This summary discusses the ITAT decision for the case between Shangri-La International Hotel Management Pte Ltd, Singapore and the Assistant Commissioner of Income Tax, Circle 3(10)(2) International Taxation, Delhi, concerning the assessment year 2018-19.
Shangri-La International Hotel Management Pte Ltd, a company incorporated in Singapore and tax resident there, is engaged in providing management consultancy and other related services to hotels globally, under the Shangri-La brand. The case revolves around whether the various fees received by the company from Indian hotels qualify as Fee for Technical Services (FTS) under the India-Singapore Double Taxation Avoidance Agreement (DTAA) and the Indian Income Tax Act.
The dispute in this case focused on the characterization of income received from marketing, frequent guest program receipts, general advertising, coordination fund contributions, and reservation fees. The Assessing Officer (AO) treated these incomes as FTS under the Indian tax law and the DTAA, a decision which was contested by Shangri-La. The tribunal, referencing various precedents and the specific agreements under which these services were rendered, determined that these services were not rendered in India and did not constitute FTS as they did not involve making available any technical knowledge or experience.
The tribunal further noted that the services provided were not merely incidental to the use of Shangri-La’s intellectual property in India but were part of a global effort to promote the Shangri-La brand which did not confer a right to use intellectual property in such a way that would amount to royalty or FTS under the applicable DTAA provisions.
The decision underscored the importance of the nature and terms of service agreements in determining tax liabilities under DTAAs and the Income Tax Act. It affirmed that not all payments for services associated with the use of intellectual property should automatically be treated as royalties or FTS if the essence of the service is promotional and does not entail the transfer of technology or know-how.
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