Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act challenging the order dated 09.05.2024 passed by the Income Tax Appellate Tribunal in favour of Six Continents Hotels Inc. for Assessment Year 2020-21. The assessee, a tax resident of the United States, received ₹28,11,42,298 during FY 2019-20 from its Indian affiliate InterContinental Hotels Group (India) Private Limited towards marketing contribution, priority club receipts, reservation contribution, and Holidex fees for centralized marketing and reservation related services.

The assessee filed its revised return declaring income of ₹1,05,20,740. The Assessing Officer passed a draft assessment order holding that the receipts were taxable as royalty under the Act and the India-USA DTAA, or alternatively as fees for included services under Section 9(1)(vii) and Article 12(4) of the DTAA. The Dispute Resolution Panel rejected the assessee’s objections and affirmed taxability. The final assessment order dated 27.06.2023 was passed accordingly.

The assessee appealed to the ITAT, which allowed the appeal by following earlier decisions rendered consistently in the assessee’s own case for preceding assessment years. Aggrieved, the Revenue preferred the present appeal before the High Court.

Issues Involved

Whether receipts from centralized marketing, distribution marketing, frequency marketing programmes and reservation system support services were taxable as royalty or fees for included services under the Income-tax Act and the India-USA DTAA, and whether any substantial question of law arose in view of consistent judicial precedents.

Petitioner’s Arguments

The Revenue contended that the services were ancillary and subsidiary to the grant of brand license and therefore constituted fees for included services under Article 12(4)(a) of the DTAA. It was argued that the assessee continued to be the legal and beneficial owner of the brand and that mere restructuring of the business model from 01.04.2019 did not alter the taxability of receipts.

Respondent’s Arguments

The assessee submitted that the issue was squarely covered by a long line of decisions of the Delhi High Court in its own case and in cases of other international hotel chains. It was argued that centralized marketing and reservation services did not result in transfer of any technical knowledge or right, nor were they ancillary to royalty, and therefore were not taxable as royalty or fees for included services.

Court Order / Findings

The Delhi High Court noted that the assessee’s contention that such receipts are not taxable in India had been accepted consistently for over fifteen assessment years. The Court observed that identical questions raised by the Revenue had already been decided against it in earlier cases, including Director of Income Tax v. Sheraton International Inc., CIT-IT-3 v. Sheraton International LLC, CIT-IT-3 v. Westin Hotel Management LP, CIT-IT-3 v. Shangri-La International Hotel Management Pte Ltd., and CIT-IT-3 v. Radisson Hotel International Incorporated.

The Court held that the ITAT was correct in following binding precedents and that no distinguishing facts or change in law were shown by the Revenue. Accordingly, the Court found that no substantial question of law arose for consideration.

Important Clarification

The High Court reiterated that where an issue has been consistently decided by binding judicial precedents, the Revenue cannot repeatedly agitate the same issue in subsequent years without demonstrating any material change in facts or law. Judicial discipline and consistency must be maintained.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court held that no substantial question of law arose for consideration and upheld the order of the Income Tax Appellate Tribunal in favour of Six Continents Hotels Inc.

Link to download order https://www.mytaxexpert.co.in/uploads/1769756912_THECOMMISSIONEROFINCOMETAXINTERNATIONALTAXATION3VsSIXCONTINENTSHOTELSINC..pdf 

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