TaxTMI 
TaxTMI 
2019 (8) TMI 1797
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.... and Computer Systems Agreement ('TCSA') on account of conducting core managerial training programs for managerial employees of the Indian hotels qualify as 'fees for technical services' under Article 12(5)(a) of the India- Netherlands tax treaty. 2. In holding that conducting core managerial training programs for managerial employees of the Indian hotels by the Appellant qualify as 'technical or consultancy services' without considering the training material submitted with the CIT(A) vide submission letter dated March 3, 3016; which evidences that the training programs conducted by the Appellant do not qualify as 'technical or consultancy services' under Article 12(5) of the India-Netherlands tax treaty. 3. In holding that the amounts received by the Appellant under the TCSA on account of providing access to the reservation system, property management system and other systems ('Centralized Reservation Facility') to the Indian hotels qualify as 'royalty' under Article 12(4) of the India-Netherlands tax treaty. 4. In stating that merely because the Appellant and another company of the Marriott Group have sign....
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....gement and other system of Marriott chain of hotels. The assessee filed return of income during the relevant Assessment Year on 30.09.2011 declaring income of Rs. Nil. The return of income was selected for scrutiny. During the assessment, the Assessing Officer noted that assessee has shown the following payment from Indian Hotels Owners Association: Particulars Amount (in Rs) Access to Computer Systems 5,46,47,982 Training Programs 54,19,012 Total 6,00,66,994 4. The Assessing Officer issued show-cause notice dated 15.12.2013 to the assessee to explain as to why the amount received for trading and computer system should not be treated as its income (without specifying its head). The assessee filed its detailed reply vide reply dated 26.02.2013 as recorded by Assessing Officer in para-4 of the assessment order. After considering the contention of the assessee, the Assessing Officer treated the said payment for conducting training programme as Fees for Technical Purpose (FTS) as per the provisions of section 9(1)(vii) of the I.T. Act and Article 12 of India Netherlands Tax Treaty. The Assessing Officer also treated the payment for the access to the computer ....
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....s 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 under Article 12(5)(a) of the India-Netherland tax treaty. We find that as per the agreement entered into between the assessee and the Indian Hotels the assessee was to provide (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 the assessee had only provided certain core-training programs for management level personnel. We are of the considered view that the claim of the assessee before the lower authorities that as the training services provided to the management level personnel were in the nature of general managerial/leadership training and the same did neither involve 'make available' or transfer of any technology to the personnel, had neither been dislodged befor....
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....ny 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 judicial pronouncements in the backdrop of the facts involved in the case of the assessee before us, and are of the considered view that the consideration received by the assessee for the managerial/leadership training provided to the employees of the Indian Hotels cannot be held as FTS. 11. We have further deliberated on the reliance placed by the CIT(A) on the judgment of the Hon'ble Supreme Court in the case of CBDT Vs. Oberoi Hotels (India) Pvt. Ltd (1998) 231 ITR 148 (SC), wherein it was observed that 'technical services' included 'professional services'. Still further, we find that the A.O also had relied on certain judgments/orders,viz. (i). Intertek Testing Services (2008) 307 ITR 418 (AAR); (ii). G.V.K Industries (1997) ....
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....ayment 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 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 provided to the Indian Hotels were in the ordinary course of its business, and could not be brought within the sweep of "ancillary and subsidiary" services as provided in Article 12(5)(a) of the India- Netherland tax treaty. We thus, are of a strong conviction that the CIT(A) loosing sight of the fact that as the assessee was not in receipt of any royalty as per Article 12(4) of the India-Netherland tax treaty, hence had failed to appreciate that the training services rendered by it could not have been held to be "ancil....
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....o the royalty agreement, the Tribunal rejected the contention of the department in para 14 of the order. 14. For the stand of the revenue to tax the receipt as "Royalty'. The ld AR for the assessee submits that the revenue has not filed any appeal against the stand of the AO that the payments for access to computer system qualifies as royalty when the ld CIT (A) had concluded that system qualifies as FTS. Thus, the Tribunal refrained from dealing with the contention of the assessee that the payment received for access to computer system could not be treated in the nature of royalty. 15. The ld AR for the assessee further submits that during the period of assessment year under consideration, the AO took the view that the payment received for access to computers system qualify as "software royalty', whereas the ld CIT(A) concluded that such payments qualify as " Brand Royalty". The ld. AR for the assessee submits that these services cannot qualify as "software royalty" as well as "brand Royalty". The said receipt cannot qualify as 'Software Royalty' as the amount is received towards access to computer software /systems that it is access to a copyrighted article and there ....
