DELHI BENCH A: NEW DELHI

BEFORE SHRI R.V.EASWAR, VICE PRESIDENT AND

SHRI P.M. JAGTAP, ACCOUNTANT MEMBER

ITA Nos.50/Del/2006 to 55/Del/2006

Assessment Years : 1995-96 to 2000-01

ITA Nos.168/Del/2006 to 171/Del/2006

Assessment Years : 1995-96, 96-97, 1999-2000 & 2000-01

Assessee by      :           Shri S.K. Tulsiyan, Advocate with Shri Rakesh Nangia.

Revenue by       :           Shri Y.K.Kapur, Advocate & Special Counsel

 with Shri Ranjan Chopra and Shri Kaanan Kapoor.

The main purpose/intention of the association between the assessee and the Indian clients/hotels was to promote the hotel business in their mutual interest through worldwide publicity, marketing and advertising and the various facilities as well as services were merely the means to attain this main objective.  The same, therefore, were ancillary and auxiliary services to the main job undertaken by the assessee company of promoting the hotel business by worldwide publicity, marketing and advertisement (Para 51)

various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest cannot be relied upon by picking and choosing the same in isolation so as to say that part of the consideration received by the assessee, as attributable to the said services, was in the nature of royalties or fees for included services.  Such an approach adopted by the Revenue authorities, in our opinion, was neither permissible in law nor practicable in the facts of the case and the conclusion drawn by them on the basis of such approach to cover the said services taken individually or in isolation divorced from the main intention within the meaning of royalties or technical services as defined in Explanation 2 to Section 9(1)(vi) or to Section 9(1)(vii) and/or that of royalties or fees for included services as defined in Article 12(3) and 12(4) of the DTAA between India and USA was neither well-founded nor justified. (Para 73)

a close reading of the relevant agreements especially the payment clause, the predominant nature of the services rendered, the integrated arrangement between assessee company and Indian hotels/clients as well as the nature of relationship between them as reflected in the relevant agreements so also as understood by both the sides leaves no doubt that the entire consideration was paid by the Indian hotels/clients to the assessee company for the services rendered in relation to advertisement, publicity and sales promotion of the hotel business worldwide and this being so as well as considering all the facts of the case including especially the fact that other services to be rendered by the assessee as enumerated in the various Articles of the relevant agreements were merely ancillary or auxiliary in nature being incidental to the integral job undertaken by the assessee to provide the services in relation to advertisement, publicity and sales promotion of the hotel business worldwide, it is very difficult to accept the stand of the Revenue that the amount so paid for the use of a patent, invention, model, design, secret formula or process or trademark or similar property or for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as envisaged in Article 12(3)(a), 12(4)(a) or 12(4)(b) of the DTAA or in Section 9(1)(vii) read with Explanation 2. (Para 77)

all payments made to the assessee by the Indian hotels/clients were subject to deduction of tax at source and although no tax was actually deducted at source, the assessee could not be held to have committed default in paying the advance tax. Consequently, there could be no liability to pay interest u/s 234B. (Para 110)

the payment of contributions, in respect of the said programme was not made by the Indian hotels/clients to the assessee company in pursuance of the agreements entered into between them and whole of the amount received as contribution under these programmes was to be given back to the members in the form of various rewards through SCI Points as per the scheme itself as is evident from the relevant, programme guide. In these circumstances, the amount received by the assessee company from the Indian hotels/clients in respect of the said programmes could not be treated as 'royalty' or 'fees for technical or included services' either under the, relevant provisions of the income-tax Actor even under the DTAA (Para 114)

O   R   D   E   R 

PER P.M. JAGTRAP, AM:

These are ten appeals, six filed by the assessee and four by the Revenue.  Out of them, four appeals by the assessee and all the four appeals by the Revenue are cross-appeals for AY 1995-96, 96-97, 1999-2000 and 2000-01 whereas the remaining two appeals of the assessee are for AY 1997-98 and 98-99.  Since the issues involved in these ten appeals are common and interrelated, the same are being disposed of by this single consolidated order.

2.The relevant facts of the case giving rise to these appeals are as follows.  The assessee is a non-resident company incorporated in USA (hereinafter referred to us Sheraton).  It is engaged in the business of providing various services related to hotels and provide such services to many hotels in the United States as well as other countries around the world including India.  In India, it has been providing the services to M/s ITC Hotels Ltd., M/s ITC Ltd. (Hotel Division) etc. on the terms and conditions stipulated in the agreements entered into with the said Indian companies from time to time.  The first of such agreements was entered into with the said Indian companies from time to time.  The first of such agreements was entered into with ITC Ltd. on 27^th January, 1979 for providing the services to three of the hotels owned by ITC Ltd., namely, Welcomgroup, Maurya Sheraton, New Delhi, Welcomgroup Mughal Sheraton, Agra and Welcomgroup Chola Sheraton, Madras.  The said agreement was executed after getting the necessary approval from the Government of India, the same was extended for a further period of ten years by executing a fresh agreement on 30.12.1988.  A similar agreement was entered into on 9.5.1985 with ITC Hotels Ltd. in respect of Hotel Windsor Manor, Bangalore.  Meanwhile, there was a reorganization of the business of ITC Ltd. whereby its hotel division came to be taken over by ITC Hotels Ltd. and accordingly, the rights and obligations of ITC Ltd. under the agreement with Sheraton were transferred to ITC Hotels Ltd. Sheraton also entered into similar agreements with another Indian company Aidyar Gate Hotels Ltd. in respect to their Hotel Park Sheraton at Madras.  Prior to the coming into force of the Double Taxation Avoidance Agreement (DTAA) between India and USA with effect from 1.4.1991, the fees paid by the Indian companies to Sheraton for services rendered by them relating to hotel business was held to be a business income for determining the tax deductible from the remittances under section 195(2) and 10% of such income was held to be taxable in India on estimated basis.  As a result of the DTAA between India and USA coming into force w.e.f. 1.4.1991, the assessee sought review of this position contending that there being no permanent establishment in India, its entire income received from the Indian companies was not taxable in India.  This stand of the assessee was accepted by the Department and accordingly, no-objection certificate was issued initially on 28.10.1991 permitting the remittance of fees without deduction of any tax at source.  The assessee thus continued to receive the remittances from India towards the fees for services rendered by it without deduction of tax at source.  On 25.11.1999, a notice u/s 163, however, was issued by the Assessing Officer proposing to treat M/s ITC Hotels Ltd. as the agents of the assessee in India.  Thereafter, a notice u/s 142(1) for A.Y. 96-97 was also issued to the assessee by the Assessing Officer on 26.11.1999.  This notice was further followed by other notices issued on 6.1.2000 and 28.1.2000 and alongwith one of the said notices issued on 28.1.2000, a detailed questionnaire was issued by the Assessing Officer to the assessee.  All these notices, however, remained uncomplied with by the assessee which left the Assessing Officer with no option but to complete the assessment to the best of his judgment on the basis of the record available with him including especially the agreement between the assessee company and M/s ITC Hotels Ltd.  He, accordingly, analyzed the terms and conditions of the said agreement and on such analysis, arrived at the following conclusions:-

(i)Sheraton has agreed to make available technical and consultancy services to the hotel.  Sheraton has modern international hotels and techniques and it has marketing specialists who make those techniques available to customers.  It has also a reservation network.  All these technical know how together with consultancy services is to be made available to the customers.  The computerized reservation systems are highly technical systems and they can be accessed from India.  It provides a complete connectivity to the hotels in India.  The Indian hotels have a right to access this reservation system.

(ii)The customers as well as the assessee have agreed that Sheraton will make available the following:-

(a)the global SHERATON reservation network;

(b)highly developed technology for hotel sales;

(c)regular updating of such technologies and standards;

(d)under special of foreign tourist and travelers needs and meeting these through specialisms particularly in the context of food and beverages and other hotel services.

This proves beyond doubt that the assessee is making technology and its consultancy available to its customers.

 (iii)Further in Article III it has been agreed in no ambiguous terms that Sheraton will make available its expertise and know how to its customers.  The assessee has further agreed to provide training to the employees of its customers.

(iv)Its trademarks have not been sold but have been given by the assessee to its customers for the use and as soon as the contract is terminated, the customer will have no right over it.  The services are linked to the trademark also.  The assessee will not render any services unless the customer uses the trademark.  Further the payment is not related to the number of bookings provided by the assessee or to the quantum of business brought in by the assessee.  It is based on the total turnover of the Hotel.

(v)The assessee has made available technical know how, documentation, manual etc. for which it is charging a fee, that too not in lump sum but on the basis of business done by the customer.  The Reserve Bank of India of India vide its letter dated 16.5.1989 at point 2(c) has mentioned:-

The approval may also be treated as the banks permission to M/s Sheraton International Inc.  USA under section 28(1)(b) foreign exchange regulation act 1973 for rendering technical etc. services to the company under the collaboration agreement.

From the above it is clear that the payment is covered under fees for included services as provided under Article 12(4)(b) of the I.T.Act.

3.On the basis of the aforesaid observations recorded in his assessment order, the Assessing Officer concluded that the assessee company had business connections in India and the income on account of fees for services rendered having been deemed to accrue or arise to it in India, the case of the assessee was covered under Section 9.  Without prejudice to this conclusion and as an alternative, he also held that the said income of the assessee was taxable in India as per the provisions of Article 12 of DTAA between India and USA.  Since there was no compliance from the side of the assessee company to the notices issued by him during the course of assessment proceedings furnishing the required details such as the exact amount of receipts from the Indian hotels during the year under consideration, he estimated such receipts at Rs.30 crores and held that the said receipts covered under fees for included services were chargeable to tax in India at the rate of 15%.

4.Against the aforesaid assessment order of the Assessing Officer, the assessee company preferred an appeal before the learned CIT(A) and a detailed written submission alongwith paper book was filed by it before him on 6.10.2000.  Oral arguments were also advanced before the learned CIT(A) who forwarded the submissions made on behalf of the assessee company to the Assessing Officer for his comments.  The remand reports received from the AO giving his comments were confronted by the learned CIT(A) to the assessee and the written rejoinder as well as supplementary submissions made on behalf of the assessee company were also taken on record by him.  Before the learned CIT(A), it was submitted on behalf of the assessee company at the outset that the estimation of its income made by the AO for the AY 1997-98 at Rs.30 crores was without any basis and it was purely a guess work of the Assessing Officer without reference to any material or evidence on record.  As regards the nature of its receipts from the Indian companies, it was submitted that the said amounts were received by it for the hotel related services rendered to the Indian companies in connection with business promotion, marketing and reservation.  It was also submitted that worldwide activities of advertising and promotional programmes for the hotels in the chain were rendered by the assessee company for the hotels located all over the world and the said services alongwith the reservation facilities were extended to the hotels in India.  It was submitted that no technical knowledge or skill thus was made available by the assessee company to the ITC as covered under Article 12 of the DTAA between India and USA.  The Assessing Officer, on the other hand, submitted in his remand reports that the payments were made by the Indian companies to the assessee company for the purposes of provision of highly developed technology for sale, publicity, reservation as well as for updating technology and use of brand name etc. and since it was a case wherein the assessee company had made available technical knowledge, experience, skill and know-how to the Indian companies, the same was covered under the said Article 12.  He also reiterated the stand taken by him in the assessment order based on the analysis of the relevant clauses of the agreement entered into between the assessee company and its Indian counterparts.  After considering these submissions as well as the material available on record, the learned CIT(A) decided the issue relating to the applicability of Article 12 to the case of the assessee as follows:-

Under the agreement, the ITC has been allowed to use trade marks, trade name and S sign of the appellant.  In fact the name of the word Sheraton and its stylized S service mark and any other identification characteristic that may be developed subsequently have been allowed to be used to the appellant.  However, this user has been allowed at no cost.  It is not understandable that such valuable trade name and trade mark etc. have been allowed to be used for no cost while charges are raised for such minor services as advertisement in the booklets of the appellant.  Accordingly, it is held that this is a colourable part of the agreement under which payments in respect of trade mark etc. have been attempted to be shown as payments in respect of other services.  Therefore, this paragraph is not taken at its face value and payments in respect of other services.  Therefore, this paragraph is not taken at its face value and payments will have to be attributed to the user of these intangible assets clearly amount to payment of royalties under paragraph 3(a) of Article 12.  The agreement also provides for reservation services, assistance to the ITC in terms of expertise and know how and its standards established worldwide.  These services clearly fall under paragraph 3(a) as information concerning industrial or commercial experience.  The appellant also undertook publicity, marketing and promotion activities outside India for the ITC.  These activities cannot be said to be ancillary or subsidiary to the enjoyment of any right, property or information described as Royalties in paragraph 3.  Therefore, payments in respect of these activities outside India will constitute commercial income and in the absence of PE in India, these payments cannot be brought to tax.  However, payments in respect of reservation services, services regarding maintenance of high international standard and use of trade mark constitute payments of royalties.  Of all these activities, the use of trade mark and service mark etc. are of paramount importance because these assets and their user makes it know to the public at large that the hotel confirms to the standards of Sheraton international standards and, therefore, due weightage has to be given to this user.  On the whole three kinds of services constitute royalties while one service leads to arising of commercial income, therefore, it will be in order to allocate 75% of the payments by the ITC as royalties, which are taxable under Article 12 of the DTAA.  The balance payment of 25% is commercial income, not liable to tax in India.

5.Accordingly, he held that 75% of the amount received by the assessee company from the Indian companies was in the nature of royalty taxable in India under Article 12 of the DTAA.  Since the estimate of such receipts of the assessee made by the Assessing Officer for A.Y. 97-98 at Rs.30 crores was found to be arbitrary and without any basis by the learned CIT(A) and the actual amount so received was claimed by the assessee company to be Rs.7,83,36,687/-, he directed the Assessing Officer to bring to tax 75% of the said amount after verification thereof.

6.Meanwhile, notices u/s 142 (1) were issued by the Assessing Officer on 6.1.2000 and 28.1.2000 requiring the assessee to file its return of income for AY 1998-99.  Since the said notices remained uncomplied with by the assessee, a fresh notice u/s 142(2) along with a detailed Questionnaire was issued by the Assessing Officer on 5.1.2001 requiring the assessee to file its return of income for AY 1998-99.  The assessee finally filed its return of income for AY 1998-99 on 30.1.2001.  As per the details furnished along with the said return, the following receipts were shown to have been received by the assessee from the Indian clients/hotels:-

7.It was submitted on behalf of the assessee before the Assessing Officer that the aforesaid amounts had been received by it mainly for the following services and facilities provided to the Indian clients/hotels in connection with publicity and marketing:-

*Sheraton brand advertising this advertisement is made by the assessee on various media such as TV, newspapers, magazines, posters etc.

*Presentation at Trade shows The assessee sets up display and information booths at all major shows/exhibitions of hotel trade in the world such as ITB-Berlin, WTM-London, Arabian Travel Mart-Dubai, BIT-Milan, etc. where all Sheraton affiliated hotels of the world or of a particular region have their stalls.

*Participation in Sheraton Roan shows to travel agents The assessee organizes meetings in important cities of the world where persons engaged in the travel trade and key account customers are invited and presentations are made to them about all Sheraton affiliated hotels.

*Worldwide directory and regional directories The assessee prints at its own cost directory of all its client hotels and also directories of its client hotels located in a particular region (India is listed in the Asia Pacific region).  The worldwide directory and directory of the particular region is placed in all the hotel rooms so that a guest staying in any hotel gets information about Sheraton affiliate hotels in the particular region as well as anywhere in the world.  Such directories are also placed in the general sales offices and central reservation offices.

*Divisional Brochures The assessee publishes brochures called a la carte and at a glance containing information about its client hotels which are sent to travel agents, wholesalers, incentive planners, convention planners etc.

*In room magazine- The assessee publishes, inter alia, an in-room magazine called Sojourn which contains information about all its client hotels in a region and also carries features about the country, state or city where such hotels are located in order to enhance awareness and create interest in the minds of the guests of its client hotels about the places and the hotels.  This magazine is placed in the hotel rooms.

*The directories, divisional brochures, magazines etc, are printed at the assessees cost and the client hotels only pay for the cost of freight and import duties, if any, for receiving the same.

*Participation in sister hotel promotions The assessees client hotels are entitled to participation in such promotional programmes where certain hotels are selected as hotels of the month and the tent, cards, posters and other merchandising material are kept on display at all client hotels of a region for a month.  This is done especially for the new hotels to create awareness among potential customers.

*Networking all sales offices, contact names, addresses, etc. access to kay corporate clients worldwide.

*Promoting hotels to airline partners.

*Participation in American Express membership programmes.

*Access to customer data of Sheraton Worldwide.

*Access to marketing tools such as Global Preferred Rates, Sheraton Executive Traveller rates etc. for corporate clients worldwide.

8.Keeping in view the nature of the aforesaid services and facilities provided by it to the Indian clients/hotels as per the agreements, it was contended on behalf of the assessee that it was a case of providing services in connection with publicity and marketing of the Indian Hotels abroad in the normal course of its business and not a case whereby any technology had been made available to its client as envisaged in Para 4(b) of Article 12 of the DTAA between India and USA.  It was thus contended that the aforesaid amount received by the assessee during the previous year relevant to A.Y. 1998-99 entirely was in the nature of its business profits and the assessee company having no permanent establishment in India, such receipts were not chargeable to tax in India in view of Article 7 of DTAA between India and USA.

9.The aforesaid submissions made on behalf of the assessee company were not found acceptably by the Assessing Officer.  Accordingly to him, the nature of the amounts received by the assessee was required to be ascertained on the basis of the examination of the terms and conditions of the agreements made by the assessee with the Indian Hotels and Clients and after having made such examination, he held that the assessee was clearly making available not only its trademarks, trade names and designs etc. for the use of its Indian clients, but was also making available its expertise, technical know-how and skills to the Indian Hotels/Clients for developing its business of running international chain of hotels on a worldwide basis.  After having so held, the Assessing Officer classified the various services rendered by the assessee to the Indian Hotels/Clients in four different categories as under:-

(a)For the use of trademarks, trade name and the stylized S of the assessee.  To state that as per Agreement no cost has been charged is not correct as has already been discussed above.  It is not correct to state that such valuable trade name and trade mark has been allowed to be used free whereas minor services as advertisements and booklets have been charged.  Thus, the payments received which are attributable to the user of the intangible assets shall be taxable as royalty.

(b)Further, the assessee is receiving payments for reservation services, assistance to Indian hotels and other clients in terms of expertise and know-how and its standards established worldwide.  The assessee is making available its expertise, technical know-how, skills and managerial practices for development of its international business to ITC, Indian hotels and other clients.  These services are taxable as fees for included services under Article 12(4)(b) of the DTAA.

(c)The assessees is receiving payments i.e. charging ITC, etc. for the use of its highly sophisticated centralized reservation system.  These are also taxable as fees for included services.

(d)The assessee is receiving payments for rendering of certain services such as advertisements, worldwide directory, in room magazine, brochures, networking, promotion of the hotels worldwide, promoting hotels to airline partners etc.  The incomes of the assessee are business income and in the absence of PE in India are not taxable.

10.Out of the aforesaid four categories, the income received from three categories classified as (a), (b) and (c) was held to be taxable by the Assessing Officer in India as royalty under Article 12(3)(a) and/or as fees for included services as per Article 12(4)(b) of the DTAA between the India and the USA whereas the income classified in category (d) was held to be business profit of the assessee by the Assessing Officer not chargeable to tax.  Accordingly, he brought 75% of the total amount of Rs.7,78,26,449/- received by the assessee for the aforesaid services to tax in India @ 15% as per Article 12 of DTAA between India and USA.  The amount received on account of Sheraton Club International and frequent Flyer programme was held to be not taxable in India by him.  The assessment so completed by the Assessing Officer for the AY 1998-99 u/s 143(3) vide his order dated 23.3.2001 was challenged by the assessee in an appeal filed before the ld.CIT(A) and the various submissions as made during the appellate proceedings for AY 1997-98 were reiterated on its behalf before him for AY 1998-99.  The ld.CIT(A), however, did not accept the same and for the similar reasons as given in his appellate order dated 22.3.2001 passed in assessees own case for AY 1997-98 on the similar issues and involving similar facts, he upheld the order of the Assessing Officer for AY 1998-99 bringing to tax 75% of Rs.7,78,26,449/- in India @ 15% as per Article 12 of DTAA between India and USA holding the same to be royalty and fees for included services.

11.Based on his assessment orders passed in the assessees case for AY 1997-98 and 1998-99 as sustained by the learned CIT(A) vide his appellate orders dated 22.3.2001 and 13.11.2001 holding that the income of the assessee for services rendered to the Indian Hotels/Clients was taxable @ 15% in India being royalty and fees for included services as per Article 12 of the DTAA, the Assessing Officer initiated re-assessments proceedings in assessees case for AY 1995-96, 1996-97, 1999-2000 and 2000-2001 by issue of notices u/s 148 after recording the following reasons which are identical for all these four years:-

Sheraton International Inc. is a company incorporated under the laws of USA.  It carries on the business of providing hotel related services worldwide.  It entered into agreements with M/s ITC Hotels Ltd. and other Welcome Group companies in India for providing various services like training, managerial assistance, etc.  It also provides its logo S and the name Sheraton to the Hotels it has entered into contract with.  For these services the assessee was in receipt of income amounting to crores.  The same is clearly taxable as fee for included services in terms of Article 12 of the DTAA between India and the USA as well as Section 9(1) of the Income Tax Act, 1961.

Orders u/s 143(3) passed for A.Yrs. 1997-98 and 1998-99 were passed on the above lines and the same were confirmed by the CIT(A)-XXIX.

In view of the above, I have reasons to believe that income of the assessee accruing or arising in India has escaped assessment within the meaning of section 147 of the I.T.Act.  Therefore proceedings u/s 147 of the I.T.Act is hereby initiated.  Issue notice u/s 148 of the I.T. Act.

12.During the course of reassessment proceedings, the Assessing Officer found that the assessee has received the following amounts from the Indian Hotels/Clients for the services rendered during the previous years relevant to A.Y. 1995-96, 1996-97, 1999-2000 and 2000-2001:-

13.In connection with the receipt of aforesaid amounts by the assessee, the Assessing Officer referred to the classification of the services rendered by the assessee to the Indian Hotels/Clients as made by him in the Assessment Order for AY 1998-99 in four categories and relying on the conclusions drawn therein as upheld by the learned CIT(A) in his appellate order for that year, he held that the income attributable to the first three categories of such services taken at 75% was taxable in India as per Article 12 of the relevant DTAA.  As regards the further category of services, the income attributable to which was held to be not taxable in India being the business profits of the assessee in the assessment order for AY 1998-99 as well as in the appellate orders of the learned CIT(A) for AY 1997-98 and 1998-99, the Assessing Officer however held that these services/facilities provided by the assessee to the Indian Hotels/Clients were also essentially and intrinsically linked with advertisement and promotion activities undertaken by the assessee for the Indian Hotels operating under the brand Sheraton.  According to him, in all such activities, the prominent motive was to maximize the reach of the Sheraton brand and to enhance brand equity of the hotels enjoying the brand name of Sheraton.  He also noted that the said activities of advertising were not by using general means of advertising, but the assessee was using its highly sophisticated and time tested methods developed by it using its own in-house facilities in the specialized field of services related to hospitality industry.  He, therefore, deviated from the view earlier taken by him predecessor in the assessment order for AY 1998-99 as well as by the learned CIT(A) in his appellate orders for AY 1997-98 and 1998-99 and held that the entire amount received by the assessee from the Indian Hotels/Clients including fees for services rendered, contribution towards Sheraton International Club and contribution under frequent Flyer programme is taxable in India as royalty and/or fees for included services.  Accordingly, he brought the entire amount received by the assessee from the Indian Hotels/Clients under different heads during all the four previous years relevant to A.Y. 1995-96. 1996-97, 1999-2000 and 2000-2001 to tax in India @ 15% as per Article 12 of the DTAA between India and USA vide the assessments completed u/s 148 read with Section 143(3).

