In a major relief to Hyatt International Southwest Asia, the Delhi High Court ruled that the use of trademark incidental to advertisement is business income and not Royalty and fees for technical services (FTS).
The assessee has filed the present appeals under Section 260A of the Income Tax Act, 1961 (impugning the orders passed by the Income Tax Appellate Tribunal in the respective appeals preferred by the Assessee against the orders passed by the Assessing Officer under Section 143(3) of the Income Tax Act read with Section 144C of the Income Tax Act in respect of the Assessment Years 2009-2010 to 2017-2018.
The senior counsel who appeared for the Assessee submitted that the conclusions of the AO and the Tribunal were premised on the reading of the Strategic Oversight Services Agreements (SOSA) and therefore, the questions whether the payments received by the Assessee were taxable as royalty and whether the Assessee had a PE in India, were required to be determined on a careful reading of the SOSA and the terms of the DTAA.
He submitted that in terms of the SOSA, the Assessee had permitted the Owner to use its knowledge and information for the purpose of operation of the Hotel. Therefore, the permitted use of knowledge and information were strictly incidental and ancillary to rendering services by the Assessee. He submitted that it is settled position that payments for service, where the use of intellectual property is only incidental, cannot be considered as royalty.
A Division Bench comprising Justices Vibhu Bakhru and Amit Mahajan observed that “It is relevant to note that the Assessee had contended before the authorities that the amount received under SOSA was Fees for Technical Services (FTS). We are unable to accept the same. This is also inconsistent with the submissions advanced before this Court. The fee received is not fees for technical services but in consideration for wide range of services as discussed above. Since, the Assessee is in the business of providing such services for management of Hotels, the income is required to be classified as income from business.”
“In view of the above, the consideration received by the Assessee in terms of SOSA cannot be termed as Royalty under Article 12 of the DTAA. It is clearly in the nature of business income” the Bench concluded.
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