Case Law Details

Case Name : Marriott International Inc C/o. Marriott Hotels India Private Limited Vs DCIT (ITAT Mumbai)
Appeal Number : ITA No. 3232/Mum/2018
Date of Judgement/Order : 06/05/2022
Related Assessment Year : 2006-07

Marriott International Inc Vs DCIT (ITAT Mumbai)

The only issue involved in this appeal is that income of royalty arising out of the above trademark of ‘brand’ Marriott’ is taxable in the hands of the assessee or not. Now, assessee has given a registration certificate dated 21st august, 2006 and covers above assessment years. No doubt, as held by the Hon’ble Delhi High Court in the case of CUB Pty Limited vs. [2016] 71 taxmann.com 315 (Delhi) that since the brand owner not located in India, the situs of the brand would also be outside India and naturally, the income arising there from would be chargeable to tax in the hands of the owner of the brand. In fact, Marriott International Inc. (assessee) in these appeals is not the owners of the brand as per certificate of ownership produce before us. Therefore, it is chargeable to tax in the hands of the person who owns the brand. Nevertheless, it is not the contention of the assessee that no tax should have been deducted under section 195 of the Act on the payments made by, Juhu Beach Resorts Limited, V.M. Salgaonkar and Brothers Pvt. Ltd. and Chalet Hotels Limited and we are also conscious of the fact that sum is received by the assessee and provision of section 163 of the act also needs to be examined. However, there is a substantive provision for that.

In view of these facts, we set aside all these four appeals back to the file of the learned Assessing Officer with a direction to consider the certificate of registration on trademark dated 21 August 2006, which was applied for on 24 November 2003. The learned Assessing Officer may re-consider that in whose hands the above income is chargeable to tax as royalty income. The learned Assessing Officer may also consider that who received the above sum on behalf of the non- resident tax payers and whether the provision of section 163 of the Act can be invoked or not considering assessee as an ‘agent’ of  Nonresident. The learned Assessing Officer may also consider that if the tax is required to be deducted under section 195 of the Act, then whether the tax has been deducted by the payer or not and whether they can be held to be agent of the non-resident. However, the learned Assessing Officer before proceeding against any other assessee or this assessee may issue requisite notice. In view of the above facts, we set aside all the grounds of appeal back to the file of the learned Assessing Officer for deciding the taxability of royalty.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

These are four appeals filed by Marriott International Corporation [ Assessee/ Appellant] for Assessment Years 2006-07 to 2009-10 involving common issue, parties raised similar arguments , Therefore, we state facts for AY 2006-07, and based on our finding for that year, we dispose of all these appeals by this common order .

02. Appeal for Assessment Year 2006-07 is filed against the order of the Commissioner of Income tax (Appeals)-57, Mumbai; [the learned CIT (A)] dated 22nd February 2018.

03. Assessee has raised the following grounds of appeal:-

“Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Commissioner of Income Tax (Appeals)-57, Mumbai [the CIT(A)], has in her order under section 250 of the income-tax Act, 1961, 1961 (‘the Act’) erred in disposing the appeal of the Appellant on the following grounds, which are without prejudice to one another:

In not deciding the fundamental issue before herself as directed by the Income-tax Appellate Tribunal, Mumbai (ITAT) vide order dated January 14, 2015; namely, whether the amounts received under the International sales and marketing agreement (ISMA) should be taxed in the hands of any other group company and thus the order passed by the Deputy Commissioner of Income-tax (International taxation)-3(2) (1), Mumbai (Assessing Officer)/ CIT (A) is bad in law;

In holding that the Assessing Officer was right in taxing the ISMA receipts in the hands of the appellant (in its own capacity), despite the fact that ITAT vide order dated January 14, 2015 held that the Appellant (in its own capacity) cannot be held liable to tax with respect to amounts received under ISMA.

In not appreciating the following

The Assessing Officer had only requested the Appellant to submit the name of the trademark owner and had not called for any documentary evidence to substantiate the same.