14.Meanwhile, the appeals filed by the assessee against the appellate orders of learned CIT(A) dated 23.3.2001 and 13.11.2001 for A.Y. 1997-98 and 1998-99 came to be disposed of by the ITAT Delhi D Bench vide its common order dated 23.10.2002 reported in 85 ITD 110.  In the said order, the Tribunal disposed of this issue relating to the taxability of the amount received by the assessee from the Indian Hotels @ 3% of room charges on account of services rendered for publicity, marketing and reservations in India vide Paragraph No.24 as under:-

24.Both the parties have been heard at length.  After going through the orders of authorities below and considering the arguments of the parties, we are of the view that the issue has not been dealt with in the right perspective inasmuch as the AO as well as CIT(A) had proceeded on the assumption as if the covenants of DTAA authorized the levy of tax on the income of the non-resident.  The parties before us also have not addressed any argument as to whether the income of non-resident assessee is chargeable to tax under the provisions of IT Act, 1961 or not.  They simply have proceeded on the same footings on which lower authorities decided the issue.  We are unable to uphold such approach adopted by the lower authorities for the simple reason that taxability of the income of non-resident has to be first determined in the light of the charging provisions of IT Act.  The scheme of the Act is that taxability of the income of the non-resident has to be determined with reference to the charging provisions of ss.4, 5 and 9.  However, s.5 is subject to the other provisions of the Act.  Sec.90 authorizes the Central Government to enter into an agreement with the Government of any other country for

(a)The granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or

(b)For the avoidance of double taxation of income under this Act and under the corresponding law in force in that country; or

(c)For exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or investigation of cases of such evasion or avoidance; or

(d)For recovery of income-tax under this Act and the corresponding law in force in that country.

The combined reading of these provisions clearly reveals that provisions of s.90 are to be invoked for granting relief to the assessee if the income of the non-resident assessee is chargeable to tax under ss.4, 5 and 9.  If the income of non-resident itself is not chargeable to tax under the IT Act, they the question of invoking the provisions of s.90 would not arise at all.  None of the parties below decided the issue as to whether the income of non-resident was taxable as royalty under the charging provisions of the IT Act.  Therefore, we set aside the orders of the CIT(A) for both the years and restore the matter to the file of AO for fresh adjudication in accordance with law.  At this stage, we may also refer to a decision rendered by the Authority for Advance Ruling in the case of Cyril Eugene Pereira, In re (1999) 154 CTR (AAR) 281 wherein it has been held that provisions of DTAA cannot be availed of if the non-resident is taxable only in one country.  The other view has also been expressed by the said authority in the cases Mohsinally Alimohammed Rafik, In re (1995) 126 CTR (AAR) 311 : (1995) 213 ITR 317 (AAR) and Dr.Rajnikant R.Bhat, In re (1990) 135 CTR (AAR) 472 : this issue.  The assessee shall also be given a reasonable opportunity of being heard and to lead the evidence in support of its case.

In the result, both the appeal are allowed for statistical purposes.

15.The Tribunal thus set aside the orders of the learned CIT(A) for A.Y. 1997-98 AND 1998-99 impugned in the appeals filed before it and restored the matter to the file of the Assessing Officer for fresh adjudication after taking into consideration first the taxability of the amounts in question under the charging provisions contained in Sec.4, 5 and 9 of the Income Tax Act, 1961.

16.In pursuance of the aforesaid directions given by the Tribunal, the Assessing Officer issued fresh notices to the assessee initiating the assessment proceedings for AY 1997-98 and 1998-99.  During the said proceedings, the assessee was called upon by the Assessing Officer to state its case with regard to taxability or otherwise of the receipts to be treated as royalty and/or fees for technical services as defined in Section 9.  In reply, detailed submissions were made by the assessee reiterating its contentions as raised during the course of original assessment proceedings for AY 1998-99 and re-assessment proceedings for AY 1995-96, 1996-97, 1999-2000, 2000-2001 before the Assessing Officer as well as during the course of appellate proceedings for AY 1997-98 and 1998-99 before the learned CIT(A).  The said submissions made on behalf of the assessee were examined by the AO in the light of the agreements between the assessee and the Indian Hotels/Clients, DTAA between the India and the USA as well as the relevant provisions of Section 9.  The observations/findings recorded by the Assessing Officer on such examination in the assessment orders, which are identical in both the years i.e. AY 1997-98 and 1998-99, are summarized hereunder:-

1.The assessee was making available its expertise, technical know-how and skills to maintain hotels for developing its business of running International Chain of Hotels on a worldwide basis.  The very fact that the assessee was receiving payments linked to the sales further confirmed that the said payments were received for making available technical services and use of brand name Sheraton.

2. The payment received by the assessee from the Indian Hotels and Clients were indirectly for the use of the Sheraton trade name, trade marks and in particular the name SHERATON and its stylized S and any other identifying Characteristics that may be developed by Sheraton. The Indian Hotels were therefore, in effect, paying to the assessee for the use of the word Sheraton in its name.

3. The assessee thus was actually receiving payment for rendering technical services and for the use of the brand name Sheraton and this amount so received was therefore taxable as royalty and fees for technical services as per Section 9.

4. The services in connection with publicity, marketing and promotional activities rendered by the assessee to the Indian hotels/clients as well the services rendered in connection with reservation by making use of its technical expertise in the filed of service industry to promote and develop the clientele abroad were in the nature of technical services and the payment received for such service was in the nature of fees for technical services. The other activities such as advertisements in worldwide directory, In-Room magazine, brochure etc. as mentioned in the last category were intrinsically and inextricably linked to the main services of providing marketing and promotion and in these activities also, the assessee had utilized the highly specialized methods of advertising which was available at its disposal on account of its expertise acquired in the filed.

17. On the basis of his aforesaid findings/observations, the Assessing Officer held that the payments received by the assessee form the Hotels/Clients in respect of maintenance of high International Standards and use of trade mark clearly constituted a royalty under the Income Tax Act. He also held that the activities performed by the assessee as part of the advertising and brand promotion were to enhance and market the hotels in India that come under the brand Sheraton and thus, the entire receipts of the assessee were taxable as royalty and /or fees for included services as the case may be. He held that the entire income of the assessee form the receipts for services rendered to the Indian Hotels/Clients was taxable with reference to charging provisions of Sections 4, 5 and 9 and the assessee having no P.E. in India, the same was taxable in India as royalty and/or fees for included services as per Article 12 (3) and/or Article 12(4)(b) of the DTAA between India USA at the specified rate of tax. Accordingly, he brought to tax in India @ 15% the entire amounts of Rs.7,83,36,887/- and Rs.7,78,26,449/- received by the assessee during the previous year relevant to A.Y. 1997-98 and 1998-99 respectively from the Indian Hotels/Clients vide his assessment orders passed u/s 143(3) read with Section 254 on 28.11.2003. For this conclusion, he relied on the decision of Mumbai Bench of ITAT in the case of CEAT International Vs. Inspecting Assistant Commissioner- 12 ITD 381 which was later on upheld by the Honble Bombay High Court in 237 ITR 859.

18. Aggrieved by the aforesaid orders passed by the Assessing Officer for A.Y. 1997-98 and 98-99 in the set aside proceedings u/s 143(3) read with Section 254 on 28.11.2003, appeals were preferred by the assessee before the learned CIT(A). Meanwhile, the appeals were also filed by the assessee before the learned CIT(A) against the orders passed by the Assessing Officer for AY 1995-96, 1996-97, 1999-2000 & 2000-01 u/s 148/143(3). Since the main issue involved in all these six appeals filed by the assessee involving AY 1995-96 to 2000-01 relating to the taxability of amount received by the assessee for services rendered to the Indian hotels/plants in India was identical, the learned CIT(A) considered and disposed of all these six appeals on 31.10.2005 by six separate orders. During the course of hearing of these appeals before the learned CIT(A), the various facilities and services provided by it to the Indian hotels/clients were enumerated on behalf of the assessee as follows:-

            *Sheraton brand advertising- This advertisement is made by the appellant on various media such as TV, newspapers, magazine, posters etc.

* Presentation at Trade shows- This appellant sets up display and information booths at all major shows/exhibitions of hotel trade in the world such as ITB-Berlin, WTM- London, Arabian Travel Mart-Dubai, BIT-Milan etc. where all Sheraton affiliated hotels of the world or of a particular region have their stalls.

*Participation in Sheraton Road shows to travel agents The appellant organizes meetings in important cities of the world where persons engaged in the travel trade and key account customers are invited and presentations are made to them about all Sheraton affiliated hotels.

*Worldwide directory and regional directories The appellant prints at its own cost directory of all its client hotels and also directories of its client hotels located in a particular region (India is listed in the Asia Pacific region).  The worldwide directory and directory of the particular region is placed in all the hotel rooms so that a guest staying in any hotel gets information about Sheraton affiliate hotels in the particular region as well as anywhere in the world.  Such directories are also placed in the general sales offices and central reservation offices.

*Divisional brochures The appellant publishes brochures called a la carte and at a glance containing information about its client hotels which are sent to travel agents, wholesalers, incentive planners, convention planners etc.

In room magazine The appellant publishes, inter alia, an in-room magazine called Sojourn which contains information about all its client hotels in a region and also carries features about the country, state or city where such hotels are located in order to enhance awareness and create interest in the minds of the guests of its client hotels about the places and the hotels.  This magazine is placed in the hotel rooms.

*The directories, divisional brochures, magazines etc. are printed at the appellants cost and the client hotels only pay for the cost of freight and import duties, if any, for receiving the same.

*Participation in sister hotel promotions The appellants client hotels are entitled to participation in such promotional programmes where certain hotels are selected as hotels of the month and the tent, cards, posterns and other merchandising material are kept on display at all client hotels of a region for a month.  This is done especially for new hotels to create awareness among potential customers.

 *Networking all sales offices, contact names, addresses etc., to provide access to key corporate clients worldwide.

*Promoting hotels to airline partners.

*Participation in American Express membership programmes.

*Access to key customer data of Sheraton worldwide.

*Access to marketing tools such as Global Preferred Rates, Sheraton Exective Traveller rates etc. for corporate clients worldwide.

19.It was submitted on behalf of the assessee before the learned CIT(A) that all the aforesaid services/facilities provided by it were related to publicity, marketing and reservation only and the payment at the rate of 3% on the total room charges was received in lieu thereof.  It was contended that the payments so received by the assessee thus were entirely related to publicity & marketing services rendered outside India on global basis including the provision for reservation facility and the same could not be regarded as royalty or fees for included services.  It was submitted that as specifically provided in the relevant agreements, the trade mark of the assessee company was provided to the Indian hotels/clients free of cost and the said agreements having been repeatedly scrutinized and approved by the Government of India, the Assessing Officer was not correct in creating a fiction by attributing a part of the fees received by the assessee to the grant of right to use the trade mark.  In support of this contention, reliance was placed on behalf of the assessee on the decision of Honble Supreme Court in the case of Union of India Vs. Azadi Bachao Andolan 263 ITR 706.  It was also contended that the income earned by the assessee from the Indian hotels/clients for the services rendered was in the nature of its business income which was not covered under Article 12(3) of the DTAA between India and USA as royalty or even under Article 12(4)(b) as fees for included services.  The decision of Mumbai Bench of ITAT in the case of Raymond Vs. DCIT 86 ITD 791 was relied upon by the assessee in support of this contention.  It was pointed out on behalf of the assessee before the learned CIT(A) that the payment so received by it from the Indian clients/hotels had been consistently accepted as its business income right from the year 1979 while issuing certificates under Section 195(2) by the Department and there being no material change in the facts and circumstances of the case during the years under consideration, the Assessing Officer had no justifiable reason to take a different stand in these years.

20.The aforesaid submissions made on behalf of the assessee, however, were not found acceptable by the learned CIT(A).  He held that the orders passed u/s 195(2) in connection with deductibility of tax at source were not final and conclusive and the same, therefore, did not pre-empt the department from passing appropriate orders of assessment in accordance with law.  For this conclusion, he relied on the decision of Honble Bombay High Court in the case of CIT Vs. Tata Engineering & Locomotive Co. 245 ITR 823.  He also relied on another decision of Honble Bombay High Court in the case of CIT Vs. Elbee Services Pvt. Ltd. 115 Taxman 618 wherein it was held that finding given under Section 195(2) will not preclude the Department from taking a contrary view in the assessment proceedings.  He then proceeded to examine the main issue involved in the assessees case relating to taxability of the payments received by it from the Indian hotels/clients for the services rendered in India in the light of orders passed by the Assessing Officer, submissions made on behalf of the assessee from time to time, agreements between the assessee and the Indian hotels/clients, relevant Articles of the DTAA between India and USA as well as the relevant provisions of the Income Tax Act, 1961.  On such examination and after analyzing the various terms and conditions of the agreements between the assessee and the Indian hotels/clients, he noted that the assessee was imparting information concerning technical and/or commercial knowledge and experience to the Indian hotels for developing their business of running hotels as per the international standards.  He further held that the assessee was also providing to the Indian hotels all manuals and other written materials of confidential in nature as per the agreement which were useful commercial information based on the experience of the assessee.  He held that the payments received by the assessee for such services thus were entirely in the nature of royalty as defined in Section 9(1)(vi) read with Explanation-2 thereto.  He further noted that the services and facilities provided by the assessee to the Indian hotels/clients by way of making available its commercial experience and management practices, providing assistance from its sales offices throughout the world to promote the flow of foreign tourists to India, advertising through listing of Indian hotels in the Corporate Sheraton Directory, providing assistance through Sheratons corporate facilities for worldwide public relations etc. were definitely meant to improve its brand name and relying on the decision of Mumbai Bench of ITAT in the case of CEAT International Vs. Inspecting Assistant Commissioner (supra), he held that the payments received for such services were in the nature of royalty under Article 12(3)(a) of DTAA between India and USA.  He also held that even though the Indian hotels/clients were allowed to use the trade mark and trade name stylized as S of the assessee free of any cost as provided in the relevant agreements, such use of brand name/trade mark ensured automatic clients and tourist procurement to the Indian clients/hotels on a worldwide basis.  He also observed that the fees received by the assessee was not a fixed amount, but the same was directly related to their turnover.  He held that the payments so received, therefore, were clearly in the nature of royalty and the assessee could not claim it to be different by simply drafting the agreements in a manner to state that the fees being received by it was only for the services rendered and not for allowing the use of its brand name in India.  According to him, allowing the use of trade mark etc. by the assessee to the Indian hotels/clients and, therefore, the payments received for such services were clearly in the nature of royalty as defined in Section 9(1)(vi) read with Explanation 2(iii) thereto as well as per Article 12(3)(a) of DTAA between India and USA.

21.As regards the agreements between the assessee and Indian hotels/clients having been already approved by the various departments of the Government of India, the learned CIT(A) held that each department while giving approval to a particular agreement examines that agreement from its own angle and within the mandate provided to that authority under the particular Acts or Rules and, therefore, such approval does not preclude the other departments from examining the nature of payment under the relevant Statute.  He, therefore, finally held that the entire payments received by the assessee from the Indian hotels/clients for the services rendered in terms of various agreements entered into with them were in the nature of royalty under Section 9(1)(vi) of the I.T.Act, 1961 and also under Article 12(3)(a) of the DTAA between India and USA.  He, therefore, upheld the action of the Assessing Officer in bringing the said receipts as chargeable to tax in India the rate of 15% during all the six years under consideration.  As regards the contributions received by the assessee from the Indian hotels/clients in respect of Sheraton Club International (SCI) and Frequent Flyer Programme (FFP) held to be taxable by the Assessing Officer in India in the assessments completed u/s 148/143(3) for AY 1995-96, 96-97, 1999-2000 and 2000-01, he noted that these contributions were not received by the assessee in pursuance of the agreements entered into with the Indian hotels/clients.  He also noted that these contributions received from the hotels for providing services to the members were being given back to the guests in the form of various rewards.  He also found on the perusal of the relevant documents such as SPG Programme Guide and specimen invoices for SCI contributions/award redemption payments that the said contributions were received for facilitating the operational/promotional programme in order to promote the business of the hotels worldwide.  He, therefore, held that these contributions were not in nature of fees for technical services or royalty but constituted the commercial income of the assessee which could not be brought to tax in India in the hands of the assessee company since it was not having any PE in India.  He, therefore, deleted the additions made by the Assessing Officer on account of these contributions in AY 1995-96, 96-97, 1999-2000 & 2000-01.

22.Aggrieved by the aforesaid orders of the learned CIT(A), the assessee has preferred the present appeals for all the relevant six years i.e. AY 1995-96 to 2000-01 whereas the Department is in appeal for AY 1995-96, 96-97, 1999-2000 & 2000-01 challenging the relief allowed by the learned CIT(A) to the assessee.

23.The main issue relating to the taxability of the amounts received by the assessee company from the Indian hotels/clients for the services rendered in pursuance of the agreements entered into with them in India is raised by the assessee company in the following grounds which are common in all its six appeals (except that the numbers thereof are different in the appeals for AY 1997-98 & 98-99):-

2(a) That in the facts and circumstances of the case the Ld. CIT(A) erred in holding that payments received by the appellant from ITC Ltd., ITC Hotels Ltd. & Adyar Gate Hotels Ltd. fall within the definition of royalty as per Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961.

2(b)That the ld.CIT(A) erred in brushing aside the explanations of the appellant that the payment received from the aforesaid companies related entirely to publicity and marketing services rendered entirely outside India on a global basis and the provision of reservation facility and accordingly, the same cannot be regarded as royalty under the Income-tax Act.

2(c)That without prejudice to the above, even otherwise the ld.CIT(A) fell in error in not appreciating that since there existed a Double Taxation Avoidance Agreement between Government of India and Government of USA (hereinafter referred to as DTAA), the provisions of DTAA will prevail over the general provisions contained in the Income-tax Act as per provision of section 90(2) of the Income-tax Act and as per CBDT Circular Nos.333 and 728.

3(a)That the ld.CIT(A) acted capriciously in overlooking the repeated contention of the appellant that as per express clauses of the agreements with Indian companies, the trademark was provided free of any cost or charges.

3(b)That the ld.CIT(A) failed to appreciate that the specific clauses of the agreement providing for use of trademark free of any cost were approved by the Government of India on several occasions and found to be true and acceptable and accordingly, the same cannot be brushed aside merely on whims and fancies of the Revenue authorities.

3(c)That the ld. CIT(A) erred in concluding that the case laws relied upon by the appellant were not relevant to the facts of the case without appreciating the ratio of judgments rendered.

3(d)That the Ld.CIT(A) erred on facts and in law in assuming that the appellant had received payment as consideration for use of trademark within the meaning of clause 3(a) of Article 12 of the DTAA without being able to substantiate the same.

4.That the A.O. and the Ld.CIT(A) failed to prove the chargeability of the impugned income under the charging provisions of the Income-tax ct, 1961.

5.That even otherwise, the ld.CIT(A) erred in not appreciating that the receipts of the appellant from ITC Ltd., ITC Hotels Ltd. & Adyar Gate Hotels Ltd. were in the nature of business profits which were covered under Article 7 of the DTAA between India and USA and that since the appellant had no permanent establishment in India, the same was not chargeable to tax in India in view of the said Article.

6(a)That without prejudice to the above, the Revenue authorities failed to appreciate that even if it was assumed that the impugned income was covered under Article 12 of the DTAA, as per clause (1) of the said Article, the alleged royalties and fees for included services were liable to be taxed in the other contracting state i.e U.S.A.

6(b)That the Revenue authorities failed to prove the taxability of the impugned income under clause (2) of Article 12 of the DTAA.

7(a)That the A.O. erred in partly following the orders of the A.O. and the ld. CIT(A) for assessment year 1998-99 without appreciating that the said orders were not sustained in further appeal by the Honble Tribunal.

7(b)That the Ld.CIT(A) erred in upholding the said action of the A.O.

7(c)That the A.O. erred in differing from the orders of the Revenue authorities for A.Y.s 1997-98 & 1998-99 wherein 25% of fees for marketing, publicity and reservation services were held to be Business Profits of the appellant and hence not chargeable to tax in India in the absence of Permanent Establishment, thereby not appreciating that said orders of the Ld.CIT(A) to the aforesaid extent had reached finality inasmuch as the same were not challenged in appeal by the Department before the Honble Tribunal.

7(d)That although the aforesaid ground of appeal was raised before the ld. CIT(A), the ld.CIT(A) erred in overlooking the said ground altogether in his appellate order for the impugned year.

8.That accordingly, the order of the ld.CIT(A) holding that the payments to the extent of Rs.5,19,92,318/- received by the appellant company from hotels in India for services rendered in terms of various agreement entered into with them were in the nature of royalty u/s 9(1)(vi) of the Income-tax Act and also under Article 12(3)(a) of the DTAA, is arbitrary, unwarranted and bad in law and as such, the same should be quashed.

24.The learned counsel for the assessee, at the outset, submitted before us that the assessee being a non-resident company, only the income received in India or deemed to be received in India, income accruing or arising in India and income deemed to accrue or arise in India is liable to tax in India as per the charging provisions of Section 5(2) contained in Chapter-II.  He submitted that the income on account of the receipts in question received by the assessee company from the Indian hotels/clients was neither received by it in India nor could the same be deemed to have been received in India in terms of Section 7.  He also submitted that the services for which the said income had been received, were rendered by the assessee earned from the services rendered to the Indian hotels/clients thus was not chargeable to tax in India and therefore, the question of invoking the provisions of Section 9 could not arise in its case at all.  He also contended that the assessee admittedly having no permanent establishment in India, the said income being its business income, in any case, was not chargeable to tax in India by virtue of Article 7 of the DTAA between India and USA.

25.As regards the allegation of the Revenue authorities that the substantial part of the payments received by the assessee under the relevant agreements was attributable to allowing the use of trademark, trade name and stylized S to the Indian hotels/clients and that it was an important element of the overall services provided by it to the Indian clients, the learned counsel for the assessee submitted that this allegation of the learned CIT(A) was entirely unfounded and baseless in the sense that the other services rendered under the agreements by the assessee had been totally sidetracked by him.  He submitted that the practice of the assessee company followed consistently is to enter into agreements with reputed hotels only which have a very strong brand of their own and which are capable of meeting the high international standards set by it.  He submitted that the use of trademark of the assessee by the client hotels thus was just to facilitate the rendering of primary services viz., marketing, publicity and reservation services and the use of trade name or trademark was just to ensure optimum marketing and sales results for hotels marketed and publicized under the brand name Sheraton. He submitted that such use of the brand name Sheraton was also going to facilitate cluster advertising by allowing all hotels using brand name Sheraton to be advertised together resulting in a reduction of cost. He submitted that the use of trademark/trade name of the assessee by the Indian hotels thus was for the purpose of maximizing client or tourist procurement on a worldwide basis in order to increase the revenue of the assessee which was directly related to the sale results of the client hotels. He contended that the use of trademark/trade name thus was going to help the assessee in maximizing its business profit and since it was in the business interest of the assessee, such use was allowed free of any cost of the client hotels. He pointed out that the client hotels of the assessee in India like ITC themselves have a very strong and reputed brand and the agreement entered into the assessee with them provided for the joint use of the brand name of the local chain of hotels along with its own brand name Sheraton. He also pointed out that as per the agreement entered into by the assessee with ITC, it was undertaken by the latter to recommend and promote all Sheraton hotels and Motels worldwide and to make every reasonable effort to encourage the use of the same by all its customers and guests. He contended that the use of brand name thus was mainly for the purpose of promoting the mutual business which was in the interest of the assessee of earning more profits.