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....company cannot commercially exploit it, the same would not fall within the definition of royalty. 17. Further, the said receipt also cannot qualify as brand Royalty as the amount is received merely toward SS 2 computer software /systems and such payments are clearly not at all related to the Marriot brand. Further the assessing officer while distinguishing the case of Six Continents hotels inc versus DCIT [2011 ] 11 taxmann.com 332 (Mum ) relied by the assessee held that "the assessee does not promote an international brand and is purely providing right to use of systems and related services along with training to the Indian Hotels". Thus, it is undisputed even by the revenue that in relation to services provided under the TCSA, the assessee does not undertake any brand -related activity. Therefore, any receipt to be characterized as royalty should be for the use or right to use of an intellectual property. It has to be given the meaning as per Income tax Act 1962, and the applicable Double Taxation Avoidance Agreement. Each and every business payment cannot be treated as royalty. Hence such receipt cannot be correct characterized as 'Brand Royalty'. The learned CIT(A) while hol....
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.... treated the payment received for providing access to the computer software as FTS also treated as " software royalty" under section 9(1)(vi) as well as under Article 12(4) of India-Netherland tax treaty. The assessing officer concluded that for providing the right to use the system developed by assessee or its affiliates specifically for the Indian Hotels and also providing technical services for the maintenance and use of such system, which is ancillary and subsidiary to the application or enjoyment of the right to use the computer reservation system, which is covered under the provisions of Article 12(4) read with 12(5) (a) of India -Netherlands Tax Treaty. And the payments also falls under section 9(1)(vi) of Income - tax Act. The ld CIT(A) confirmed the action of the assessing officer holding that the assessee is providing specialized reservation / property management / other system to the Indian Hotels. The system have been specially design and developed for Marriott Group for use of Renaissance Chain of hotels or MEA Chain of services Apartment and from the standard developed with the Mariette Trademark. The service agreement mandates that the system standard require that th....
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....f assessee throughout the proceeding either before assessing officer, landed Commissioner (appeals) as well as before the tribunal that the said receipt cannot qualify as software royalty as the amount is received to RSS to computer software/system to a copyrighted article and there is no transfer of copyright or use of copyright itself and hence cannot be taxed as royalty. Centralized regeneration system, property management system and other systems are standard facilities. In our view in order to create the consideration received by assessee as royalty, it is to be established that the payer by making such payment, obtains any of the copyrights of such work. Further, while dealing such issue, the distance and has to be made between the acquisition of a copyright right and a copyrighted article. In our view, in the present case, the copyright has not been transferred, rather the assessee has allowed to use standard services to the Hotel owners, which does not give rise to any royalty income, but in estate would be in the nature of business income. 22. The Hon'ble Delhi High Court in DIT vs. Infrasoft Ltd. (supra) also held that when they right transfer is not the right to use t....
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....oyalty should be for the use or right to use of any intellectual property. It has to be given the meaning as per the Income tax Act and the applicable double taxation avoidance agreement. In our view each and every business receipt cannot be treated as royalty receipt. 24. Where further noted that ld. CIT-(A) while holding that payment received to access to computer system qualifies as brand royalty relied upon the decision of Marriott International Inc (MII) Vs DDIT (2016) 69 taxmann.com 347 (Mum Trib). In our view this decision in the case of Marriott International Inc Vs DDIT (supra) based on different set of facts. In the said case MII executed 'International Sales Agreement' with respective hotels; however, the assessee in the present case executed agreement for 'training and computer system agreement'. The services rendered in the case of MII were entirely different. In case of MII the services rendered were predominantly include international advertising, marketing and sales promotion. Other services include services in relation to frequent travelers and assess to regeneration system. In case of assessee services rendered predominantly include providing non-technical trai....
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....he 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 Inc.(20....
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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....