The appellant had submitted the requisite trademark registration certificate before the Assessing Officer during the assessment proceedings for Assessment Year 2013-14 vide letter dated March 10, 2015 is before the final assessment order dated March 22, 2016 for Assessment Year 2006-07 was passed by the Assessing Officer.

The trademark registration certificate was submitted by the Appellate vide submission dated October 26, 2017 before her office.

In holding that Marriott Worldwide Corporation (MWC) has given license to the appellant to use the ‘Marriott’ brand and the Appellant in turn has sub-licensed the Marriott brand to the Indian hotels; despite the fact that these is no sub-licensing arrangement between MWC and the Appellant,

In not accepting that fact that (i) MWC is the original owner of the ‘Marriott’ brand to whom the Indian hotels are already paying royalty for granting the license to use the ‘Marriott’ brand, and (ii) there is no agreement between MWC and the original owner of the brand since MWC, itself, is the original owner of the ‘Marriott’ brand;

In holding that the arrangement is of sub­contracting or splitting of royalty income of the Marriott Group merely on the basis that the Appellant and MWC are affiliates;

In holding that the agreements signed by the Appellant and MWC with the Indian hotels, namely (i) for promoting the global brand, and (ii) for the use of the brand name against the payment of ‘royalty’ are interdependent on each other and cannot survive without each other and hence, such arrangement is only a tax planning device and is meant to mislead the Indian Revenue authorities;

In not appreciating that there was no question of splitting up of royalty receipts, since even if the owner of the ‘Marriott’ brand i.e. MWC had itself undertaken the activities under the ISMA., it would have offered only the royalty income to tax and not the amounts received for activities undertaken under the ISMA; and

In holding that the Appellant has concealed particulars of income and furnished inaccurate particulars of income, thereby initiating penalty proceedings under section 271(1)(c) of the Act.”

04. Briefly stated fact is that assessee is a company resident of Unites States of America. It filed its return of income for the year on 30 November 2006 declaring income of ₹2,61,86,356/-, which was subsequently revised on 7 February 2007 at ₹ nil.

05. It was found that assessee has received ₹7,57,10,293/-from Juhu Beach Resorts Limited, and ₹70,20,317/- from Chalet Hotels Limited on account of reimbursement of expenses of ₹8,27,30,610/-. It further received ₹8,50,72,792/- from Juhu Beach Resorts Ltd. and ₹1,75,14,664/- from V.M. Salgaonkar and Brothers Pvt. Ltd. Of ₹10,25,87,456/- on account of International Service Marketing Agreement (ISMA). In the original return assessee offered this sum as chargeable to tax in India as Royalty. However, in revised return it was not offered. Assessee contested that above amounts are in the nature of reimbursement of expenses and not taxable. The learned Assessing Officer held that ₹18,53,18,070/- is chargeable to tax.

06. Ld AO held that receipt of ₹10,25,87,456/- received under ISMA are chargeable to tax as royalty, reimbursement of expenses is also taxable as fees for included services. Therefore, the total receipt of ₹18,53,18,070/- was assessed as income.

07. Assessee filed appeal before the learned CIT (A), who confirmed the order of the learned Assessing Officer.

08. Assessee approached the ITAT who passed an order restoring matter back to the file of the learned Assessing Officer. The direction were given in Paragraph 72 of the order as under:-

“72. Hence, we are of the view that the assessee company, being only an extended arm of “Marriott group company” owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colorable device. Accordingly, we are of the view that the separate legal identity of the assessee company gets blurred and corporate veil should be lifted. Hence, the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. We have already noticed that       all the advertisement/marketing program are carried out in the name of “Marriot” and/or “Renaissance”. Hence all of them go to swell the existing Brand names referred above. Hence they become taxable as royalty in terms of Article 12 of the Indo US DTAA. However as argued by ld. AR, the assessee in whose hands these amounts are to be assed is the question that needs to be answered. In our view this question requires examination at the end of the AO. Accordingly, we restore this matter to the file of AO with the direction to consider the question of taxation of receipts as royalty in the hands of the assessee as representative assessee or in the hands of any other group company. The assessee should be given adequate opportunity in this regard.”

