TaxTMI 
TaxTMI 
2022 (3) TMI 1475
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.... respect of payments proposed to be made to Hyatt Chain Services Ltd., Hongkong ("HCSL") for provision of centralised services i.e. advertisement, sales promotion and computerised reservation to the assessee amongst others. The assessee is running a hotel under the name and style of Hyatt Regency as a franchise of Hyatt International Asia Pacific Limited known as Hyatt. There is a company, named Hyatt International South West Asia Limited ("HISWAL") which is in the field of providing marketing, management and operation of hotels work under the brand of Hyatt. The assessee entered into a Strategic Oversight Agreement ("SOA") with HISWAL dated 4.9.2008 in respect of carrying out hotel and management services with the assessee. For such services, various employees of HISWAL visits India from time to time. As per SOA there are various other services which are to be provided by other affiliates of Hyatt. One such affiliate of Hyatt is HCSL. HCSL provides centralised services outside India to one worldwide Hyatt Group of Hotels, who work under the supervision and control of Hyatt. HSCL conducts sales and marketing on behalf of all hotels affiliated to the Hyatt chain. The said chain mark....
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....t to Hyatt International which represents their earnings out of the sales and marketing agreement on which the assessee is duly withholding taxes. Up to the preceding year, the Ld. AO allowed the remittance by way of reimbursement of proportionate cost to HCSL without any withholding tax. 4.1 The contentions raised by the assessee were rejected by the Ld. AO. The Ld. AO heavily relied upon the findings of the Hon'ble DRP in the assessment of HISWAL for the assessment year 2009-10. He concluded that the proposed payments to HCSL is in the nature of royalty / Fees for Technical Service ("FTS") taxable under section 9(1)(vi)/(vii) of the Act and directed that tax is required to be withheld at the applicable rate under section 195 of the Act. 5. On appeal, the Ld. CIT(A) in para 4.2 and 4.3 of his order recorded the findings of the Ld. AO during the assessment proceedings which is reproduced below :- "4.2 During the assessment proceedings, the Ld. AO observed that M/s HISWAL, Dubai was providing certain strategic plans, guidelines, processes and policies relating to the development and operation of the Hotel in terms of agreement known as Strategic Oversight agreeme....
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.... amount of USD 464,475 from the appellant after making adjustments in the form of contributions. However, in his view, the same does not denote the character of reimbursement'. Thirdly, the AO rejected the agreement of the appellant that the recipient was carrying out services outside India, by holding that there was 'business connection' in India and the source of income also existed in India. Fourthly, with regard the submissions of the appellant that HCSL was a no profit-no loss entity, the AO held that the status of the recipient does not determine the nature of services rendered by it, and in this regard, reliance was placed on the decision in the case of Danfoss Industries P. Ltd. in re (268 ITR 1) and Timken India (273 ITR 57). The AO lastly, rejected the contention of the appellant on the ground that that Certificates u/s 195(2) have been issued by the AO in the earlier years allowing the appellant to remit such payments to HCSL without deducting any tax by observing that doctrine of res judicata or estoppels by record does not apply to tax proceedings. In view of this, heavily relying upon the decision of DRP in the case of M/s ....
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....in Services Limited ("HCSL") and International Reservations Limited ("IRL") or other affiliates of Strategic Services Provider, to provide the following services outside of India, to the extent appropriate and furnished to other hotels operated by Strategic Services provider and its affiliates. HCSL shall provide convention, business and sales promotion services (including without limitation, the maintenance and staffing of H.L.'s home office sales force and regional sales offices in various parts of the world), publicity, public relations, and all other group benefits, services and facilities including, without limitation, institutional advertising programs (which exclude advertising programs in which only selected H.I. hotels participate in by mutual agreement, the cost of which programs are allocated amongst the participating H.I. hotels) (collectively, "Chain Marketing Services"). IRL shall provide reservations services. Neither Strategic Services provider, HCSL nor IRL, nor any other affiliate of Strategic Services provider shall receive any profit for the rendition of Chain Marketing or reservations services. HCSL shall, however, be entitled to be reimbursed for ....
