The Delhi Bench of Income Tax Act has held that the receipts from centralised service income by Radisson Hotels international would not be taxable as fees for technical services (FTS) or fees for included services (FIS) under Article Double Taxation Avoidance Agreement (DTAA).
The assessee, Radisson Hotels International Incorporated was a non-resident corporate entity incorporated in the United States of America (USA) and tax residents of the USA. As stated by the Assessing Officer, the assessee was in the business of operating, managing and franchising hotels and resorts in countries across the globe.
In pursuance to such activities, the assessee had entered into licence agreements with Indian hotel owners to operate the hotels under the brand name ‘Radisson’ and ‘Country Inns and Suites’, as the case may be. Being tax residents of the USA, the assessee had claimed benefit under India-USA DTAA.
The assessees had earned Fee for providing centralised services to maintain uniform hospitality standards and had claimed exemption from taxation in India stating that such fee was not in the nature of FIS.
The Assessing Officer, however, did not accept the assessees’ claim. He held that since, the fee received for providing services was ancillary and incidental to the use of brand name/trademark, it would be taxable under Article 12(4)(a) of the India-USA DTAA.
Pradeep Dinodia, on behalf of the assessee submitted that this issue was squarely covered in favour of the assessee’s own cases, by various Tribunal and High Court in assessees’ own case.
Bhuvnesh Kulshrestha, appeared on behalf of the revenue.
The two-member Bench of G.S. Pannu, (President) and Saktijit Dey, (Judicial Member) held that the receipts from centralised service income are not taxable as FTS/FIS under Article 12(4)(a) of India-USA DTAA.
The Bench further observed that, “Rather than centralised service income being ancillary and incidental to royalty income, in reality, it is a reverse situation. In such a scenario, it cannot be said that centralised service income, being ancillary and incidental to royalty income, would fall under Article 12(4)(a) of the Tax Treaty.”
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