Centralized Services Fee received by Starwood Asia Pacific Not Taxable as Royalty under India-Singapore Treaty: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the centralized services fee received by Starwood Asia Pacific is not taxable as royalty under India-Singapore Treaty.

Ms/ Starwood Asia Pacific Hotels & Resorts, the assessee is a non-resident corporate entity incorporated under the Laws of Singapore and is a tax resident of Singapore and is engaged in the business of providing hotel-related services in several countries around the world. 

The assessee has agreed with various Indian hotels for the provision of hotel-related services, such as worldwide publicity, marketing and advertising services through its system of sales/advertising/promotion/pubic relation/reservation. Besides the use of the brand name, as per the terms of the agreement, the assessee is required to provide the following centralized services:

The amount received towards the centralized service fee was not offered to tax in India on the plea that it is not like FTS under Article 12 of the India-Singapore DTAA. The CIT(A) held that the centralised services rendered by the assessee are subsidiary and ancillary to the licence agreement for use of the brand name.

Further concluded that the centralized services being ancillary and subsidiary to the licence fee, are to be treated as FTS under Article 12(4)(a) of the tax treaty.

A Coram comprising of Shri G S Pannu, President and Shri Saktijit Dey, Judicial Member viewed that the Coordinate bench in an identical issue held that “the centralized service fee received by the assessee cannot be treated as FIS under Article 12(4)(b) due to failure of ‘make available’ condition, has made an unsuccessful attempt to bring it within the ambit of Article 12(4)(a) of the Treaty and in the processes has misrepresented certain facts.”

The Departmental Representative was unable to bring on record any substantive material to demonstrate that the aforesaid decisions of the co-ordinate Benches would not apply to the facts of the present appeal.

While respectfully following the decisions of the co-ordinate benches, the ITAT held that “the centralised services fee received by the assessee cannot be treated as FTS under Article 12 of the tax treaty, hence, not taxable in India.” While allowing the appeal, the bench deleted the addition.

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