The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that management support services provided to various hotels in India are not Fee for Technical Service as per Article 12(4) of India -Singapore Double Taxation Avoidance Agreement (DTAA). Therefore, the bench deleted the addition.
The assessee InterContinental Hotels Group is a private company incorporated in Singapore and is a part of the InterContinental Hotels Group. It is a tax resident of Singapore as per the provisions of Article 4 of the India-Singapore Double Taxation Avoidance Agreement.
The primary business of the assessee is to franchise/ license hotels operating under different hotel brands of IHG in the Asia Pacific region.
The Assessment Year 2015-16 and 2016-17, the assessee on account of Management Support Costs earned some amount from India. They engaged primarily in the business of providing Management and Operations services to various Hotels in India.
Hence, the income from the services was claimed as exempt in the return of income filed in respective years, as the same was not in the nature of FTS under DTAA. However the AO added the management services cost to the income of the assessee in the assessment orders passed under Section 143(3) Income Tax Act and treated as FTS.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeal) (CIT(A)) who upheld the action of the Assessing officer. Hence, the assessee filed a second appeal before the tribunal.
The tribunal after considering the submissions and facts observed that services provided by the assessee do not make available any technical knowledge, skill, know-how to the recipient InterContinental Hotels Group India Pvt Ltd.
The assessee entered into a Management Support Services agreement for use of the brand name with various third-party hotels in India. Thus the agreement for the provision of Management Support Services is with the Indian subsidiary.
It couldn’t be said that the amount received from the provision of Management Support Services is ancillary and subsidiary to the license agreement.
Therefore, the Management Support Services Agreement and the fee received under various heads in pursuance to such agreement did not come under Article 12(4) of India-Singapore DTAA.
After reviewing the facts and submissions, the two-member bench of the tribunal comprising N.K. Billaiya (Accountant Member) and Challa Nagendra Prasad (Judicial Member) directed the assessing officer to delete the addition.
Thus, the bench allowed the appeal filed by the assessee.
S.K. Aggarwal, Chartered accountant appeared for the assessee and Vizay B. Vasanta appeared for the revenue.
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