Services provided in relation to operational, accounting, training and recruitment etc. couldn’t be treated as FTS : ITAT

Case Details: Inter Continental Hotels Group (Asia Pacific) (Pte.) Ltd. v. ACIT - [2021] 133 taxmann.com 99 (Delhi - Trib.)

Judiciary and Counsel Details

• • Kul Bharat, Judicial Member and Dr. B.R.R Kumar, Accountant Member
  • S.K. Agarwal, CA for the Appellant. 
  • Umesh Takyar, Sr. DR. for the Respondent.

Facts of the Case

Assessee was a private company incorporated in Singapore and part of an Indian group company (IHG). Its primary business was to franchise/license, operate and manage hotels operating under different hotel brands of IHG in the Asia Pacific (AP) region. During the year, the assessee provided operational support, accounting and legal support, information technology-related services etc.

The assessing Officer (AO) made an addition for management support charges to the income of the assessee as fees for technical services (FTS) under the provisions of the India-Singapore tax treaty. The Commissioner (Appeals) concurred with the AO. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held that the operational support such as providing advice, information and competitive expertise to local general CMH Hotel management on the operation of Hotels in accordance with brand standards, etc., which are consistent with the strategic plan could at best be the managerial consultancy service but not the services made available so that the recipient can use or replicate such services received from the assessee.

The accounting support given was related to the preparation of balance sheet and modalities and to advise production of reports regarding the budgets from time to time. These services were rendered repetitively based on the clients’ requirements, and hence it couldn’t be treated as a service that was ‘made available’ to be applied independently and in times to come.

Similarly, the services rendered in connection with training and recruitment and manpower specification, it was found that there was neither technology transfer, knowledge transfer nor the transfer of any skill or know-how. Hence, the provisions of Article 12(4) could not be applied to the services rendered by the assessee in the strict sense of the provisions of DTAA.

List of Cases Referred to

• • R.R. Donnelley India Outsource (P.) Ltd., In re [2011] 11 taxmann.com 94/199 Taxman 255/335 ITR 122 (AAR) (para 21)
  • Dy. CIT v. Pan Amsat International Systems Inc. [2006] 9 SOT 100 (Delhi) (para 21)
  • Bharti AXA General Insurance Co. Ltd., In re [2010] 194 Taxman 1/326 ITR 477 (AAR) (para 22)
  • Shell Technology India (P.) Ltd., In re [2011] 16 taxmann.com 345/[2012] 204 Taxman 314/345 ITR 206 (AAR) (para 22)
  • Invensys Systems Inc., In re [2009] 183 Taxman 81/317 ITR 438 (AAR) (para 22)
  • Ernst & Young (P.) Ltd., In re [2010] 189 Taxman 409/323 ITR 184 (AAR – New Delhi) (para 22)
  • Dell International Services India (P.) Ltd., In re [2008] 172 Taxman 418/[2009] 305 ITR 37 (AAR) (para 22)
  • Intertek Testing Services India (P.) Ltd., In re [2008] 175 Taxman 375/307 ITR 418 (AAR) (para 22)
  • CIT v. Dee Beers India Minerals (P.) Ltd. [2012] 21 taxmann.com 214/208 Taxman 406/346 ITR 467 (Kar.) (para 23)
  • Pro-Quip Corpn. v. CIT [2002] 122 Taxman 588/255 ITR 354 (AAR – New Delhi) (para 23)
  • Federation of Indian Chambers of Commerce & Industry, In re [2010] 186 Taxman 161/320 ITR 124 (AAR) (para 23)
  • Asstt. CIT v. Viceroy Hotels Ltd. [2011] 11 taxmann.com 216/46 SOT 4 (URO) (Hyd) (para 23)
  • Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) (para 23)
  • G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564/[1998] 96 Taxman 179 (AP) (para 26)
  • CBDT v. Oberoi Hotels (India) (P.) Ltd. [1998] 97 Taxman 453/231 ITR 148 (SC) (para 26).