ADIT (IT) 2(1), MUMBAI v. SIX CONTINENTS HOTELS INC., MUMBAI

ITA 5914/MUM/2009 | 2005-2006
Pronouncement Date: 30-03-2011 | Result: Dismissed

Appeal Details

RSA Number 591419914 RSA 2009
Assessee PAN AAHCS7853B
Bench Mumbai
Appeal Number ITA 5914/MUM/2009
Duration Of Justice 1 year(s) 4 month(s) 23 day(s)
Appellant ADIT (IT) 2(1), MUMBAI
Respondent SIX CONTINENTS HOTELS INC., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 30-03-2011
Date Of Final Hearing 30-03-2011
Next Hearing Date 30-03-2011
Assessment Year 2005-2006
Appeal Filed On 06-11-2009
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH MUMBAI BEFORE SHRI D. MANMOHAN (VP) AND SHRI RAJENDRA SIN GH(AM) ITA NO.5914/M/2009 ASSESSMENT YEAR 2005-06 THE ADIT(IT)-2(1) R.NO.120 M/S.SIX CONTINETS HO TELS INC 1 ST FLOOR SCINDIA HOUSE C/S. BSR & CO. CAS KPMG H OUSE BALLARD ESTATE N.M.ROAD KAMAL MILLS COMPOUND 448 SENAPATI MUMBAI 400 038. BAPAT MARG LOWER PAREL MUMBAI 400 013. PAN : AAHCS 7853 B APPELLANT RESPONDENT REVENUE BY : SHRI NARENDER SINGH ASSESSEE BY : SHRI SUNIL LALA O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 27.8.2009 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06 . THE ONLY DISPUTE RAISED IS REGARDING TAXABILITY OF MARKETING AND RESERVATIO N FEES RECEIVED BY THE ASSESSEE. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY WHICH IS A FOREIGN COMPANY RESIDENT OF USA HAD ENTERED IN TO AGREEMENTS WITH VARIOUS INDIAN HOTELS FOR USE OF TRADEMARK HOLIDAY INN AN D CROWNE PLAZA OWNED BY IT. THE ASSESSEE RECEIVED ROYALTY FOR THE USE OF TH E TRADE MARK WHICH HAD BEEN OFFERED FOR TAX. THE ASSESSEE ALSO RECEIVED CONTRIB UTION OF RS.1 09 85 565/- 2 BEING THE MARKETING AND RESERVATION CONTRIBUTION FE ES AS A FIXED PERCENTAGE OF THE REVENUE GENERATED. THE ASSESSEE SUBMITTED BEFOR E THE AO THAT THE FEES HAD BEEN CHARGED FOR MEETING COMMON EXPENSES FOR MA RKETING AND CENTRALIZED RESERVATION FACILITY AND THEREFORE THE SAME WAS REI MBURSEMENT OF EXPENSES AND COULD NOT BE TAXED. THE AO HOWEVER OBSERVED THAT TH E ASSESSEE MUST HAVE DEVELOPED ITS OWN SECRET SYSTEM TO BE USED BY THE F RANCHISE OTHERWISE IT WOULD NOT HAVE CHARGED SUCH HUGE AMOUNT. IT WAS ALSO OBSE RVED THAT THERE WAS NO EVIDENCE OF ANY EXPENDITURE BEING INCURRED BY THE A SSESSEE. HE THEREFORE ASSESSED THE AMOUNT AS ROYALTY INCOME. IN APPEAL CI T(A) OBSERVED THAT THE OBSERVATION OF THE AO THAT THE ASSESSEE HAD DEVELOP ED SOME SECRET FORMULA WAS NOT SUPPORTED BY ANY EVIDENCE. CIT(A) ALSO NOTE D THAT IN A.Y.1997-98 ON IDENTICAL FACTS THE TRIBUNAL VIDE ORDER DATED 12.6. 2006 IN ITA NO.4341/M/2002 HAD HELD THAT SUCH RECEIPTS COULD NOT BE TREATED AS ROYALTY AND COULD ALSO NOT BE TAXED AS BUSINESS PROFIT UNDER ARTICLE-7 IN THE ABSENCE OF ANY PE IN INDIA. CIT(A) FURTHER NOTED THAT THE ASSESSING OFFICER IN A.Y.2006-07 IN THE ORDER DATED 18.11.2008 PASSED UNDER SECTION 143(3) HIMSEL F HELD THAT AMOUNT RECEIVED ON ACCOUNT OF MARKETING AND RESERVATION CO NTRIBUTION FROM INDIAN HOTELS WAS NOT CHARGEABLE IN INDIA. CIT(A) ACCORDIN GLY DELETED THE ADDITION MADE BY THE AO AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. TH E LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) WHEREAS THE LEAR NED DR PLACED RELIANCE ON THE ORDER OF AO. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. WE FIND THAT THE IDENTICAL ISSUE OF TAXA BILITY OF MARKETING AND RESERVATION CONTRIBUTION FEES RECEIVED BY THE ASSES SEE FROM THE INDIAN HOTELS HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSE SSEES OWN CASE IN 3 A.Y.1997-98 AND THE TRIBUNAL VIDE ORDER DATED 12.5. 2006 IN ITA NO.4341/M/2002 HELD THAT MARKETING AND RESERVATION FEES RECEIVED BY THE ASSESSEE WAS WITH A CORRESPONDING OBLIGATION TO USE IT FOR THE AGREED PURPOSES AND IT WAS NOT AN UNFETTERED RECEIPT IN THE HANDS O F THE ASSESSEE. THE TRIBUNAL ACCORDINGLY HELD THAT THE RECEIPTS COULD NOT BE VIE WED AS INCOME OF THE ASSESSEE. THE TRIBUNAL ALSO HELD THAT THE RECEIPTS COULD ALSO NOT BE CHARGED AS BUSINESS PROFIT UNDER ARTICLE-7 OF DTAA AS THE ASSE SSEE HAD NO PE IN INDIA. THE TRIBUNAL ACCORDINGLY DELETED THE ADDITION MADE. WE ALSO NOTE THAT THE AO IN ASSESSEES OWN CASE IN A.Y.2006-07 IN THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) DATED 18.11.2008 HAS HELD THAT MARKETING AND RESERVATION CONTRIBUTION FEES RECEIVED BY THE ASSESSEE FROM INDIAN HOTELS IS NOT CHARGEABLE IN INDIA. UNDER THESE CIRCUMSTANCES IN OUR VIEW THE ADDITION HAS BEEN RIGHTLY DELETED BY THE CIT(A). WE SEE NO INFIRMITY IN THE ORDER OF CIT (A) AND THE SAME IS THEREFORE UPHELD. 4. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . 5. THE DECISION PRONOUNCED IN THE OPEN COURT TODAY I.E. 30.03.2011. SD/- SD/- ( D. MANMOHAN ) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBE R DATE : 30.03.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) MUMBAI CONCERNED 4. THE CIT MUMBAI CITY CONCERNED 5. THE DR L BENCH ITAT MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI ALK 4