Law:

Section:

Section 9, read with section 90, of the Income-tax Act, 1961 and articles 7 and 12 of the Double Taxation Avoidance Agree- ment between India and USA -Income - Deemed to accrue or arise in India - Assessment years 1995-96 to 2000-01 - Assessee, a non-resident company incorporated in USA, was engaged in providing services to hotels in various parts of world - It entered into agreements with ITC Hotels Ltd. (ITC) for providing services to some of its hotels - Scope of services envisaged in agreements was publicity, advertisement and sales including reservation services - In consideration, ITC agreed to pay a fee at rate of 3 per cent of room sales to assessee - Assessee claimed that fee received by it was in nature of business income and in terms of DTAA between India and USA, it was not taxable in India, as it had no permanent establishment in India - Assessing Officer held that since assessee was making available to ITC technical and consultancy services; provisions of training to its employees; and use of its trade mark, technical know-how, documentation and manuals and reservation network, entire amount received by it from ITC was royalty and/or fee for included services as provided in article 12(4)(b) of DTAA and since assessee had a business connection in India, said amount would be deemed to accrue or arise in India under section 9 - Assessing Officer, therefore, brought entire amount received by assessee to tax - Commissioner (Appeals) sustained Assessing Officer's order - On second appeal, Tribunal held that main service rendered by assessee to its clients-hotels was advertisement, publicity and sales promotion keeping in mind their mutual interest and in that context, use of trademark, trade name or other enumerated service referred to in agreement with assessee were incidental to said main service and, therefore, payments received were neither in nature of royalty under section 9(1)(vi), read with Explanation 2, nor were in nature of 'fee for technical services' under section 9(1)(vii), read with Explanation 2, or taxable under article 12 of DTAA - Tribunal also held that payments received were in nature of business income and since assessee did not…

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