09. Pursuant to that direction, the learned Assessing Officer passed an order on 22nd March , 2016 decided this issue vide Para No.1 onwards as under:-

“11. The assessee vide their letter dated 18th February 2016 submitted on 19th February 2016, while stating that the Receipts under the ISMA do not qualify as ‘royalty’ has also furnished their submissions as to why the assessee company being a non resident cannot be regarded as a representative assessee of MWC. The assessee has further in its submissions in para 1.2 submitted as under:

“Marriott brands inter-alia include Marriott Hotels and Resorts, JW Marriott and Marriott Suites Hotels (MHR Brands). The assessee either directly or through its affiliates enters into contracts with the owners of the hotels worldwide who have been licensed MHR brands (MHR Hotels). The assessee maintains and administers a centralised marketing fund (Marketing Fund) for the purpose of undertaking advertising, marketing, promotion and sales activities (ISM activities) on behalf of hotel owners who have been licensed MHR brands. To this end the Assessee enters into an International Sales and Marketing Agreement (ISMA) with such hotel owners.”

“Para 1.6: Separately it must be noted that the Indian hotels have executed a License and Royalty agreement with Marriott Worldwide corporation (MWC) an affiliate of the Assessee, for granting a license to use the MHR Brands. Under the said agreement, the Indian hotels have obtained a license to use the brand name “Marriott” from MWC”. The royalty income received by MWC from the Indian hotels has been offered to tax in India and appropriate taxes have been deposited with the Income tax department”

12. The assessee was again vide this office letter dated 19th February 2016 asked to furnish explanation with reference to the ITAT order. The letter read as follows.

“On a perusal of the order the ITAT order it is seen that in para 52 of the order the Hon’ble ITAT has stated as follows The brands ‘Marriott’ and ‘Renaissance is owned by a Company (hereinafter ‘Owner of brand’). The name of the said company is not available on record. The said company has given license to M/s Marriott Worldwide Corporation (MWC) or M/s Renaissance International Inc to permit the use of brands citied above to other hotels on receipt of Royalty. The terms of agreement between the original owner of the brand and M/s MWC are also not available on record.”

In the light of the above, you are requested to furnish the details of the name of the company who owns the brand and the also the copy of agreement between the original owner of the brand and M/s MWC.”

13. The assessee vide its letter dated 24th February 2016 has stated as under: –

“In this regard, on behalf of and under the instructions from our client, we wish to submit that ITAT while passing the order has erroneously held that “Marriott” brand was owned by a third group entity of the Assessee whose name was not known and that the third group entity had licensed the same to Marriott Worldwide Corporation; which in turn had allowed the Indian hotels to use the “Marriott” brand. However, we wish to submit that the correct position is that the trademark registration for the “Marriott” brand is owned by Marriott Worldwide Corporation. Further, Marriott Worldwide Corporation has entered into license and royalty agreements with the Indian hotels for the use of “Marriott” brand trademarks, and has offered royalty income to tax in India. A Copy of the license and royalty agreement entered into between Marriott Worldwide Corporation and Juhu Beach Resorts Limited is enclosed as Annexure 2.

In addition to the above, we wish to submit that the Assessee has already filed an appeal before the High Court for AY 2006-07 to AY 2009-10; wherein the Assessee has raised a group against the above-mentioned erroneous observation made by the ITAT (i.e. in paragraph 52 of the ITAT order).”

14. The assessee’s submissions have been considered but not acceptable for the following reasons.

a) The Hon’ble ITAT in its order while confirming the income received by the assessee under the ISMA and ISF agreements and also the reimbursement of expenses as Royalty has discussed as under:

i) The brands Marriott’ and ‘Renaissance is owned by a company (hereinafter “Owner of brand”). The name of the said company is not available on record. The Said Company has given license to M/s Marriott Worldwide Corporation (MWC) or M/s Renaissance International Inc. to permit the use of brands citied above to other hotels on receipt of Royalty. The terms of Agreement between the original owner of the brand and M/s MWC are also not available on record. However, as per the authority obtained under the agreement entered with the original owner of the brand, M/s MWC has granted the hotels, permission to use the brands and it is stated that the Royalty received by M/s MWC has been duly offered to Income tax.

ii) The assessee company has undertaken the job of undertaking International advertisement and marketing programs for “Marriott” and “Renaissance” brands on behalf of the hotels worldwide. The contention of the assessee is that it has undertaken the international marketing programs on behalf of all the hotels in general. We have already noticed that the assessee has collected charges under three different categories:

(a) International Sales and Marketing Services. It is collected as a percentage of Gross revenue of the Hotels.