26. The learned counsel for the assessee further submitted that as per the agreements entered into by the assessee company with the Indian clients/hotels, it was entitled to receive fees for publicity, marketing and reservation services only by other services, if required by the client, were either to be separately negonieted or provided on reimbursement of actual cost as expressly stipulated in the agreements. He pointed out that no such auxiliary services, however, were in fact rendered by the assesee to the Indian clients/hotels in any of the six years under consideration which clearly shows that all the services/facilities provided by the assessee to the Indian hotels/clients were in the nature of publicity, marketing and reservation services only. He submitted that none of the Indian hotels/clients with whom such agreements had been entered into by the assessee company was related to it and since they were clearly operating at arms length, there was no basis to go behind the express clauses of the agreements and allege that a part of consideration was attributable to use of trademark especially when the said agreement had been approved by different government authorities repeatedly after necessary scrutiny. In support of this contention, he relied on the decision of Honble Delhi High Court in the case of Bist (D.S) & Sons Vs. CIT- 149 ITR 276. He also relied on the decision of Honble Madras High Court in the case of CIT Vs. Lucas TVS Limited- 226 ITR 281 to contend that the said agreements having been provided by the various government authorities form time to time, the terms thereof could not be regarded as unreasonable or excessive and the same, in any case, cannot be considered as sham or collusive merely on the basis of surmises and conjectures. For this contention, he also derived support form the decision of Honble Delhi High Court in the case of CIT Vs. Sriram Pistons & Rings Ltd.-181 ITR 230 and that of Pune Bench of ITAT in the case of Kinetic Honda Motors Ltd. Vs. JCIT-77 ITD 393. He contended that the consideration paid to the assessee company by the Indian hotels/clients thus was not paid for use of any patent, model, design, secret formula or process or trademark and the same, therefore, could not be regarded as royalty within the meaning of clause (iii) of Explanation-2 to Section 9(1)(vi).  He contended that the said consideration as specified in the agreements thus was only attributable to marketing, promotion and reservation services which essentially constituted business income of the assessee which cannot fall under Explanation-2 to Section 9(1)(vi) or even under Article 12(3) of the DTAA.

27.As regards the allegation of the Revenue authorities that the assessee was imparting information concerning technical and/or commercial knowledge or experience to the Indian hotels for developing their business of running hotels, the learned counsel for the assessee submitted that the international standards set by Sheraton are well-known worldwide and they are not in the nature of any secret information which is imparted by Sheraton specifically to Indian hotels covered under the agreement in lieu of a consideration.  He submitted that the maintenance of high international standards, on the other hand, is an obligation cast upon the client hotels under the agreement with the assessee for which there is no question of receiving any payments by the assessee.  He submitted that the entire payment in pursuance of the agreement was actually received by the assessee from Indian hotels/clients for the services related only to publicity, marketing and sales (including reservation) as per Article-VII of the said agreement and there was no payment made for provision of any advisory services by the assessee through the specialists from Sheraton Asia Regional Office for which the charges were to be received separately as provided in the agreement.  He contended that the payments in question received by the assessee from the Indian hotels/clients thus are not in the nature of royalty under Explanation-2 to Section 9(1)(vi) and the learned CIT(A) in his impugned order has not treated the said payments as fees for technical services under Explanation-2 to Section 9(1)(vii) and the Department having not challenged the said orders of the learned CIT(A) on this issue, the same has attained finality.

28.The learned counsel for the assessee also submitted that since the entire payment in question received by the assessee from the Indian hotels/clients was related entirely to publicity and marketing services rendered outside India on a global basis, the same constituted business profits of the assessee which could not be brought to tax in India as per Article 7 of the DTAA since the assessee did not have any permanent establishment in India during all the six years under consideration.

29.As regards the all allegation of the learned CIT(A) that the aforesaid payments are in the nature of royalty under Article 12(3)(a) of the DTAA, the learned counsel for the assessee invited our attention to the said Article to show that the same does not take within its ambit the rendering of services as the same are dealt with in paragraph 4 of Article 12.  He pointed out that paragraph 3(a) only deals with the use or the right to use any rights, property, information, design, plan etc. and not with the physical rendering of services.  He contended that the payments received by the assessee for marketing, publicity and sales related services such as reservation, therefore, cannot fall under paragraph 3(a) or even paragraph 3(b) of Article 12 of the DTAA.  He contended that such services are not in the nature of property or rights that can be exploited but contemplate only a level of practices/targets of perfection to be achieved in order to maximize the marketing and sales results under the agreements.

30.As regards the decision of Mumbai Bench of ITAT in the case of CEAT International (supra) relied upon by the Revenue authorities, the learned counsel for the assessee submitted that the said case is clearly distinguishable on facts.  In this regard, he took us through the relevant portion of the order passed by the Tribunal in the said case as well as the judgment of Honble Bombay High Court upholding the decision of the Tribunal and pointed out that the assessee in the said case was admittedly receiving consideration for allowing the use of trademark by the Indian company under clause (d) of the relevant agreement.  He contended that the said consideration thus was held to be in the nature of royalty in terms of Explanation (ii) to Section 9(1)(vi) whereas there being no such consideration received by the assessee in the present case since the use of trademark was allowed free of cost to the Indian hotels/clients as per the agreement, Explanation (ii) to Section 9(1)(vi) has no application.  He also pointed out that in the case of CEAT International (supra), the use of channels of distribution in overseas market and after sales services was allowed as per the relevant agreement whereas no such services were rendered by the assessee in the present case.  He further pointed out that unlike in the case of CEAT International (supra), the assessee has not imparted any information concerning technical, industrial, commercial or scientific knowledge or experience or skill to the Indian hotels.

31.As regards the applicability of Article 12(4) of the DTAA dealing with fees for included services, the learned counsel for the assessee submitted that the said Article has been impliedly held to be not applicable by the learned CIT(A) for all the years under consideration and there being no appeal filed by the Department against the orders of the learned CIT(A) on this issue, the fact that the impugned payments are not in the nature of fees for included services has attained finality.  Without prejudice to this contention, he argued that the said Article, in any case, has no application to the amount in question received by the assessee.  In this regard, he invited our attention to the relevant portion of the said Article as contained in the DTAA as well as the Memorandum of Understanding explaining further the scope and ambit of the said Article reported in 187 ITR (Statute) 102.  He submitted that clause (a) of Article 12(4) includes technical and consultancy services that are ancillary and subsidiary to the application and enjoyment of the right, property or information for which royalty is received under a license or sale as described in Article 12(3)a) as well as those ancillary and subsidiary to the application or enjoyment of industrial, commercial or scientific equipment for which a royalty is received under a lease as described in Article 12(3)(b).  He submitted that since the payment received by the assessee was not covered either under Article 12(3)(a) or 12(3)b), Article 12(4)(a) cannot have any application in its case.  As regards the application of Article 12(4)(b), he invited our attention to the Memorandum of Understanding dated 15.5.1989 (supra) wherein it was clarified that paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, expertise, skill, know-how or process or consists of the development and transfer of a technical plan or technical design to such person.  It was further clarified that the fact that the provisions of the service may require technical input by the person providing the service does not per-se mean that technical knowledge, skill etc. are made available to the person purchasing the service within the meaning of paragraph 4(b).  Similarly, the use of a product which embodies technology per-se be considered to make the technology available.  Relying on this clarification of the memorandum of Understanding as well as the illustrative list of the type of technical services covered under Article 12(4)(b) as given in the MoU, the learned counsel for the assessee contended that in order to fall under article 12(4)(b) of the Indo-US DTAA, the payment should be received for rendering any technical or consultancy services and consultancy services, if rendered, should be of technical nature inasmuch as the same should make available to the person acquiring the service, some technology enabling him to apply the same.  He contended that that applying this criterion, none of the services rendered by the assessee under the impugned agreements could be said to be technical in nature to fall under Article 12(4)(b).  In support of this contention, he relied on the decision of Mumbai Bench of ITAT in the case of DCIT Vs. Boston Consulting Group Pte. Ltd. 94 ITD 31 wherein it was held that the services rendered by the assessee company which was engaged in the business of rendering strategy consulting services such as business strategy, marketing and sales strategy, portfolio strategy to its clients in India and abroad, were outside the scope of Article 12(4)(b) of the India-US Tax Treaty observing that such non-technical services could not be covered under the said Article.  It was also held that payments for services not containing any technology are required to be treated as outside the scope of fees for technical services.  He also cited the decisions of Mumbai Bench of ITAT in the case of McKinsey & Co.Inc. (Philippines) and Others Vs. ADIT 99 TTJ 857, National Organic Chemical Industries Ltd. Vs. DCIT 96 TTJ 765, Raymond Vs. DCIT 96 ITD 791 and the unreported decision of Mumbai Bench of ITAT in ITA No.300/Mum/2002 in support of this contention.  He emphasized that in the course of rendering services in respect of marketing, publicity and reservations, no technical knowledge or skill was made available to the clients by the assessee company and if at all rendering of such services required providing of some technical input by the assessee, it does not per-se mean that technical knowledge, skill etc. was made available to a person purchasing the said services to attract Article 12(4)b) of the Indo-US DTAA.  He also invited our attention to Example No.7 given in the Memorandum of Understanding to illustrate the scope of Article 12(4)(b) wherein it was categorically stated in the analysis based on the example that the fact that technical services were required by the performer of the services in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b) of Article 12.  He contended that the payments in question received by the assessee for the services rendered to the Indian hotels/clients during the years under consideration, therefore, did not constitute either the royalty under Article 12(3) or fees for included services under Article 12(4) of the Indo-US DTAA.

32.Without prejudice to his aforesaid arguments and as an alternative, the learned counsel for the assessee contended that even if it is assumed for the sake of arguments that the impugned payments are covered under Article 12 of the DTAA, the same can be taxed only in USA and not in India as per the provisions contained in paragraph Nos.1 & 2 of Article 12.  In this regard, he pointed out that the relevant provisions giving discretion to tax the said payments also in India as contained in paragraph 2 of Article 12 of the DTAA are vague and provides a defective machinery for taxing the same also in India.  In this regard, he relied on the decision of Delhi Bench of ITAT in the case of Modiluft Ltd. Vs. DCIT in ITA Nos.3949 & 3950/Del/1998 wherein it was held that keeping in view the lacuna in the provisions of DTAA as well as the defective machinery provided therein and in the absence of any guidelines issued by the CBDT or any other competent authority, the Assessing Officer cannot be given a discretion to impose tax in India and benefit of such shortcomings/lacuna is required to be extended to the assessee.

33.The learned Special Counsel for the Revenue Shri Y.K.Kapur, on the other hand, submitted that it is necessary to refer to the relevant clauses of the agreement between the assessee and the Indian hotels/clients to ascertain the exact nature of payments received by it for the services rendered to the said parties.  In this regard, he took us through the relevant clauses of the said agreements in order to explain the stand of the Revenue about the nature of the amount in question received by the assessee being royalty and/or fees for included services chargeable to tax in India.  Referring to clauses (4) & (5) of the preamble of said agreement, he submitted that the background of the assessee as well as the experience attained by it in the field of hotel business described therein clearly shows the fund of knowledge possessed by it.  He submitted that clause (3) of the preamble of said agreement talks of imparting technical knowledge so as to bring the computers of the ITC in synchronization with those of the Sheraton through which reservation can be done which can take place only on the Sheraton imparting the technical information with regard to the software used and also would fall within the means of communication skill through satellite as noted by the Assessing Officer in his assessment orders for AY 1997-98 & 98-99.  He submitted that the services rendered in connection with publicity, marketing and promotion, on the other hand, are nothing but ancillary and subsidiary services as defined in Article 12(4) of the DTAA.

34.Shri Kapur also submitted that the entire reservation system between the client hotels and Sheraton including ITC is connected through the satellite and this undisputed position clearly shows that the assessee and his clients communicate with each other through satellite which again brings the services rendered by it within the ambit of Article 12(4).  According to him, even the making of reservation system available facilitates the assessee to send the communication through the said system in India to the Indian hotels which again attracts Article 12(4) of the DTAA.  He submitted that as per the agreement it was also agreed by the assessee to part with its knowledge to help the Indian clients to bring their hotels at par with the international standards and the information in this connection was agreed to be supplied as on-going process by bringing the said hotels under the Sheraton network.  He pointed out that it was also agreed by the assessee to make available to the Indian clients/hotels the services of senior hotel specialists from Sheraton Asia Regional Offices and these stipulations contained in Article 4 further show that the payment received by the assessee for the services rendered in terms of the said agreement was covered not only under Article 12(3)(a) but also under Article 12(4)(a).  He also submitted that as per the said Article, regular feedback was agreed to be supplied by the assessee pertaining to the services and supplemented guidelines and even the ITC agreed to ensure the compliance of the existing as well as revised regulations guidelines and standards made available by the assessee from time to time.  He contended that it was thus a clear case of information concerning industrial, commercial or scientific experience being made available by the assessee to the Indian clients/hotels and the consideration paid for the same, therefore, clearly falls within the ambit of royalty and fees for included services.  He also contended that even the assistance and training of the staff to be provided by the assessee in accordance with the international standards set up by it would also constitute imparting of information regarding industrial, commercial or scientific experience and the amount paid for such services would be nothing but royalty.

35.Shri Kapur submitted that for all the aforesaid services agreed to be rendered by the assessee to the Indian clients/hotels, a single composite payment was agreed to be paid and such composite payment being agreed to be made towards use of trademark, supply of information concerning industrial, commercial and scientific experience, reservation of rooms etc., the stipulation made in the agreement to the effect that the trade name and trademark were allowed to be used free of cost is nothing but a colourable device adopted by the assessee to avoid the payment of tax in India.  He submitted the Article XIII dealing with the termination of the agreement and Article XIV dealing with the confidentiality clause clearly show that the trademark, symbol, material and information supplied as per the agreement remained to be the property of the assessee and the Indian hotels/clients were allowed to use the same only for the period during which the agreements were in force and that too, subject to confidentiality clause whereby the same was not to be disclosed to any third party.  He contended that these terms of the agreement leave no room to doubt that the assessee has granted the use and right to use the trademark, the information concerning industrial, commercial as well as scientific experience to the Indian hotels/clients and the payments received for the same were squarely covered by Article 12(3)(a).  He contended that the information furnished by the assessee as reflected in Article III of the agreements thus clearly falls under Article 12(4)(b) of the DTAA whereas the advertising and other services rendered by the assessee being nothing but ancillary and subsidiary to the obligation of enjoyment of right, property and information etc. are squarely covered under Article 12(4)(a).  He submitted that this stand of the Revenue also gets support from the illustrations given in the Memorandum of Understanding to explain the scope of fees for included services as mentioned in Article 12.

36.As regards the chargeability of the payment in question received by the assessee from Indian hotels/clients, Shri Kapur contended that the same is covered under Section 9 of the Income Tax Act, 1961 as established by the learned CIT(A) in his impugned orders relying on the definition of royalty and fees for included services given therein.  He submitted that the stand of the assessee about the said payment not being in the nature of royalty based on the premise that the use of trademark as specifically provided in the agreement was without consideration is devoid of any merits in view of Section 25 of the Contract Act which provides that the agreement without consideration is void.  He contended that if the test of Section 25 is applied, then the assessee cannot be permitted to say that there was no consideration for usage of trademark relying on the agreement.  He contended that the consideration agreed under the agreement in any case was for all the services to be provided by the assessee under the said agreements and the same being a composite consideration for such services, part of it was clearly attributable to use of trademark which clearly was in the nature of royalty.  He also invited our attention to a letter dated 9.4.1990 issued by the Reserve Bank of India granting permission to remit the amount to the assessee placed at page No.75 of paper book-2 and pointed out that the said payment was clearly termed therein as royalty.

37.Shri Kapur then took us through the various Articles of the relevant agreements and submitted that a perusal of terms contained therein clearly shows that the same are composite documents with each clause being interlinked and interwoven with the other clauses.  He submitted that none of the said clauses, therefore, can be read in isolation and the stand of the assessee based on one clause providing for no payment for use of trademark cannot be accepted especially when one single composite payment was agreed to be made as consideration in terms of the said agreement.  Relying on the decision of Honble Supreme Court in the case of CIT Vs. M/s Panipat Woollen and General Mills Co.Ltd. AIR 1976 (SC) 640, he contended that in order to construe an agreement, the Court has to look to the substance or the essence of it rather than its form and a party cannot escape the consequence of law merely by describing an agreement in a particular form though, in essence and in substance, it may be a different transaction.  The real intention has to be gathered from the terms and conditions agreed upon by the parties executing the particular contract.  He also relied on the decision of Honble Supreme Court in the case of State of Orissa Vs. Titaghur Paper Mills Co.Ltd. AIR 1985 (SC) 1293 wherein it was held that a document cannot be interpreted by picking up only a few clauses and ignoring the relevant ones as well as true nomenclature and description given to a contract is not demonstrative of the real nature of the document or the transaction there under which have to be determined from all the terms and clauses of the document and all the rights and results flowing therefrom and not from picking and choosing out ultimate effect or the result.  He also cited the decision of Honble Delhi High Court in the case of Nanak Builders and Investors Pvt. Ltd. Vs. Vinod Kumar Alag AIR 1991 (Del) 315 wherein it was held that mere heading or title of document cannot deprive the document of its real nature and it is the substance which has to be seen and not the form.  He also relied on the decision of Honble Bombay High Court in the case of Govindram Mihamal Vs. Chetumal Villardas AIR 1970 (Bom) 251, Honble Supreme Court in the case of Angurbala Mullick Vs. Debabrata Mullick- AIR 1951 (SC) 293, Honble Calcutta High Court in the case of Abdul Kader Laskar and others Vs. State of West Bengal and others-AIR 1967 (Cal) 39, Honble Bombay high Court in the case of Aziende Colori Nazionali Affini, Italy Vs. CIT, Bombay City-I- 110 ITR 145 as well as host of other judgments wherein similar proposition was pronounced laying down that a document/agreement has to be considered as a whole to ascertain the real nature thereof as well as to gather the real intention of the parties and the different clauses thereof cannot be considered in isolation. He contended that if the entire agreement entered into by the assessee company with the Indian clients/hotels are read as a whole, the real nature as well as intention of the parties arising form the substance thereof leaves no room to doubt that it was a single/composite payment agreement and the payments received by the assessee in pursuance thereof were liable to tax in India not only under Section 9 of the domestic law but also under Article 12(3) and 12(4) of the Indo-US DTAA. He contended that the said payments received by the assessee were not its business profits as claimed by it but were clearly in the nature of royalty and fees for included services chargeable to tax in India. In support of this contention, he also placed reliance on the following judgments:-

            (i)         CEAT International Vs. IAC-12 ITD 381 (Bom).

            (ii)        CEAT International Vs. IAC-237 ITR 859(Bom).

            (iii)       Aziende Colori Nazianali Affini, Italy Vs. CIT- 110 ITR 145 (Bom).

            (iv)       CIT Vs. Stanton & Stavely (Overseas)- 146 ITR 405 (Cal).

            (v)        CIT Vs. Ahmedabad Manuf. & calico Printing- 139 ITR 806 (Guj).

            (vi)       N.V. Philips Vs. CIT- 172 ITR 521 (Cal).

            (vii)      CIT vs. Davy Ashmore India Ltd.- 190 ITR 626 (Cal).

(viii)     Elkem Technology Vs. DCIT 250 ITR 164 (AP).

(ix)       Union Carbide Vs. IAC 50 ITD 437 (Cal).

(x)        Nisshinbe Industries Inc. Vs. ACIT 83 ITD 748 (Mad).

            (xi)       Raymonds Ltd. Vs. DCIT 86 ITD 791.

(xii)      Chanderkant Manilal Shah Vs. CIT JT 1991 (4) SC 171.

38.In the rejoinder, the learned counsel for the assessee submitted that the direction given by the Tribunal while setting aside the issue relating to chargeability of 75% of the amount received by the assessee company from the Indian hotels/clients during the AY 1997-98 and 98-99 to tax in India, was very specific i.e. to ascertain the taxability of the said amount under the domestic law keeping in view the charging provisions contained in Sections 4, 5 & 9.  He submitted that despite this specific direction given by the Tribunal, no specific findings have been recorded by the Assessing Officer on this aspect in the fresh assessments completed during the set aside proceedings.  He submitted that the assessee is in the business of hotel related services and its main business activity is to render such services.  The infrastructure available with it such as reservation offices worldwide, computerized systems etc. are only incidental to facilitate this business.  He submitted that the Indian companies such as ITC were already in the business of running hotels of international standard with all the infrastructure facilities and network available with them including the computerized reservation system which got interfaced with the computerized reservation system of the assessee company.  Referring to the relevant portion of the agreements entered into by the assessee company with the Indian hotels/clients, he pointed out that the main purpose of entering into the said agreements was to do business together and all the services listed in the said agreements were merely incidental to this main purpose.  He contended that to ascertain the exact nature of the arrangement between the two sides, the main object of such arrangement as evident from the agreements is to be seen and not the modus-operandi and apparatus used to attain the said objective.  He submitted that the use of its trademark, trade name etc. by the Indian hotels/clients is being insisted upon by the assessee company for achieving the main objective in its own interest to promote the hotel business and not for anything else and since the whole purpose of such insistence as well as providing the incidental and ancillary services was to maximize its business profit, the payments received by it from the Indian hotels/clients was entirely its business income.  He submitted that the Indian hotels/clients including especially ITC neither insisted nor paid for the use of trademark, trade names etc, as well as other facilities separately and it was the assessee company who provided these facilities with the purpose, inter-alia, of maximizing its business profit.  He submitted that the prime object of providing all these facilites thus was to augment larger revenue from the market and the use of trademark, trade name etc, as well as rendering of other services was merely incidental to achieve the said prime objective.  He also submitted that similar types of services as well as facilities are being provided by the assessee company to the various hotels worldwide and it, therefore, cannot be said that some specialized or secret technical or commercial information is provided by the assessee company to the Indian hotels/clients exclusively.  He submitted that even if it is assumed for the sake of arguments that some technology was also provided by the assessee company to the Indian hotels/clients, the same was provided as an integral part of a business arrangement and in these circumstances, the technology cannot be said to have been made available by the assessee company to the Indian hotels/clients.  He also pointed out that there is no evidence on record to show that the computer network of the assessee company and the computer network of the Indian hotels/clients were connected via satellite.  He submitted that the said computer network including the reservation system in any case is a part of assessees business apparatus and use of this apparatus by the assessee company for its own business purpose is nothing but its business income and not royalty or fees for included services.  He emphasized that keeping in view the nature of arrangement between the assessee company and the Indian hotels/clients as well as the main purpose of their association as evident from the relevant agreements, bifurcation of services rendered cannot be done for attributing or apportioning the payment on the basis of such bifurcation.

