CIT (International Taxation) Vs Six Continents Hotels Inc (Delhi High Court)
Delhi High Court has dismissed an appeal filed by the Income Tax Department (Revenue) challenging a tribunal order that had ruled against taxing certain fees received by Six Continents Hotels Inc. from Indian hotels. The High Court held that the issue was already settled by several of its own previous judgments concerning similar payments to international hotel chains, concluding that no substantial question of law warranted further consideration.
The appeal stemmed from an order passed by the Income Tax Appellate Tribunal (ITAT) Delhi on April 10, 2024, which had decided in favour of Six Continents Hotels Inc. for the Assessment Year 2016-17. The dispute centered on the taxability of sums received by the assessee during the financial year 2015-16 from various Indian hotels. These receipts, totaling over ₹28.63 crore, included payments for marketing contributions, Priority Club memberships, reservation services, and Holidex fees, relating to centralized services provided to the Indian entities.
The tax authorities, including the Assessing Officer (AO) and later the Commissioner of Income Tax (Appeals) [CIT(A)], had taken the view that these payments were taxable in India. The AO primarily considered them taxable as ‘Royalty’ under both the Income Tax Act, 1961, and the India-USA Double Taxation Avoidance Treaty (DTAA). In the alternative, the AO treated them as ‘Fees for Included Services’ (FIS) under Section 9(1)(vii) of the Act and Article 12(4) of the DTAA. The CIT(A) largely concurred, specifically holding the receipts as taxable FIS, considering them ancillary to the grant of the brand license, and also taxable as Fees for Technical Services (FTS) under the Act.
However, the assessee, Six Continents Hotels Inc., appealed the CIT(A)’s decision to the ITAT. The ITAT ruled in favour of the assessee, following its consistent position taken in the assessee’s own cases for numerous preceding assessment years. The ITAT had previously held that such receipts were not taxable in India by virtue of the provisions of the India-USA DTAA. It was noted before the High Court that the ITAT had consistently held this view for the past fifteen assessment years concerning Six Continents Hotels Inc.
Before the Delhi High Court, the assessee argued that the issue raised by the Revenue in the present appeal was no longer open for debate, being squarely covered by a series of binding judgments delivered by the Delhi High Court itself in cases involving similar payments made to international hotel management companies. The assessee also pointed out that the tax department had, in many earlier assessment years concerning Six Continents Hotels Inc., accepted the favourable ITAT decisions by not filing appeals against them. A tabular statement was presented indicating that ITAT decisions for several assessment years, including AYs 1997-98, 2002-03 to 2005-06, and 2012-13 to 2015-16, were not appealed by the Revenue.
The Delhi High Court, after considering the arguments, agreed with the assessee that the principal question regarding the taxability of payments for centralized marketing and reservation services as FTS under the Act or FIS under the DTAA was indeed settled by its prior rulings.
The High Court explicitly listed several of its own judgments that covered this very issue:
