AI Drafter 
TaxTMI 
TaxTMI 
2018 (6) TMI 209
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.... all services that are necessary for hotel operation, such as establishing hotel standards & policies, sales and marketing, centralized reservations, purchasing and certain other services as per the operational requirements of the hotel owners to meet the hotel brand requirements. 1.1 It is stated that M/s. Bengal Ambuja Housing Development Limited (hereinafter referred to 'BAHDL / Indian hotel owner'), developed and owns a 5 Star deluxe hotel known as Swissotel Kolkata in Rajarhat Kolkata, and has engaged the Applicant to provide certain services in different phases of hotel development and operation so that the hotel property i.e. Swissotel Kolkata can be developed and operated as per international standards similar to other Swissotel properties across the globe. For this purpose, the Applicant and the BAHDL / Indian hotel owner entered into a Centralized Services Agreement on 1st September, 2009 (in short 'CSA) under which the Applicant has agreed to provide BAHDL the following services in relation to Swissotel Kolkata: (a) Global Reservation Services - to facilitate reservation / booking of rooms, banquets etc. in Indian hotel property; (b) Centralized Serv....
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....Applicant had annexed only one agreement, i.e. the Centralized Services Agreement dated 01.09.2009. At the time of hearing on the admissibility of this application, the Revenue had urged that the CSA contains references to certain other agreements entered into between the Applicant and BAHDL. It was submitted by the Revenue that in order to bring out the modus operandi of the Applicant and also to determine the taxability of the given transaction, it is essential that the other agreements entered into between the parties with respect to the development, operation and management of the hotel be brought on record. 2.2 Vide order dated 27.07.2011, this Authority called upon the Applicant to file such agreements. Four such agreements (in addition to the CSA, which was filed along with this application) were filed by the Applicant. Accordingly, the following five agreements form part of the record for the purpose of this Ruling: a) Hotel Management Agreement ('HMA') b) Centralized Services Agreement ('CSA') c) Hotel License Agreement ('HLA') d) Hotel Advisory Agreement ('HAA') e) Technical Services Agreement ('TSA') 3. The Applicant has....
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....lty' or 'fees for technical services' under the Act and the DTAA. Therefore, any arguments on the existence of PE are not to be adjudicated upon or even considered in the present proceedings. It has further been submitted that the Ruling is sought only on the provisions of the Centralised services agreement and any reference to any other agreement will be wholly inappropriate. 9. Before proceeding any further on the merits of the issue, it is necessary to first deal with this preliminary issue as to whether this Authority would be justified to give a Ruling on the existence of PE in the present application when the question is limited to the taxability of one single stream of income by way of royalty or Fee for technical services. 9.1 The powers of the Authority in dealing with the questions posed before it, are contained in Rule 12 of the Authority for Advance Rulings (Procedure) Rules 1996. This Rule provides: 'Rule 12- Questions contained in the application. 12. The Applicant shall not, except by leave of the Authority, urge or be heard in support of any additional question not set forth in the application, but in deciding the application the Authority sh....
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....e inferences and conclusions. 9.5 Lastly, we must also highlight that Article 12 of the India-Luxembourg DTAA, on which the Applicant seeks a Ruling, itself provides in para 4 that where the right, property or information in respect of which royalty or fees for technical services is paid is 'effectively connected' to a PE, then the provisions of Article 7 will apply. We, therefore, have no hesitation in holding that the present application does call for an adjudication on the issue of the existence of a PE.We cannot approach the question posed before us without first deliberating on the existence or otherwise of a PE in India. 9.6 We must also point out that the five agreements which form part of the record cannot be viewed on a standalone basis. The activity of the Applicant is an integrated one and it cannot be split into one or the other. We have perused and extracted, in detail, the terms of these agreements in the subsequent portion of this order. On such perusal, it emerges that the different agreements are a part of the wholesome arrangement. The Applicant has performed different functions in regard to the operation and management of the hotel in each of these agreemen....
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.... may agree to extend the Operating Term for up to Four (4) additional consecutive Extension Terms. The terms and conditions of this agreement and the Ancillary Services Agreements (subject to Section 4.5 of the Addendum and unless otherwise agreed by the Parties) shall govern any Extension term. (Clause 2.2) * Upon and subject to the terms and conditions of this Agreement, (including the limitations set forth in section 3.2 below), Owner hereby engages operator as the exclusive operator and managing agent of the Hotel during the operating term and Operator hereby accepts such engagement upon and subject to such terms and conditions. Subject only to the provisions of this Agreement, Operator shall have exclusive control, discretion and authority with respect to, and be responsible for, the Operation of the Hotel, free of interference from Owner or any Person claiming by, through or under owner. Such control, discretion and authority shall, subject to the terms of this Agreement and any express obligation or limitation set forth in the applicable annual budget, include the following: a) Employment of Hotel Staff. b) Marketing of the Hotel ....
