Sheraton International Inc. v. Deputy Director of Incometax

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The Tax PublishersIT Appeal Nos. 50 to 55, 168 to 171 (Delhi) of 2006 2007 TaxPub(DT) 1755 (Del-Trib) : (2007) 293 ITR 0068 : (2007) 107 ITD 0120 : (2007) 106 TTJ 0620 : (2006) 010 SOT 0542 Sheraton International Inc. v. Deputy Director of Income Tax INCOME TAX ACT, 1961 Income deemed to accrue or arise in India - Under section 9(1)(vi)/(vii) -Income from hotel services rendered in India Assessee, a non-resident USA company, was engaged in business of providing various hotel services around the world including India. In India, it was providing services to ITC Hotels Ltd. and other hotels. As per agreement entered into with Indian hotels were executed after getting necessary approval from Government of India providing, inter alia, for payment of fees, for publicity, advertisement and sale (including reservation) services, by Indian hotels to assessee at rate of 3 per cent of room sales. Prior to DTAA between India and USA with effect from 1-4-1991, fee paid by Indian companies to assessee for services rendered by it relating to hotel business was held to be a business income for determining tax deductible from remittances under section 195(2) and 10 per cent of such income was held to be taxable in India on estimated basis. Thereafter, after DTAA between India and USA with effect from 1-4-1991, assessee sought review of this position contending that there being no permanent establishment in India; its entire income received from Indian companies was not liable to tax in India. Department accepted assessee contention. Thereafter, assessee continued to receive remittances from India towards fees for services rendered by it without deduction of tax at source. Subsequently, AO held that fee received by assessee from Indian companies was covered under section 9 and was also taxable in India as per article 12 of DTAA and accordingly, he charged to tax fees received by assessee from Indian Companies at rate of 15 per cent and made reopening of assessments of assessee for assessment years 1995-96, 1996-97, 1999-2000 and 2000-01 and in reassessment proceedings held that amount received by assessee for services rendered and also contribution received in SCI and FFP programme was taxable in India as royalty and/or fees for included services. *Held:* Since, assessee-company had rendered services as well as provision of other facilities/services was only incidental to rendering of main services and payments under agreements were entirely made by Indian hotels/ clients to assessee-company for these main services as per express payment clause contained in said agreements, therefore, payments in question received by assessee or even any part thereof were not in nature of royalties or technical services as defined in Explanation 2 to section 9(1)(vi), or to section 9(1)(vii) and/or that of royalties or fee for included services as defined in, article 12(3) and 12(4) of DTAA between India and USA . Programmes in question known as SCI and FFP implemented in the Sheraton Group of Hotels including Indian hotels were also incidental to said business arrangement between assessee-company and Indian hotels which was neither independent of nor separable from main job undertaken by assessee-company to render services and thus, entire amount received by assessee had been held to be business income of assessee. Income-tax Act, 1961, Section 9, read with section 195 and Articles 7 and 12 of the Double Taxation Avoidance Agreement (DTAA) A.Y. :1995-96 to 2000-01 Decision: In favour of assessee. INCOME TAX ACT, 1961 Reassessment - Validity -Return not filed by assessee *Held: Considering facts mentioned under heading Income -Deemed to accrue or arise in India, it was noticed that assessee had not filed returns of income for the years under consideration, therefore, there was no occasion to made any assessment for said years expressing any opinion and question of change of opinion in issuing notices under section 148 as such would not arise and hence, there was no legal infirmity in initiation of reassessment proceedings by AO. Income-tax Act, 1961,* Section 147 A.Y. : 1995-96, 1996-97, 1999-2000 and 2000-01 Decision: In favour of revenue Case Law Analysis:Sheraton International Inc. v. Dy. CIT [2003] 85 ITD 110 (Delhi) (para 14), CEAT International v. IAC [1985] 12 ITD 381 (Mum.) (para 17), CEAT International SA v. CIT [1999] 237 ITR 859/ 103 Taxman 153 (Bom.) (para 17), Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/ 132 Taxman 373 (SC) (para 19), Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) (para 19), CIT v. Tata Engg. & Locomotive Co. Ltd. [2000] 245 ITR 823/[2001] 114 Taxman 141 (Bom.) (para 20), CIT v. Elbee Services (P.) Ltd. [2001] 247 ITR 109/ 115 Taxman 