(b) Special services allocated on a fair and reasonable basis.

(c) Fee for services as percentage of gross revenue.

iii) Thus, if can be seen that first company is the owner of brands, the second company is authorized by the first company to give license to the Hotels and collect Royalty and the third company (the assessee company) is entrusted with the job of undertaking international marketing works of both the brands. Though M/s MWC and the assessee have entered into independent agreements with the hotels separately, apparently, there is reference to the other agreement in each of the agreements. All the agreements have been referred to collectively as “Marriott agreements”. Clause 8.10 of the agreement entered with Palm Hotels (India) Ltd reads as under:

“8.10 Entire Agreement:

The following constitute the entire agreement between the parties and/or their respective affiliates, supersede all prior understandings and writings, and may be changed only by a writing signed by the parties and/or their respective Affiliates: (i) the Marriott Agreements; (ii) the Technical Services Agreements; (iii) any instruments to be executed and delivered pursuant to any of the foregoing agreements; and (iv) any other writing executed by the parties or their respective Affiliates, which writings are stated to be supplemental to or to amend any of the foregoing agreements.”

This clause apparently refers to all the agreements entered by all the affiliates of Marriot group with the Hotels. Further as submitted by Ld. D.R, the survival of the ISMA agreement entered by the assessee herein would also be dependent upon the survival of other agreements titled as ‘Operating agreement and Advisory services Agreement”. This is evident from Clause 3.01(B) of the agreement. From the ‘Recital’ part of the agreement, it is seen that the Operating Agreement has been entered by M/s Marriott Hotels Private Limited. The Hotels are required to obtain approval from Government of India for entering into is placed at pages 96 to 100 of the paper book. A perusal of the same would show that the Name and address of the foreign Collaborator is given as under:

1. M/s Marriott International Design and Con. Services Inc., 10400 Fernwood Road, Bethesda, Maryland 20817.

2. Marriott Hotel Services Inc.

3. Renaissance Services B.V

4. Marriott International Inc.

5. Marriott Worldwide Corporation.

6. Renaissance International Inc.

7. Marriott International Hotels Inc.

Thus, it is seen that all the above said companies appear to have same address. The details of payments proposed to be made is given in Clause 4 of the approval, as per which

(a) Lump sum Technical Services Fee was proposed to be paid to M/s Marriott International Design & Construction Services Inc.

(b) Lump Sum Pre-opening technical assistance’ amount was proposed to be paid to M/s Marriott Hotel Services Inc.

(c) Lump Sum Pre-opening technical assistance’ amount was proposed to be paid to M/s Renaissance Services B. V.

(d) International Sales and Marketing fee (upto 2.5%) & Reimbursement of cost (as per prescribed rates) was proposed to be paid to M/s Marriott International Inc. (the assessee herein as per Article (2.05 and (2.01 to 2.04)) respectively.

(e) Royalty was proposed to be paid to M/s Marriott Worldwide Corporation 0.5% of gross revenue and also to M/s Renaissance International Inc. @ 0.5% of gross revenue.

The expenses described as “Franchise Marketing/Publicity Support Fee” are proposed to be paid approximately at 2.5% of the gross revenue in addition to the contribution towards Frequent traveler programme (up to 5% of the amount paid by the guest), frequent flyer programme (US $ 8.00), Central Reservation system (US $ 9.40) and Special services for potential liabilities (0.15% of gross revenue).

