AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (3) TMI 1187
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....g the amount received by the Appellant from Inter- Continental Hotels Group (India) Pvt. Ltd. ('IHG India') towards provision of Management Support Charge to be in the nature of Fee for Technical Services ('FTS') under Article 12 of India-Singapore Double Taxation Avoidance Agreement ('DTAA'/Treaty). 1.3 That on the facts and in the circumstances of the case and in law, the CIT(A) failed to appreciate that merely because the services are managed, technical and consultancy in nature, the same will not ispofacto result intofTS under Article 12 of India- Singapore DTAA, unless the services results into making available technical 1.4 That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in concluding that the Management Support Services 'make available' technology, knowledge, skill, experience to the recipient ignoring the explicit language of Article 12(4)(b) of the DTAA which provides that the recipient should be in a position to apply the technology contained in the services. 1.5 That on the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate that the support services provided by the ....
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....n course of assessment proceedings, the Assessing Officer, to examine assessee's claim, called for and verified the Management Support Services Agreement and after perusal of the agreement, he found that the support services provided by the assessee are as under: i) Operational Support; ii) Accounting and Legal Support; iii) Sources and Procurement; iv) Information Technology related services; & v) Training Services. 6. After deliberating on the issue, the Assessing Officer ultimately held that not only the services rendered by the assessee are in the nature of consultancy services, but while doing so, assessee had also made available technical knowledge, skill, know-how etc. Therefore, he treated the amount received towards provision of Management Support Services as FTS under Article 12(4)(b) of Indian-Singapore DTAA as well as under Section 9(1)(vii) of the Act. Accordingly, he brought the amount of Rs.6,83,22,262 to tax. While deciding the issue in appeal, learned Commissioner (Appeals) granted partial relief to the assessee by holding that payment received towards information technology services cannot be regarded as FTS, 7. B....
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....national hotel business and its management techniques. * Co-ordinate the managerial plan and actions within the AA Region; * Advise local general CMH Hotel management on trends and changes in the hotel business in general. * Provide advice on the production of operating and capital budgets at the level of the CMH Hotels, which are consistent with the strategic plan; * Provide to local general CMH Hotel management on a periodic basis regional financial reports and statements for operating performance comparisons which allow local management to make business decisions; * Improve finance resources of CMH Hotels which are sub ject to seasonal fluctuation by provision of treasury assistance; * Provide financial advice on the viability of new projects; * CO-ordinate the implementation of the rules of operations in CMH Hotels; * Advise CMH Hotels in applying the rules of operations, taking into account the fact that CMH Hotels operate in a number of countries in the AA Region; * Centralize information on the quality performance of CMH Hotels; * Provide advice on technical aspects of site selection fo....
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....de advice on and co-ordinate compensation and benefit plans including pensions plans for CMH Hotel employees in the AA region; * Provide employees of the Regional Pooling Company or its Affiliates, to participant from time to time on secondment; * Assist and advise on the development of an individual manpower specification and its application to managerial selection; * Assist in recruitment, selection and provision for senior personnel for CMH Hotels; * Provide support as necessary from the Global Human Resources team and the business services centre; * Assist in obtaining necessary visas, work permits and in defining relocation requirements; * Co-ordinate international manpower planning and uniform employment policies; * Monitor and negotiate on labour relation issues. 7. Miscellaneous * Provide ail other relevant areas of advice and support in connection with the owning and-or managing of CMH Hotels. 26. It is not in dispute that IHG India has received the above services from the assessee company in terms of management service agreement. It is obvious that the assessee company provides highl....
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....ia to take correct and suitable decision towards achievement of the desired objects and business goal . Para 8.1(a) of the management agreement between Today Hotels Pvt . Ltd . (Hotel Crowne Plaza Gurgaon) and SC Ho tels & Resorts (India) Pte. Ltd . (IHG India) (submitted vide letter dated 28 .02 .2017) states that the Manager (IHG India) shall second the General manager to owner (the Crowne Plaza hotel) who shall employee that person directly throughout the period of secondment. The process of engagement of seconded employees from the IHG India to third party owned hotels clearly reflects the trans fer of knowledge & expertise of a particular institution to other institute. Further, para 3 .3 of a foresaid Management Agreement states that the Manager (IHG India) will have the right to determine all policies and procedures relating to operation of the hotel including marketing and sales policies , personnel policies etc. IHG India has played the role of bridge in connecting the assessee company to the third party owners. Therefore, it may not be correct to say that the services delivered by the assessee company did no t make available the knowledge, knowhow and skill to IHG India t....