618 (Bom.) (para 20), D.S. Bist & Sons v. CIT [1984] 149 ITR 276/ 17 Taxman 283 (Delhi) (para 26), CIT v. Lucas TVS Ltd. [1997] 226 ITR 281/[1998] 99 Taxman 286 (Mad.) (para 26), CIT v. Sriram Pistons & Rings Ltd. [1990] 181 ITR 230/ 48 Taxman 51 (Delhi) (para 26), Kinetic Honda Motor Ltd. v. Joint CIT [2001] 77 ITD 393 (Pune) (para 26), CIT v. Daulat Ram Rawat Mull [1973] 87 ITR 349 (SC) (para 27), Dy. CIT v. Boston Consulting Group Pte. Ltd. [2005] 94 ITD 31 (Mum.) (para 31), McKinsey & Co. Inc. (Philippines) v. Asstt. DIT [2006] 6 SOT 186 (Mum.) (para 31), National Organic Chemical Industries Ltd. v. Dy. CIT [2005] 96 TTJ (Mum.) 765 (para 31), Modiluft Ltd. v. Dy. CIT [IT Appeal Nos. 3949 and 3950 (Delhi) of 1998] (para 32), CIT v. Panipat Woollen & General Mills Co. Ltd. AIR 1976 SC 640 (para 37), State of Orissa v. Titaghur Paper Mills Co. Ltd. AIR 1985 SC 1293 (para 37), Nanak Builders & Investors (P.) Ltd. v. Vinod Kumar Alag AIR 1991 Delhi 315 (para 37), Govindram Mihamal v. Chetumal Villardas AIR 1970 Bom. 251 (para 37), Angurbala Mullick v. Debabrata Mullick AIR 1951 SC 293 (para 37), Abdul Kadar Laskar v. State of West Bengal AIR 1967 Cal. 99 (para 37), Aziende Colori Nazionali Affini v. CIT [1977] 110 ITR 145 (Bom.) (para 37), CIT v. Stanton & Stavely (Overseas) Ltd. [1984] 146 ITR 405/[1983] 13 Taxman 162 (Cal.) (para 37), CIT v. Ahmedabad Mfg. & Calico Printing Co. [1983] 139 ITR 806 (Guj.) (para 37), N.V. Philips v. CIT [1988] 172 ITR 521/[1987] 34 Taxman 274 (Cal.) (para 37), CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.) (para 37), Elkem Technology v. Dy. CIT [2001] 250 ITR 164/ 117 Taxman 382 (AP) (para 37), Union Carbide Corpn. v. IAC [1994] 50 ITD 437 (Cal.) (para 37), Nisshinbo Industries Inc. v. Asstt. CIT [2002] 83 ITD 748 (Chennai) (para 37), Chanderkant Manilal Shah v. CIT 1991 JT (4) SC 171 (para 37), Chatturbhuj Vithaldas v. Moreshwar Parashram AIR 1954 SC 236 (para 42), CIT v. Klayman Porcelains Ltd. [1998] 229 ITR 735/ 96 Taxman 221 (AP) (para 57), IRC v. 36/49 Holdings Ltd. (In Liquidation) [1943] 25 ITC 173 (CA) (para 57), CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/ 64 Taxman 442 (SC) (para 65), CIT v. Nayveli Lignite Corpn. Ltd. [2000] 243 ITR 459/ 109 Taxman 369 (Mad.) (para 66), CIT v. Mitsui Engg. & Ship Building Co. Ltd. [2003] 259 ITR 248/[2002] 123 Taxman 182 (Delhi) (para 68), CIT v. HEG Ltd. [2003] 263 ITR 230/ 130 Taxman 72 (MP) (para 68), Rotem Co., In re [2005] 279 ITR 165/ 148 Taxman 411 (AAR -New Delhi) (para 78), Bhagat Construction Co. (P.) Ltd. v. CIT [2001] 250 ITR 291/ 114 Taxman 606 (Delhi) (para 86), Bhaurao Dagdu Paralkar v. State of Maharashtra [2005] 7 SCC 605 (para 86), McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC) (para 86), Banyan & Berry v. CIT [1996] 222 ITR 831/ 84 Taxman 515 (Guj.) (para 86), Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) (para 87), Radha Soami Satsang v. CIT [1992] 193 ITR 321/ 60 Taxman 248 (SC) (para 95), CIT v. Neo Polypack (P.) Ltd. [2000] 245 ITR 492/ 112 Taxman 363 (Delhi) (para 95), CIT v. Girish Mohan Ganeriwala [2003] 260 ITR 417 (Punj. & Har.) (para 95), Transmission Corpn. of AP Ltd. v. CIT [1999] 239 ITR 587/ 105 Taxman 742 (SC) (para 96), Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173/ 112 Taxman 337 (Delhi) (para 97), Dr. Amins Pathology Laboratory v. T.N. Prasad, Jt. CIT No. 2 [2001] 252 ITR 683 (Bom.) (para 97), Suman Steels v. Union of India [2004] 269 ITR 412/[2003] 127 Taxman 353 (Raj.) (para 97), CWT v. Sardar Bahadur Sardar Indra Singh Trust [1993] 70 Taxman 581 (Cal.) (para 98), Hukum Chand Mills Ltd. v. CIT [1966] 63 ITR 232 (SC) (para 100), S.P. Kochhar v. ITO [1984] 145 ITR 255/[1983] 13 Taxman 414 (All.) (para 100), V.P. Samtani v. CIT [1982] 135 ITR 313/[1981] 6 Taxman 321 (Cal.) (para 101), Pathikonda Balasubba Setty v. CIT [1967] 65 ITR 252 (Mysore) (para 101), CIT v. D. Veerappan [1995] 215 ITR 533 (Mad.) (para 102), CIT v. Highway Construction Co. (P.) Ltd. [1997] 223 ITR 498/ 94 Taxman 532 (Gau.) (para 102), CIT v. S.V. Diwakar [1993] 201 ITR 914/[1992] 65 Taxman 72 (Ori.) (para 102), CIT v. Fundilal Rikhabchand [1994] 208 ITR 348 (Raj.) (para 102), CIT v. A.M. Zainalabdeen Musaliar [1995] 212 ITR 188/ 82 Taxman 504 (Ker.) (para 102), CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.) (para 106), Motorola Inc. v. Dy. CIT [2005] 95 ITD 269/ 147 Taxman 39 (Delhi) (SB) (Mag.) (para 110), Sedco Forex International Drilling Inc. v. Dy. CIT [2000] 72 ITD 415 (Delhi) (para 110) and Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT [2003] 85 ITD 478 (Delhi) (para 110). SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT Appeal Nos. 50 to 55, 168 to 171 (Delhi) of 2006
2007 TaxPub(DT) 1755 (Del-Trib) : (2007) 293 ITR 0068 : (2007) 107 ITD 0120 : (2007) 106 TTJ 0620 : (2006) 010 SOT 0542