(iv) The compensation proposed to be paid by the hotel would show that the royalty was paid @ 0.5% of the gross revenue, whereas the expenses proposed to be paid was 2.65% of the gross revenue plus contribution towards special programs (approx. 3%). The expenses shall also include insurance like contribution towards potential liabilities at 0.15% of the gross revenue. The above said discussion would show that M/s Marriott group has undertaken clear tax planning and accordingly entrusted each facet of the job to different companies and each of the said companies have entered separate agreement with the hotels However, all the agreements have been interlinked with each other so that all the operations have ultimate control with Marriott group only.

(v) Normally value of a Brand is created by popularizing the same among public. The value of a Brand would depend upon the acceptance level of the public. More the public admire a brand, more would be its value. Once the public at large start reposing confidence on the “Brand”, the same becomes a marketable product in the business circles. Once it becomes a marketable product, the owner of the brand would be entitled to give licenses to others on payment of “Royalty” in return.

(vi) It is a well known fact that the human memory is having short span of life and hence there is every possibility that the public would forget the “Brand name”, if they are not continuously reminded about the brand. Hence it becomes necessary for the Brand owner to ensure that the public at large do not forget the brand. Hence, in order to maintain the “Brand Value”, the brand owner has to take all kind of steps to ensure that the value of the brand remain intact. Hence the responsibility to maintain and/or enhance the “Brand value” always remains with the brand owner. Normally the “Brand value” is maintained by continuous and sustained advertisement/marketing activity, as can be noticed from the repeated advertisements made in the various types of media.

(vii) In the instant case, it appears that the brands “Marriott” and “Renaissance” are owned by one company, whose name and the activities are not available on record. However, the case of the revenue is that the International Sales and Marketing Agreement (ISMA) entered by the assessee shows that the responsibility to promote the “Brand Value” has been entrusted with the assessee herein, since the marketing activities have been carried out in the name of “Marriott” and/or “Renaissance” only. Since the assessee has collected the charges from the Hotels for carrying out the marketing activities, the revenue has contended that the charges so collected should also be construed as part of “Royalty” only. The Ld. CIT (A) has held that two types of payments are in the nature of Royalty and another type of payment is in the nature of “Fee for included services”. The following observations made by Ld. CIT (A) are relevant to understand the contentions of the revenue:-

(a) The amount paid by the Indian owner companies (Hotels) does not point out to any specific item of expenditure incurred on behalf of the hotel owner companies.

(b) Merely because the assessee company and other company of the same group have signed two different agreements with the hotel companies, one for promoting global brand of the assessee company and the other one for payment of “royalty” does not change the true nature of the transaction. It is case of splitting of royalty amount by signing two different agreements with two different companies of the “Marriott” group.

(c) The Three agreements signed by the assessee company with three Indian Companies is a colorable device to reduce the gross “royalty amount” earned by the Marriott group of companies in India, which was taxable in India.

(d) A company charging “royalty” from various other companies for use of a brand name has to incur expenditure out of the ‘royalty’ amount earned by it in order to promote and build international brand name worldwide. But the said expenditure is not deductible against the royalty amount under the Act. (Hence the assessee has resorted to these types of segregating the royalty amount).

(e) The assessee company has not incurred expenses for promoting a particular hotel. In that case, how the Indian hotel companies can reimburse expenses to the assessee company when the expenses are not directly related to these hotels.

vii) We may explain the view point of the revenue with an example. Suppose a company would like to collect royalty of say Rs. 100/-. As stated earlier, it is the responsibility of the brand owner to incur expenditure to maintain and promote the Brand Value. Hence, let us assume that the brand owner spends a sum of Rs.70/-towards expenses. Under the tax laws, the recipient of royalty is required to pay tax @ 15% on gross amount of royalty. Hence the company would be paying a sum of Rs.15/ as tax. Thus, the net profit that would remain with the company would be Rs. 15/-(Rs. 100/-(-) (Rs.70/–+Rs. 15/-). According to the revenue, the above said methodology would be the fair method of declaring income and the revenue would have collected tax amount of Rs. 15/-under this methodology.