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.... management services, IHG India is responsible for managing the hotels on behalf of third party owners. The services typically comprise of support in the areas related to hotel operations, commercial support (sales and marketing), and other business support functions ( finance, human resources , IT etc .). IHG India works closely with hotel owners to develop and monitor business plans, capital expenditure budgets , operational strategies, communicating and providing guidance to the hotels in rolling out various initiatives , conduct annual review and operational audits of the hotels etc. Guidance are provided to the General Managers ("GM") of the hotels in analyzing information and diagnosing operational issues and develop action plans to improve the performance of the hotels including coordination between various corporate functions and the hotels . The respective functional teams in the areas of human resource, IT and new hotel openings support the related needs for the third party hotel management business ." 29. In this background, the only issue remains to be adjudicated is whether the meaning of 'make available' is applicable to the services mentioned under sub-claus....
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....DTAA. Hence , we hold that the decision of the ld. CIT (A) cannot be supported." 9. Facts being identical, respectfully following the decision of the co-ordinate Bench in assessee's own case, as referred above, we hold that the amount received by the assessee cannot be regarded as FTS under Article 122(4)(b) of the Act. Accordingly, addition made is deleted. Grounds are allowed 10. In the result, the appeals is allowed. ITA No.2986/Del/2019: 11. Grounds raised in this appeal are as under: 1.1 That on the facts and in the circumstances of the case and in law, the order passed by the CIT(A) confirming the addition made by the Ld. A.O under Section 144C(3) r.w.s. 143(3) in relation to Management Support Charge amounting to INR 8,67,34,734 is wrong and bad in law. 1.2 That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in treating the amount received by the Appellant from Inter- Continental Hotels Group (India) Pvt. Ltd. ('IHG India') towards provision of Management Support Charge to be in the nature of Fee for Technical Services ('FTS') under Article 12 of India-Singapore Double Taxation Avoidance Agreement ('DTAA'/Trea....
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....A which provides that the recipient should be in a position to apply the technology contained in the services. 1.10 That on the facts and in the circumstances of the case and in law, the CIT(A) has failed to appreciate that the support services provided by the Appellant are required by IHG India on an on-going basis and hence the technology, experience etc., cannot be said to be made available by the Appellant to IHG India. 1.11 That on the facts and in the circumstances of the case and in law, the CIT(A) has erred in upholding the observations of the Ld. A.O that interpreting the term 'make available' in reference to other tax treaty, is not permissible. 2. The above grounds of appeal are independent and without prejudice to one another. 3. That the Appellant reserves its right to add, alter, amend and/or modify any ground of appeal before or at the time of hearing of the appeal." 12, As could be seen from the grounds raised, the issue in dispute is more or less identical to ITA No.4068/Del/2019 decided by us in the earlier part of this order. However, there is slight difference in the factual position in the sense that learned Commissioner (....
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....ch reads as under: (a) "are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received." 16. Having given a thoughtful consideration to the submissions of the parties in the context of the aforesaid finding of learned Commissioner (Appeals), we find, the license granted by the assessee to various hotels in India for user of brand name from earlier times and the assessee had been offering such income as royalty. Where as, the assessee had entered into Management Support Services agreement at a later point of time. These facts show that the agreements for user of brand name and for Management Support Services are independent of each other, hence, not connected or dependent pon each other. It is also relevant to observe, while the license agreements for user of brand name are with various third party hotels in India, the agreement for provision of Management Support Services is with the Indian subsidiary. Therefore, it cannot be said that the amount received from provision of Management Support Services is ancillary and subsidiary to the license agreement. It is further relevant to....
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.... income. There is no dispute that the license fee paid to the affiliates have been taxed in India. It is the reasoning of learned Commissioner (Appeals) that since the services rendered by the assessee under Centralized Services Agreement is ancillary and subsidiary to the License Agreement for grant of right to use trade name, the amount received by the assessee in pursuance to Centralized Services Agreement has to be treated as FIS under Article 12(4)(a) of the Tax Treaty. 13. It is relevant to observe, identical issue relating to taxability of centralized service fee as FIS under Article 12(4) came up for consideration before the Coordinate Bench in case of Sheraton International Inc. (supra) in assessment years 1995-96, 1996-97, 1999-2000 and 2000-01. After analyzing the terms of Centralized Services Agreement, which is more or less identical to the agreement entered into by the present assessee, the Tribunal observed that the assessee is basically providing the Indian hotels services for publicity, marketing and reservation. The main purpose/intention of the association between the assessee and the Indian hotels was to promote the hotel business in their mutual busine....