39.We have considered the rival submissions in the light of material available on record and the various case laws cited at the Bar.  The issue which requires our consideration relates to the taxability in India of the amount in question received by the assessee for services rendered to the Indian hotels/clients as per the agreements entered into with them and this issue first of all needs to be considered and examined from the point of view of the charging provisions contained in Sections 4, 5 & 9.  Only when it is found that the income is chargeable to tax in India as per these provisions, one can refer to the DTAA between India and the concerned country (i.e. USA in the present case) to look for any benefits available to the assessee vis--vis the Income Tax Act since as per specific provisions contained in Section 90(2), the provisions of DTAA override the provisions of the Income Tax Act insofar as they are more beneficial to the assessee.  In our view, this precisely is the reason why a direction was given by the Tribunal earlier in assessees case while restoring the matter to the Assessing Officer for AY 1997-98 and 98-99 to consider the same first from the point of view of charging provisions contained in Sections 4, 5 & 9.

40.Section 4 of the Income Tax Act, 1961 is the charging provision for all the heads of income as regards income tax and it confers power upon the Central Government to charge income tax.  The charge arises when the person earns an income, the computation of which is to be made according to the provisions of the Income Tax Act 1961 and the total income envisaged by Section 2(45) is arrived at.  The scope of such total income of any previous year of a particular person is defined in Section 5 and as is evident from the provisions contained in Section 5, such scope is primarily determined by the residential status of a person whether he is a resident, non-resident or resident but not ordinarily resident.  The other important aspect is the basis of charge i.e. whether the computation should be on the basis of receipt, accrual, deemed receipt, deemed accrual or arisal basis.  Section 9 contains specifically the cases of income deemed to accrue or arise in India and the Revenue has invoked/applied the provisions as contained in clause (vi) of sub-section (1) of the said Section in the present case to bring to tax the payment in question received by the assessee in India.  The said provisions alongwith the provisions of Section 9(1)(vii) as well as relevant Explanation 2 are reproduced hereunder:-

9.(1)The following incomes shall be deemed to accrue or arise in India:-

(vi)income by way of royality payable by

(a)the Government; or

(b)a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

(c)a person who is non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:

Provided .

Provided further

Explanation 1.

Explanation 2. For the purposes of this clause, royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains) for-

(i)the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

(ii)the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property;

(iii)the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

(iv)the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

[(iva)the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;]

(v)the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or

(vi)the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and ] (v).

[Explanation 3. For the purposes of this clause, computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data;]

(vii)income by way of fees for technical services payable by

(a)the Government; or

(b)a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

(c)a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India;

Provided .

Explanation 1. ..

Explanation 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries.

41.As is evident from sub-clause (b) of clause (vi) of Section 9(1), any income by way of royalty payable by a person who is a resident is deemed to accrue or arise in India except where the royalty is payable in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India.  Similarly, as per sub-clause (b) of clause (vii) of Section 9(1), income by way of fees for technical services payable by a person who is a resident is deemed to accrue or arise in India except where the fees are payable in respect of services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India.  In the present case, the amount in question was paid or payable by the Indian hotels/clients, who are residents to the assessee company, who is a non-resident for the services rendered and such services/facilities provided by the assessee were utilized by the said Indian clients/hotels for the purposes of their business carried on in India and the amount in question paid for rendering of the said services thus could be said to have accrued or arisen in India by invoking the deeming provisions of Section 9 only if the same was payable by the Indian hotels/clients to the assessee by way of royalty as defined in Explanation (2) below clause (vi) of Section 9(1) or by way of fees for technical services as defined in Explanation (2) below clause (vii) of Section 9(1).  The first and foremost question which thus arises for our consideration in the present case is whether the amount in question paid by the Indian hotels/clients to the assessee for the service rendered in pursuance of the agreements entered into with them was on account of royalty as defined in Explanation (2) below clause (vi) of Section 9(1) or on account of fees for technical services as defined in Explanation (2) below clause (vii) of Section 9(1) so as to bring the same to tax in India as per the charging provisions of Section 4 read with Sections 5 & Section 9.

42.In order to ascertain the exact nature of services rendered by the assessee-company to the Indian hotels/clients, it is necessary to analyse and appreciate the agreements entered into by it with the said parties and there cannot be a quarrel with the proposition that the said agreements are required to be read as a whole in order to construe the same.  As held by Honble Supreme Court in the case of Chatturbhuj Vithaldas Vs. Moreshwar Parashram AIR 1954 (SC) 236, when a contract consists of a number of terms and conditions, each condition does not form a separate contract but is an item in the one contract of which it is a part.  A consideration for each condition in contract like this is a consideration for the contract taken as a whole.  In the case of CIT Vs. Panipat Woollen & General Mills (supra), Honble Supreme Court has held that the Court in order to construe an agreement has to look to the substance or the essence of it rather than its form.  A party cannot escape the consequences of law merely by describing an agreement in a particular form though in essence and in substance, it may be a different transaction.  In the case of State of Orissa & Others Vs. Titaghur Paper Mills Company Limited (supra), Honble Supreme Court has held that just as a document cannot be interpreted by picking out only a few clauses ignoring the other relevant ones, in the same way the nature and meaning of a document as to which it amounts to a grant of benefit arising out of land, cannot be determined by its end result or one of the results or consequences which flow from it.  Explaining further, their Lordships of Apex Court observed that nomenclature and description given to a contract is not determinative of the real nature of the document or the transaction thereunder which have to be determined from all the terms and clauses of the documents and all the rights and the results flowing therefrom and not by picking and choosing out the ultimate effect or result.  In the case of Nanak Builders & Investors Pvt. Ltd. Vs. Vinod Kumar Alag (supra), Honble Delhi High Court has held that mere heading or title of a document cannot deprive a document of its real nature and it is the substance which has to be seen and not the form.

43.Keeping in view this settled position as emanating from the aforesaid judicial pronouncements in respect of interpretation of any agreement, we can now endeavour to analyse the relevant terms of the agreements entered into by the assessee in the present case with its Indian clients/hotels in order to find out the exact nature of services rendered by it from the point of view of applicability of Section 9(1)(vi) or 9(1)(vii).  Admittedly, the terms and conditions of all the agreements entered into by the assessee with the different Indian clients/hotels, by and large, are similar and the major payments having been received by the assessee from ITC Ltd., we can appropriately refer to the agreement entered into by the assessee with the said Indian client covering the years under consideration for this analysis.  A copy of the said agreement executed on 30.12.1988 is placed at page Nos.31 to 52 of the assessees paper book-II and a perusal of the same shows that the background of ITC, being party to the said agreement, was given in paragraph Nos.2 & 3 of the preamble as follows:-

2. ITC has been engaged in a number of manufacturing and commercial activities in India for many years and has developed a well known extensive and highly efficient organization in the country manned by personnel with prolonged experience and knowledge of Indian business and market conditions, Indian economic policies priorities and procedures.

3.Pursuant to one of its principal objects and maximizing foreign exchange earnings ITC is also engaged through its Hotels Division (known by the name of WELCOMGROUP) in the operation and/or construction of Hotels consistent with international standards in different parts of India; and towards this end has already established hotels in Madras, Agra and Delhi and has also leased or is otherwise operating hotels in association with third parties in Bombay, Bangalore, Madras, Aurangabad and various other Indian locations.  Furthermore, ITC maintains a network for the making and confirmation of hotel reservations (WELCOMNET) within India which it is engaged in modernizing so as to achieve interface between Welcomgroup-Sheraton hotels reservation facilites and the SHERATON RESERVATION system hereafter referred to.

44.Similarly, the background of the assessee was narrated I paragraph Nos.4 & 5 in the preamble of the said agreement as follows:-

4. SHERATON and its associates own, operate and franchise an international chain of over 500 hotels in the United States and around the world including Europe Africa the Middle East South America South East Asia and Australia; have pioneered modern international hotel sales techniques that have become well recognized by the industry; publicise and market hotels through sales and marketing specialists at their hotels; maintain corporate sales officials in numerous countries and a worldwide organization manned by professional sales persons highly specialized in advertising, selling and promoting hotels as well as utilize an international computerized system (RESERVATION) operated by a corporation associated with SHERATON for the making and confirming of hotel reservations at SHERATON hotels worldwide.

5.SHERATON has engaged inter alia in the development leasing management operation publicity and marketing of hotels in many countries all in the interest of facilitating international travel and trade and has established well-known high international standards policies and procedures for the operation of such hotels has evolved a highly experienced organization for the provision of expert technological know-how in the planning designing construction decorating managing and equipping of hotels and motor inns throughout the world as well as for the training and development of key personnel to equip them for the operation of such hotels to the international standards established by SHERATON and has furthermore acquired the name, experience and the personnel that enable SHERATON to obtain international business for hotels from all market segments such as individual travelers, groups from travel and tour industry and groups for conventions, congresses and seminars and sales meetings etc.

45.Before us, the learned Special counsel for the department Shri Y.K.Kapur has highlighted this background of the assessee to contend that it clearly shows its expertise in the field of hotel business especially the management and publicity thereof.  He has also laid great emphasis on the highly specialized system such as international computerized system available with the assessee for the reservation which was to be made available to the Indian hotels/clients by providing the necessary interface.  In our opinion, this background of the assessee given in the preamble of the agreement, however, cannot be appreciated in the right perspective by reading the same in isolation and it is necessary to read the same with the background of the Indian client/hotel given in paragraph Nos.2 & 3 as reproduced above as well as the intention and purpose for which these two parties had joined hands as described in paragraph No.6 in the preamble of the said agreement as follows:-

6. ITC and SHERATON intend to continue to associate together

(1) in the international marketing of hotels of high international standards in India with the objects inter alia of

i)Development of tourism on a wide front covering a broad economic spectrum of foreign tourists and provision of hotel services for individual travelers including important customers from international commercial organizations professional associations airlines and the travel trade;

ii)maximizing foreign exchange earnings;

iii)training and development of key hotel management personnel and technical specialists to handle the growing interest in India;

iv)introducing and ensuring international standards for hotels in India to attract foreign tourists and to reflect with advantage Indias image abroad.

(2)to generally for the mutual benefit of the parties promote/advertise the worldwide Sheraton Chain of hotels.

A N D the parties have agreed that these objectives would be achieved by combining ITC expertise and infrastructure in the Indian context with SHERATON expertise resources and infrastructure covering inter alia

a)international marketing through SHERATONs global travel connections;

b)the global SHERATON reservation network;

c)highly developed technology for hotel sales, publicity operations and international standards developed by SHERATON worldwide;

d)regular updating of such technology and standards;

e)understanding of foreign tourists and travellers needs and meeting these through specialists particularly in the context of food and beverages and other hotel service;

f)experience in and facilities for training key hotel management personnel.

46.As is evident from the reading of the aforesaid clause No.6 of the agreement, the main intention of both the sides to continue their association was to develop tourism on a wide from by providing, inter-alia, the best hotel facilities of international standards to the tourists worldwide.  The said objective was to be achieved by promoting and advertising worldwide the Sheraton chain of hotels for the mutual benefit.  As stated in the agreement, ITC was already having a well-developed, well-known, extensive and highly efficient organization in India manned by experienced and knowledgeable personnel and through its hotel division known by its own brand name Welcom Group, it was already engaged in setting up and management of hotels consistent with international standards in different parts of India.  It was also maintaining a network for the booking and confirmation of hotel reservations known as Welcomnet within India.  If the background of the assessee company given in paragraph Nos.4 & 5 of the agreement is read with this background of ITC given in paragraph Nos.2 & 3 as well as the main intention given in paragraph No.6 of promoting and advertising worldwide the Sheraton chain of hotels for mutual benefit, one can easily understand that both these parties had come together with their specialized information, experience and knowledge in the field of hotel business for mutual benefits and in a way to justify or explain their association, their introduction was given highlighting the relevant experience and knowledge possessed by them.  This experience and knowledge described in the agreement thus was in the context of explaining/justifying the association of the two parties for the attaining of the main objective to promote and advertise the hotel business of not only the Indian clients but also that of the assessee for mutual benefit.

47.The aforesaid position gets further fortified from the various obligations stipulated in the various Articles of the said agreement as discussed now.  Article II to Article VI, being relevant in this context, are reproduced below:-

ARTICLE II

PUBLICITY MARKETING AND PROMOTION

SHERATON SHALL undertake worldwide publicity marketing and advertising of the hotels covered by this Agreement through its worldwide system of sales advertising promotion public relations and reservations.  Such activities outside India will include the following:

a)Assistance from the sales offices throughout the worldwide SHERATON system to promote the flow of foreign tourists to India.  These sales offices service individual travelers important customers such as international companies and professional associations airlines and transportation companies and the travel industry.  Specialists are also available to cover the particular travel needs of organizations such as the United Nations and international organizations insurance companies government agencies embassies and incentive tour market and tour operators;

b)Marketing advice from SHERATON Divisional Headquarters and from corporate Headquarters in Boston to assist each hotels management in planning market strategy to enable it to maximize revenues in the local competitive environment;

c)Upon request (and subject to payment of any actual out-of-pocket costs incurred by it) SHERATONS Divisional Office will provide sales departments of hotels covered by this agreement guidance in installing and maintaining systems and procedures designed inter alia to initiate or service international business and to ensure that the business is booked when needed and handled efficiently;

d)Corporate advertising though listing of the hotels covered by this Agreement in any appropriate corporate Sheraton Directory;

e)Corporate advertising of the SHERATON name and system i.e. TV, Radio, Billboards and press;

f)Facilitating cluster advertising (at I.T.C. cost) which allows groups of hotels with like facilities and like markets to advertise together at a reduction from the cost of going it alone;

g)Make available any Corporate Divisional and Area programmes and promotions to counter problem periods in particular off-season periods for hotels; special efforts towards group bookings including groups for international conventions, congresses, seminars, sales and other meeting, appropriate representation at most important trade shows exhibitions and functions of the hotel and travel industry worldwide;

h)Provide assistance, through Sheratons Corporate facilities, in worldwide public relations;

i)Utilisation of worldwide SHERATON reservations offices.

ARTICLE III

RESERVATION SERVICES

SHERATON shall arrange for all hotels covered by this Agreement to be included in the SHERATON worldwide computerized reservation system (RESERVATRON) operated by the Sheraton Reservation Corporation for which the said Corporation normally obtains reimbursement of costs from SHERATON hotels in other countries.  Link up with this system from India is through a commercial leased telex circuit (INTELNET) with SHERATON and ITC respectively bearing communication costs at each end.

ITC shall as early as technically and commercially feasible complete the modernization of its WELCOMNET reservations system into a fully computerized Reservation Centre covering all major Welcomgroup-Sheraton hotels in India as well as interface the system with the Sheraton RESERVATION system so that the parties hereto are able to provide their customers a fully integrated worldwide reservations service.  The cost of the hardware and software for the RESERVATION IV System for the said Reservation Centre shall be borne by SHERATON.  All other costs including those for the installation, interfacing and operation of the said ITC Reservation Centre in India will be borne by ITC.

The inclusion of any hotel which is not owned or leased by ITC directly or through a subsidiary or otherwise in the said Welcomnet Reservation System shall be subject to the approval of the owner of such hotel.

ARTICLE IV

MAINTENANCE OF HIGH/INTERNATIONAL STANDARDS

AT THE HOTEL

1.ITC recognizes that :

(i) so as to enable SHERATON to achieve maximum marketing and sales results for the Hotels it is essential that the Hotels shall be operated on the most efficient basis and maintained according to high international standards for quality hotels as determined by Sheraton from time to time;

(ii)SHERATONs record of effectiveness and success achieved over many years in marketing hotels internationally is based upon its reputation of association with hotels representing a high quality product;

(iii)To sustain high international standards as aforesaid it is necessary that all personnel in key positions are well trained and selected for appointment on the principle-best man for the job.

ITC therefore undertakes to ensure that during the term of this Agreement the Hotels are operated and maintained in accordance with high international standards acceptable to SHERATON and manned by personnel appropriately trained for each key position in particular.  ITC has represented that while at present it complies with Indian fire safety regulations at each of its three hotels ITC shall ensure that SHERATON Fire safety Standards and all other SHERATON Standards and Guidelines are introduced and maintained at all times including, but not limited to installation of sprinklers throughout each of the hotels covered by this Agreement by April 6, 1990

Towards this end SHERATON shall assist ITC by making available information of its standards as established worldwide; furthermore, to facilitate coordination between the parties hereto, and the SHERATON network in the area including India, SHERATON shall arrange to make available from time to time the advisory services of senior Hotel Specialists from the Sheraton Asia Regional Office.  ITC shall reimburse SHERATON any actual out-of-pocket expenses incurred related to providing such assistance/services.

2.ITC agrees it will ensure compliance with existing regulations, guidelines and standards of SHERATON as from time to time revised and supplemented by SHERATON with respect to the operations and maintenance of standards at the Hotels.

ARTICLE V

ASSISTANCE WITH TRAINING

In order to assist ITC with maintenance of high international standards at the hotels to be marketed and publicized as provided herein, and its operation by adequately trained personnel, SHERATON shall make available facilities for the training within the network of SHERATON hotels in the area including India or at various locations in other parts of the world of selected personnel for employment at the hotels.  Such training may be in the nature of on the job or formal training as determined by SHERATON.  ITC shall reimburse SHERATON any actual out-of-pocket expenses incurred related to providing any services under this Article.

ARTICLE VI

TECHNICAL ASSISTANCE; DESIGN AND CONSTRUCTION

SHERATON shall make available its comprehensive standards and technical assistance for design and construction of any new hotels to be covered by this Agreement so that such hotel meets SHERATON requirements of operating standards.  SHERATON shall not have any architectural or engineering responsibility in connection with such design or construction.  The scope and extent of the compensation for such services and the terms on which such services shall be rendered will be separately negotiated and agreed for each such hotel.

48.A careful reading/perusal of the obligations stipulated in the aforesaid Articles would reveal that the main intention/purpose of the association between the assessee and ITC was to publicize, market and promote the hotels of the ITC and the assessee company had undertaken to provide all the services as enumerated in the various Articles to achieve this main intention/purpose.  It is no doubt true that such services were multifarious involving utilization of the experience and expertise of the assessee in the relevant field.  At the same time, it is also true that all these services to be rendered by the assessee utilizing its experience and expertise as well as facilities available with it were for the purpose of achieving the main intention/objective of publicity, marketing and promotion of the hotels of ITC situated in India.  The said services, therefore, were merely incidental to the main job undertaken by the assessee of publicity, marketing and promotion of the hotels of the Indian client worldwide and one cannot pick and choose some of the such services in isolation in order to describe its nature de-hors the main intention/objective behind rendering of such services as has been attempted to be done by the Revenue.  During his arguments before us, Shri Kapur has taken us through the various services to be rendered by the assessee to ITC as enumerated in the various Articles of the agreement and has tried to explain the nature of each such service in an attempt to fit it either under the provisions of Section 9(1)(vi) or that of the relevant Articles of the DTAA between India and USA.  While doing so, he, however, has ignored/overlooked the main intention/objective behind the association of the two parties as clearly spelt out in the agreement.  If the said agreement or for that matter all the terms as clearly spelt out in the agreement.  If the said agreement or for that matter all the terms thereof are read together as a whole, it explicitly shows that the assessee, in substance, had mainly undertaken the job of publicity, marketing and advertising of the hotels of Indian clients worldwide and all the services to be rendered by it as enumerated in the various articles of the agreement were incidental or supplementary to carry out this job effectively and efficiently in the interest of its business of which the said activity/job was forming part.  These services, therefore, were integral part of the main work undertaken by the assessee of publicity, marketing and promotion of the Indian hotels worldwide and the nature thereof has to be understood or appreciated keeping in view the main intention/objective behind rendering of such services as evident from the sum and substance of the agreement.

49.The services described in the various Articles of the agreement also clearly show that they have no much significance on their own independently and the same were an integral part of the arrangement between the assessee and the Indian hotels/clients for publicity, marketing and advertising of hotel business.  For instance, the marketing advice to be given by the assessee to assist the management of Indian hotels in planning market strategy was clearly for the purpose of enabling it to maximize revenues as mentioned in clause (b) of Article-II of the agreement which was an integral part of promoting and marketing the Indian hotels.  Similarly, the guidance to be provided by the assessee to the Indian hotels/clients in installing and maintaining systems and procedures designed by it as mentioned in clause (c) of Article-II of the agreement which was an integral part of promoting and marketing the Indian hotels.  Similarly, the guidance to be provided by the assessee to the Indian hotels/clients in installing and maintaining systems and procedures designed by it as mentioned in clause (c) of Article-II was for the purpose of initiating and servicing the international business to ensure that business is booked and handled efficiently.  The said guidance, in any case, was to be provided by the assessee subject to payment of any actual out of pocket cost incurred by it and as submitted by the learned counsel for the assessee before us, there being no such guidance provided during the years under consideration, no question of any such payment ever arose.  The information about some specific programmes in terms of clause (g) of Article II was also to be made available by the assessee to the Indian clients/hotels to promote the business particularly during the off-season periods for the hotel industry and the same by its very nature was entirely directed towards promotion of the hotel business of the Indian clients/hotels.  Even the interface between the reservation system of ITC called as Welcomnet and that of the assessee was to be provided with a view to provide the customers a fully integrated worldwide reservation service which was going to help in promoting not only the hotel business of the Indian clients but also that of the assessee.

50.As per its marketing strategy adopted worldwide, certain international standards were set by the assessee to be maintained by the hotels being marketed/promoted by them and such standards determined from time to time were communicated also to the Indian hotels/clients so that the hotels are operated and maintained in accordance with such standards.  All these hotels including the hotels in India were to comply with the standards so that the target customers visiting any such hotel will be able to get the desired services.  All these requirements which were required to be complied with by the Indian hotels/clients thus were for the purpose of customer satisfaction which was an integral part of the marketing strategy of the assessee.  Similarly, the training to be imparted by the assessee to the employees of the Indian hotels/clients in order to maintain the standards as per Article V was a part of marketing and business promotion strategy for which the Indian hotels/clients had agreed to pay separately towards reimbursement of expenses actually incurred by the assessee.  No such training, however, was imparted by the assessee to the Indian clients/hotels during the years under consideration as submitted by the learned counsel for the assessee and there was no occasion to make such payment.  As per Article VI, the assessee had agreed to make available its comprehensive standards and technical assistance for design and construction of new hotels, if any, by the Indian clients.  However, there being no such case of construction of new hotel during the years under consideration, no such services as specified in Article VI were provided by the assessee to the Indian clients as pointed out by the learned counsel for the assessee.

51.The various services agreed to be rendered by the assessee to the Indian hotels/clients as enumerated in Articles II to VI of the relevant agreements thus were an integral part of the arrangement by which the assessee had agreed mainly to provide services relating to publicity, marketing and advertising of the hotels of the Indian clients covered under the said agreements.  The main purpose/intention of the association between the assessee and the Indian clients/hotels was to promote the hotel business in their mutual interest through worldwide publicity, marketing and advertising and the various facilities as well as services were merely the means to attain this main objective.  The same, therefore, were ancillary and auxiliary services to the main job undertaken by the assessee company of promoting the hotel business by worldwide publicity, marketing and advertisement.  This position which is clearly evident from the Articles II to VI of the agreements enumerating the scope of services gets further strengthened from Article VII containing payment clause which reads as under:-

Article VII

PAYMENT TO SHERATON

So as to defray the direct and indirect costs incurred by SHERATON in respect of the services to be rendered by SHERATON under this agreement ITC shall pay direct to SHERATON in Boston in the currency of the United States of America for publicity, marketing and sales (including reservations) services to be rendered outside India a fee equivalent to 3 (three) per cent of room sales;

For any other post opening services the fees or expenses payable will be separately agreed by the parties and be subject to any requisite approval of the Government of India.

