AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 1615
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.... submits that the learned Commissioner of Income Tax (Appeals)-57, Mumbai [the CIT(A)], has in her order under section 250 of the income-tax Act, 1961, 1961 ('the Act') erred in disposing the appeal of the Appellant on the following grounds, which are without prejudice to one another: In not deciding the fundamental issue before herself as directed by the Income-tax Appellate Tribunal, Mumbai (ITAT) vide order dated January 14, 2015; namely, whether the amounts received under the International sales and marketing agreement (ISMA) should be taxed in the hands of any other group company and thus the order passed by the Deputy Commissioner of Income-tax (International taxation)-3(2) (1), Mumbai (Assessing Officer)/ CIT (A) is bad in law; In holding that the Assessing Officer was right in taxing the ISMA receipts in the hands of the appellant (in its own capacity), despite the fact that ITAT vide order dated January 14, 2015 held that the Appellant (in its own capacity) cannot be held liable to tax with respect to amounts received under ISMA. In not appreciating the following The Assessing Officer had only requested the Appellant to submit the name o....
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....es of America. It filed its return of income for the year on 30 November 2006 declaring income of Rs. 2,61,86,356/-, which was subsequently revised on 7 February 2007 at Rs. nil. 05. It was found that assessee has received Rs. 7,57,10,293/- from Juhu Beach Resorts Limited, and Rs. 70,20,317/- from Chalet Hotels Limited on account of reimbursement of expenses of Rs. 8,27,30,610/-. It further received Rs. 8,50,72,792/- from Juhu Beach Resorts Ltd. and Rs. 1,75,14,664/- from V.M. Salgaonkar and Brothers Pvt. Ltd. Of Rs. 10,25,87,456/- on account of International Service Marketing Agreement (ISMA). In the original return assessee offered this sum as chargeable to tax in India as Royalty. However, in revised return it was not offered. Assessee contested that above amounts are in the nature of reimbursement of expenses and not taxable. The learned Assessing Officer held that Rs. 18,53,18,070/- is chargeable to tax. 06. Ld AO held that receipt of Rs. 10,25,87,456/- received under ISMA are chargeable to tax as royalty, reimbursement of expenses is also taxable as fees for included services. Therefore, the total receipt of Rs. 18,53,18,070/- was assessed as income. 07. Assessee fil....
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....s inter-alia include Marriott Hotels and Resorts, JW Marriott and Marriott Suites Hotels (MHR Brands). The assessee either directly or through its affiliates enters into contracts with the owners of the hotels worldwide who have been licensed MHR brands (MHR Hotels). The assessee maintains and administers a centralised marketing fund (Marketing Fund) for the purpose of undertaking advertising, marketing, promotion and sales activities (ISM activities) on behalf of hotel owners who have been licensed MHR brands. To this end the Assessee enters into an International Sales and Marketing Agreement (ISMA) with such hotel owners." "Para 1.6: Separately it must be noted that the Indian hotels have executed a License and Royalty agreement with Marriott Worldwide corporation (MWC) an affiliate of the Assessee, for granting a license to use the MHR Brands. Under the said agreement, the Indian hotels have obtained a license to use the brand name "Marriott" from MWC". The royalty income received by MWC from the Indian hotels has been offered to tax in India and appropriate taxes have been deposited with the Income tax department" 12. The assessee was again vide this office le....
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....e ITAT in its order while confirming the income received by the assessee under the ISMA and ISF agreements and also the reimbursement of expenses as Royalty has discussed as under: i) The brands Marriott' and 'Renaissance is owned by a company (hereinafter "Owner of brand"). The name of the said company is not available on record. The Said Company has given license to M/s Marriott Worldwide Corporation (MWC) or M/s Renaissance International Inc. to permit the use of brands citied above to other hotels on receipt of Royalty. The terms of Agreement between the original owner of the brand and M/s MWC are also not available on record. However, as per the authority obtained under the agreement entered with the original owner of the brand, M/s MWC has granted the hotels, permission to use the brands and it is stated that the Royalty received by M/s MWC has been duly offered to Income tax. ii) The assessee company has undertaken the job of undertaking International advertisement and marketing programs for "Marriott" and "Renaissance" brands on behalf of the hotels worldwide. The contention of the assessee is that it has undertaken the international marketing prog....
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....e would show that the Name and address of the foreign Collaborator is given as under: 1. M/s Marriott International Design and Con. Services Inc., 10400 Fernwood Road, Bethesda, Maryland 20817. 2. Marriott Hotel Services Inc. 3. Renaissance Services B.V 4. Marriott International Inc. 5. Marriott Worldwide Corporation. 6. Renaissance International Inc. 7. Marriott International Hotels Inc. Thus, it is seen that all the above said companies appear to have same address. The details of payments proposed to be made is given in Clause 4 of the approval, as per which (a) Lump sum Technical Services Fee was proposed to be paid to M/s Marriott International Design & Construction Services Inc. (b) Lump Sum Pre-opening technical assistance' amount was proposed to be paid to M/s Marriott Hotel Services Inc. (c) Lump Sum Pre-opening technical assistance' amount was proposed to be paid to M/s Renaissance Services B. V. (d) International Sales and Marketing fee (upto 2.5%) & Reimbursement of cost (as per prescribed rates) was proposed to be paid to M/s Marriott International Inc. (t....