Sheraton International Inc. v. Deputy Director of Income Tax

INCOME TAX ACT, 1961

Income deemed to accrue or arise in India - Under section 9(1)(vi)/(vii) -Income from hotel services rendered in India

Assessee, a non-resident USA company, was engaged in business of providing various hotel services around the world including India. In India, it was providing services to ITC Hotels Ltd. and other hotels. As per agreement entered into with Indian hotels were executed after getting necessary approval from Government of India providing, inter alia, for payment of fees, for publicity, advertisement and sale (including reservation) services, by Indian hotels to assessee at rate of 3 per cent of room sales. Prior to DTAA between India and USA with effect from 1-4-1991, fee paid by Indian companies to assessee for services rendered by it relating to hotel business was held to be a business income for determining tax deductible from remittances under section 195(2) and 10 per cent of such income was held to be taxable in India on estimated basis. Thereafter, after DTAA between India and USA with effect from 1-4-1991, assessee sought review of this position contending that there being no permanent establishment in India; its entire income received from Indian companies was not liable to tax in India. Department accepted assessee contention. Thereafter, assessee continued to receive remittances from India towards fees for services rendered by it without deduction of tax at source. Subsequently, AO held that fee received by assessee from Indian companies was covered under section 9 and was also taxable in India as per article 12 of DTAA and accordingly, he charged to tax fees received by assessee from Indian Companies at rate of 15 per cent and made reopening of assessments of assessee for assessment years 1995-96, 1996-97, 1999-2000 and 2000-01 and in reassessment proceedings held that amount received by assessee for services rendered and also contribution received in SCI and FFP programme was taxable in India as royalty and/or fees for included services. Held: Since, assessee-company had rendered services as well as provision of other facilities/services was only incidental to rendering of main services and payments under agreements were entirely made by Indian hotels/ clients to assessee-company for these main services as per express payment clause contained in said agreements, therefore, payments in question received by assessee or even any part thereof were not in nature of royalties or technical services as defined in Explanation 2 to section 9(1)(vi), or to section 9(1)(vii) and/or that of royalties or fee for included services as defined in, article 12(3) and 12(4) of DTAA between India and USA . Programmes in question known as SCI and FFP implemented in the Sheraton Group of Hotels including Indian hotels were also incidental to said business arrangement between assessee-company and Indian hotels which was neither independent of nor separable from main job undertaken by assessee-company to render services and thus, entire amount received by assessee had been held to be business income of assessee.