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....me also lies in India. Further, he was of the view that the advertising campaign in foreign media and marketing campaigns may have readership and viewership in India also. He has also rejected the arguments of the appellant the recipient is a no-profit no loss entity and that the remittance to it is in the nature of only reimbursement. 6.3 On careful consideration of the facts of the case, I find that there is no evidence on record placed by the AO to suggest that the advertising campaign for which HCSL was compensated by various Hyatt Group of Companies specifically provided for advertising services for the appellant company only. The said advertising campaign can be held to build the brand "Hyatt" for which services can be rendered to M/s Hyatt International Inc. However, there is no evidence to prove that such services were specifically rendered for promoting the business of the appellant. As per SOSA, various Hyatt Group of companies located across the globe, were required to make proportionate payment to HCSL in order to recover the cost of such marketing campaign. However, in the own admission of AO, there is no one- to-one relationship between the services rendered by HCS....
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....recedence value. In view of this, the Ground No. 5 is dismissed." 7. Aggrieved, the Revenue is before us. The limited issue to be decided is whether the payments made to HCSL for the provision of the centralised services relating to marketing, sales promotion and centralized reservation by HCSL to assessee outside India as per the terms of SOA fall within the purview of definition of royalty as per Explanation 2 of section 9(1)(vi) and thus require the assessee to withhold applicable taxes on remittances made to HCSL in respect of such services. 8. The Ld. DR heavily relied upon the findings of the Ld. AO and the DRP's finding in the case of assessment of HISWAL for assessment year 2009-10 under section 143(3) of the Act. 9. The Ld. AR submitted that the assessee in earlier years was permitted to make remittance to HCSL without any TDS thereon. He submitted that the services were provided by HCSL outside India by HCSL which is a separate independent entity providing such services to various hotels operated by Hyatt across the globe. HCSL is a no profit entity. The DRP's order in case of HISWAL for assessment year 2009-10 has no application in assessee's case which was base....
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.... and this has not been controverted before us. 11. The issue for consideration before us is whether the chain marketing services provided by HCSL to assessee falls within the scope of Explanation 2 to section 9(1)(vi) of the Act. The definition of the term "royalty" as provided in Explanation 2 to section 9(1)(vi) of the Act is as follows - "Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "capital gains") for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the u....
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....tax Authorities had given a "no objection" under section 195(2) of the Act (see observations in paragraph 90 of the impugned judgment). As regards the payments received on account of SCI and FFP the Tribunal noted that since five job undertaken by the assessee-company was in the nature of 'integrated business' arrangement, whereby services were rendered to its clients-hotels in relation to advertisements, publicity and sales promotion of hotel business worldwide to further their mutual interest all services including the use of trade mark and other services enumerated in the article including the programmes, in issue, such as SCI and FFP were incidental to the said business arrangement between the assessee and its clients-hotels. It concluded by holding that these programmes were not independent or separate from the main job undertaken by the assessee and since the entire amount towards the service had been held by the Tribunal as business income, the contributions received by the assessee towards the said programmes, i.e., SCI and FFP were also in the nature of business income. It thus rejected the contention of the Revenue that these contributions were in the nature of in....
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.... regard to payment of tax by Sheraton or deduction of tax at source by the respondent/assessee would be governed by the decision of the Delhi High Court in the case of Sheraton International (supra). Even otherwise, as we have already observed herein above, the Revenue itself had given No Objection Certificates consistently for several years and allowed the respondent assessee to make payment to Sheraton without deducting tax at source and it was only after the decision of the Assessing Officer at Delhi in the case of Sheraton holding that payment made to it would be liable for payment of income tax in India, the proceedings in question had been initiated against the respondent assessee herein. However, once the said order of the Assessing Officer itself has been set aside by the Delhi High Court, the very foundation of Initiating proceedings against the respondent assessee disappears and once the foundation goes, the structure cannot remain, i.e., proceedings against the respondent assessee cannot go on." 11.4 Respectfully following the decisions (supra), we hold that the payments made to the HSCL by the assessee are not in the nature of royalty under the provisions of section ....