All payments under this Article shall be subject to applicable Indian Taxes.

For the purpose of this Agreement Room Sales shall mean gross room sales after deducting commission due to travel agents, airlines and other such agencies and also applicable taxes including any Hotel Receipts Tax, Sales Tax, Cesses, Levies, etc.

In support of the calculation of such fees ITC shall file with SHERATON within forty five (45) days after the close of each quarter of the calendar year (or part thereof after the commencement of this Agreement) a financial statement showing operating results and monthly gross room sales and revenue for such quarterly period and to file within sixty (60) days after the close of each such year a similar statement certified by a Chartered Accountant acceptable to SHERATON showing a balance sheet and the result of operations for the year including monthly gross room and other sales and revenues.  SHERATON shall have the right to inspect the books and records of the Hotels at all reasonable times.

52.As mentioned clearly in the payment clause of the agreement reproduced above, it was agreed that the Indian client would pay to the assessee a fee equivalent to 3% of its room sales expressly for publicity, marketing and sales (including reservation) services.  This specific term of payment agreed by both the sides and forming part of the agreement entered into between them explicitly shows that the entire payment made by the Indian clients to the assessee was on account of services rendered in relation to publicity, marketing and sales services and even the quantum of the fees agreed to be so paid to the extent of 3% of room sales of the Indian hotels further shows that the assessee was to be compensated on the basis of quantum of sales realized/business done by the Indian hotels without there being any relation to the individual services enumerated in the agreements.  These payment terms thus also point out clearly that the said incidental services had no significance on its own and what really mattered was the main job of publicity and business promotion undertaken by the assessee as finally reflected/resulted in the quantum of room sales.  It was thus a case of periodical payment agreed to be made by the Indian hotels to the assessee in the form of fees equivalent to 3% of room sales for the services rendered in connection with publicity, marketing and sales services and not a case of composite payment made by the Indian clients/hotels to the assessee which could be bifurcated over the different services as done by the Revenue authorities.  Such bifurcation, in our opinion, was neither permissible nor possible in view of the arrangement between the two parties as reflect from the terms of the relevant agreements.  On the other hand, all the services rendered by the assessee to the Indian clients/hotels in terms of the agreement were integral part of the main job undertaken by the assessee of publicity, marketing and sales promotion of the Indian hotels and the nature of payment made for such services has to be properly appreciated having regard to the entire arrangement as a whole which, as reflected in the agreements, was for publicity, marketing and sales promotion of the Indian hotels by the assessee.

53.Much has been said about the trademark, trade names and signs having been made available by the assessee to the Indian hotels/clients by the authorities below in their respective orders as well as by the learned Special Counsel for the Revenue before us.  An attempt has been made in this regard to show as if that the use of such trademark, trade names and signs was the most vital and crucial aspect of the arrangement between the assessee and the Indian hotels and the entire arrangement was made to promote the said trademarks or trade names.  In his impugned orders, the learned CIT(A) has gone to the extent of observing that allowing the use of trademark etc. by the assessee to the Indian hotels/clients was an important element of the services provided by it and, therefore, the payments received for such services were clearly in the nature of royalty as defined in Section 9(1)(vi) read with Explanation 2(iii).  In order to appreciate and examine this stand taken by the Revenue, it would be worthwhile to refer to Article VIII of the agreement relating to trademarks, trade names, signs etc. which is reproduced below:-

Article VIII

TRADE MARKS TRADE NAMES SIGNS ETC.

a)SHERATON shall grant appropriate rights at no cost pursuant to separate agreements and in accordance with the terms thereof so as to permit the use by the hotels covered by this Agreement of SHERATON trade names and trade marks in particular the use of the name SHERATON and its stylized S service mark and any other identifying characteristics that may be mutually developed by the parties hereto.  The name for each hotel will be jointly determined by the parties.  Each hotel to be covered by this Agreement shall unless otherwise determined by SHERATON include the word SHERATON in its name.  The three existing WELCOMGROUP hotels in Agra, Madras and Delhi shall continue to be known as the Welcomgroup CHOLA-SHERATON in Madras, the Welcomgroup MUGHAL-SHERATON in Agra and the Welcomgroup MAURYA SHERATON in Delhi.  Each of the hotels covered by this Agreement shall also be presented and advertised as a WELCOMGROUP hotel.

b)ANY use or the right to use by ITC of the name SHERATON or by the stylized S service mark or other SHERATON trade marks or distinguishing characteristics owned by or associated with SHERATON shall cease upon the termination or expiry of this Agreement.

c)ITC agrees that it will always acknowledge and recognize both before the after the expiration of this agreement the exclusive right of SHERATON (consistent with Article X) to use or to grant to others the right or licence to use whether separately or as a part of or in connection with other words slogans symbols or designs the name SHERATON the stylized S service mark and any other trade marks trade names or other identifying characteristics which may now or in the future be generally used in connection with the operation of SHERATON hotels motels or inns.

d)Consistent with international standards at SHERATON hotels worldwide ITC agrees to make available to partrons supplies bearing in addition to any ITC names or identifying characteristics the name SHERATON and the stylized S service mark and such other SHERATON emblems insignias or identifying characteristics the use of which is provided for hereunder or in accordance with the terms of any special agreement entered into between the parties for this purpose.  The design and quality of all such supplies shall be mutually agreed by SHERATON and ITC.

54.The aforesaid Article undisputedly shows that its trademark, trade names and signs were allowed to be used by the assessee to the Indian clients at no cost.  Relying on this stipulation in the agreement allowing the use of trademarks, trade names etc. by the assessee at no cost, it has been vehemently contended by the learned Special Counsel of the Department before us that the agreement itself was a colorable device.  We shall deal with this contention separately at the appropriate stage.  However, suffice it would be to note here that the rationale behind providing the use of trademarks, trade names etc. by the assessee free of cost to the Indian hotels was not accepted/appreciated by the Department.  As already discussed by us with reference to the scope of services to be rendered by the assessee as well as its intention to have an association with the Indian hotels/clients that the main arrangement between the assessee and the Indian clients was for rendering the services in connection with publicity, advertising and sales promotion of the Sheraton Hotels in their mutual interest.  The background of the assessee as well as that of ITC given in the preamble of the relevant agreement shows that even the ITC was possessing not only the required skills, expertise and knowledge to set up and manage the hotels at international standards, but it was also having its own trade name Welcomgroup already established in India.  As per Article VIII, the hotels in India of ITC were specifically allowed to use both the trade names i.e. the trade name of the assessee as well as its own trade name.  Moreover, the use of trademark, trade names etc. of the assessee by the Indian hotels was not only going to help and assist the assessee in rendering its services relating to publicity, advertising and business promotion of the Indian hotels, but such use was also going to help the assessee in advertising its other hotels worldwide and to promote their business as submitted by the learned counsel for the assessee before us which is also evident from Article IX of the agreement reproduced below:-

Article IX

ADVERTISING AND MARKETING IN INDIA

ITC undertakes to maintain and continue to extend facilities in India for sales, advertising and reservations services for the hotels covered by this agreement.  Furthermore, ITC shall also take steps to recommend and promote all SHERATON inns, hotels and motels worldwide and to make every reasonable effort to encourage the use of same by all of its customers and guests, it being intended that each ITC hotel and all other SHERATON hotels will benefit from their mutual promotional efforts.

55.The use of assessees trademark, trade name etc. by the Indian hotels was thus going to benefit both the sides mutually to promote their business and this was precisely the rationale behind the assessee allowing use of its trademark, trade name etc. by the Indian hotels free of cost.  Allowing such use again was an integral part of the main arrangement between the assessee and the Indian clients/hotels to promote their hotel business in mutual interest by publicity, advertising and sales (including reservations) services.  In these circumstances, singling out the aspect of use of trade mark, trade names of the assessee by the Indian hotels/clients to say that the same was crucial or important aspect of the arrangement between them without appreciating overall arrangement between the parties or their nature of relationship was nothing but reading too much between the lines.  On the other hand, the rationale behind allowing the use of trademark, trade names etc. by the assessee to the Indian clients/hotels was properly explained in the light of the overall arrangement between them as well as the Articles VIII & IX dealing with this aspect specifically.  Even the automatic seizure of use or the right to use the assessees trademarks, trade names etc. by the Indian hotels/clients on termination of the agreement was a normal or usual business practice and no adverse inference in the matter can be drawn on the basis thereon divorced from the context.

56.In support of the Revenues contention that the amount in question paid by the Indian hotels/clients to the assessee for the services rendered was royalty within the meaning of Section 9(1)(vi) read with Explanation-2, the authorities below in their respective orders as well as the learned Special Counsel for the Revenue in his arguments before us have relied heavily on the decision of Mumbai Bench of ITAT in the case of CEAT International (supra) which was subsequently upheld by the Honble Bombay High Court.  It is, however observed that the facts involved in the said case were materially different from the facts involved in the present case.  Firstly, the services for which the amount was paid by the Indian company to the foreign company were classified as per the agreement into four categories and such clear-cut classification made in the said case as well as apportionment of the payment amongst such different services as made by the Assessing Officer was not disputed by the assessee.  On the other hand, the payment to the extent of 25% attributed for the services referred to in clause (b) of the agreement viz., allowing use of channels of distribution in overseas markets to the Indian company and after sales service in those markets was impliedly accepted by the assessee company itself to be in the nature of royalty or fees for technical services before the Tribunal liable to tax in India.  The dispute before the Tribunal thus was mainly relating to the amount of 75% attributable to other three categories of services referred to in clauses (a), (c) & (d) of the agreement and when the Tribunal held that payments for three services referred to in clauses (c) & (d) of the agreement were in the nature of royalty or fees for technical services taxable under Section 9, the decision of the Tribunal was accepted by the assessee during the course of hearing of its appeal by the Honble Bombay High Court.  The Honble Bombay High Court thus was required to consider and decide only the issue raised by the Revenue relating to the payment attributable to the services referred to in clause (a) of the agreement, according to which, the assessee had foregone in favour of CEAT Tyres of India Ltd. export sales in various markets and in certain cases, export orders were also transferred to the Indian company and it was held by their Lordships that the said payment attributable to services referred to in clause (a) of the agreement could not be treated as royalty or fees for technical services falling under clauses (vi) & (vii) of Section 9(1).  It was thus a case where the different services were classified in the agreement itself and it was possible to apportion the total payment made in pursuance of the agreement amongst these classified services which was accepted by the assessee himself.  In the present case, such classification sought to be made by the Revenue authorities was not accepted by the assessee, but the same was disputed by pointing out that all the services rendered by it being integral part of an arrangement to promote the hotel business in mutual interest by way of publicity, advertisement and marketing, such classification as well as attribution of payment thereto was neither permissible nor possible.  Moreover, the nature of services rendered in the case of CEAT International (supra) before the Honble Bombay High Court was different than the services rendered by the assessee company in the present case and in any case, the nature of such services is required to be ascertained taking into consideration all the relevant facts of each case such as nature of business of the concerned parties, the scope of arrangement between them etc.  Moreover, as pointed out by the learned counsel for the assessee before us, the assessee in the said case was admittedly receiving consideration for allowing the use of its trademark by the Indian company under clause (d) of the agreement and the payment attributable thereto was held to be in the nature of royalty in terms of Explanation (2) to Section 9(1)(vi).  In the present case, the agreements, however, specifically provide for the use of trademark free of cost by the Indian hotels/clients and this being materially distinguishable facts, the decision rendered in the case of CEAT International (supra) cannot be applied to the facts of the present case.  It is also pertinent to note that the assessment year involved in the case of CEAT International (supra) was 1978-79 wherein the benefit of DTAA was not available to the assessee.

57.As held by Honble Andhra Pradesh High Court in the case of CIT Vs. Klayman Porcelains Ltd. 229 ITR 735, the question as to whether the amount in question paid by the Indian company to the non-resident company is in the nature of royalty or fees for included services is a question of fact to be determined on the facts and circumstances of each case and the terms of agreement under which the same has been paid.  In this regard, we have already examined and analyzed and relevant terms of agreements under which the amount in question was paid by the Indian hotels/clients to the assessee-company and on such examination as well as on appreciation of peculiar facts and circumstances of the case, we have noted that the amount in question was entirely paid by the Indian hotels/clients to the assessee company for the services rendered in relation to publicity, advertisement and sales promotion whereas the other services enumerated in the agreements were ancillary being incidental to attain the main objective.  On the other hand, the nature of services rendered by the assessee company to the Indian hotels/clients in the present case is entirely different as already discussed and as per the express terms of the relevant agreement, the entire payment was made for the rendering of such services in relation to advertisement, marketing and sales promotion.  In the case of CIT, West Bengal-III Vs. Stanton & Stavely (Overseas) Ltd. 146 ITR 405, the Indian concern was allowed by the non-resident company to use its patent as per the agreement and even there was supply of further technical information by the non-resident company to the Indian concern and in these circumstances, it was held by the Honble Calcutta High Court that consideration paid by Indian concern to the non-resident company was royalty even though the said was described in the agreement as commission.  Honble Calcutta High Court that consideration paid by Indian concern to the non-resident company was royalty even though the said was described in the agreement as commission.  Honble Calcutta High Court observed that the documents/agreements have to be interpreted in accordance with commercial principles and nomenclature used by the parties is not conclusive in this regard.  In its judgment, Honble Calcutta High Court also referred to the decision of the Court of Appeal in IRC Vs. 36/49 Holdings Ltd. (In Liquidation) reported in (1943) 25 ITC 173 and reproduced the following observations recorded in the said decision at page 182:-

The true nature of a sum payable to a recipient for purposes such as the present is to be ascertained from all the circumstances relevant to that matter.  The true nature of the sum is not necessarily its nature in law but its nature in business or in accountancy whichever way one likes to put it, because from the legal point of view there may be no difference whatsoever as between the parties between a capital and an income sum.  It may be totally irrelevant to the legal relationships into which they are proposing to enter.  When, however, the tertius gaudens, in the shape of the Revenue, appears on the scene, that matter which as between the parties may have been a matter of not the slightest importance becomes immediately a matter of very great importance, and it is necessary to examine the circumstances of each individual case, including any documents which require to be construed, in order to ascertain what is the character to be attributed to the payment.

58.In our opinion, the aforesaid observations of the Court of Appeal highlighted by the learned Special Counsel for the Revenue as well as the ultimate decision rendered by the Honble Calcutta High Court in the case of Stanton & Stavely (Overseas) Ltd. (supra), in fact, support the assessees case as the true nature of the amount paid by the Indian hotels/clients to the assessee company has been found to be for the services rendered in relation to advertisement, marketing and sales promotion after examining the relevant terms of the agreement, commercial principles, the nature of assessees business and not merely on the basis of nomenclature used by the parties.

59.In the case of CIT Vs. Ahmedabad Manufacturing & Calico Printing Co. 139 ITR 806, agreement between the assessee and foreign company for ten years was for supply of technical know-how to the assessee and the assessee was given exclusive license to manufacture, sale and exploit products and improvements thereof in India and in these circumstances, payment made to foreign company by the assessee was held to be royalty for exclusive right to manufacture the products.

60.In the case of N.V.Philips Vs. CIT 172 ITR 521, as per the agreement between foreign company and Indian company, the foreign company had supplied technical assistance and technical information regarding manufacture of particular commodity.  Distinction, however, was made in the agreement between technical assistance and information and since this information was of highly specialized nature and was regarding manufacture of particular commodity directly related to the supply of technical assistance by the foreign company regarding manufacture of particular commodity, the payment received for supply of the said information was held to be assessable as royalty.

61.In the case of Elkem Technology Vs. DCIT 250 ITR 164, the assessee was a non-resident company based in Norway.  It entered into a contract with an Indian company for supply of equipment as well as engineering data besides personal services for establishing a submerged are furnace in India.  As per the terms and conditions of the said contract, consideration payable by Indian company was clearly demarcated and the consideration for engineering and personnel services was shown separately independent of the supply of equipment.  In these facts and circumstance involved in that case, it was held by Honble Andhra Pradesh High Court that the consideration for engineering and personnel services was fees for technical services under Explanation-2 to Section 9(1)(vii).  It was thus a case involving not only the clear-cut demarcation between engineering and personnel services on one part and supply of equipment on the other, but even the consideration for such services was payable separately as per the terms and conditions of the relevant agreement.  Moreover, the nature of services rendered by the foreign company was also different from the services rendered by the assessee company in the present case.

62.In the case of Union Carbide Corporation Vs. Inspecting Assistant Commissioner 50 ITD 437, the assessee, a non-resident company, had received from an Indian company certain amounts under a technical service agreement and claimed that the amounts so received being fees for technical service, were exempt under Section 9(1)(vii) read with Explanation thereto as applicable to the relevant year i.e. AY 1982-83.

The AO did not accept this claim of the assessee and the matter traveled to the Tribunal which was called upon to consider and decide the question as to whether the amount received by the assessee from the Indian company under a technical service agreement dated 13.11.1973 was taxable in its hands as royalty under Section 9(1)(vi).  Since the experience of the foreign company in the field of manufacture of pesticides for long period of years, according to the Tribunal, was a fund of knowledge which was supplied by it to the Indian company for utilization for manufacturing of pesticides, it was held that 50% of the total amount received by the assessee under a technical service agreement could be treated as royalty under Section 9(1)(vi).  The facts of this case before the Tribunal clearly show that the agreement between the two sides was for rendering the technical services and the knowledge and experience possessed by the foreign company referred to as fund of knowledge was in the field of manufacture of pesticides which was made available to the Indian company for manufacturing the pesticides.  Moreover, the issue before the Tribunal was also different than the one involved in the present case inasmuch as the assessee company itself had claimed the amount received under the technical service agreement as fees for technical services under Section.9(1)(vii) whereas the Revenues stand was that the same did fall under the provisions of Section 9(1)(vi) being royalty which was partly accepted by the Tribunal taking into consideration the very nature of the services being technical as well as the fund of knowledge possessed by the assessee in the field of manufacture of pesticides which was made available for utilization by the Indian company.  It is also pertinent to note that the assessment year involved in this case was 1982-83 and the benefit of DTAA between India and USA was not available to the assessee.

63.In the case of Misshinbo Machineries Icc. Vs. Assistant CIT 83 ITD 748, the assessee was a non-resident company which entered into a collaboration agreement with Indian company for supply to latter of technical know-how for establishing a unit for manufacture of disk pads and brake linings.  The income derived by way of fees for supplying technical know-how to the Indian company was written by it as fees for technical services.  The AO, however, treated 2/3^rd of assessees income as royalty and applied a higher tax rate of 40% as against 20% applicable in respect of fees for technical services.  When the matter traveled to the Tribunal, the Chennai Bench of ITAT accepted the stand of the assessee company and held that the entire consideration received by it from the Indian company was fees for technical services liable to tax at a lower rate of 20%.  It is thus clear that no only the nature of services rendered by the Japanese company to the Indian company was different from that of the present case but even the issue involved before the Tribunal was quite limited relating to rate of tax which was higher if the amount received y the assessee was treated as royalty than if the same was treated as fees for included services.

64.In the case of Raymond Ltd. Vs. DCIT 86 ITD 791, the assessee company had engaged a company incorporated in UK as Lead Manager and since this main job undertaken by the UK company involved specialized services rendered by its Managers, the same were held by the Mumbai Bench of ITAT as managerial or consultancy services within the meaning of Section 9(1)(vii) read with Explanation-2.  However, as no technical knowledge, experience, skills, know-how or process etc. was made available to assessee company by non-resident Managers to GDR issue within the meaning of Article 13.4(c) of the DTAA between India and UK, it was held by the Tribunal that no part of fees for managerial services could be considered as fees for technical services since the word managerial did not find place in the concerned Article.  Consequently, it was held by the Tribunal that the assessee company was under no obligation to deduct tax under Section 195.  In the present case, no such managerial services were rendered by the assessee company to the Indian clients/hotels so as to attract the provisions of section 9(1)(vii).

65.A resume of the various decisions cited by the learned Special Counsel for the Revenue, as discussed above, clearly shows that the facts involved therein were materially different than the facts involved in the present case inasmuch as the nature of services rendered therein was altogether different from the nature of services predominantly rendered by the assessee company in the present case as discussed hereinable in detail.  The learned Special counsel for the Revenue, however, has attempted to pick out and rely on some sentence from the said judgments in support of the Revenues case divorced from the text and context thereof.  It is a first and foremost principle of reviewing the binding nature of precedents that the precedent is an authority for what it actually decides and not what may remotely or even logically follow from it.  As held by Honble Supreme Court in the case of the CIT Vs. Sun Engineering Works (P) Ltd. 198 ITR 297, it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Court divorced from the context of the question under consideration and to treat it to be the law declared by the Court.

66.On the other hand, the facts involved in the case of CIT Vs. Neyveli Lignite Corporation Ltd. 243 ITR 459 (Mad.) were somewhat similar to the facts of the present case inasmuch as the assessee had entered into an agreement with a Hungarian company for acquiring steam generating plants with auxiliaries.  As per the said agreement, drawings and designs were also to be supplied by the Hungarian company to the Indian company before the manufacturing is commenced with the help of the said plant to ensure that the buyers requirements are fully taken care of and to enable the buyer to operate the machines and also to assure the buyer that the machines will perform to the specifications required by the buyer.  This supply of designs and drawings was held to be only incidental to the performances of the total contract by the Honble Madras High Court observing that none of the sub-clauses in the Explanation (2) under Section 9(1)(vi) would apply to such supply of design and drawings so as to say that any income accrued to the foreign supplier in India.  Honble Madras High Court also observed that mere passing of information concerning design of a machine which is tailor made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user so as to render the payment made therefrom being regarded as royalty.

67.In the case of CIT Vs. Klayman Porcelains Ltd. (supra), Honble Andhra Pradesh High Court held that the question whether the amount paid by the Indian company to the non-resident for imparting of any information concerning the working of the use of a patent, invention, model, design, secret formula or process or trademark or similar property and if it is paid for the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill, would fall within the meaning of royalty or not is essentially of facts to be determined on the facts and circumstances of each case and the terms of agreement under which there has been a transfer.  In the said case, finding was recorded by the Tribunal on construing the relevant portion of the agreement that a foreign company had undertaken to supply, erect and commission a kiln in India and even though know-how was also provided alongwith the material, the entire payment had been considered as the cost of the kiln by the purchaser in India.  Keeping in view this finding of fact recorded by the Tribunal, it was held by the Honble A.P. High Court that the entire consideration having been paid for construction/installation of kiln, one is unable to say that any amount was paid for imparting any information concerning the working of a patent, invention, design, secret formula etc. falling under clause (ii) of Explanation or for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill with the meaning of clause (iv) of Explanation (2).  Honble A.P.High Court, therefore, upheld that conclusion of the Tribunal that part of the payment made by the Indian company to the foreign company in pursuance of their agreement could not be regarded as royalty within the meaning of explanation (2) to clause (vi) of sub-section (1) of Section 9.

