TaxTMI 
TaxTMI 
2019 (8) TMI 1797
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....n 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 signed two different agreements with the Indian hotels (ie one for the use ....
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....nt 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 system as software royalty under section 9(1)(vi) as well as under Article 12(4) of India Netherlands Tax Treaty. The Assessing Officer....
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....e" 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 before the lower authorities, nor anything has been placed on record before us by the ld. D.R, which could persuade us to hold otherwise. We find ourselves to ....
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....endered 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) 228 ITR 564 (AP); (iii). Continental Construction Ltd. Vs. CIT (1992) 195 ITR 81 (SC); (iv). CBDT Vs. Oberoi Hotels (India) Pvt. Ltd (1998) 231 ITR 148 (SC); and (v). Dean, Goa Medical College Vs. Dr. Sudhir Kumar Solanki (2001) 7 SCC 645....
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....ication 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 "ancillary and subsidiary" services under Article 12(5)(a). We thus, are of the view that the consideration received by the assessee for providing training services to the Indian Hotels could not be held as FTS under Article 12(5)(a) of the India- Netherland tax treaty. W....
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....e 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 is no transfer of copyright or use of copyright itself, and hence cannot be taxed as royalty. Centralized reservation system, property management systems, and other systems are standard facilities, which the assessee provides to Marriot Chain of hotels. Use of such computer s....
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.... 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 holding that payment received to assess to computer system qualifies as ' brand Royalty' has relied on the decision of Marriot International Inc versus DDIT (2016) 69 taxmann.com 347 (Mumbai tribunal ). The learned AR for assessee submits that CIT (A) has wrongly relied on the aforesaid decision as the said decision is clearly distinguishable from the assessee's case. In....
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....s 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 the hotel owner setup the facilities at their own cost and use the system as a part of the agreement and it is not open to the hotel owner to discontinue this system and continue with licensing agreement. The right to use system farms a part of the royalty agreement as TSCA is dependent on royalty agreement and cannot be entered into unless the licensing agreement has been completed. The claim ....
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....em, 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 the copyright but it is limited to right to use the copyrighted material and the same does not give rise to Royalty Income and would be business income. It was also held that consideration received by assessee on grant of licence for use of software is not Royalty within the meaning of Article 12(13) of India-US Tax Treaty. The decision relied by ld. DR in Samsung Electronics (supra) has been distinguished....
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....he 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 training and access to computer system. Training rendered in case of assessee comprise of soft skills, development of leadership, team management, system comprise of standardized regeneration system, property management system and other system. We have noted that this fact is accepted by assessing officer in assessment year for 2011-12. Further in case of MII the receipt is from hotel owner comprise; contribution and fe....
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....icense 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.(2009) 313 ITR 267 (Del) had observed that consideration received by the assessee for providing access to reservation system could not be brought to tax as FTS in the hands of the assessee. We further find that the Hon'ble Supreme Court in the case of CIT vs. Kotak Securities Ltd. (2016) 383 ITR 1 (SC) had in the backdrop of the facts involved in the case before it, had observed that services made available by Bombay Stock Exchan....
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....2(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 Systems, could not have been brought within the sweep of "ancillary and subsidiary" services under Article 12(5)(a). We thus, in terms of our aforesaid observations are of the considered view that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services, nor the same in terms of our aforesaid observations could have been characterised as "ancillary and subsidiary" servi....