TaxTMI 
TaxTMI 
TaxTMI 
2013 (11) TMI 1607
X X X X Extracts X X X X
X X X X Extracts X X X X
....ioner of Income-tax (Appeals) - 11, Mumbai has in his order under section 250 of the Income-tax Act, 1961 ('the Act') erred on the following grounds: 1. In upholding that the payment of INR 9,393,202 received by the Appellant pursuant to the International Sales and Marketing Agreement ('ISMA') entered into with an Indian hotel for advertising, marketing and sales promotion program are not reimbursement of expenses. 2. Without prejudice to ground I above, in upholding that the aforesaid payment received by the Appellant pursuant to the ISMA is in the nature of 'royalty' for the use of international brand name 'Marriott'. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time befo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....voidance Agreement (DTAA) with Netherland Income Tax Act, 1961. To this the assessee filed a detailed reply vide letter dt. 20.11.2009 and strongly contended that sales and marketing activities are not in the nature of managerial/technical or consultancy services and hence treated as fees for technical services. It was further contended that the sales and marketing contribution collected from hotels in accordance with the terms of the agreements with the hotels. The contribution would go to a centralized marketing fund which is operated on a cost basis, without any profit or mark-up. The amounts so collected is spent on advertising, sales and marketing activities. 5.1. The submission of the assessee did not find any favour from the AO . Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for use of brand 'Marriott'. 6. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended that under the Franchise Agreement, the assessee has received royalties towards license of the Marriott brand to ITC. For the overseas marketing separate special effort has to be made. For this purpose, ITC has entered into the International Sales & Marketing Agreement 9SMA) with the assessee company. It was further contended that under the license and royalty agreement, the assessee has received royalties and offered the same for taxation whereas the amount recovered by the assessee under the ISMA is in the nature of reimbursement of expenses for international advertising and promotion. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder clause 3.2 and 3.3 are nothing but reimbursement of the cost of services. At this juncture, the Bench asked the Ld. Counsel to give the break-up of the receipts under these 3 clauses of the agreement. The Ld Counsel for the assessee showed his inability to furnish any break-up of receipts under these three clauses of the agreement. 7.1. Now coming back to the issue before the Tribunal in A.Y. 2004- 05, wherein the break-up was available with the Tribunal and on that note the Tribunal has made the following observations at para-5 on page-5 of its order. "In the first appeal, the ld. CIT(A) noticed that the amount of Rs. 90.06 lacs was on account of payment received under clauses 3.1 to 3.3 of the Agreement. The first part of the amou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtisement space in magazines, newspaper and other similar media ; advertisement on radio, television and etc. and other activities of the advertising and marketing nature. The Revenue authorities have accepted the Agreement as bona fide without doubting its correctness in any manner. When admittedly contribution at the rate of 1.5% by AHL to the assessee, amounting to Rs. 38.59 lacs, is towards marketing activities, we fail to see as to how it can be characterized as `royalties' falling within the ambit of Article 12 of the DTAA. The ld. DR referred to para 5 of the Agreement to bolster her submission of the amount being in the nature of royalty. It is beyond our comprehension as to how this para advances her case. It talks of `Confidential....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be held as `royalties' falling within the ambit of Article 12(4) of the DTAA. Thus the AO's action in treating this amount as royalties is set aside. 8. On the issue of the receipts being in the nature of reimbursement of expenses and hence not chargeable to tax , the Tribunal held that the receipts are not in the nature of reimbursement of expenses as no material has been placed on record to demonstrate that the actual expenses incurred by the assessee were equal to the amount received. In the case before us, situation is the same. As the assessee has failed to demonstrate that the actual expenses incurred were equal to the amount received, thus in our considered opinion, the impugned receipts are not reimbursement of expenses. It is pe....