The Mumbai bench of Income Tax Appellate Tribunal comprising Shri M Balaganesh, accountant member & Shri Kuldip Singh, judicial member has held that mere providing access to CRS would not constitute Royalty and TDS not sustainable.
Shri Paras Salva & Shri Pratik Poddar appeared for the assesee and Shri Rajneesh Yadav appeared for the revenue.
The assessee company incorporated in the Netherlands and was tax resident of Netherlands. The assessee was part of the Marriott Group which engaged in conducting training programs and providing access to various ‘Computer Systems such as Centralised Reservation Systems (CRS) to Marriott Chain of Hotels located worldwide. The cost and expense incurred by the assessee for rendering the aforesaid services are allocated amongst hotels, on a fair and reasonable basis and no separate fee was ever charged for such services.
The assessee filed its return of income declaring total income of Rs 21,70,771/- where the AO treated the payment received for providing training services as Fees for Technical Services (FTS) u/s 9(1)(vii) of the Act as well as under the Double Taxation Avoidance Agreement (DTAA) between Indian and Netherlands as per Article 12(5) .Further treated the payment received for providing CRS facility as royalty as well as FTS and AO held that the reimbursements will partake the character of the amounts received from rendering services under the Training and Computer Systems Agreement (TCSA) which will be taxable.The CIT(A) had deleted the additions made by the AO.
The CIT(A) held that the taxability of reimbursement of expenses should be the same as the primary receipts i.e training receipts and computer system receipts and hence an offshoot of those receipts only. Further held that since the primary receipts are not taxable in India, the off shoot receipts thereon are also not taxable in India.
It was observed that as providing of access to CRS, Property Management Services and Other services can’t be held to be technical services or “ancillary and subsidiary” services under Article 12(5)(a) and the consideration received by the assessee for rendering the said services/facility could not be held as FTS.
It was clear from the agreement that the hotel owners were required to purchase and install at its own cost, the necessary Hardware and Software for accessing the CRS and the assessee had merely provided a service by giving a right to access the CRS to the Indian Hotel owners where the servers were not leased to the Indian Hotel owners.
The Tribunal found that the assessee had been rendering only training services and Computer reservation systems services and the claim of the assessee that the reimbursement of expenses would pertain only to the training and CRS activities, deserves to be accepted.
The Coram held that the receipts of the assessee from training services and computer reservation services including reimbursements shall not be chargeable to tax both under the Act as well as under the Treaty. The appeal filed by the assessee was allowed and appeal by the revenue got dismissed.
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