Payment received under Master Franchise Agreement cannot treat as Royalty: ITAT deletes Addition [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) has deleted the Addition and held that payment received under Master Franchise Agreement could not be treated as Royalty.

The instant case, the assessee is a resident corporate entity incorporated under the laws of the USA and is a resident of that country. The assessee is owner of a hotel system which provides hotel services through its business system under various names. Assessee filed Income Tax return on 30.11.2018.

 During the assessment proceedings Assessing officer found various receipts apart from royalty income offered by the assessee.Upon the enquiry, assessee submitted that the amount received towards a package of services provided under the Master Franchise Agreement, is neither in the nature of royalty or FTS.But SO did not accept the submission of the assessee and considered as Royalty. Against the order assessee filed an appeal before the ITAT.

The main issue discussed in the above case was payment received by the assessee under Master Franchise Agreement as Royalty/Fee for Technical Services (FTS), both under the Domestic Law as well as India-USA Double Taxation Avoidance Agreement - (DTAA).

A coram of G.S. Pannu, President and Saktijit Dey, Judicial Member observed that it cannot be said that the payment received towards centralized service fee is ancillary and subsidiary to the license fee. Hence amount received by the assessee under the Master Franchise Agreement, cannot be treated either as a royalty.

 Pallavi Dinodia, CA appeared on behalf of the assessee and and Shri Gangadhar Panda appeared on behalf of the Revenue.

To Read the full text of the Order CLICK HERE

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