Receipt in terms of Strategic Oversight Services Agreement cannot be termed as royalty

Hyatt International-Southwest Asia Ltd Vs ADIT (Delhi High Court)

Delhi High Court held that the consideration received in terms of Strategic Oversight Services Agreements (SOSA) cannot be termed as Royalty under Article 12 of the DTAA even if extensive services are rendered which includes access to written knowledge, processes, and commercial information in furtherance of the services.

Facts- The Assessee entered into two Strategic Oversight Services Agreements (the SOSA) with Asian Hotels Limited, India.

In terms of the SOSA, the Assessee agreed to provide strategic planning services and “Know-How” to ensure that the Hotel is developed and operated as an efficient and high-quality international full-service hotel.

According to the Assessee, its income was not taxable under the Act as there was no specific article under the DTAA for Taxing Fees for Technical Services. The Assessee further claimed that it had no fixed place of business, office, or branch in India. Further the presence of the Assessee’s employees in India during the relevant previous year did not exceed the specified time of nine months under Article 5(2) of the DTAA and therefore, the Assessee did not have the ‘Permanent Establishment’  in India as contemplated under Article 5 of the DTAA. The assessee claimed that its business income was not taxable under Article 7 of the DTAA as well.

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