68.To the similar effect is the decision of Honble Delhi High Court in the case of CIT Vs. Mitsui Engineering & Ship Building 259 ITR 248, wherein the price paid by the Indian company to the supplier was a total contract price covering all the stages involved in the supply of machinery from the stage of design to the stage of commissioning.  The total consideration payable was Rs.4,74,000/- and it was held by the Revenue authorities that the consideration attributable to the design part was covered by Explanation (2) to Section 9(1)(vi).  This stand of the Revenue, however, was not accepted by the Tribunal and when the matter reached to the Honble Delhi High Court, it was held by their Lordships, relying on the decision of Honble Madras High Court in the case of Neyveli Lignite Corporation Ltd. (supra), that it was not possible to apportion the consideration for the design on the one part and supply and commissioning of the machinery on the other part.  It was also held by Honble Delhi High Court that the limited purpose of the drawing and design was only to secure the interest of the purchaser and the information concerning the working of the machine was only incidental to the supply of the machinery which could not be said to be covered under sub-clause (vi) and also (vii) of Section 9(1).  In the case of CIT Vs. HEG Ltd. 263 ITR 230, Honble M.P.High Court has held that payment for any information concerning industries or commercial venture cannot earn the status of royalty and to have the status of royalty, the information must have some special features.

69.In the present case, the main job undertaken by the assessee company was to render the service in relation to advertisement, publicity and sales promotion (including reservation) of the Indian hotels as is clearly evident from the relevant terms of the agreements and the use of trademark, trade name etc. as well as provision of other facilities/services was only incidental to the rendering of the said services.  Moreover, the payments under the agreements were entirely made by the Indian hotels/clients to the assessee company for these main services as per the express payment clause contained in the said agreements and the said incidental/ancillary services not being independent of and separable from the main job undertaken by the assessee in the peculiar facts of the case, it was neither possible nor desirable to apportion or attribute any part of the consideration received by the assessee thereto.  This being the factual position and keeping in view the aforesaid decisions of the Honble High Courts including that of Honble Jurisdictional High court in the case of CIT Vs. Mitsui Engineering & Ship Building (supra), we are of the view that the payments in question received by the assessee or even any part thereof were not in the nature of royalty within the meaning of Section 9(1)(vi) read with Explanation 2 thereto.

70.Having held that the amount in question paid by the Indian clients/hotels to the assessee company on account of services rendered in pursuance of the agreements entered into with them was not in the nature of royalty or technical services within the meaning of Section 9(1)(vi) read with Explanation-2, the next issue which arises for our consideration is whether the said payment could be treated as royalty or fees for included services in terms of the relevant Articles of the DTAA between Indian and America.  Although the definition of royalty as given in Explanation-2 to Section 9(1)(vi) of the Income Tax Act, 1961 is wider in scope and ambit than the definition of royalty given in Article 12(3) of the Indo-American DTAA, this issue assumes significance firstly because the authorities below have held the amount in question to be royalty and/or fees for included services relying also on the relevant Articles of the DTAA and secondly, as per the specific provisions contained in Section 90(2), the provisions of DTAA override the provisions of the Income Tax Act, 1961 insofar as they are more beneficial to the assessee.  The issue regarding the applicability of Section 9(1)(vii) read with Explanation 2thereto, although no specifically invoked by the authorities below in their orders, can also appropriately be considered simultaneously.

71.As per Article 12(1) of the DTAA between India and America, royalties and fees for included services arising in a contracting state (i.e. India in the present case) and paid to a resident of the other contracting state (i.e America in the present case) are liable to be taxed in that other state (i.e. America in the present case).  However, as per Article 12(2), such royalties and fees for included services may also be taxed in the contracting state (i.e. India in the present case) in which they arise according to the laws of that state subject to certain concessions as provided in clauses (a) and (b) of Article 12(2).  The terms royalties and fees for included services as used in Article 12 are defined in Articles 12(3) & 12(4) respectively as follows:-

12(3).The terms royalties as used in this article means:

(a)payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or a scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof; and

(b)payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payment derived by an enterprise described in paragraph 1 of article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8.

4.For purposes of this article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services :

(a)are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or

(b)make available technical knowledge, experience, skill, know how, or processes, or consist of the development and transfer of a technical plan or technical design.

72.It appears from the orders of the authorities below passed in the present case that while treating the amount in question received by the assessee from Indian hotels/clients as royalty and/or fees for included services, the Assessing Officer relied on Article 12(3) and 12(4)(b) of the Indo-American DTAA besides the provisions of Section 9(1)(vi) of the Income Tax Act, 1961 whereas the learned CIT(A) applied Article 12(3)(a).  At the time of hearing before us, the learned Special Counsel for the Revenue Shri Y.K.Kapur has sought to rely, by way of raising the additional grounds in the appeals filed by the Revenue, Article 12(4)(a) to support the Revenues case that the amount in question being in the nature of fees for included services was liable to tax in India also.  The learned counsel for the assessee has raised a strong objection for admission of these additional grounds stating that neither the Assessing Officer nor the learned CIT(A) having applied Article 12(4)(a) of the DTAA in their orders passed in the assessees case, the Revenue cannot rely on the said Articles to support its case at this stage during the course of appellate proceedings before the Tribunal.  Keeping in view that the issues sought to be raised by the Revenue in these additional grounds are purely legal and all the facts relevant to consider and adjudicate the same are on record, we, however, find no merits in the objection raised by the learned counsel for the assessee and admitting the additional grounds raised by the Revenue, we now proceed to consider and decide the issues raised in these additional grounds also on merits.  In support of the Revenues case that the impugned amount received by the assessee from the Indian hotels/clients was in the nature of royalty or fees for included services as per the DTAA between India and America, reliance thus has been placed by it mainly on the provisions of Articles 13(3)(a) as well as 12(4)(a) & 12(4)(b).  Article 12(3)(b) being specifically applicable only to payments received for the use of or the right to use of any equipment of industrial, commercial or scientific nature, in any case, is not applicable to the facts of the present case.  It is, therefore, relevant to consider as to whether the payment received by the assessee from the India hotels/clients was in the nature of royalties or fees for included services within the meaning given in Article 12(3)(a), 12(4)(a) or 12(4)(b) of the DTAA between India and USA or fees for technical services within the meaning given in Explanation 2 to Section 9(1)(vii).

73.    In order to decide this issue relating to the applicability of Article 12(3)(a), 12(4)(a) or 12(4)(b) of the DTAA or the provisions of Section 9(1)(vii) read with Explanation 2 to the payment received or receivable by the assessee from the Indian hotels/clients in pursuance of the agreements entered into with them, it is necessary to appreciate the exact nature of services rendered by the assessee as is evident from the said agreements.  In this regard, it is necessary to read the said agreements as a whole as held in the various judicial pronouncements discussed above so as to ascertain the exact nature of services as well as the relationship between the two parties.  We have already done this exercise in the context of issue relating to applicability of Section 9(1)(vi) read with Explanation-2 and after examining and analyzing all the relevant clauses and articles of the said agreements in detail, we have come to a conclusion that the arrangement between the assessee company and the Indian hotels/clients was in the nature of integrated business arrangement predominantly for rendering the services in connection with publicity, advertising and sales including reservations of the Indian hotels worldwide.  The main intention/purpose of the said arrangement was to promote the hotel business worldwide in the mutual interest of both the sides and the other services enumerated in the various Articles of the agreements to be rendered by the assessee company were merely ancillary or auxiliary to this main objective/intention.  This precisely was the sum and substance of the agreement if the same is read as a whole and thus, it was a case in which the assessee company had undertaken to provide services in connection with advertising, publicity and sales promotion including reservations for the Indian hotels/clients.  Even the payment was entirely made as expressly stipulated in the agreement for these services and this is the way in which the entire arrangement was not only made but was also understood by both the sides.  Even the use of trademark, trade names etc. of the assessee company by the Indian hotels/clients was an integral part of this arrangement and such use was allowed at no cost as expressly provided in the relevant agreements. Moreover, the rationale behind providing such use at no cost has been explained on behalf of the assessee which is found to be satisfactory by us for the detailed reasons given in the foregoing portion of this order.  Having regard to all these aspects, we have come to a conclusion that the various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising, publicity and sales promotion including reservations of the Indian hotels worldwide in mutual interest cannot be relied upon by picking and choosing the same in isolation so as to say that part of the consideration received by the assessee, as attributable to the said services, was in the nature of royalties or fees for included services.  Such an approach adopted by the Revenue authorities, in our opinion, was neither permissible in law nor practicable in the facts of the case and the conclusion drawn by them on the basis of such approach to cover the said services taken individually or in isolation divorced from the main intention within the meaning of royalties or technical services as defined in Explanation 2 to Section 9(1)(vi) or to Section 9(1)(vii) and/or that of royalties or fees for included services as defined in Article 12(3) and 12(4) of the DTAA between India and USA was neither well-founded nor justified.

74.    On the other hand, the predominant object/purpose of the integrated business arrangement between the assessee company and its Indian clients/hotels as reflected in the relevant agreements so also as understood by both sides was that of providing the services in relation to marketing, publicity and sales promotion and even the payments in question were entirely made by the Indian hotels/clients to the assessee company for such services as expressly provided in the relevant agreements.

75.    In the case of DCIT Vs Boston Consulting Group Pvt. Ltd. 94 ITD 31, the assessee was a foreign company receiving income by providing strategy consultancy services such as marketing and sales strategy, business strategy and portfolio strategy to its clients in India and the said income was sought to be held as in the nature of fees for technical services within the meaning given in relevant Articles of the DTAA between India and Singapore and after comparing the scope of Article 12(4)(b) of India-US Treaty with that of the same Article of the India-Singapore Tax Treaty, it was held by the Tribunal that the services rendered by the assessee company being non-technical services could not be covered by the scope of Article 12(4)(b) of the Indo-American DTAA as well as that of India-Singapore DTAA.  It was held by the Tribunal that the nature of services being rendered by the assessee company such as business strategy, marketing and sales strategy etc. were materially different and they were not of technical in nature which would enable the person acquiring the services to apply the technology contained therein.  Explaining further, it was also observed by the Tribunal that so far as the provisions of India-Singapore DTAA as well as the provisions of Indo-American DTAA are concerned, payments for services which are non-technical in nature or, in other words, payment for services not containing any technology, are required to be treated as outside the scope of fees for technical services under Article 12(4)(b) does not cover consultancy services unless these services are technical in nature.

76.    In the case of Raymond Ltd. Vs DCIT 86 ITD 791, Mumbai Bench of ITAT held that the normal, plain and grammatical meaning of the language employed using the expressions making available and making use of is that that mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future.  The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end.  The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skill etc.

77.    As already observed, a close reading of the relevant agreements especially the payment clause, the predominant nature of the services rendered, the integrated arrangement between assessee company and Indian hotels/clients as well as the nature of relationship between them as reflected in the relevant agreements so also as understood by both the sides leaves no doubt that the entire consideration was paid by the Indian hotels/clients to the assessee company for the services rendered in relation to advertisement, publicity and sales promotion of the hotel business worldwide and this being so as well as considering all the facts of the case including especially the fact that other services to be rendered by the assessee as enumerated in the various Articles of the relevant agreements were merely ancillary or auxiliary in nature being incidental to the integral job undertaken by the assessee to provide the services in relation to advertisement, publicity and sales promotion of the hotel business worldwide, it is very difficult to accept the stand of the Revenue that the amount so paid for the use of a patent, invention, model, design, secret formula or process or trademark or similar property or for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as envisaged in Article 12(3)(a), 12(4)(a) or 12(4)(b) of the DTAA or in Section 9(1)(vii) read with Explanation 2.

78.    The supply of drawings, design, documents, information etc. such as fire safety system, computer reservation system etc. as mentioned in the relevant Articles of the agreements on which much emphasis has been laid by the learned Special Counsel for the Revenue was made by the assessee to enable it to execute the job undertaken by it to render services in relation to advertisement, marketing and sales promotion of hotel business worldwide and such supply was merely incidental to the performance of integrated business arrangement which included mainly rendering services in relation to advertisement, publicity and sales promotion of hotel business.  The payment made by the Indian hotels/clients to the assessee company on account of such job or any part thereof, therefore, cannot be attributed to the use of a patent, invention, model, design secret formula or process or trademark of similar property or for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill.  The decision of Honble Madras High Court in the case of Neyveli Lignite Corporation Ltd. (supra) and that of Honble Andhra Pradesh High Court in the case of Klayman Porcelains Ltd. (supra) fully support this view.  Even the decision of Authority for Advance Ruling in the case of Rotem Company, in RE* - 279 ITR 165 is to the similar effect wherein after discussing the various judicial pronouncements, it was held that the principle which emerges from the various decisions is that in a contract for manufacture, installation, sale or supply of goods, the element of services will always be present and where such services are inextricably linked with manufacture, installation, sale or supply, they cannot be evaluated for the purpose of FTS.  It is only where services are separable and independent that the FTS will be assessable.  In the present case, the services sought to be treated as fees for technical services or fees for included services were of ancillary or auxiliary in nature and being integral part of the job undertaken by the assessee company, the same were neither independent of nor separable from the said job undertaken by the assessee in relation to publicity, advertisement and sales promotion of the hotel business worldwide.

79.    Before us, the learned Special Counsel for the Revenue has referred to some of the Articles of the agreements between the assessee and the Indian hotels/clients to submit that the drawings, designs, documents, systems and other facilities agreed to be provided by the assessee to the Indian hotels/clients in terms of the said Articles are the components which have been provided/supplied in the process of rendering of the services in relation to advertisement, marketing and sales promotion.  He has contended that since the same come within the purview of one or the other clauses contained in Explanation-2 to Section 9(1)(vi) and (vii) as well as Articles 12(3) & 12(4) of the DTAA between India and USA, the payment/consideration attributable to the same should be apportioned so as to bring the same to tax in India.  In this regard, it is observed that a similar contention was raised before the Honble Delhi High Court on behalf of the Revenue in the case of CIT Vs Mitsui Engineering & Ship Building (supra).  The same, however, was rejected by the Honble Jurisdictional High Court holding that it was not possible to apportion the consideration for design on the one part and engineering, manufacturing, shop testing etc. on the other since the price paid by the assessee to the supplier was a total contract price which covered all the stages involved in the supply of machinery from the stage of design to the stage of commissioning.  In the present case also, the entire price was paid by the Indian hotels/clients to the assessee company in pursuance of the relevant agreements expressly for rendering the services in relation to advertisement, publicity and sales promotion and it was neither possible nor practicable nor permissible to apportion the said consideration as sought to be done by the Revenue authorities.

80.    As regards the applicability of Article 12(3) of the DTAA, we have already held that its trademark, trade name etc. were made available by the assessee company to the Indian hotels/clients as an integral part of the business arrangement between them and the same, therefore, was merely incidental to carry out the job of advertisement, publicity and sales promotion undertaken by the assessee company. Moreover, the said use was allowed for mutual benefit and the exact benefits derived by the assessee company from such use have already been discussed by us.  As expressly provided in the relevant agreements, it was agreed that no cost is to be paid by the Indian hotels/clients to the assessee company for such use and the entire payment/consideration was on account of the services rendered in relation to advertisement, publicity etc.  This was the arrangement between the parties as is evident from the relevant terms and conditions of the agreements and this is the way in which both the sides had apparently understood and acted upon such arrangement.  It was thus neither desirable nor possible to apportion any portion of the consideration received by the assessee company from the Indian hotels/clients towards use of trademark, trade name etc. by the Indian hotels/clients.  Having regard to all these facts and circumstances of the case borne out from the record including especially the relevant agreements between the parties, we find it difficult to accept the stand taken by the Revenue that the payments received by the assessee company form the Indian hotels/clients in pursuance of the said agreements or any part thereof was in the nature of royalties within the meaning of Article 12(3)(a).

81.    As regards Article 12(3)(b) covering the payments received as consideration for the use of or the right to use any industrial, commercial or scientific equipments, we have already noted that neither the Revenue has invoked the provisions of this Article in the assessees case nor the same otherwise also is applicable to the facts of the present case since there was no such use or the right to use any industrial, commercial or scientific equipment.  This takes us to Article 12(4)(a) of the DTAA which covers only the payments made for rendering of any technical or consultancy services which are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received.  As clarified and explained in the Memorandum of Understanding dated 15^th May, 1989, paragraph 4(a) of Article 12 thus includes technical and consultancy services that are ancillary and subsidiary to the application or enjoyment of an intangible for which a royalty is received under a license or sale as described in paragraph 3(a) as well as those ancillary and subsidiary to the application or enjoyment of industrial, commercial or scientific equipment for which a royalty is received under a lease as described in paragraph 3(b).  In the regard, we have already held that the payments received by the assessee in the present case from the Indian hotels/clients were not in the nature of royalties within the meaning given in paragraph 3(a) or 3(b) of Article 12.  It, therefore, follows that paragraph 4(a) of Article 12 also cannot be applied to cover any of the services rendered by the assessee company to the Indian hotels/clients in the present case.

82.    This leaves us only with paragraph 4(b) of Article 12 and we have to consider whether the services rendered by the assessee company are covered under this paragraph.  As explained and clarified in the Memorandum of Understanding dated 15.5.1989 in relation to Indo-US Tax Treaty, paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service, technical knowledge, experience, skill, know-how or process or consists of the development and transfer of a technical plant or technical design to such person.  It is also clarified that this category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service.  Generally speaking, technology will be considered made available when the person acquiring the service is able to apply the technology.  As further clarified in the aforesaid Memorandum, the very fact that the provision of the service may require technical input by the person providing the service does not per-se mean that technical knowledge, skills etc. are made available to the person purchasing the service within the meaning of paragraph 4(b).  Typical categories of services that generally involve either the development and transfer of technical plans or technical designs or making technology available as described in paragraph 4(b) have been illustrated in the aforesaid MoU as engineering service, architectural services and computer software development none of which covers the services rendered by the assessee in the present case, the nature of which is altogether different as already discussed in detail by us.

83.    It is also further clarified in the Memorandum of Understanding that technical and consultancy services as envisaged under paragraph 4(b) of Article 12 could make technology available in a variety of settings, activities and industries and some of the areas to which such services may relate are also enumerated in the MoU which do not include the hotel industry.  One of such areas as indicated in the MoU is communication through satellite or otherwise and relying on the same, learned Special Counsel for the Revenue has contended that the interface between the reservation system of the assessee company and that of the Indian hotels/clients was covered in this category.  We, however, find it difficult to agree with this contention of the learned Special Counsel for the Revenue.  First of all, it is the area which has been specified in the MoU for ascertaining the services relating thereto being of technical and consultancy nature making technology available whereas the services rendered by the assessee in the present case are in the field of hotel industries and such services are in relation to advertisement, publicity and sales promotion which are not in the nature of technical and consultancy services involving making of any technology available.  Secondly, the interface between the computerized reservation system of the assessee and the computerized reservation system of the Indian hotels/clients was provided to facilitate the reservation of hotel rooms by the customers worldwide as an integral part of the integrated business arrangement between the assessee and the Indian hotels/clients.  This interface thus was not separable from and independent of the main integrated job undertaken by the assessee company of rendering services in relation to marketing, publicity and sales promotion and the same, in any case, was not in the nature of technical and consultancy services making any technology available to the Indian hotels/clients in the filed/area of communication through satellite or otherwise.  Moreover, as pointed out by the learned counsel for the assessee before us, no communication through satellite was involved in the interface between the computerized reservation system of the assessee and that of the Indian hotels/clients.

84.    In reality, it is always possible that job undertaken by one party for the other party of supply of any goods or services may involve utilization of the knowledge, information and expertise of the party undertaking the said job.  This possibility is more in the international trade because the job is entrusted to a foreign party generally having the expertise, knowledge, technology and experience to execute the said job.  However, just because such expertise, knowledge, technology and experience is possessed by the said party and the same has been utilized for rendering the services, it cannot be said that the services so rendered are in the nature of technical and consultancy services making any technology available to the other party.  There could be cases like the one in hand where the nature of services rendered in relation to the job undertaken is entirely different and may not involve either the development and transfer of technical plans or technical designs, or making technology available as described in paragraph 4(b).  It is, however, possible that the experience, expertise, knowledge etc. acquired by the said party is utilized for rendering the services as integral part of the arrangement between the parties.  The same, however, cannot be considered as technical or consultancy services of the nature envisaged in paragraph 4(b) of Article 12.  The examples given in the Memorandum of Understanding to indicate the scope of paragraph 4(b) of Article 12 clearly support this view.  In example 4 so given, an Indian builder hires the US company to produce wallboard at their plant outside India.  The Indian company provides the raw material and the US manufacturers fabricate the wallboard in its plant using advanced technology.  On the analysis of these facts, it is clarified in the MoU that although the US company is clearly performing a technical service, no technical knowledge, skill etc. are made available to the Indian company nor is there any development and transfer of a technical plan or design and, therefore, the fees payable by the Indian company to the American company would not be for included services.  In another example No. 7, the Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol free oil and wishes to market the product worldwide.  It hires an American marketing consulting firm to do a computer stimulation of the world market for such oil and to advice it on market strategy.  On analysis of these facts, it is clarified/explained that the fees payable by the Indian company to the US company would not be for included services.  It is also explained that even though the American company is providing a consultancy service which involves the use of substantial technical skills and expertise, it is not making available to the Indian company any technical experience, knowledge or skill etc. nor is it transferring a technical plan or design.  What is transferred to the Indian company through the service contract is commercial information and the mere fact that technical skills were required by the performer of the service a technical service within the meaning of paragraph 4(b) of Article 12.  Since the facts of the present case are almost similar to the facts of this case given in Example 7 of the Memorandum of Understanding, it leaves no doubt that the payment in question received by the assessee company from the Indian hotels/clients or any part thereof could not be treated as fees for included services within the meaning of paragraph 4(b) of Article 12.

85.    As such, considering all the facts of the case, the relevant provisions of the Income-Tax Act, 1961 as well as that of DTAA between India and USA and keeping in view the legal position emanating from various judicial pronouncements discussed above, we are of the opinion that the amount received by the assessee from the Indian hotels/clients for the services rendered under the relevant agreements was not in the nature of royalties within the meaning given in Section 9(1)(vi) read with Explanation-2 thereto of the Income-Tax Act, 1961 or as given in Article 12(3) of Indo-American DTAA.  The same was also not fees for technical services or fees for included services as defined in Section 9(1)(vii) read with Explanation-2 thereto of the Income-tax Act, 1961 or Article 12(4) of the Indo-American DTAA respectively.  Having regard to the integrated business arrangement between the assessee company and the Indian hotels/clients as evident form the relevant agreements as well as the nature of assessees own business, the said amount clearly represented its business profit which was not liable to tax in terms of Article-7 of the Indo-American DTAA. We, therefore, allow the relevant grounds raised in the assessees appeals on this issue and dismiss the additional grounds raised by the Revenue in its appeals.