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.... the responsibility to maintain and/or enhance the "Brand value" always remains with the brand owner. Normally the "Brand value" is maintained by continuous and sustained advertisement/marketing activity, as can be noticed from the repeated advertisements made in the various types of media. vii) In the instant case, it appears that the brands "Marriott" and "Renaissance" are owned by one company, whose name and the activities are not available on record. However, the case of the revenue is that the International Sales and Marketing Agreement (ISMA) entered by the assessee shows that the responsibility to promote the "Brand Value" has been entrusted with the assessee herein, since the marketing activities have been carried out in the name of "Marriott" and/or "Renaissance" only. Since the assessee has collected the charges from the Hotels for carrying out the marketing activities, the revenue has contended that the charges so collected should also be construed as part of "Royalty" only. The Ld. CIT (A) has held that two types of payments are in the nature of Royalty and another type of payment is in the nature of "Fee for included services". The following observations made ....
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....enue is that the Marriott group has not adopted the above said method. The royalty was collected by one of the companies of the Marriott group and the responsibility for undertaking International marketing program has been placed upon another company, i.e., the assessee herein. The "Brand users", i.e., the hotels, have been made to pay the cost of international Marketing program to the assessee company. In the above said example, the company which has granted license to use the brand shall be receiving royalty amount of Rs. 30/- and the expenses of Rs. 70/- would be collected by the company which took the responsibility of undertaking International marketing program. In this process, the brand owner shall be paying tax @ 15% on Rs. 30/-, i.e., Rs. 4.50. According to revenue, it is deprived of tax to the extent of Rs. 10.50, when the brand owner adopts the second methodology, i.e., the case of the revenue is that the above said methodology is nothing but a clear tax planning by colorable device be bifurcating the royalty receipts. Hence, the revenue is contending that the amount received by the assessee company as reimbursement of expenses from the Indian Hotels should be considered....
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.... only and further the brand owner shall be required to incur the same. xii) In the instant case, the assessee has undertaken the job of marketing the "Marriott / Renaissance" brands. There is no doubt that the assessee company belongs to Marriott group. Further the claim of the assessee that it was undertaking the marketing work on cost to cost basis without any mark up defies the business logic or prudence. A commercial company shall never work without profit. The very fact that it was functioning on cost to cost basis or without profit motives itself proves that the assessee company is only an extended arm of "Marriott Group Company" owning the brand name. xiii) Hence, we are of the view that the assessee company, being only an extended arm of 'Marriott Group Company' owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colorable device. Accordingly, we are of the view that the separ....
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....l asset in India. Further the assessee has not given the name of the group company in whose hands the royalty income should be taxed. The assessee has also objected to the taxing of the income as Royalty. (d) In view of the above, the income received by the assessee company from the Indian hotels is taxed in the hands of the assessee company as royalty in terms of article 12 of India US DTAA as it is only a facade of the company which owns the brand i.e. MWC. The brand owner MWC has only subcontracted a part of the Royalty to the assessee group company for tax planning sake. Penalty proceedings u/s 271(1) (c) are initiated for furnishing inaccurate particulars of income. However without prejudice to the above, the assessee even after giving repeated opportunities has maintained its stand that Marriott Worldwide Corporation is the owner of the brand, when in reality it only owns the right to use the Marriott trademarks: The ITAT has also held in its order referred above that the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. The assessee has stated in its letter dated 23/02/2016 that the....
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....me of the company who owns the brand and a copy of the agreement between the original owner of the brand and Marriott Worldwide Corporation. The learned Assessing Officer merely submitted that trademark registration for the 'Marriott' brand is owned by Marriot worldwide corporation but has not produced any documentary evidences in support of the same. The assessee failed to produce copy of the agreement between the brand owner and Marriott worldwide corporation. The learned Assessing Officer also held that repeated opportunities were granted to the assessee but assessee failed to produce any evidence. Therefore, he held that the learned Assessing Officer was right in taxing the ISMA sum as royalty. It is contested before the learned CIT(A) that copy of the registration certificate of registration of 'Marriott' Trademark in the name of Marriott Worldwide Corporation is submitted by the assessee before the learned Assessing Officer as per submission dated 10th March, 2016 for Assessment Year 2013-14. According to that trademark registration certificate, it is registered in the name of Marriott Worldwide Corporation. The learned CIT (A) rejected this contention and dismissed the claim....