Facts of the Case

  • The assessees, foreign entities, provided centralized services to Indian customers, including:
    • Sales and marketing
    • Loyalty programs
    • Reservation services
    • Technological and operational services
    • Training and human resource services
  • The ITAT ruled that such receipts do not qualify as FTS.
  • The Revenue filed appeals before the Delhi High Court challenging this finding.

Issues Involved

  1. Whether payments received for centralized services constitute Fees for Technical Services under Section 9(1)(vii) of the Income Tax Act, 1961.
  2. Whether such services qualify as Fees for Included Services under Article 12(4)(a) of the Indo-US DTAA.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that payments for centralized services are not FTS.
  • Such services involve technical and managerial elements and should be taxable.
  • The reliance placed by ITAT on Director of Income Tax vs Sheraton International Inc. (2009) was challenged, as the Revenue has not accepted the said judgment and has filed an appeal before the Supreme Court.

Respondent’s Arguments (Assessee)

  • The issue is squarely covered by the Delhi High Court judgment in Sheraton International Inc. (2009).
  • The services provided do not “make available” technical knowledge, hence cannot be classified as FTS/FIS.

Court’s Findings / Order

  • The Court observed that:
    • The issue is already settled in favour of the assessee by the earlier judgment in Sheraton International Inc.
    • The Revenue failed to distinguish the present case from the earlier precedent.
  • Even though the earlier judgment is under challenge before the Supreme Court, there is no stay on its operation.
  • Relying on Supreme Court rulings in:
    • Kunhayammed vs State of Kerala (2000)
    • Shree Chamundi Mopeds Ltd. vs Church of South India Trust (1992)
  • The Court held that the precedent remains binding.

 Result: Appeals dismissed.

Important Clarification by Court

  • The Court clarified that:
    • The outcome of the present appeals shall be subject to the final decision of the Supreme Court in the pending civil appeal (Civil Appeal No. 3094/2010).

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/MMH04112022ITA4342022_202752.pdf

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