This case analysis delves into the income tax appellate tribunal’s decision in ITA No. 4774/DEL/2019, where Sheraton International LLC contested the income adjustments related to fees for centralized services such as marketing and reservation charges.
The contention centers around a substantial income addition of Rs. 20,13,09,505 imposed by the Assessing Officer. The dispute questions the nature of various service fees collected by Sheraton International, predominantly rendered outside India, and their tax treatment under Indian law.
Sheraton International argued that these services, although centralized, are ancillary to the primary business and do not constitute a permanent establishment in India. The appellant contested the application of a high profit percentage for tax purposes and the arbitrary allocation of profits to Indian operations, which they claimed were non-existent.
The tribunal examined precedents and the application of international tax treaties. It acknowledged that the fees in question, treated under the broad umbrella of centralized services like Sales & Marketing and Loyalty programs, do not create a taxable presence in India due to the lack of a substantial business connection.
Furthermore, the tribunal noted that previous judgments from higher courts supported the appellant’s stance, reinforcing that the services provided did not equate to a transfer of technology or technical services that would invoke additional tax liabilities under the treaty provisions.
The decision favored Sheraton International, setting aside the income additions made by the lower tax authorities. It underscored the need for a nuanced understanding of international business operations and their tax implications under Indian law.
This case is a significant reference for understanding taxation of international service arrangements in India, especially concerning the hospitality industry’s global operations. It highlights the complexities of tax jurisdictions and the importance of treaty provisions in determining tax liabilities.
International Taxation Dispute: Sheraton International LLC vs ACIT for AY 2015-16
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