ix) The contention of the revenue is that the Marriott group has not adopted the above said method. The royalty was collected by one of the companies of the Marriott group and the responsibility for undertaking International marketing program has been placed upon another company, i.e., the assessee herein. The “Brand users”, i.e., the hotels, have been made to pay the cost of international Marketing program to the assessee company. In the above said example, the company which has granted license to use the brand shall be receiving royalty amount of Rs.30/- and the expenses of Rs.70/- would be collected by the company which took the responsibility of undertaking International marketing program. In this process, the brand owner shall be paying tax @ 15% on Rs.30/-, i.e., Rs.4.50. According to revenue, it is deprived of tax to the extent of Rs.10.50, when the brand owner adopts the second methodology, i.e., the case of the revenue is that the above said methodology is nothing but a clear tax planning by colorable device be bifurcating the royalty receipts. Hence, the revenue is contending that the amount received by the assessee company as reimbursement of expenses from the Indian Hotels should be considered as “Royalty” only, since the said amount has been spent on popularizing the “Brand name”, which would otherwise be the responsibility of the brand owner. Since the amount collected towards International Marketing activities have been collected on three heads, one portion was treated as “royalty” and other portion was treated Fee for included services” by the Ld. CIT (A).

X) The foregoing discussions would show that the real question in the instant case is-Whether the Marriott has bifurcated the “royalty” amount into more than one component or not. The discussions made in the previous paragraphs, viz.,

(a) All the group companies of “Marriott group” have entered into separate agreements with the Indian Hotels.

(b) All the group companies have same address.

(c) All the agreements are interlinked and referred to as “entirety of the agreement”

(d) The survival of cach of the agreement is dependent upon the survival of the other agreement.

(e) A single approval for entering into foreign collaboration with all group companies has been obtained Would show that the Indian Hotels have considered agreements entered with M/s Marriott group as agreements pertaining to single transaction, but agreed to pay the amount to different companies. Thus, it is seen that the Marriott group has planned to dissect the single transaction into more than one component and further, Marriott group has seen that each of the component was received by a different company.

xi) We have already noticed that the responsibility to maintain the “Brand Value” always lies with the brand owner. If the brand value goes down in the market, nothing would prevent the Indian Hotels to terminate the agreement with a particular brand owner and switch to another brand. In this kind of factual situation, we are of the view that the Brand owner normally ensures that the “brand value” does not go down in the market. As stated earlier, repeated advertisements in all types of media are given for promotion of the brands only and the same vindicate this fact. In this kind of situation, it is inconceivable that the brand owner shall entrust the responsibility to maintain /promoting to a third party without associating or supervising the other party’s activities. Even if the other person undertakes the responsibility, he would do it only for profit only and further the brand owner shall be required to incur the same.

xii) In the instant case, the assessee has undertaken the job of marketing the “Marriott / Renaissance” brands. There is no doubt that the assessee company belongs to Marriott group. Further the claim of the assessee that it was undertaking the marketing work on cost to cost basis without any mark up defies the business logic or prudence. A commercial company shall never work without profit. The very fact that it was functioning on cost to cost basis or without profit motives itself proves that the assessee company is only an extended arm of “Marriott Group Company” owning the brand name.

xiii) Hence, we are of the view that the assessee company, being only an extended arm of ‘Marriott Group Company’ owning the Brand name, can be considered as a facade of that company. We have already noticed that one of the group companies of Marriott has received royalty payment @ 0.5% of gross revenue and the assessee company has received about 3% gross revenue towards marketing program. In our view, it is clear tax planning by adopting colorable device. Accordingly, we are of the view that the separate legal identity of the assessee company gets blurred and corporate veil should be lifted. Hence, the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. We have already noticed that all the advertisement/Marketing program are carried out in the name of “Marriott” and/or “Renaissance”. Hence all of them go to swell the existing Brand names referred above. Hence they become taxable as royalty in terms of Article 12 of the Indo US DTAA.

15. In pursuance of the directions of the Hon’ble ITAT the assessee on being given an opportunity to furnish the details of the name of the company who owns the brand and a copy of agreement between original owner of brand and MWC. has submitted vide order dated 24.02.2016 that the trademark registration for the “Marriott” brand is owned by MWC.

