Facts of the Case

The present appeal was filed by the Revenue challenging the order passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2016–17. The dispute pertained to payments received by the assessee, Radisson Hotel Interaction Inc., from Indian customers for centralized services including sales and marketing, reservation systems, loyalty programs, technological support, operational assistance, and training services.

The ITAT held that such receipts do not qualify as “Fees for Technical Services” (FTS) 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

  1. Whether payments received for centralized services constitute Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961.
  2. Whether such payments qualify as Fees for Included Services under Article 12 of the Indo-US Double Taxation Avoidance Agreement (DTAA).
  3. Whether the ITAT was justified in relying on earlier judicial precedents.

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that the ITAT erred in holding that payments received for various centralized services do not fall within the ambit of FTS.
  • It was argued that services such as technological support, reservation systems, and training programs inherently involve technical expertise.
  • The Revenue relied on the contention that such services should be taxable under Section 9(1)(vii) of the Act.

Respondent’s (Assessee’s) Arguments

  • The assessee relied on the precedent of Director of Income Tax vs Sheraton International Inc. (2009), wherein similar services were held not to constitute FTS.
  • It was contended that the services provided were routine, standardized, and did not “make available” technical knowledge or skill to the recipients.
  • Hence, such receipts fall outside the scope of FTS under both domestic law and DTAA.

Court’s Findings / Order

  • The Delhi High Court observed that the issue was already covered by its earlier decision in Sheraton International Inc. (2009).
  • The Court noted that the Revenue failed to distinguish the present case from the earlier precedent.
  • It further observed that although the earlier judgment is under challenge before the Supreme Court, there is no stay on its operation.
  • Accordingly, the Court held that no substantial question of law arises and dismissed the appeal.

Important Clarification

  • The Court clarified that the outcome of this case shall be subject to the final decision of the Supreme Court in the pending appeal against the Sheraton International Inc. judgment.

Sections Involved

  • Section 9(1)(vii), Income Tax Act, 1961
  • Article 12(4)(a), Indo-US DTAA (Fees for Included Services)
  • Judicial precedents:
    • Director of Income Tax vs Sheraton International Inc. (2009)
    • Kunhayammed vs State of Kerala (2000)
    • Shree Chamundi Mopeds Ltd. vs Church of South India Trust (1992)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH10112022ITA4412022_185157.pdf

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