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....he hotel staff, including the core executive staff. b) Owner shall have the right to refuse Operator proposal for the position of General Manager up to three consecutive times, after which Operator shall be entitled to choose at its own discretion to fill the position with any of the three candidates who were not approved by owner. Operator shall have the right to refuse owner proposal for the position of comptroller/CFO up to three consecutive times and upon such refusal operator shall be entitled to propose a panel of three candidates to the position of comptroller/CFO and owner shall agree to select one of them to fill up the position of comptroller/CFO. (Clause 5.3) * Consistent with the engagement of Operator hereunder and its authority and responsibility under this Agreement with respect to the management of all aspects of Operation of the hotel, Owner shall not implement or agree to implement any change in the scope or nature of the Operation of the Hotel, contact directly the Hotel staff (other than the General Manager or the Chief Financial Officer, the latter of which will only be contacted with regard to finance accounting and tax-related matte....
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....with the Operating Term of the Hotel management agreement (including any extensions thereof) unless sooner terminated pursuant to the terms hereof. (Clause 2.1) * Advisor shall provide, or shall cause any of its Affiliates to provide, directly or indirectly, for the Hotel and its guests the full benefit of the Global Reservation System to the extent available to other Operator Hotels. (Clause 5.1) * (a) Advisor shall review and reasonably approve any Capital improvements, including refurbishing, maintenance, repairs or other Capital improvements contemplated in any Annual Budget and capital improvements referred to in section 10.2 of the Hotel Management Agreement... Owner shall pay Advisor a fee for such services equal to 1% (or such other amount as maybe reasonably agreed between the parties, such amount to be commensurate with what third party would charge for such services) of the total cost of any such refurbishing, maintenance, repairs or capital improvements plus any actual out-of-pocket expenses incurred in such review and approval. (Clause 5.5) * (b) Owner shall cooperate with Advisor to apply for (in the Owner's name, ....
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....s such transfer is made (i) to a qualified person, (ii) that agrees to take over the rights and obligations of this agreement, and (iii) that is not a competitor to the advisor; provided however, the owner shall notify the advisor in writing of its intention to sell its right, title and interest in the hotel and the advisor shall be at liberty to make an offer to purchase such right, title and interest. (Clause 11.3) 10.5 In the third agreement, i.e. the 'Technical services agreement', the Applicant is referred to as the 'Consultant' and BAHDL is referred to as the 'Owner'. The following clauses have been highlighted by the Revenue to show the extent of Applicant's control over the Hotel. * Owner intends to engage consultant or affiliates of consultant to manage the hotel as part of the "Swissotel" system of hotels (the "brand"). Consistent the LOI, the hotel must be designed, constructed, furnished and equipped to reflect, in scope, content and detail, the physical and operational standards of the brand applicable to the hotel (the "brand standard"). (Recital B) * Owner desires to engage consultant to perform certain initial consulting servic....
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....n for observation of the progress and quality of the work and consultation regarding proposed solutions to design conflicts that may affect operation, and monitor installation of furniture, Fixtures and equipment, operating supplies and operating equipment. Owner shall prepare and deliver consultant within 30 days a list of all deficiencies and construction work remaining uncorrected or incomplete which list shall be subject to the approval of consultant who shall have the right to add additional items to such list. 10.6 Under the 'Hotel advisory agreement 'the Applicant is referred to as the 'Advisor' and the Owner is referred to as the 'Owner'. * Owner desires to obtain the benefit of advisors expertise in advising and providing services to the hotel owners in connection with the supervision and direction of the hotel and advisor has agreed to provide such expertise and services. (Recital B) * Advisor undertakes to advise the owner in connection with the supervision and direction of the hotel as a full service Deluxe international hotel. Without limiting the generality of the foregoing and all other provisions of the agreement advisor shall ....
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....esignate a suitable vendor who would supply goods and services for the operation and management of the hotel. With regard to these services as well, the Applicant has been given complete autonomy with no interference from the owner. (Centralized services agreement) 10.10 The Applicant has further undertaken to "advise" the owner with all the critical aspects of the hotel operation such as training of staff, preparing of budget, carrying out capital improvements etc. It may be appreciated from the other agreements discussed earlier that the final decision making power with regard to these aspects of the hotel management are with the Applicant, however to the extent the owner is to be involved in carrying out these functions, he is bound to take advice from and be under the supervision of the Applicant. (Hotel advisory agreement) 10.11 The next test for the existence of PE is to determine whether the Applicant has carried on its business (partially or wholly) through the fixed place being the Indian hotel. In this regard, it is necessary to understand the exact business of the Applicant. 10.12 In its application filed before the Authority, the Applicant has stated the nature....
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.... Gross operating profit of each year (clause 7.1). Finally, under the 'Hotel license agreement', the Applicant is entitled to 0.5% of the Total revenues. 10.15 It is, therefore, apparent that the Applicant has taken over the operation and management of the Indian hotel by entering into different agreements and has earned income through all of such agreements. We are, therefore,of the confirmed view that the Indian hotel, Swissotel Kolkata,satisfies all the three tests and does constitute a fixed place PE of the Applicant with respect to these incomes. The Applicant is carrying on its entire business operations from this fixed place. The existence of a PE of the Applicant in India gets established within the meaning of Article 7 of the DTAA. 10.16 One of the contentions raised by the Applicant regarding the issue of PE was that all of these activities performed by the Applicant have been done in the capacity of agents of BAHDL. Therefore, these activities do not constitute carrying on of the Applicant's business in India and no fixed place PE can be said to exist for the Applicant. 10.17 We do not find any merit in this argument of the Applicant. Admittedly, the Applicant's....