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....is the grant of license to use the name, which gave rise to royalty and all other payments and agreements flow from the License Agreement. 17. For better appreciation, it is necessary to look into the provisions contained under Article 12(4)(a), which in turn, refers to Article 12(3) of the Tax Treaty. Article 12(3) of the Tax Treaty reads as under: "USA ARTICLE 12 ROYALTIES AND FEES FOR INCLUDED SERVICES 1. .............. 2. ............... 3. The term "royalties" as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as considerati....
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....o the application or enjoyment of the right, property or information for which the payment in the nature of royalty under Article 12(3) is received. 20. In the facts of the present appeal, undisputedly, the assessee is neither the owner of the trademark nor has received any payment as a consideration for the use of, or right to use of trademark in terms of Article 12(3)(a). The payment was received by the group affiliates under a distinct and separate license agreement. Whereas, the assessee provided centralized services relating to marketing, advertisement, promotion etc. under a distinct and separate agreement. So, when the assessee is not the owner of the property, there is no question of allowing a third party to use or right to use of the property. That being the case, the services for which payments are received cannot be considered to be ancillary and subsidiary to the application or enjoyment of the right of property or information for which royalty has been paid. Further, the MoU to India - USA Tax Treaty while explaining the import of Article 12(4)(a) has laid down the following parameters: "Paragraph 4(a) Paragraph 4(a) of Article 12 refers to ....
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....person performing the services is the same person as, or a related person to, the person receiving the royalties described in paragraph 3 [for this purpose, persons are considered related if their relationship is described in Article 9 (Associated Enterprises) or if the person providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties]. To the extent that services are not considered ancillary and subsidiary to the application or enjoyment of some right, property, or information for which a royalty payment under paragraph 3 is made, such services shall be considered "included services" only to the extent that they are described in paragraph 4(b)." 21. If one critically examines the determinative factors/parameters to qualify as FIS under Article 12(4)(a), it can be seen, most of the determinative factors/parameters do not apply to the centralized service fee received by the assessee. This is so, because, the services rendered by the assessee do not facilitate the use of trade name/trademark. Rather, as has been held by the Coordinate Bench in case of Sheraton International Inc. (supra) and affirmed by ....
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....l of monitoring machine. Hence, the cleaning services are not to be regarded as FIS under Article 12(4)(a) of the Tax Treaty. 23. The factual position, in a way, is quite similar in the present case. The aforesaid illustration to some extent can be made applicable to the facts of the present appeal. Even if one agrees with learned Commissioner (Appeals) that the License Agreement and Centralized Services Agreement are related to each other and the Centralized Services Agreement actually flows out of the License Agreement but still the issue which requires examination is, whether the Centralized Services Agreement is ancillary or subsidiary to the License Agreement. In our view, the answer to the aforesaid question would be in the negative. Clearly, predominant purpose of the Centralized Service Agreement and the overall arrangement between the parties is to provide advertisement, marketing and promotion of the hotel business. Even, the quantum of fees received under both the agreements would demonstrate the aforesaid fact. 24. As could be seen from the materials placed on record, as against the license fee of Rs.6,05,43,227/- received by the affiliates, the assess....
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.... counsel for the assessee and admitting the additional grounds raised by the Revenue, we now proceed to consider and decide the issues raised in these additional grounds also on merits. In support of the Revenue's case that the impugned amount received by the assessee from the Indian hotels/clients was in the nature of 'royalty' or 'fees for included services' as per the DTAA between India and America, reliance thus has been placed by it mainly on the provisions of Articles 12(3)(a) as well as 12(4)(r/) and 12(4)( b). Article 12(3){b) being specifically applicable only to payments received for the use of or the right to use of any equipment of industrial, commercial or scientific nature, in any case, is not applicable to the facts of the present case. It is, therefore, relevant to consider as to whether the payment received by the assessee from the Indian hotels/clients was in the nature of "royalties" or "fees for included services" within the meaning given in Article 12(3)(a), 12(4)(a) or 12(4){b) of the DTAA between India and USA or "fees for technical services" within the meaning given in Explanation 2 to section 9(1){vii). 73. In order to decide this issue relating to....