Income-tax Act, 1961, Section 9, read with section 195 and Articles 7 and 12 of the Double Taxation Avoidance Agreement (DTAA)

A.Y. :1995-96 to 2000-01
Decision: In favour of assessee.

INCOME TAX ACT, 1961

Reassessment - Validity -Return not filed by assessee

Held: Considering facts mentioned under heading Income -Deemed to accrue or arise in India, it was noticed that assessee had not filed returns of income for the years under consideration, therefore, there was no occasion to made any assessment for said years expressing any opinion and question of change of opinion in issuing notices under section 148 as such would not arise and hence, there was no legal infirmity in initiation of reassessment proceedings by AO.

Income-tax Act, 1961, Section 147

A.Y. : 1995-96, 1996-97, 1999-2000 and 2000-01
Decision: In favour of revenue

Case Law Analysis:Sheraton International Inc. v. Dy. CIT [2003] 85 ITD 110 (Delhi) (para 14), CEAT International v. IAC [1985] 12 ITD 381 (Mum.) (para 17), CEAT International SA v. CIT [1999] 237 ITR 859/ 103 Taxman 153 (Bom.) (para 17), Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/ 132 Taxman 373 (SC) (para 19), Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) (para 19), CIT v. Tata Engg. & Locomotive Co. Ltd. [2000] 245 ITR 823/[2001] 114 Taxman 141 (Bom.) (para 20), CIT v. Elbee Services (P.) Ltd. [2001] 247 ITR 109/ 115 Taxman 618 (Bom.) (para 20), D.S. Bist & Sons v. CIT [1984] 149 ITR 276/ 17 Taxman 283 (Delhi) (para 26), CIT v. Lucas TVS Ltd. [1997] 226 ITR 281/[1998] 99 Taxman 286 (Mad.) (para 26), CIT v. Sriram Pistons & Rings Ltd. [1990] 181 ITR 230/ 48 Taxman 51 (Delhi) (para 26), Kinetic Honda Motor Ltd. v. Joint CIT [2001] 77 ITD 393 (Pune) (para 26), CIT v. Daulat Ram Rawat Mull [1973] 87 ITR 349 (SC) (para 27), Dy. CIT v. Boston Consulting Group Pte. Ltd. [2005] 94 ITD 31 (Mum.) (para 31), McKinsey & Co. Inc. (Philippines) v. Asstt. DIT [2006] 6 SOT 186 (Mum.) (para 31), National Organic Chemical Industries Ltd. v. Dy. CIT [2005] 96 TTJ (Mum.) 765 (para 31), Modiluft Ltd. v. Dy. CIT [IT Appeal Nos. 3949 and 3950 (Delhi) of 1998] (para 32), CIT v. Panipat Woollen & General Mills Co. Ltd. AIR 1976 SC 640 (para 37), State of Orissa v. Titaghur Paper Mills Co. Ltd. AIR 1985 SC 1293 (para 37), Nanak Builders & Investors (P.) Ltd. v. Vinod Kumar Alag AIR 1991 Delhi 315 (para 37), Govindram Mihamal v. Chetumal Villardas AIR 1970 Bom. 251 (para 37), Angurbala Mullick v. Debabrata Mullick AIR 1951 SC 293 (para 37), Abdul Kadar Laskar v. State of West Bengal AIR 1967 Cal. 99 (para 37), Aziende Colori Nazionali Affini v. CIT [1977] 110 ITR 145 (Bom.) (para 37), CIT v. Stanton & Stavely (Overseas) Ltd. [1984] 146 ITR 405/[1983] 13 Taxman 162 (Cal.) (para 37), CIT v. Ahmedabad Mfg. & Calico Printing Co. [1983] 139 ITR 806 (Guj.) (para 37), N.V. Philips v. CIT [1988] 172 ITR 521/[1987] 34 Taxman 274 (Cal.) (para 37), CIT v. