services constitute Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or Fee for Included Services (FIS) under Article 12(4)(a) of the India-USA DTAA.Summary:Issue 1: Nature of Payments Received by AssesseeThe Revenue contended that the payments received by the assessee from Indian customers for Centralized Services should be classified as Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or as Fee for Included Services (FIS) under Article 12(4)(a) of the India-USA DTAA. The assessee, a US-based company, argued that these payments were not taxable in India as they did not constitute FTS or FIS.The learned CIT(A) ruled in favor of the assessee, citing precedents from the Hon'ble High Court and ITAT in the assessee's own case. The CIT(A) noted that the payments received were in the nature of business income and not in the nature of Royalty or FTS. The CIT(A) also observed that the assessee did not have a permanent establishment in India, and hence, the business income could not be taxed under Article 7 of the India-USA DTAA.Upon appeal by the Revenue, the ITAT upheld the CIT(A)'s decision. The ITAT referenced its prior rulings and the Hon'ble Delhi High Court's decisions, which consistently held that the payments for Centralized Services were not FTS/FIS under either the Income Tax Act or the India-USA DTAA. The ITAT emphasized that the predominant purpose of the services was advertisement, marketing, and promotion, and not the facilitation of the use of trade names or trademarks. The services were not ancillary or subsidiary to any license agreement and were provided in the ordinary course of business.The ITAT also highlighted that the issue had been settled in favor of the assessee in previous assessment years, with the Hon'ble Jurisdictional High Court affirming the Tribunal's findings. The ITAT concluded that the payments received by the assessee for Centralized Services could only be treated as business income, and in the absence of a permanent establishment in India, such income was not taxable in India.Consequently, the ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s order, confirming that the receipts from Centralized Services were not in the nature of FTS/FIS.Decision:The appeal of the Revenue was dismissed, and the order of the learned CIT(A) was upheld.Order pronounced in the open court on 16.01.2024.