This case review discusses the appeal ITA 2224/DEL/2022 concerning the taxability of fees received by Country Inn & Suites By Radisson, Inc, USA, from Indian franchise hotels. The main issue revolves around whether these fees, pertaining to centralized services under the India-USA Double Tax Taxation Avoidance Agreement (DTAA), are taxable.
The appellant, Country Inn & Suites By Radisson, operates under the brand Radisson, which is well-known for its hospitality services globally. This case specifically deals with the centralized services provided to Indian franchisees, which include marketing, reservation, and promotional services.
The core legal issue in this case was the classification of the fees received for centralized services. The appellant argued that these fees should not be taxable under the DTAA provisions, specifically under Article 12(4)(a), which concerns fees for included services that are ancillary and subsidiary to the enjoyment of rights for which a royalty is paid.
The judgment, pronounced by the Income Tax Appellate Tribunal on May 31, 2023, found in favor of the appellant. It was held that the fees for centralized services are not taxable under the DTAA as they are not ancillary and subsidiary to any royalty income, thus not meeting the criteria of fees for included services under Article 12(4)(a).
This decision is significant as it clarifies the tax implications of similar agreements under the DTAA, providing a precedent for other multinational hospitality companies operating in India. It ensures that such fees, unless fitting the specific criteria under the DTAA, are not subject to taxation, promoting a clearer understanding of tax obligations under international agreements.
The tribunal’s decision in ITA 2224/DEL/2022 sets an important legal precedent regarding the taxation of centralized services under the DTAA, impacting how multinational corporations engage with their Indian counterparts in terms of contractual and tax planning.
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