Royalty or Not? Decoding the Taxability of Marketing and Reservation Contributions under India-USA DTAA

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....tributions, and the applicability of the principle of mutuality. Arguments Presented Assessee's Contentions The assessee, a US-based company, contended that the marketing and reservation contributions received from Indian hotels were not taxable as Royalty or FIS under the India-USA DTAA. The key arguments presented by the assessee were: * The contributions were received with a corresponding obligation to use them for agreed purposes, such as advertising, marketing, and maintaining reservation systems, and were not unfettered receipts. * The contributions did not constitute consideration for the use of any intellectual property or technical services, and were not ancillary or subsidiary to royalties received by other group entiti....

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....s: * The Tribunal noted that the facts of the present case were similar to the assessee's preceding assessment years, where the additions were either not made by the AO/Dispute Resolution Panel (DRP) or were deleted by the coordinate bench of the Tribunal. * The Tribunal highlighted that the marketing and reservation contributions were received with a corresponding obligation to use them for agreed purposes, as substantiated by the independent auditor's report. * The Tribunal distinguished the case from the decision in Marriott International Inc., relied upon by the Revenue authorities, stating that the conclusion in that case was based on its peculiar facts, which did not arise in the present case. * The Tribunal emphasized....

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.... assessee's case underscores the importance of maintaining a consistent approach and respecting judicial precedents, unless there are compelling reasons to diverge. Doctrine or Legal Principle Discussed The case primarily revolves around the interpretation and application of the terms "Royalty" and "Fees for Included Services" under the India-USA DTAA. Additionally, the principle of mutuality and its applicability in the context of the marketing and reservation contributions received from Indian hotels was also deliberated upon. Comprehensive Summary The Tribunal's decision in this case provides clarity on the taxability of marketing and reservation contributions received by a US-based company from Indian hot....