Receipt from centralized service is not in nature of FTS hence not taxable in India

DCIT Vs Westin Hotel Management L.P (ITAT Delhi)

ITAT Delhi held that revenue received by the assessee for providing centralized services is not in the nature of Fee for Technical Services (FTS) u/s. 9(I)(vi) Explanation of Income Tax Act, but it is a business income and since assessee is not having PE in India, the same is not taxable.

Facts- The assessee is a non-resident Limited Liability Partnership (‘LLP’) incorporated in the United States of America (‘USA’) and is a resident of that country. Basically, the assessee is engaged in the business of providing various services to hotels in different countries across the world, including India. The assessee claimed that the receipts from Indian Hotel owners towards centralized services, are in the nature of business profit and in absence of Permanent Establishment (‘PE’) in India are not taxable in terms of India – USA Double Taxation Avoidance Agreement (DTAA). AO, however, did not accept assessee’s claim.

The first appellate authority has reversed the decision of the Assessing Office and held that the receipts from provisions of centralized services are not taxable in India as FTS/FIS. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Hon’ble Delhi High Court in the case of Director of Income-tax vs. Sheraton International Inc. has held that revenue received by the assessee for providing centralized services is not in the nature of Fee for Technical Services (FTS) u/s. 9(I)(vi) Explanation of Income Tax Act, but it is a business income. Since the assessee is not having any PE in India, its business income earned is not taxable in India.

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