TaxTMI 
TaxTMI 
2018 (6) TMI 605
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.... 1. In holding that the amounts received by the Appellant from the Indian Hotels under the Training and Computer Systems Agreement ('TCSA') are not in the nature of reimbursement of costs and hence, liable to tax under the Act 2. In holding that conducting the training programs (i) makes available technical knowledge and (ii) is ancillary and subsidiary to the royalty agreement and hence, the amounts received for the same are chargeable to tax as fees for technical services under the Double Taxation Avoidance Agreement between India and Netherlands (the 'India-Netherlands Tax Treaty') as well as the Act. 3. In holding that the amounts received by the Appellant on account of providing access to the international centralized reservation facility are ancillary and subsidiary to the enjoyment of the right to use the brand 'Marriott' and hence, taxable as fees for technical services under the India-Netherlands Tax Treaty as well as the Act. 4. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in levying interest under Section 234B of the Act amounting to Rs. 3,52,486/-. 5. On the facts and circumstances of the case ....
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....1,05,37,350/- M/s Viceroy Hotels Limited, Hyderabad. Rs. 9,98,148/- Total Rs. 1,15,35,498/- 4. On a query by the A.O as to why the aforesaid receipts may not be taxed in India, it was submitted by the assessee that as the consideration received from the Indian Hotels was in the nature of reimbursement of expenses incurred by the assessee and there was no mark up or profit made by the assessee on the said receipts, hence the same was not liable to be taxed. The assessee further claimed that by rendering the services it did not "make available" any technical experience, skill, knowledge, process etc to the Indian hotels. Alternatively, it was the claim of the assessee that the consideration received from the Indian hotels was its business receipts, which however in the absence of a Permanent Establishment (for short 'PE') in India could not be subjected to tax in India as per Article 7 of the India- Netherland tax treaty. However, the A.O was not persuaded to subscribe to the said claim of the assessee for the reason that the latter despite specific directions had failed to place on record the Tax Residency Certificate (for short 'TRC') for the year under consideration. ....
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....cense for royalty. The license fee so payable to the group company of the assessee was taxable as royalty. On the basis of the aforesaid facts, it was observed by the CIT(A) that the agreement executed between the assessee and the Indian Hotels was an integral part of the license agreement between the Indian Hotels and the group company of the assessee. The CIT(A) held a conviction that though technically the two agreements were independent of each other, but in reality they were mutually complementary. On the basis of his aforesaid deliberations it was concluded by the CIT(A) that as the consideration received by the assessee, as per the agreements, was for services that were ancillary and subsidiary to the royalty agreement hence, the same was taxable as FTS under Article 12(5)(a) of the India-Netherland tax treaty. (B). AS REGARDS CONSIDERATION RECEIVED FROM ÍNDIAN HOTELS' FOR PROVIDING ACCESSS TO CRS, PROPERTY MANAGEMENT SYSTEM AND OTHER SYSTEMS: (i). The CIT(A) observed that as far as the access to the CRS, Property Management System and Other Systems was concerned, the same was a part of the main licensing agreement for the use of the brand name "Marriott". On the ....
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.... A.R that though the training services rendered by the assessee were in the nature of general managerial /leadership training services and not in the nature of technical services, but in case it was to be held otherwise and the services rendered by the assessee were to be brought within the sweep of FTS as per Article 12(5)(b), than the onus was cast upon the A.O to prove that the assessee by providing the services did 'make available' transfer of technical knowledge. The ld. A.R elaborating on the nature of services rendered by the assessee during the year submitted, that though as per the agreement it was to provide, viz. (i). certain core-training programs for management-level personnel; and (ii). other training for other employees of the above referred Indian Hotels, however during the year under consideration it had only provided certain core-training programs for management-level personnel. The ld. A.R further dwelling upon the modus operandi for providing the services submitted, that the assessee would arrange for trainers employed with the affiliates of Marriot group located worldwide, and they would at the invitation of the assessee visit India and provide short training s....
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....nd subsidiary' to the application or enjoyment of some right, property or information for which a consideration described in Article 12(4) is received, the service must be related to the application or enjoyment of right, property or information. It was further averred by the ld. A.R that as the assessee was not the owner of any brand or trademark for which any royalty was received by it under Article 12(4) of the India-Netherlands tax treaty, hence the training services rendered by it to the India Hotels were provided in the ordinary course of its business. Thus, it was the contention of the ld. A.R that the CIT(A) had failed to appreciate that services rendered by the assessee can only be characterised as "ancillary and subsidiary" under Article 12(5)(a), only if the assessee is in receipt of consideration by way of royalty as per Article 12(4) of the India-Netherland tax treaty. The ld. A.R further submitted that both the A.O and the CIT(A) had erred in treating the consideration received by the assessee for providing access to CRS, Property Management System and Other Systems as royalty/FTS and FTS, respectively. The ld. A.R submitted that as the consideration received by the a....
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.... judicial pronouncements, viz. (i). DIT Vs. Sheraton International Inc. (2009) 313 ITR 267 (Del); (ii). Bass International Holdings NV Vs. JCIT (ITA No. 4341/Mum/2002; dated. 12.05.2006; and (iii). Six Continents Hotel Inc. Vs. DCIT (2011) 11 taxmann.com 332 (Mum). The ld. A.R submitted that in all the aforesaid cases the courts/tribunal had held the receipts for providing reservation services as business receipts. The ld. A.R further assailed the validity of interest charged by the A.O under Sec. 234B of Rs. 3,52,486/-. It was submitted by the ld. A.R that now when a duty was cast upon the payer to deduct and pay tax at source, then on the payers failure to do so interest under Sec. 234B could not be imposed on the payee assessee. The ld. A.R in support of his aforesaid contention relied on the judgment of the Hon'ble High Court of Bombay in the case of DIT (Intl. Taxation) Vs. NGC Network Asia LLC (2009) 313 ITR 187 (Bom). Lastly, the ld. A.R submitted that the A.O had erred in raising the tax rate provided in the India-Netherland tax treaty by a further amount of surcharge, education cess and secondary and higher education cess. The ld. A.R in support of his aforesaid contention....
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....ent of expense, were thus not liable to be subjected to tax in the hands of the assessee in India. We are of the considered view that as the assessee had failed to substantiate on the basis of any clinching evidence that the consideration received for the services rendered by it to the Indian Hotels were in the nature of reimbursement of expenses incurred by the assessee and there was no mark up or profit made by rendering the said services, therefore, its claim that the same not being in the nature of income was not liable to be taxed in India cannot be accepted. We thus reject the aforesaid claim of the assessee. The Ground of appeal No. 1 is dismissed. 10. We shall now advert to the claim of the assessee that the consideration received for conducting training programs had wrongly been held by the CIT(A) as FTS in its hands. The assessee had assailed the observations of the CIT(A), viz. (i). the training programs conducted by the assesses did "make available" technical knowledge; and (ii). that as the conducting of training programs by the assessee was "ancillary and subsidiary" to the royalty agreement, hence the consideration received therefrom was liable to be assessed as FTS....
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....nn.com 108 (Kol): The Tribunal had observed that payments which were made by a Chinese company in respect of training of Chinese engineers of the assessee in english language would not constitute FTS. (iii). ACIT Vs. PCI Ltd. (2011) 12 taxmann.com 59 (Delhi): The High Court observed that payments made by the assessee to a non-resident party for training its personnel or customers to explain to the proposed buyers the salient features of the products imported by the assessee in India and to impart training to the customers to use the equipments cannot be held to be FTS. (iv). ITO Vs. Veeda Clinic Research P. Ltd. (2011) 13 taxmann.com21 (Bang): Where training services to the employees of the assessee company was general in nature, not involving any transfer of technology, the fees for providing such services was not taxable as FTS as per Article 13 of India-U.K tax treaty. (v). Wockhardt Ltd. Vs. ACIT (2011) 10 taxmann.com 208 (Mum): The services rendered by the employees of a non-resident company being in the nature of sharing management experiences and business strategies could not be termed as technical services. We have deliberated at length on the aforesaid judi....
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....formation pursuant to the royalty agreement, thus the consideration received by the assessee from rendering such services could safely be held as FTS as per Article 12(5)(a) of the India-Netherland tax treaty. We have deliberated at length on Article 12(5)(a) of the tax treaty, which reads as under: "Article 12(5): For the purposes of this Article, "fees for technical services" means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is receives; or" We find that for invoking Article 12(5)(a) and holding the consideration received by an assessee from certain "ancillary and subsidiary" technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that as the....
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....s' and the consideration received in lieu thereof be subjected to tax as FTS receipts. We find from a perusal of the agreement entered into between the assessee and the Indian Hotels that the assessee had made available the CRS, Property Management Systems and Other Systems for use by the Indian Hotels in their business. We find that the ld. A.R in support of his contention that the consideration received by an assessee for granting license to use its copyrighted software for the licensees own business purpose only, could not be brought to tax as royalty, had relied on the judgment of the Hon'ble High Court of Delhi in the case of DIT Vs. Infrasoft Ltd. (2013) 39 taxmann.com88 (Delhi) and host of other judicial pronouncements. However, as the CIT(A) had concluded that the consideration received by the assessee from the Indian Hotels for providing access to CRS, Property Management Systems and Other Systems was FTS in the hands of the assessee, hence we refrain from referring to and dealing with the contentions advanced by the ld. A.R in support of his claim that the same could not be held as royalty. We find that the High Court of Delhi in the case of DIT Vs. Sheraton International....
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....ary and subsidiary" technical or consultancy services rendered for the application or enjoyment of the right, property or information as FTS, itself presupposes receipt by the assessee of a consideration towards royalty as provided in Article 12(4) of the tax treaty. We are of the considered view that now when the assessee was not the owner of any brand or trademark for which any royalty would have been received by it under Article 12(4) of the India- Netherland tax treaty, hence the services of providing access to CRS, Property Management System and Other Systems to the Indian Hotels were provided by it in the ordinary course of its business and could not be brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a) of the tax treaty. We thus, are of a strong conviction that the CIT(A) loosing sight of the fact that as the assessee had neither granted any right of enjoyment of the brand "Marriott" to the Indian Hotels and thus was not in receipt of any royalty as provided in Article 12(4) of the India-Netherland tax treaty, thus the consideration received by it from the Indian Hotels for providing access to CRS, Property Management System and Other Syst....