Royalty received by Marriott International from Indian Entities: ITAT directs AO to re-consider the Taxability [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) comprising Shri Prashant Maharishi, AM and Shri Sandeep Singh Karhail, JM has has directed the Assessing Officer to re-consider the taxability of royalty received from M/s Marriott International from four indian entities.

The assessee, a US entity 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.

The 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.

Quashing the assessment orders, the Tribunal directed the AO 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,” the Tribunal said.

Shri Paras Savla & Shri Pratik Poddar appeared for the assessee.

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