86. Before us the learned Special Counsel for the Revenue Shri Y.K. Kapur has also raised an alternative contention that the affairs between the assessee and the ITC have been arranged or planned in such a way that any payment of income tax in India can be evaded. He has contended that the agreement entered into between them incorporating such design or plan is nothing but a colorable device not only to defraud the Revenue but also to play fraud upon the statute. He submitted that it is thus a case not of tax planning but of tax avoidance by adopting a colorable device. He took us through the copies of various judgments of the Honble Supreme Court and High Courts filed in Compilation 2-2A(C-1) to explain the concept of colorable device and playing fraud upon the statute. In one the these cases cited by Shri Kapur, viz.,Bharat Construction Pvt. Ltd. Vs. CIT-250 ITR 291, Honble Delhi High Court has explained the meaning of a colorable device as a colorable transaction which is seemingly valid but a feigned or counterfeit transaction entered into for some ulterior purpose. It was also observed by the Honble Jurisdictional High Court in the said judgment that a conclusion about the nature of a transaction, whether it was a colorable or otherwise, if supported by material or evidence, is essentially one of facts. As further pointed out by Shri Kapur, it was held by Honble Supreme Court in the case of Bhaurao Dagdu Paralkar Vs. State of Maharashtra & Others-(2005) 7 SCC 605 that suppression of material document would also amount to a fraud on the Court. He also relied on the decision of Honble Supreme Court in the case of McDowell & Co. Vs. CIT- 154 ITR 148 wherein it was held that colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by dubious methods. It was also observed by the Honble Apex Court that it is up to the Court to take stock to determine the nature of new and sophisticated legal devices to avoid tax and to expose the devices for what they really are refuse to give judicial benediction. He submitted that relying on the decision of Honble Supreme Court in the case of McDowell & Co., it was held by the Honble Gujarat High Court in the case of Banyan & Berry Vs. CIT-222 ITR 831 that the principle enunciated by the Honble Supreme Court in McDowells case has not affected the freedom of the citizen to act in a manner according to his requirements, his whishes in the manner of doing any trade, activity or planning his affairs with circumspection within the framework of law unless the same fall in the category of colorable device which may properly be called a device or a dubious method or a subterfuge clothed with apparent dignity. He pointed out that these observations of the Honble Gujarat High Court have been referred to by the Honble Supreme Court in its judgment in the case of Union of India Vs. Azadi Bachao Andolan -263 ITR 206 at page 759 with approval. He contended that the manner in which the agreements in the present case have been drafted shows that it was a design to avoid the payment of tax in India and the same, therefore, was rightly held by the CIT (A) as a colorable device adopted by the assessee to avoid the payment of tax legally payable by it relying on the decision of Honble Supreme Court in McDowells case. He submitted that the said agreements were so drafted that the trademarks, trade names etc. of the assessee company were allowed to be used the Indian hotels/clients at free of cost despite the fact that the said use was the most crucial and important element of the arrangement between the parties and it was thus a clear case of an attempt made to avoid payment of tax by resorting to dubious methods. He contended that the payment made by the Indian hotels/clients to the assessee company under the agreements or at least part thereof was clearly attributable to such use of trademark, trade manes etc., but by showing that the said use was allowed free of cost in the relevant agreements, an attempt was clearly made to avoid payment of tax by artificial device showing apparently the nature of income to be different than the actual one. He contended that the tax was clearly chargeable in Indian on the amount attributable to such use being in the nature of royalties which has been avoided by the assessee by adopting a dubious method or colorable device by drafting the relevant agreements to serve its purpose.

87. The learned counsel for the assessee submitted that the relevant agreements entered into by the assessee company with the Indian hotels/clients were not only approved by the different government authorities like RBI etc. but even the same were examined by the Income-tax department before issuing no-objection under Section 195(2) from time to treating the amount received by the assessee company form the Indian hotels under the said agreements as its business profits. He contended that it is, therefore, not permissible for the Revenue now to say that the said agreements are the colorable device adopted by the assessee company to avoid payment of tax especially when the orders under Section 195(2) were consistently passed up to AY 1994-95 treating the amounts received by the assessee company under the said agreements as its business profit after examining the terms and conditions thereof. He also submitted that similar agreements were entered into by the assessee company not only with the Indian hotels/clients but even with the order hotels situated worldwide. He contended that it is well-settled that apparent is real unless proved otherwise and s held by Honble Supreme Court in the case of CIT Vs. Daulat ram Rawat Mall- 87 ITR 349, the onus of proving that the apparent is not real is on the party who claim it to be so. He submitted that nothing, however, has been brought on record on behalf of the Revenue in the present case to show that the actual arrangement between the assessee company and Indian hotels/clients was something different than the one apparent from the relevant agreements and their allegation that the said agreements are colorable device is bases purely on guess work and surmises without there being any evidence or material to support and substantiate the same. In support of this contention, he relied on the decision of Honble supreme Court in the case of Dhakeswari Cotton Mills Ltd. Vs. CIT- 26 ITR 775. He also relied on the decision of Honble Supreme Court in the case of Union of India & Another Vs. Azadi bachao Andolan & Another (supra). He also pointed out that both the parties to the agreements i.e. the assessee company and the Indian hotels/clients are operating at arms length and without there being any evidence brought on record to show any collusion between them, the agreement between them cannot be held to be sham or collusive merely on the basis of suspicion and surmises.

88. After consideration the rival submissions and perusing the relevant material on record, we find difficult to agree with the stand of the Revenue that the agreements between the assessee company and Indian hotels/clients were in the nature of a colorable device adopted to avoid payment of tax in India. First of all, one of such agreements was entered into between the assessee company and ITC initially on 27.1.1979 for a period of ten years which was further extended on virtually the same terms and conditions for a period of ten years vide a fresh agreement dated 30.12.1988. Before entering into the said agreement, the required approvals of the different government authorities including that of RBI were duly obtained. Even the copies of the said agreements were produced before the concerned income-tax authorities for obtaining no-objection under section 195(2) and after examining the terms and conditions of the said agreements, orders under Section 195(2) were passed from time to time treating the amount received by the assessee company form the Indian hotels/clients under the said agreements as its business profits. Copies of these orders passed from time to time during the relevant period have been placed on record by the learned counsel for the assessee before us. Further, as pointed out by the learned counsel for the assessee before us, similar agreements were entered into by the assessee company with hundreds of other hotels situated worldwide having similar type of arrangement for the services to be rendered in relation to advertisement, publicity and sales promotion. Having regard to all these facts and circumstances of the case, it is difficult to accept the stand of the Revenue that the said agreements were nothing but a colorable device adopted by the assessee to defraud the Revenue.

89. As is evident form the impugned orders of the learned CIT(A) as well as the contentions raised by Shri Kapur before us, the case of the Revenue about the colorable device is mainly based on the stipulation in the agreements whereby the trademark, trade names etc. of the assessee company were allowed to be used by the Indian hotels/clients free of cost. However, as held by us in the foregoing portion of this order, there was a valid justification for allowing such use free of cost and the explanation offered by the assessee company giving rationale behind allowing of such use free of cost has been accepted by us for the detailed reasons already given. It is also pertinent to note here that the revenue, on the one hand, has treated the payment received by the assessee company from the Indian hotels under the said agreements as royalties and/or fees for technical/included services on the basis of terms and conditions stipulated therein whereas the very same agreement is being labeled as a colorable device adopted by the assessee to avoid the payment of tax on the other hand. As rightly contended by the learned counsel for the assessee, this approach of the Revenue is nothing but blowing hot and cold in the same breath which, in our opinion, cannot be accepted especially when its case of colorable device is not based on any evidence or material on record but the same is based purely on surmises and conjectures.

90. As already observed by as after taking into consideration all the facts of the case that the arrangement between the assessee company and the Indian hotels as evidenced by the agreements was for rendering the services in relation to advertisement, publicity and sales promotion of the hotel business worldwide and the entire payment was made by the Indian hotels to the assessee company for such services. This is what has been reflected in the agreement and this is the way in which both the sides have not only understood but acted upon the said agreements. Nothing, however, has been brought on record by the Revenue authorities to show that the intention of the said arrangement or even any action taken by either of the parties was different or at variation with any of the terms of the said agreements. As described in the said agreements, both the parties thereto i.e. the assessee company and the Indian hotels/clients were reputed and renowned parties having no relation whatsoever between them besides their business association and since both of them clearly operating at arms length, it cannot be alleged that there was some sort of collusion between them to draft the agreement in such a way to serve the purpose of the assessee company to avoid tax in India especially when there was no evidence whatsoever to support and substantiate the said allegation. On the other hand, due compliance of all the statutory requirements was apparently done by them by obtaining the necessary permissions and approvals from time to time for getting the no-objection under Section 195(2). The concerned income-tax authorities thus not only had the knowledge of the said agreements but after examining the terms and conditions thereof, orders under Section 195(2) were passed on different occasions treating the amount received by the assessee under the said agreements as its business profit. In the case of Bharat Construction Pvt. Ltd. Vs. CIT (supra), Honble Delhi High Court has held that a conclusion about the nature of a transaction whether it was a colorable or otherwise is essentially one of fact and the same is required to be considered on the basis of supporting material or evidence available on record.

91. In the case of Union of India & Another Azadi bachao Andolan & Another (supra), the Honble Supreme Court has held that an act which is otherwise valid in law cannot be treated as non-est merely on the basis of some underlying motive supposedly resulting in some economic determent or prejudice to the national interest. It is also observed by the Honble apex court that the principle in Duke of Westminster not only is alive and kicking in India, but it also seems to have acquired judicial benediction of the constitutional bench in India notwithstanding the temporary turbulence created in the case of McDowell. If the facts and circumstances of the present case are considered and appreciated in the light of the decision of Honble Supreme Court in the case of Azadi Bachao Andolan (supra) as well as that of Honble Delhi High Court in the case of Bharat Construction Pvt. Ltd. (supra), we find it difficult to accept the alternative stand of the Revenue that the said agreements were a colorable device adopted by the assessee to avoid payment of tax in India.

92. We also find no merits in the contention of Shri Kapur besed on Section 25 of the Contract Act because the agreements between the assessee company and Indian hotels/clients represented an integrated business arrangement for which the assessee company was to receive form the Indian hotels/clients consideration @ 3% of room sales. In these circumstances, when the payment was agreed to be made by the Indian hotels/clients for the job of publicity, advertisement and sales promotion undertaken by the assessee company, provision of other services/facilities and use of trademark, trade names etc. which were integral part of the said arrangement without any separate cost, in our opinion, would not make the entire contract to be null and void as sought to be contended by Shri Kapur.

93. Before us, the learned counsel for the assessee has raised an alternative contention that even if it is assumed for the sake of argument that the payments in question received by the assessee company form the Indian hotels/clients are in the nature of royalties or fees for included services within the meaning given in Article 12(3) or 12(4), the same may be charged to tax only in USA in terms of Article 12(1). He has contended that article 12(2) no doubt provides that the same may also be brought to tax in India at the rate not exceeding 15% but in the absence of any such rate prescribed by the CBDT or any other competent authority of Indian Government or any instructions or guidelines specifically issued by them in this regard, the Assessing Officer is not competent to charge tax on such income in India by pressing into service Article 12(2). In support of this contention, he has relied on the decision of Delhi Bench of ITAT in the case of Modiluft Limited Vs. ACIT (supra) wherein while dealing with a similar issue in the context of DTAA between India and Germany, the Tribunal held that the relevant article 12(2) of DTAA being vague and there being no guidelines issued by the CBDT or any competent authority as to when such amount can be taxed in India and what may be the criterion for arriving at appreciate rate of tax, the benefit of this lacuna-has to be extended to the assessee. The learned Special Counsel for the Revenue, on the other hand, has put forth the Revenues stand on this issue in the written submissions at page Nos. 26 to 31. The main plank of his arguments is that having regard to all the facts of the case, the payments in question received by the assessee company from Indian hotels/clients gave rise to income which has accrued or arisen in India or deemed to have accrued or arisen in India and the same, therefore, was chargeable to tax in India. Keeping in view our decision on the main issue rendered hereinabove holding that the entire amount in question representing business profit of the assessee company was not liable to be taxed in India, this issue raised by the learned counsel for the assessee by way of alternative contention, however, has been rendered only academic in nature. W therefore, do not deem it necessary or expedient to consider and decide the same.

94. There are three more issues raised by the assessee company in the present appeals. Out of them, the first issue relates to the validity of initiation of reassessment proceedings for AY 1995-96, 1996-97, 1999-2000 and 2000-01 under Section 148 read with Section 147 and the same is raised by taking the following common ground as ground No.1 in the respective appeals of the assessee for the relevant four years:-

            1(a) That the Department having accepted the contention of the appellant that it was not liable to tax in India in respect of the impugned income and accordingly having granted No Objection Certificate u/s 195(2) for making remittance to the appellant without deduction of tax at source aver the past several years, acted, whimsically and illegally in reopening the assessment for the impugned assessment year u/s 147 on a mere change of opinion.

            1(b) That accordingly, the order of the AO u/s 147 is bad-in-law and void ab-initio and the order of the id. CIT(A) confirming the said order of the A.O. is also unsustainable in law.

95. The learned counsel for the assessee submitted before us that the assessee company had been receiving the impugned payments of the identical nature consistently form 1979 onwards and after being satisfied that the income arising from the said payments was not taxable in India, the concerned Income tax authority had granted no-objection certificate under Section 195(2) to the Indian companies for making remittance to the assessee company without deduction of tax at source. He submitted that as per the provisions of section 40(a)(i), any remittance of the sum chargeable to tax in India to a foreign company without deduction of tax at source is not deductible as business expenditure in the hands of the payer and considering this repercussion of non-deduction of tax at source by the payer, the department exercises due diligence before granting of non-objection certificate for making remittances of the amount in question to the assessee company by the Indian hotels/clients in the present case were permitted by the department without deduction of any tax at source as per the orders passed u/s 195(2) from time to time and eve the said payments were allowed as deduction in the assessments completed regularly in the case of Indian hotels/clients. He contended that the said amounts thus were treated as business profit of the assessee company not only in the order passed u/s 195(2) but even in the regular assessments completed in the cases of Indian hotels/clients being payers of the said amounts. He contended that this treatment given earlier in a period spanning for nearly nine years, however, was changed by the Assessing Officer while issuing notices u/s 148 initiating reassessment proceedings for AY 1995-96, 96-97, 1999-2000 and 2000-01 and since the reassessment proceedings so initiated were clearly based on mere change of same were bad in law. Relying on the decision of Honble Supreme Court in the case of Radha Soami Satsang Vs. CIT- 193 ITR 321, Honble Delhi High Court in the case of CIT Vs. Neo Pilypack Pvt. Ltd.- 245 ITR 492 and that of Honble Punjab & Haryana High Court in the case of CIT Vs. Girish Mohan Generiwala- 260 ITR 417, he contended that where an issue had been decided consistently in a particular manner for earlier assessment years, the same view should continue to prevail for subsequent years for the sake of consistency unless there is material change in the facts. He further contended that the reassessment proceedings for all these four years were initiated by the AO on the basis of assessments completed by him in assessees own case for AY 1997-98 & 98-99 and since the said assessments completed by him were finally set aside by the Tribunal vide its order dated 23.10.2002, the initiation of reassessment proceedings on the basis of the said orders, in any case, was bad in law. He contended that the reassessments completed by the Assessing Officer for all these four years in pursuance of invalid initiation thus are liable to be quashed.

96.The learned Special counsel for the Revenue submitted that no assessment for any of the four years under consideration was originally made in the case of the assessee nor even any return of income for the said years was filed by the assessee. He contended that there was thus no occasion for the assessing Officer to express any opinion on the issues involved in the assessees case and consequently, the question of initiating the reassessment proceedings on the basis of change of opinion does not arise at all as alleged by the learned counsel for the assessee. He contended that when there were no assessments completed by the AO originally in the case of the assessee for all the four years under consideration, the question of formation of any opinion about any issue did not arise at all. As regards the contention of the learned counsel for the assessee that the orders passed u/s 195(2) involved the expression of opinion, he submitted that the order passed u/s 195(2) is not an order of assessment but it is only an interim order which is subject to final assessment. In this regard, he relied on the decision of Honble Supreme Court in the case of Transmission Corp. of A.P.Ltd. Vs. CIT- 239 ITR 587 wherein it was held that the order passed u/s 195 does not affect the rights of parties and the taxability of receipt in the hands of recipient has to be examined independently in the assessment proceedings without having regard to issuance of no-objection certificate issued u/s 195(2). He also relied on the decision of Honble Bombay High Court in the case of CIT Vs. Tata Engineering & Locomotive Co. Ltd.- 247 ITR 107 for the similar proposition. He contended that the initiation of reassessment proceedings in the present case thus was not based on the change of opinion as alleged by the learned counsel for the assessee and there was no infirmity much less an illegal infirmity in the reassessments completed in pursuance of the said initiation.

97. We have considered the rival submissions and perused the relevant material on record. It is observed that the case of change of opinion has been attempted to be mad out by the learned counsel for the assessee on the basis that the orders passed u/s 195(2) on examination of the terms and conditions of the relevant agreements holding the amounts in question received by the assessee from Indian hotels/clients to be its business profits amounted to expression of opinion by the Assessing Officer and therefore, taking a different view in the reasons recorded on a similar issue involving similar facts for initiating the reassessment proceedings was nothing but a change of opinion. However, as held by Honble Bombay High Court in the case of CIT Vs. Elbee Services Pvt. Ltd. (supra) cited by the learned Special Counsel for the Revenue, orders passed u/s 195(2) of the Income Tax Act are conclusive and they do not pre-empt the department form passing appropriate orders of assessment. Further, as held by Honble Bombay High Court in another case i.e. CIT Vs. Tata Engineering & Locomotive Co. (supra) cited by the learned Special counsel for the Revenue, the findings given u/s 195(2) of the Income Tax Act would not preclude the Department form taking a contrary view in the assessment proceedings. Similarly, in the case of Transmission Corp. of A.P. Ltd. & Another Vs. CIT (supra), Honble Supreme Court has held that the provisions of Section 195 are for tentative deduction of income tax subject to regular assessment and by the deduction of income tax, the right of the parties are not in any manner adversely affected. The proposition propounded in these judicial pronouncement thus is very clear that the order passed u/s 195(2) are only interim orders passed for the limited purpose of tentative deduction of income-tax and they do not pre-empt the department from passing appropriate orders of assessment taking even a contrary view than what was expressed in the orders passed u/s 195(2).  The said orders, therefore, cannot be equated with the regular assessments and the view expressed therein cannot be construed as opinion expressed in the regular assessment.  In order to say that the initiation of reassessment proceedings is based on change of opinion, the change should be in the opinion already expressed by the Assessing Officer on the same issue in the regular assessment originally completed and one cannot look into anything else than the regular assessment originally completed for the same year to say that reassessment proceedings initiated by taking a different/contrary view is based on change of opinion.  It is pertinent to note here that even the intimation issued u/s 143(1)(a) is held to be not an order of assessment expressing any opinion in the similar context by the Honble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. Vs. Chairman, CBDT 246 ITR 173 observing that there being so assessment as such under Section 143(1)(a), there is no question of change of opinion in issuing notice u/s 148.  In the case of Dr. Amins Pathology Laboratory Vs. JCIT 252 ITR 683, the return of income filed by the assessee was accepted u/s 143(1)(a) and there being no assessment of the assessee made u/s 143(3) for the relevant year, it was held by the Honble Bombay High Court that there was no question of the reopening of assessment on change of opinion as alleged.  To the similar effect is the decision of Honble Rajasthan High Court in the case of Suman Steels Vs Union of India 269 ITR 412 wherein it was held that the original assessment having been done u/s 143(1)(a) and not u/s 143(3), there was no occasion for the Department to express any opinion and it, therefore, cannot be said that while issuing notice u/s 148, there was a change of opinion involved.

98.       A resume of the aforesaid judicial pronouncements clearly shows that unless there is a regular assessment made u/s 143(3) in assessees own case for the very same year, there cannot be expression of any opinion by the Department and this being so, the initiation of reassessment proceedings for that year cannot be said to be based on change of opinion.  The decision of Honble Calcutta High Court in the case of CWT Vs. Sardar Bahadur Sardar Indra Singh Trust 114 CTR 65 is directly on this point wherein it was held that the question of change of opinion arises only when the assessment has been made and such assessment is sought to be reopened on the same materials without there being any new or fresh information.  In the said case, not only any regular assessment was made for the relevant year but even no return of income was filed by the assessee for that year and on these facts, it was held by the Honble Calcutta High Court that the question of change of opinion would not arise at all.  In the present case, as rightly pointed out by the learned Special Counsel for the Revenue, no returns of income were filed by the assessee for the years under consideration i.e. AY 1995-96, 1996-97, 1999-2000 & 2000-01 and this being the undisputed position, there was no occasion to make any assessment for the said years expressing any opinion.  The question of change of opinion in issuing notices u/s 148, therefore, would not arise and the argument of the learned counsel for the assessee that mere change of opinion is not sufficient to issue notices u/s 148 has no relevancy at all in the present case.  It is also pertinent to note here that the assessments originally made by the Assessing Officer for AY 1997-98 & 98-99 were set aside by the Tribunal vide its common order passed only on 23.10.2002 whereas the reassessment proceedings for AY 1995-96, 1996-97, 1999-2000 and 2000-01 had been initiated on the basis of said assessments on 18.1.2002 itself.  We, therefore, reject the contention raised by the learned counsel for the assessee in this regard and holding that there was no legal infirmity in the initiation of reassessment proceedings for the four years under consideration i.e. AY 1995-96, 1996-97, 1999-2000 & 2000-01 as alleged by the learned counsel for the assessee, we dismiss the common ground No. 1 taken on this issue in the assessees appeals.

99.       The other preliminary issue relating to the scope of set aside proceedings is raised by the assessee company in common ground Nos. 1 & 2 of its appeals for AY 1997-98 & 98-99 which read as follows: -

1(a) That the AO erred in not following the directions contained in the order of the Honble Tribunal while restoring the matter to the file of the AO for readjudication.

1(b) That accordingly, the order of the AO and the order of the ld. CIT(A) confirming the order of the AO are bad-in-law.

2(a) That the AO erred in having differed from the original orders of his predecessors for the impugned assessment year wherein 25% of the total income was assumed to be fees for marketing, publicity and reservation services which was held to be Business Profits of the appellant and hence, not chargeable to tax in India in the absence of Permanent Establishment.

2(b) That the AO while passing order u/s 143(3) r.w.s. 254 of the Act, erred in treating the entire income of the appellant as royalty and fees for technical services, thereby not appreciating that original order of the ld. CIT(A) had reached finality to the extent of treatment of 25% of the profits as business profits not chargeable to tax in India, inasmuch as the same was not challenged in appeal by the Deparment before the Honble Tribunal

100.     The learned counsel for the assessee submitted before us that out of the total amounts received by the assessee company from the Indian hotels/clients, 25% was held by the learned CIT(A) to be in respect of publicity, marketing and promotion services.  He submitted that the said receipts to the extent of 25% thus were held by the learned CIT(A) to be the business income of the assessee company in his original appellate orders dated 22.3.2001 and 13.11.2001 for AY 1997-98 and 98-99 respectively not chargeable to tax in India in the absence of PE of the assessee company in India.  He submitted that this relief allowed by the learned CIT(A) to the extent of 25% of the total receipts for AY 1997-98 & 98-99 was not challenged by the Revenue by filing any appeals before the Tribunal and the orders of the learned CIT(A) to that extent had attained finality at that stage itself.  He submitted that the said orders of the learned CIT(A) holding that the remaining 75% of the amounts in question are chargeable to tax being in the nature of royalty or fees for included services were challenged by the assessee company in its appeals preferred before the Tribunal and, therefore, the limited issue before the Tribunal was about the taxability of the said amount to the extent of 75%.  He contended that the subject-matter of appeals before the Tribunal thus was relating to the taxability of such 75% of the amounts in question and the powers of the Tribunal were confined to this subject-matter only.  In support of this contention, he relied on the decision of Honble Supreme Court in the case of Hukum Chand Mills Ltd. Vs. CIT 63 ITR 232.  He also relied on the decision of Honble Allahabad High Court in the case of S.P. Kochhar Vs. ITO 145 ITR 255 to contend that the powers of the Tribunal were confined to the subject-matter of appeals and when the assessments were set aside by the Tribunal and the matter was remanded to the AO for making a fresh assessment, the power of the Assessing Officer was confined to such subject-matter only.  He contended that since the issue relating to the taxability of 25% of the amount in question was not the subject-matter of the appeals before the Tribunal, it was not permissible to the AO to travel beyond the scope of remand proceedings and consider and decide the said issue relating to taxability of 25% of the amount in question when the same had already attained finality and was not the subject-matter of appeal before the Tribunal.

