Facts of the Case

The present appeals were filed by the Revenue challenging a common 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 assessees (Westin Hotel Management LP and Sheraton Overseas Management Corporation) from Indian customers for providing centralized services such as:

  • Sales and marketing services
  • Loyalty programs
  • Reservation services
  • Technological support
  • Operational assistance
  • Training and human resource services

The ITAT held that such receipts do not qualify as Fee for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or as Fee for Included Services (FIS) under Article 12(4)(a) of the Indo-US DTAA.

Issues Involved

  1. Whether payments received for centralized services constitute “Fee for Technical Services” under Section 9(1)(vii) of the Income Tax Act, 1961.
  2. Whether such payments qualify as “Fee for Included Services” under Article 12(4)(a) of the Indo-US DTAA.
  3. Whether the ITAT was justified in relying upon the precedent of Director of Income Tax vs Sheraton International Inc.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that the services rendered by the assessees do not fall within the ambit of FTS/FIS.
  • The services provided were technical and managerial in nature and hence taxable in India.
  • The reliance placed by the ITAT on Sheraton International Inc. (2009) was challenged by the Revenue and the matter is pending before the Supreme Court.

Respondent’s Arguments (Assessee)

  • The services provided were routine and support services and did not “make available” any technical knowledge, skill, or expertise.
  • The issue was already covered in favour of the assessee by the Delhi High Court in Director of Income Tax vs Sheraton International Inc.
  • Hence, the receipts cannot be classified as FTS/FIS under the Act or DTAA.

Court’s Findings / Order

  • The Delhi High Court observed that the issue is squarely covered by its earlier judgment in Sheraton International Inc.
  • The Revenue failed to distinguish the facts of the present case from the earlier precedent.
  • Even though the earlier judgment is under challenge before the Supreme Court, no stay has been granted.
  • Relying on the principles laid down in:
    • Kunhayammed & Ors. vs State of Kerala (2000) 6 SCC 359
    • Shree Chamundi Mopeds Ltd. vs Church of South India Trust Association (1992) 3 SCC 1

the Court held that the earlier judgment remains binding.

Final Order:
The appeals filed by the Revenue were dismissed.

Important Clarification

  • The outcome of the present case shall be subject to the final decision of the Supreme Court in Civil Appeal No. 3094/2010 arising from Sheraton International Inc.

Sections / Provisions Involved

  • Section 9(1)(vii), Income Tax Act, 1961
  • Article 12(4)(a), 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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