(a) Therefore, if the brand owner is MWC, as stated by the assessee, and MWC has in turn given the license to use the brand to the Assessee Company and the assessee has further sub licensed the same to the Indian hotels. This in short is an arrangement of subcontracting or splitting of the Royalty income of the Marriott group as they are all affiliate group companies.

(b) It may be pertinent to note here that the earning of income by the Assessee company for promoting the Brand Marriott’ and ‘Renaissance’ is possible only because the license to use the brand has been given by MWC to the Indian Hotels directly even though they are not an Affiliate of the Marriott group. It is the responsibility of the person who has the license to use the brand to maintain and incur expenses to maintain and promote the brand. The assessee company and the brand owner (MWC) as stated by the assessee have signed two different agreements with the hotel companies respectively, one for promoting global brand of the assessee company and the other one for use of the brand name against payment of ‘royalty’ and have made both the agreements interdependent on each other, such that one cannot survive without the other. Such arrangement is only a tax planning device and is meant to mislead the authorities.

(c) The assessee company being a Non resident cannot be treated as an agent of the Nonresident entity as the relevant transaction for taxation purpose is not a transfer of a capital asset in India. Further the assessee has not given the name of the group company in whose hands the royalty income should be taxed. The assessee has also objected to the taxing of the income as Royalty.

(d) In view of the above, the income received by the assessee company from the Indian hotels is taxed in the hands of the assessee company as royalty in terms of article 12 of India US DTAA as it is only a facade of the company which owns the brand i.e. MWC. The brand owner MWC has only subcontracted a part of the Royalty to the assessee group company for tax planning sake. Penalty proceedings u/s 271(1) (c) are initiated for furnishing inaccurate particulars of income.

However without prejudice to the above, the assessee even after giving repeated opportunities has maintained its stand that Marriott Worldwide Corporation is the owner of the brand, when in reality it only owns the right to use the Marriott trademarks: The ITAT has also held in its order referred above that the amount received by the present assessee company should be examined from the point of view of the original owner of the brand. The assessee has stated in its letter dated 23/02/2016 that the trademark registration for the ‘Marriott’ brand is owned by Marriott Worldwide Corporation. However the assessee has not produced any documentary evidence in support of the same. In view of the above the assessee has furnished inaccurate particulars with respect to the details of the brand ownership before the Assessing Officer and also before the Hon’ble Tribunal and further failed to produce the copy of agreement between such brand owner and MWC before the ITAT and also before the Assessing Officer. Even when the matter was set aside and repeated opportunities were granted to the assessee the assessee has again reiterated its stand that it is the owner of the brand ‘Marriott’ without any documentary evidence. The assessee further submits that it has filed an appeal before the Hon’ble HC against the observation made by the ITAT in Para 52 of the ITAT order. In view of the above discussion, and in the facts and circumstances of the case it can be inferred that the assessee has deliberately furnished inaccurate particulars of the facts before the AO and the ITAT even after repeated opportunities and tried to conceal the particulars of its income. Penalty proceedings are being initiated for the same. Penalty us 271(1) (c) is being initiated for furnishing inaccurate particulars of income,

16. Subject to the above discussions, the total income of the assessee is computed as under:

Receipts in the nature of Royalty Rs. 102587456/
Reimbursement of expenses Rs. 82730610/
Total taxable income Rs. 185318066/
Rounded off Rs. 185318070/.”