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.) (para 37), Elkem Technology v. Dy. CIT [2001] 250 ITR 164/ 117 Taxman 382 (AP) (para 37), Union Carbide Corpn. v. IAC [1994] 50 ITD 437 (Cal.) (para 37), Nisshinbo Industries Inc. v. Asstt. CIT [2002] 83 ITD 748 (Chennai) (para 37), Chanderkant Manilal Shah v. CIT 1991 JT (4) SC 171 (para 37), Chatturbhuj Vithaldas v. Moreshwar Parashram AIR 1954 SC 236 (para 42), CIT v. Klayman Porcelains Ltd. [1998] 229 ITR 735/ 96 Taxman 221 (AP) (para 57), IRC v. 36/49 Holdings Ltd. (In Liquidation) [1943] 25 ITC 173 (CA) (para 57), CIT v. Sun Engg. Works (P.) Ltd. [1992] 198 ITR 297/ 64 Taxman 442 (SC) (para 65), CIT v. Nayveli Lignite Corpn. Ltd. [2000] 243 ITR 459/ 109 Taxman 369 (Mad.) (para 66), CIT v. Mitsui Engg. & Ship Building Co. Ltd. [2003] 259 ITR 248/[2002] 123 Taxman 182 (Delhi) (para 68), CIT v. HEG Ltd. [2003] 263 ITR 230/ 130 Taxman 72 (MP) (para 68), Rotem Co., In re [2005] 279 ITR 165/ 148 Taxman 411 (AAR -New Delhi) (para 78), Bhagat Construction Co. (P.) Ltd. v. CIT [2001] 250 ITR 291/ 114 Taxman 606 (Delhi) (para 86), Bhaurao Dagdu Paralkar v. State of Maharashtra [2005] 7 SCC 605 (para 86), McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/22 Taxman 11 (SC) (para 86), Banyan & Berry v. CIT [1996] 222 ITR 831/ 84 Taxman 515 (Guj.) (para 86), Dhakeswari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC) (para 87), Radha Soami Satsang v. CIT [1992] 193 ITR 321/ 60 Taxman 248 (SC) (para 95), CIT v. Neo Polypack (P.) Ltd. [2000] 245 ITR 492/ 112 Taxman 363 (Delhi) (para 95), CIT v. Girish Mohan Ganeriwala [2003] 260 ITR 417 (Punj. & Har.) (para 95), Transmission Corpn. of AP Ltd. v. CIT [1999] 239 ITR 587/ 105 Taxman 742 (SC) (para 96), Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173/ 112 Taxman 337 (Delhi) (para 97), Dr. Amins Pathology Laboratory v. T.N. Prasad, Jt. CIT No. 2 [2001] 252 ITR 683 (Bom.) (para 97), Suman Steels v. Union of India [2004] 269 ITR 412/[2003] 127 Taxman 353 (Raj.) (para 97), CWT v. Sardar Bahadur Sardar Indra Singh Trust [1993] 70 Taxman 581 (Cal.) (para 98), Hukum Chand Mills Ltd. v. CIT [1966] 63 ITR 232 (SC) (para 100), S.P. Kochhar v. ITO [1984] 145 ITR 255/[1983] 13 Taxman 414 (All.) (para 100), V.P. Samtani v. CIT [1982] 135 ITR 313/[1981] 6 Taxman 321 (Cal.) (para 101), Pathikonda Balasubba Setty v. CIT [1967] 65 ITR 252 (Mysore) (para 101), CIT v. D. Veerappan [1995] 215 ITR 533 (Mad.) (para 102), CIT v. Highway Construction Co. (P.) Ltd. [1997] 223 ITR 498/ 94 Taxman 532 (Gau.) (para 102), CIT v. S.V. Diwakar [1993] 201 ITR 914/[1992] 65 Taxman 72 (Ori.) (para 102), CIT v. Fundilal Rikhabchand [1994] 208 ITR 348 (Raj.) (para 102), CIT v. A.M. Zainalabdeen Musaliar [1995] 212 ITR 188/ 82 Taxman 504 (Ker.) (para 102), CIT v. Seth Manicklal Fomra [1975] 99 ITR 470 (Mad.) (para 106), Motorola Inc. v. Dy. CIT [2005] 95 ITD 269/ 147 Taxman 39 (Delhi) (SB) (Mag.) (para 110), Sedco Forex International Drilling Inc. v. Dy. CIT [2000] 72 ITD 415 (Delhi) (para 110) and Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT [2003] 85 ITD 478 (Delhi) (para 110).