Asst. CIT Vs Renaissance Services BV (ITAT Mumbai)
Held that the receipts of the assessee from training services and computer reservation services including reimbursements shall not be chargeable to tax both under the Act as well as under the Treaty.
Facts- The assessee is a company incorporated in the Netherlands and is tax resident of Netherlands. The assessee is part of the Marriott Group. It is engaged in conducting training programs and providing access to various ‘Computer Systems such as Centralised Reservation Systems (CRS) to Marriott Chain of Hotels located worldwide. The cost and expense incurred by the assessee for rendering the aforesaid services are allocated amongst hotels, on a fair and reasonable basis and no separate fee was ever charged for such services.
The assessee filed its ROI declaring total income of Rs 21,70,771/-. AO treated the payment received for providing training services as Fees for Technical Services (FTS) u/s 9(1)(vii) of the Act as well as under DTAA between Indian and Netherlands as per Article 12(5) .Further AO treated the payment received for providing CRS facility as royalty as well as FTS. With regard to reimbursement of expenses, AO held that the reimbursements will partake the character of the amounts received from rendering services under the Training and Computer Systems Agreement (TCSA) which will be taxable. The CIT(A) had deleted the additions made by the AO.
Conclusion- Held that as providing of access to CRS, Property Management Services and Other services could neither be held to be technical services nor the same could have been characterized as “ancillary and subsidiary” services under Article 12(5)(a) hence the consideration received by the assessee for rendering the said services/facility could not be held as FTS.
In our considered opinion, it is abundantly clear from the agreement entered into by the assessee that the hotel owners are required to purchase and install at its own cost, the necessary Hardware and Software for accessing the CRS. The assessee herein had merely provided a service by giving a right to access the CRS to the Indian Hotel owners. The servers are not leased to the Indian Hotel owners.
Held that the assessee had been rendering only training services and Computer reservation systems services and the claim of the assessee that the reimbursement of expenses would pertain only to the training and CRS activities, deserves to be accepted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.1758/Mum/2021 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-58, Mumbai in appeal No.CIT(A)-58, Mumbai/10018/ 2016-17 dated 25/06/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/04/2016 by the ld. Dy. Commissioner of Income-Tax, International Taxation-4(1)(1), Mumbai (hereinafter referred to as ld. AO).
ITA No.1759/Mum/2021 Revenue Appeal & ITA No.1453/Mum/2021 (A.Y.2015-16) Assessee Appeal
These cross appeals in ITA No.1758/Mum/2021& 1453/Mum/2021 for A.Y.2013-14 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-58 in appeal No. CIT(A)-58,Mumbai/10573/2017-18 dated 25/06/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 04/01/2018 by the ld. Asst. Commissioner of Income Tax, International Taxation-4(1)(1), Mumbai (hereinafter referred to as ld. AO).
Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order.
2. Let us take up the appeal of the revenue in ITA No. 1758/Mum/2021 for Asst Year 2013-14.
3. The revenue has raised the following grounds of appeal before us :-
“The Ld’ CIT(A) erred in holding that the amount of Rs 1,15,42,835 received by the Assessee on account of conducting core managerial training programs for managerial employees of the Indian hotels under the Training and Computer Systems Agreement (TCSA) were not in the nature of fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 (the Act) as well as under Article 12(5) of the India-Netherlands tax treaty;
2. The Ld’ CIT(A) erred in holding that the amount of Rs 9,47,56,685 received by the Assessee on account of providing access to the centralized reservation systems, property management systems and other systems to the Indian hotels under the TCSA were not in the nature of royalty under section 9(1)(vi) of the Act respectively as well as under Article 12 of the India-Netherlands tax treaty;
3. The Ld’ CIT(A) erred In holding that the amount of Rs 1,83,37,856 received towards human resources related costs incurred by the Assessee under the TCSA (such as medical insurance premium, stock compensation and like benefits) were not in the nature of fees for technical services under section 9(1)(vii) of the Act as well as under Article 12(5) of the India-Netherlands tax treaty;”
4. We have heard the rival submissions and perused the materials available on record. We find that assessee is a company incorporated in the Netherlands and is tax resident of Netherlands. The assessee is part of the Marriott Group. It is engaged in conducting training programs and providing access to various ‘Computer Systems such as Centralised Reservation Systems (CRS) to Marriott Chain of Hotels located worldwide. The cost and expense incurred by the assessee for rendering the aforesaid services are allocated amongst hotels, on a fair and reasonable basis. The assessee submitted that no separate fee or any other form of mark up was ever charged by or was payable to the assessee for such services.
4.1. The assessee filed its return of income for the Asst Year 2013-14 on 30.9.2013 declaring total income of Rs 21,70,771/-. The ld AO observed that the assessee during the year had received the following amounts from the Indian Hotels :-