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....en in the foregoing portion of this order. Having regard to all these aspects, we have come to a conclusion that the various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest cannot be relied upon by picking and choosing the same in isolation so as to say that part of the consideration received by the assessee, as attributable to the said services, was in the nature of 'royalties' or 'fees for included services'. Such an approach adopted by the Revenue authorities, in our opinion, was neither permissible in law nor practicable in the facts of the case and the conclusion drawn by them on the basis of such approach to cover the said services taken individually or in isolation divorced from the main intention within the meaning of 'royalties' or 'technical services' as defined in Explanation 2 to section 9( 1)(v/) or to section 9(l)(v») and/or that of "royalties" or "fees for included services" as defined in Article 12(3) and 12(4)....
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....TAT held that the normal, plain and grammatical meaning of the language employed using the expressions 'making available' and 'making use of' is that the mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skill etc. 77. As already observed, a close reading of the relevant agreements especially the payment clause, the predominant nature of the services rendered, the integrated arrangement between assessee company and Indian hotels/clients as well as the nature of relationship between them as reflected in the relevant agreements so also as understood by both the sides leaves no doubt that the entire consideration was paid by the Indian hotels/clients to the assessee compan....
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....otem Co. In re |2005| 279 1TR 165 ^ (AAR - New Delhi) is to the similar effect wherein after discussing the various judicial pronouncements, it was held that the principle which emerges from the various decisions is that in a contract for manufacture, installation, sale or supply of goods, the element of services will always be present and where such services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of FTS. It is only where services are separable and independent that the FTS will be assessable. In the present case, the services sought to be treated as 'fees for technical services' or 'fees for included services' were of ancillary or auxiliary in nature and being integral part of the job undertaken by the assessee-company, the same were neither independent of nor separable from the said job undertaken by the assessee in relation to publicity, advertisement and sales promotion of the hotel business worldwide. 79. Before us, the learned Special Counsel for the Revenue has referred to some of the Articles of the agreements between the assessee and the Indian hotels/clients to submit that the drawings, desi....
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....ation was on account of the services rendered in relation to advertisement, publicity etc. This was the arrangement between the parties as is evident from the relevant terms and conditions of the agreements and this is the way in which both the sides had apparently understood and acted upon such arrangement. It was thus neither desirable nor possible to apportion any portion of the consideration received by the assessee company from the Indian hotels/clients towards use of trademark, trade name etc. by the Indian hotels/clients. Having regard to all these facts and circumstances of the case borne out from the record including especially the relevant agreements between the parties, we find it difficult to accept the stand taken by the Revenue that the payments received by the assessee-company from the Indian hotels/clients in pursuance of the said agreements or any part was in the nature of royalties within the meaning of Article 12(3)(a). 81. As regards Article 12(3)(b) covering the payments received as consideration for the use of or the right to use any industrial, commercial or scientific equipment, we have already noted that neither the Revenue has invoked the provisio....
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....le' condition, has made an unsuccessful attempt to bring it within the ambit of Article 12(4)(a) of the Treaty and in the processes has misrepresented certain facts." 25. Be that as it may, the fact on record reveal that the taxability of centralized services fee as FIS is a recurring issue between the assessee and the Revenue from the past years. It is relevant to observe, while deciding the issue in assessment year 2010-11, the Tribunal in ITA No.202/Del./2016, dated 28.09.2017, has held as under: "5. We have heard the ld. Authorized Representative of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 6. Ld. DR for the revenue relied upon the order of the AO. However, the ld. AR for the assessee relied upon the order passed by the ld. CIT (A). 7. For the sake of ready reference, the findings returned by the ld. CIT(A) allowing the appeal is reproduced as under "8. I have carefully considered the above submissions, and the contentions of the appellant. I have also perused the assessment order and the orders of the H....
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....n record to show that the agreement was a colourable device- Such findings of fact having not been challenged as perverse, no substantial question of law arose out of the order of the Tribunal" 9. So, following the decision rendered by Hon'ble Delhi High Court in case of Director of Income-tax vs. Sheraton International Inc. (supra), we are of the considered view that the revenue received by the assessee for providing centralized services is not in the nature of Fee for Technical Services (FTS) u/s 9( I )(vi) Explanation 2, but it is a business income. Since the assessee is not having any PE in India, its business income earned is not taxable in India. under:- 10. So, in view of what has been discussed above, we find no illegality or perversity in the impugned order passed by the Id. CIT (A), hence present appeal filed by the Revenue is hereby dismissed." 26. The aforesaid decision was upheld by the Hon'ble Jurisdictional High Court while dismissing Revenue's Appeal. The same view was reiterated by the Tribunal while deciding assessee's appeal in assessment year 2011-12 in ITA No. 203/Del/2016, dated 18.12.2018. It is relevant to observe, the aforesaid de....