10. Assessee aggrieved, preferred appeal before the learned CIT (A). The learned CIT(A) noted that the learned Assessing Officer has followed the direction of ITAT and asked assessee to furnish the details of the name of the company who owns the brand and a copy of the agreement between the original owner of the brand and Marriott Worldwide Corporation. The learned Assessing Officer merely submitted that trademark registration for the ‘Marriott’ brand is owned by Marriot worldwide corporation but has not produced any documentary evidences in support of the same. The assessee failed to produce copy of the agreement between the brand owner and Marriott worldwide corporation. The learned Assessing Officer also held that repeated opportunities were granted to the assessee but assessee failed to produce any evidence. Therefore, he held that the learned Assessing Officer was right in taxing the ISMA sum as royalty. It is contested before the learned CIT(A) that copy of the registration certificate of registration of ‘Marriott’ Trademark in the name of Marriott Worldwide Corporation is submitted by the assessee before the learned Assessing Officer as per submission dated 10th March, 2016 for Assessment Year 2013-14. According to that trademark registration certificate, it is registered in the name of Marriott Worldwide Corporation. The learned CIT (A) rejected this contention and dismissed the claim of the assessee as nothing was submitted for Assessment Year 2006-07 to 2009-10. Accordingly, the appeal filed by the assessee was dismissed. Therefore, now assessee is in appeal before us.

011. The learned Authorized Representative submitted that in whose hands the royalty is chargeable to tax is the issue. According to him, it is chargeable to tax in the hands of the owner of the brand. He submitted that according to the certificate placed at page no. 76 and 77 of the Paper Book; ‘Marriott’ brand is registered in the name of Marriott Worldwide Corporation, a US resident and not in the hands of the assessee. He further submitted that application for trademark registration was made on 24th November, 2003 and registration is granted from that date vide certificate dated 21st day of August 2006. He therefore submitted that such income is not at all taxable in the hands of the assessee. In any way, the registration certificate is now available and therefore may be considered for these years.

012. The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. It was submitted that assessee did not produce any certificate before lower authorities at the time of assessment despite repeated request by the LD lower authorities. It has come in second round of litigation. It is further stated that assessee has received consideration and therefore according to provision of section 163 of the Act assessee is an ‘agent’ of the Nonresident. Hence, assessee is liable to pay tax.

013. We have carefully considered the rival contention and perused the orders of the lower authorities. The only issue involved in this appeal is that income of royalty arising out of the above trademark of ‘ brand “ Marriott’ is taxable in the hands of the assessee or not. Now, assessee has given a registration certificate dated 21st august, 2006 and covers above assessment years. No doubt, as held by the Hon’ble Delhi High Court in the case of CUB Pty Limited vs. [2016] 71 taxmann.com 315 (Delhi) that since the brand owner not located in India, the situs of the brand would also be outside India and naturally, the income arising there from would be chargeable to tax in the hands of the owner of the brand. In fact, Marriott International Inc. (assessee) in these appeals is not the owners of the brand as per certificate of ownership produce before us. Therefore, it is chargeable to tax in the hands of the person who owns the brand. Nevertheless, it is not the contention of the assessee that no tax should have been deducted under section 195 of the Act on the payments made by, Juhu Beach Resorts Limited, V.M. Salgaonkar and Brothers Pvt. Ltd. and Chalet Hotels Limited and we are also conscious of the fact that sum is received by the assessee and provision of section 163 of the act also needs to be examined. However, there is a substantive provision for that.

014. In view of these facts, we set aside all these four appeals back to the file of the learned Assessing Officer with a direction to consider the certificate of registration on trademark dated 21 August 2006, which was applied for on 24 November 2003. The learned Assessing Officer may re-consider that in whose hands the above income is chargeable to tax as royalty income. The learned Assessing Officer may also consider that who received the above sum on behalf of the non- resident tax payers and whether the provision of section 163 of the Act can be invoked or not considering assessee as an ‘agent’ of  Nonresident. The learned Assessing Officer may also consider that if the tax is required to be deducted under section 195 of the Act, then whether the tax has been deducted by the payer or not and whether they can be held to be agent of the non-resident. However, the learned Assessing Officer before proceeding against any other assessee or this assessee may issue requisite notice. In view of the above facts, we set aside all the grounds of appeal back to the file of the learned Assessing Officer for deciding the taxability of royalty.

015. As the fact in all these appeals are similar, we also set aside appeals for AY 2007-08, 2008-09 and 2009-10 back to the file of ld AO with similar direction. Accordingly, all these four appeals are allowed for statistical purposes.

016. In the result, all these appeals filed by the assessee are allowed for statistical purposes.

Order pronounced in the open court on 06.05.2022.

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