Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 29 April 2022 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2015–16. The dispute pertained to payments received by the assessee, Starwood Hotel and Resorts Worldwide Inc., from Indian customers for centralized services including sales and marketing, loyalty programs, reservation services, technological support, operational assistance, and training/human resource services.

The ITAT held that such receipts did not qualify as “Fees for Technical Services” under Section 9(1)(vii) of the Income Tax Act, 1961 nor as “Fees for Included Services” under Article 12(4)(a) of the Indo-US DTAA.

Issues Involved

  • Whether payments received for centralized services constitute Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961.
  • Whether such services fall within the ambit of Fees for Included Services (FIS) under Article 12 of the Indo-US DTAA.
  • Whether the issue is covered by the precedent laid down in Director of Income Tax vs Sheraton International Inc.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that the services rendered by the assessee do not qualify as Fees for Technical Services.
  • Payments for centralized services such as marketing, reservation systems, and technological support involve technical expertise and should be taxed accordingly.
  • The reliance placed on Sheraton International Inc. was incorrect as the Revenue has challenged that judgment before the Supreme Court and the matter is pending adjudication.

Respondent’s Arguments (Assessee)

  • The issue is squarely covered by the Delhi High Court judgment in Director of Income Tax vs Sheraton International Inc., which held that similar services do not constitute FTS/FIS.
  • The nature of services provided does not “make available” technical knowledge, skill, or expertise to the Indian customers, which is a prerequisite under the Indo-US DTAA.
  • Therefore, such receipts are not taxable as Fees for Included Services.

Court’s Findings / Order

  • The Delhi High Court observed that the issue involved in the present case is already covered in favour of the assessee by its earlier judgment in Sheraton International Inc..
  • The Revenue failed to distinguish the facts of the present case from the earlier precedent.
  • The Court also noted that although the earlier judgment is under challenge before the Supreme Court, there is no stay on its operation.
  • Accordingly, no substantial question of law arose, and the appeal filed by the Revenue was dismissed.

Important Clarification

The Court clarified that the dismissal of the appeal shall remain subject to the final outcome of the pending appeal before the Supreme Court in the case of Sheraton International Inc.

Sections Involved

  • Section 9(1)(vii) of the Income Tax Act, 1961
  • Article 12(4)(a) of the Indo-US Double Taxation Avoidance Agreement (DTAA)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH16112022ITA4562022_194135.pdf

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