Marketing & Reservation Fees Paid by Indian Hotels to US Hotel Chain not Taxable as Royalty or FIS Under India-US DTAA: Delhi HC [Read Order]

In a recent decision, the Delhi High Court held that marketing and reservation fees paid by Indian hotels to a US-based hotel chain are not taxable as royalty or fees for included services (FIS) under the India-US Double Taxation Avoidance Agreement (DTAA).

The dispute arose in relation to Assessment Year 2016-17, during which Six Continents Hotels Inc. received Rs. 28.63 crores from various Indian hotels towards centralized services such as marketing, loyalty program administration, and global reservation support. The Assessing Officer categorized these payments as royalty under the Income Tax Act and DTAA, and in the alternative, sought to tax them as FIS under Section 9(1)(vii) of the Act and Article 12(4) of the India-US DTAA.

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Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), which was rejected. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT), which ruled in its favor, relying on consistent decisions in the assessee’s own cases for earlier assessment years.

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The revenue challenged the ITAT’s decision before the High Court, arguing that the services were inherently linked to the enjoyment of intellectual property rights and should be classified as taxable royalty or included services. The revenue counsel specifically explained that the make-available clause under Article 12(4)(b) was not relevant because the services were ancillary and subsidiary to the license to use the brand.

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The assessee’s counsel produced a tabular summary showing that the revenue had either not accepted or not appealed the ITAT’s rulings for numerous assessment years. The assessee’s counsel further pointed out that in several years, even the Assessing Officer had accepted the position and did not raise any tax liability on similar receipts.

A division bench comprising Justice Vibhu Bakhru and Justice Tejas Karia observed that the issue had been consistently decided in the assessee’s favor and that the Revenue’s failed to challenge those orders earlier. The court dismissed the appeal, ruling that the marketing and reservation fees received by the US hotel chain from Indian hotels could not be taxed as royalty or fees for included services under the India-US DTAA.

To Read the full text of the Order CLICK HERE

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