101.     Relying on the decision of Honble Calcutta High Court in the case of V.P. Samtani Vs CIT 135 ITR 313, the learned counsel for the assessee contended that even the powers of the Tribunal itself were restricted to the subject-matter of the appeal and the directions given by the Tribunal, in any case, were confined to such subject-matter.  He also cited the decision of Honble Mysore High Court in the case of Pathikonda Balasubba Setty (Deceased) 65 ITR 252 wherein it was held that the Tribunals powers are limited to passing such orders as they may think fit on an appeal and the expression on the appeal clearly and indubitably points to the conclusion that the powers of the Tribunal are limited to the subject-matter of the appeal.  It was also held by the Honble Mysore High Court that the Tribunal has no jurisdiction to set aside the entire order of the AAC when only a part of the AACs order is agitated before him.  He contended that only a part of the CIT(Appeals)s order for AY 1997-98 & 98-99 upholding the action of the AO is bringing to tax 75% of the amount in question in India was agitated before the Tribunal in the present case and the relief allowed by the learned CIT(A) in respect of the remaining amount of 25%, having not been challenged by the Revenue, was not the subject-matter of appeal before the Tribunal.  In these circumstances, what was set aside by the Tribunal was only the issue relating to taxability of 75% of the amount in question and not the issue relating to taxability of 75% of the amount in question and not the issue relating to taxability of the remaining amount of 25%.  He contended that the Assesing Officer, however, considered and decided this issue relating to taxability of the remaining amount of 25% in the assessments completed in the set aside proceedings which was clearly beyond the scope of remand.  He contended that the Assessing Officer thus has clearly exceeded his jurisdiction in framing the orders u/s 143(3) read with Section 254 in bringing to tax the amount of 25% which was not in dispute before the Tribunal.

102.     The learned Special Counsel for the Revenue, on the other hand, submitted that as per the clear cut decision rendered by the Tribunal, the entire assessments for AY 1997-98 & 98-99 were set aside by it and the matter was restored to the file of the Assessing Officer for fresh adjudication in accordance with law. He submitted that the entire matter thus was left at large by the Tribunal and the Assessing Officer was at liberty to deal with the matter de-novo.  He contended that the powers of the Assessing Officer thus were not circumvented by the Tribunal in any manner while remanding the matter back to him and therefore, it could not be said that he exceeded his jurisdiction while framing the assessments in the set aside proceedings for both the years i.e. AY 1997-98 & 98-99 de-novo.  In support of this contention, he relied on the decision of Honble Madras High Court in the case of CIT Vs D. Veerappan 215 ITR 533 wherein it was held that once the assessments are set aside and remitted back for doing the same afresh, it is open to the Income Tax Officer to redo the assessment u/s 143(3) and his jurisdiction cannot be restricted in any sense.  He also relied on the decision of Honble Gauhati High Court in the case of CIT Vs. Highway Construction Co. Pvt. Ltd. 223 ITR 498 wherein it was held that when a direction given was to make a fresh assessment, the earlier assessment had become non-est and it was open to the Assessing Officer to make the assessment afresh in accordance with law.  Reliance was also placed by him on the decision of Honble Orissa High Court in the case of CIT Vs. S.V. Diwakar 201 ITR 914 wherein it was held that wherever an assessment is set aside without imposing any restrictions or limitations, the Assessing Officer has the same power of making the assessment afresh as he could have originally done.  He contended that the Tribunal while remanding the matter to the AO in the present case for AY 1997-98 & 98-99 did not put any restrictions on the powers of the Assessing Officer to frame fresh assessments and this being so, the Assessing Officer was duly empowered to make the assessments afresh in accordance with law without any limitations or restrictions.  He contended that the said assessments made by the AO bringing to tax even the remaining amount of 25% in India in accordance with law thus was well within the scope of set aside proceedings and there was no transgression of any limits on his part as alleged by the learned counsel for the

assessee. In support of this contention, he also relied on the decision of Hon'ble Rajasthan High Court in the case of CIT Vs. Fundilal Rikhabchand - 208 ITR 348 and Hon 'ble Kerala High Court in the case of CIT Vs. A.M. Zainalabdeen Musaliar - 212 ITR 188.

103.     We have considered the rival submissions in the light of material available on record and the case laws cited at the Bar. It is observed that in the assessments originally completed for AY 1996-97 and 97-98 in the assessee's case, the entire amounts received by it from the Indian hotels/clients under the relevant agreements @ 3% on room sales were held to be taxable in India by the Assessing Officer. The assessee company challenged these assessments by preferring appeals before the learned CIT(A) who held that 75% of the said amounts, was taxable in India.  Accordingly" he sustained the additions made by the Assessing Officer to that extent. As regards the remaining portion of 25%, he, however, held that the same represented business profits/commercial income of the assessee not liable to tax in India as per Article 7 of the DTAA between India and USA. In its appeals filed before the Tribunal, the assessee company challenged the orders of learned CIT(A) for both the years i.e. AY 1996-97 & 97-98 disputing the additions sustained by him to the extent of 75%. The Revenue, however, did not prefer any appeals or even cross-objections before the Tribunal challenging the relief allowed by the learned CIT(A) to the assessee by deleting the additions made by the AO to the extent of 25%. The Tribunal disposed of the appeals filed by the assessee for both the years vide its common order dated 23.10.2002 (supra), the operative portion of which as contained in paragraph 24, is reproduced below:-

"24. Both the parties have been heard at length. After going through the orders of authorities below and considering the arguments of the parties, we arc of the view that the issue has not been dealt with in the right perspective inasmuch as the AO as well as CIT(A) had proceeded on the assumption as if the covenants of DTAA authorizes the levy of tax on the income of the non-resident. The parties before us also have not addressed any argument as to whether the income of non-resident assessee is chargeable to tax under the provisions of IT Act, 1961 or not. They simply have proceeded on the same footings on which lower authorities decided the issue. We are unable to uphold such approach adopted by the lower authorities for the simple reason that taxability of the income of non-resident has to be first determined in the light of the charging provisions of IT Act The scheme of the Act is that taxability of the income of the non-resident has to be determined with reference to the charging provisions of ss.4, 5 and 9. However, s.5 is subject to, the other provisions of the Act. Sec.90 authorizes the Central Government to enter into an agreement with the Government of any other country for -

(a) The granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country; or

(b) For the avoidance of double taxation of income under this Act and under the corresponding law in force in that country; or

(c) For exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or investigation of cases of such evasion or avoidance; or

(d) For recovery of income-tax under this Act and the corresponding law in force in that country.

The combined reading of these provisions clearly reveals that provisions of.s.90 are to be invoked for granting relief to the assessee if the income of the non-resident assessee is chargeable to tax under ss.4, 5 and 9. If the income of non-resident itself is not chargeable to tax under the IT Act, they the question of invoking the provisions of s.90 would not arise at all. None of the parties below decided the issue as to whether the income of non-resident was taxable as royalty under the charging provisions of the IT Act. Therefore, we set aside the orders of the CIT(A) for both the years and restore the matter to the file of AO for fresh adjudication in accordance with law. At this stage, we may also refer to a decision rendered by the Authority for Advance Ruling in the case of Cyril Eugene Pereira, In re (1999) 154 CTR (AAR) 281 wherein it has been held that provisions of DTAA cannot be availed of if the non-resident is taxable only in one country. The other view has also been expressed by the said authority in the cases Mohsinally Alimoharnmed Rafik, In re (1995) 126 CTR (AAR) 311: (1995) 213 ITR 317 (AAR) and Dr. Rajnikant R.Bhatt, In re (1996) 135 CTR (AAR) 472: the issue. The assessee shall also be given a reasonable opportunity of being heard and to lead the evidence in support of its case."

104.     The Tribunal thus set aside the orders of the learned CIT(A) for AY 1997-98 and 1998-99 impugned in the appeals filed before it and restored the matter to the file of the Assessing Officer for fresh adjudication after taking into consideration first the taxability of the amounts in question ,under the charging provisions contained inSec.4, 5 and 9 of the Income Tax Act, 1961.

105.     Relying on the aforesaid observations of the Tribunal, the learned Special Counsel for the Revenue has submitted before us that the decision of the Tribunal was clearly to the effect that the entire assessments had been set aside and the matter was restored to the file of the Assessing Officer for fresh consideration. He has contended that the entire matter was thus left at large by the Tribunal to the Assessing Officer to be decided in accordance with law without circumventing his powers in any manner during the remand proceedings. In support of this contention, he has cited the following case laws:-

(i)            CIT Vs. D. Veerapan - 215 ITR 533 (Mad).

(ii)           CIT Vs. Highway Construction Co. Pvt. Ltd. - 223 ITR 498 (Gau).

(iii)          CIT Vs. S.V. Divakar - 201 ITR 914 (Orissa).

(iv)          CIT Vs. Fundilal Rikhabchand - 208 ITR 348 (Raj).

(v)           CIT Vs. A.M. Zainalabdeen Musaliar - 212 ITR 188 (Kerala).

106.     A perusal of the aforesaid decisions cited by the learned Special Counsel for the Revenue, however, shows that they were rendered in the context of scope of proceedings in pursuance of remand by the first appellate authority i.e. CIT (Appeals), AAC etc. except the case of CIT Vs. D. Veerappan (supra) decided by Hon'ble Madras High Court wherein the matter was remanded by the Tribunal. Their Lordships of Hon'ble Madras High Court, however, rendered this decision mainly relying on its earlier decision in the case of CIT Vs. Seth Manicklal Fomra - 99 ITR 470 which again was in the context of scope of set aside proceedings in pursuance of remand by the first appellate authority and not in the context of the scope of set aside proceedings in pursuance of remand by the Tribunal. This vital and material distinguishing feature, however, was not brought to the kind notice .of the Hon'ble MadrasHigh Court apparently because nobody appeared on behalf .of the assessee before their Lordships in the said case and the matter was decided ex-parte the assessee.

107.   In the case .of S.P. KochharVs. ITO (supra), Hon'ble Allahabad High Court has clearly brought out the difference between the scope of proceedings in pursuance of remand by the first appellate authority like CIT(Appeals)/ AAC and by the second appellate authority, i.e. Tribunal, as follows :-

"If AAC sets aside an assessment and remands the case to the ITO far making a fresh assessment, the powers of the ITO while making the fresh assessment are the same as if he were making an original assessment under s.143(3). The AAC can, however, limit the powers of the ITO by giving suitable directions in regard to the scope of enquiry by the ITO. In the absence of such direction or restriction on" the power of the ITO, while making a fresh assessment, the ITO is not bound by anything that had happened either when he made the original assessment or when the appeal was heard. When the remand is made by the Tribunal the position is different The powers of the Tribunal are confined to the subject-matter of appeal as constituted by the original grounds of appeal and such additional grounds as may be raised by the leave of the Tribunal. Thus, when the Tribunal allows the appeal and sets aside the assessment and remands the case far making a fresh assessment, the power .of the ITO is confined to such subject matter only. He cannot take up the questions which were not the subject-matter .of appeal before the Tribunal. This will be so even though no specific direction has been given by the Tribunal. If a specific direction is given, then there is no scope whatsoever far the ITO to travel beyond those directions or restrictions."

108.   As held by Hon'ble Supreme Court in the case .of Hukum Chand Mills Ltd. Vs.

CIT (supra), the powers of the Tribunal in dealing with appeals are expressed in Section 33(4) of the 1922 Act (which are analogous to the provisions affection 254 of the 1961 Act) in the wiriest possible terms, but the ward "thereon" used therein restricts the jurisdiction .of the Tribunal to the subject-matter .of the appeal. Further, as held by the Hon'ble Calcutta High Court in the case of VP. Samtani Vs CIT(supra), the subject matter of appeal is primarily the power .of the Tribunal as circumscribed by the provisions of the statute and it is not open to the Tribunal to enlarge the subject-matter of the appeal. In the case of Pathikonda Balasubba Setty (Deceased) (supra), it was held by the Hon'ble Mysore High Court that the Tribunal's powers are limited to passing such orders as they may think fit on the appeal and the expression "on the appeal" clearly and indubitably points to the conclusion that the powers of the Tribunal are limited to, the subject-matter of the appeal.' Explaining further, Hon'ble Mysore High Court observed that at the stage of second appeal to the Tribunal, the liberty is given to both the sides to go up in appeal to the Tribunal and when the Tribunal comes to deal with the matter, the law regards it sufficient to leave it to the parties going up as appellants before the Tribunal to limit their attack on the order of the first appellate authority and to seek the intervention of the Tribunal only to the extent necessary to correct the errors in the order of the AAC according to the case of the appellant. In the said case before the Hon'ble Mysore High Court, only two additions of Rs.16,845/- and Rs.27,563/- confirmed by the AAC were disputed by the assessee in an appeal filed before the Tribunal" and the third addition of Rs.20,000/- on account of unexplained stock was not the subject-matter of an appeal preferred before the Tribunal. The Tribunal, however, gave a direction to the AAC to examine the question of unaccounted stock afresh and while holding this direction to be beyond the appellate powers of the Tribunal, their Lordships of Hon'ble Mysore High Court observed that the Tribunal had no jurisdiction to set aside the entire order of the AAC when only the part of the said order was challenged before it. It was also observed by the Hon'ble Mysore High Court that the fundamental idea is that an appellant seeks a relief from an appellate court and not detriment to himself. Even under the general provisions of the law of procedure, the worst detriment which an appellate court may visit on an appellant is to dismiss the appeal with a direction in an appropriate case to pay costs to the opposite side. An order adverse to the interest of the appellant - adverse in the sense that it takes away from him a benefit which he has already acquired under the order appealed from - is possible only by means of an order made either upon a cross-appeal filed by the other side or 011 the basis of a memorandum of cross-objections presented by him wherever the law permits him to do so.

109.   As already noted, the addition of the impugned amounts to the extent of 75% as sustained by the learned CIT(A) was disputed by the assessee in the appeals filed before the Tribunal in the first round for A Y 1996-97 and 97-98. No cross-appeal or event the cross-objection, however, was filed by the Revenue challenging the deletion of the remaining portion of 25% of the said amounts as made by the learned CIT(A) and the subject-matter of the appeals before the Tribunal thus was only about the taxability of 75% of the impugned amounts received by the assessee company from the Indian hotels/clients whereas the remaining portion of 25% deleted by the learned CIT(A) was not the subject-matter of the appeals before the Tribunal. This being the undisputed position and keeping in view the legal position emanating from the aforesaid judicial pronouncements including the fundamental principle explained by Hon'ble Mysore High Court in the case of Pathikonda Balasubba Setty (Deceased)(supra), we are of the view that when the assessments for A Y 1996-97 & 97-98 had been set aside by the Tribunal and the matter was remanded to the Assessing Officer for making the said assessments afresh, the power of the Assessing Officer was confined to consider and decide only the issue relating to the taxability of 75% of the amounts in question received by the assessee company from the Indian hote1s/clients in India which was the subject-matter of the appeals disposed of by the- Tribunal vide its common order dated 23.10.2002. He was not entitled to take up the issue relating to the taxability of remaining portion of 25% in India for consideration and decision since the same was not the subject-matter of appeals before the Tribunal, notwithstanding the fact that there was no specific direction given by the Tribunal to this effect. In that view of the matter, we hold that the additions of this remaining portion of 25% made by the AO in the assessments completed for A Y 1996-97 & 97-98 in the set aside proceedings were clearly outside the scope of remand and the learned CIT(A) was not justified in confirming the same. We, therefore, delete these additions made by the Assessing Officer and confirmed by the learned CIT(A) and allow ground Nos.1 & 2 of the assessee's appeals for A Y 1997-98 & 98-99.

110.   As regards the last issue raised by the assessee company in all its six appeals relating to levy of interest U/S 234B, it is observed that this issue is squarely covered in favour of the assessee by the decision of Delhi Special Bench of ITAT in the case of Motorala Inc. Vs. DCIT 95 ITD 269 wherein it was held that when all payments made to the assessee are subject to deduction of tax at source, he cannot be held to have committed default in paying the advance tax. Explaining further, it was observed by the Special Bench that the assessee is entitled to take into account the tax which is deductible by the payer though not actually deducted and consequently, there could be no liability to pay tax u/s 234B. To the similar are the decisions of Delhi Bench of ITAT in the case of Sedco Forex International Drilling Inc. Vs. DCIT - 72 ITD 415 and in the case of Asia Satellite Telecommunications Co. Ltd Vs. DCIT - 85 ITD 478. In the present case, all payments made to the assessee by the Indian hotels/clients were subject to deduction of tax at source and although no tax was actually deducted at source, the assessee could not be held to have committed default in paying the advance tax. Consequently, there could be no liability to pay interest u/s 234B. We, therefore, cancel the interest charged under Section 234B in the assessee's case for all the six years under consideration and allow the relevant grounds raised by the assessee on this issue.

111.     As regards the issue raised by the Revenue in its appeals relating to the deletion by the learned CIT(A) of the additions made by the Assessing Officer on account. of amount of contribution received by the assessee company from the Indian hotels/clients in respect of 'Sheraton Club International' (SCI)/Starwood Preferred Guest' (SPG) Programme and 'Frequent Flyer Programme' (FFP) for AY 1995-96, 96-97, 1999-2000 and 2000-01 amounting to Rs.1,06,17,408/-, Rs.96,48,432/-, Rs.62,99,457/- and Rs.46,52,763/- respectively, it is observed that the additions made by the AO on these counts were deleted by the learned CIT(A) for the following reasons given in his impugned orders which are identical for all the four relevant years:-

"5.4      I have considered the submissions of ld. AR and have perused the material on record. From the perusal of the assessment order dt. 20.3.01 for the AY 1998-99 (page 198 of the Paper Book) it is noticed that the appellant had shown contributions in respect of Sheraton Club International (SCI) and Frequent Flyer Programme (FFP) in the AY.1998-99 also but no addition in respect of these contributions was made either in this order or in the order u/s 143(3) read with section 254 passed on 28.11.2003. To this extent the submissions of the AR are correct However, the AR's contention that this issue was examined by the CIT(A) in the AY, 1997-98 is factually not correct because no addition in respect of these contributions was made in the AY 1997-98. It is also noticed that the addition has been made in the assessment year under consideration without giving any reason for making the said addition," From the perusal of the agreements with the hotels in India vide which the appellant was to render various services to the hotels in India, it is noticed that these contributions are not in pursuance of these agreements.  These contributions are towards a promotional programme called Sheraton Club International which was later known as Starwood Preferred Guest (SPG) programme. As per this programme, the contributions received from the hotels providing services to SCI members are given back to the guests in the form of various rewards through SCI points. From the perusal of the SPG Programme guide and the specimen invoices for SCI contributions/award redemption payments which were filed before me, it is noticed that the contributions received are for- facilitating the operation of the promotional programme in order to promote the business of the hotels worldwide. Therefore, these contributions are not in the nature of fees for technical services or royalty. These contributions will constitute the commercial income of the appellant and since the AO has nowhere established either during the course of assessment proceedings or during the course of remand proceedings that the appellant had a PE in India these contributions cannot be brought to tax in India. Therefore, I am of the considered view that the AO was, not justified in making addition of Rs.1,06,17,408/- towards these contributions and hence the addition is deleted."

112.   Before us, the learned Special Counsel for the Revenue Shri Y.K. Kapur submitted that while giving the aforesaid relief in his impugned orders, the learned CIT(A) failed to appreciate properly the applicability of Articles 12(3)(a) and 12(4)(a) to the services rendered by the assessee company in respect of the concerned programmes known as SCI/SPG and FFP. He submitted that any service which helps to promote the enjoyment of property for which payment under Article 12(3)(a) is made, would fall within the domain of included services. He contended that the 'fees for included services' as mentioned in paragraph 12(4)(a) includes any services which are ancillary or subsidiary to the enjoyment of right or property or information for which payment described in paragraph 12(3)(a) is made. He submitted that the relevant programmes were going to augment the enjoyment of property or right to property and since they were going to help in generating revenue, the same clearly were covered under Article 12(4)(a). He contended, the by its very nature, the relevant programmes thus - were going to increase the revenue for which the assessee had passed on information to the Indian 'hotels/clients and it was thus a dear case of information provided by the assessee of commercial nature, based on its experience in the field of hotel industry. He also contended that this information was privy to the assessee and since supply of the said information was ancillary and subsidiary to that application or enjoyment of the right property, the payment made for the same would fall within the category of fees for included services' as held ,by the, Assessing Officer.

113.   The learned counsel for the assessee, at the outset, pointed out that it was held by the AO himself in the assessment order for A Y 1998-99 that the amount received by the assessee company from the Indian hotels/clients on account of contribution in respect of SCIISPG Programme and FFP was not chargeable to tax in India and this finding given in A Y 1998-99 has not been disturbed even in the fresh assessment for the said year ,completed in the set aside proceedings under Section 143(3) read with SectiOli:254. He submitted that, the claim of the assessee that the said amounts are in the nature of its business income was accepted by the AO himself in A Y 1998-99 and the learned CIT(A) also has accepted the same in his appellate order for A Y 1996":97. Referring t6 the various documents explaining the features of the said programmes, he pointed out that the same were in the nature of promotional programmes with the main object of promoting the hotel business of Sheraton Group worldwide. He explained that as per the scheme/programmes, the hotels providing services to the members were to pay, by way of contribution fee, certain fixed percentage of the revenue collected and the amount so contributed was to be spent on the members again in the form of various rewards etc. through SCI Points. He submitted that this scheme was uniformly applicable worldwide to all the Sheraton hotels and the programmes laid out under the said schemes were self-sustaining based on the concept of mutuality. He contended that the amount received by the assessee company from the Indian hotels/clients on account of contribution in respect of the said programmes thus could not be treated as 'royalty' or 'fees for included services' and no basis was given even by the Assessing Officer to treat the same as such in his assessment orders. He submitted that the learned CIT(A), however, appreciated the object of the programmes as well as nature of receipts in the right perspective while holding that the amount in question received by the assessee company was its 'business income' not chargeable to tax in India in the absence of any PE in India.

114.     After considering the rival submissions and perusing the relevant material on record, we find no justifiable reason to interfere with, the impugned, orders of the learned.

CIT(A) giving relief, to the assessee on this issue. As already, held by us, the job undertaken by the assessee company was in the nature of integrated business arrangement whereby services were to be rendered to the Indian hotels/clients predominantly in relation to advertisement, publicity and sales promotion of hotel business worldwide in mutual interest and the use of trademark, trade names etc. of the assessee company by the Indian hotels/clients as well as the provision of other services and facilities as enumerated in the relevant agreements were merely incidental to the undertaking of this main job in the sense that they spelt out only the manner and method in which the said job was to be accomplished. Similarly, the programmes in question known as SCI/SPG and FFP, implemented in the Sheraton Group of Hotels including the Indian hotels were also incidental to the said business arrangement between the assessee company, and Indian hotels which was neither independent of nor separable from the main job undertaken by , the assessee company to render services relating to advertisement, publicity and sales promotion of the Indian hotels/clients. In these circumstances, it is very difficult to accept the stand of the Revenue that the implementation of the Sheraton's programme by the Indian hotels/clients was ancillary or subsidiary to the enjoyment of right or property or information as envisaged in Article 12(3)(a) of the DTAA so as to treat the same as 'included services' within the meaning given in Article 12(4)(a) of the DTAA. The implementation of the said programmes, on the other hand, was un integral part of the main services rendered by the assessee company to the Indian hotels/clients in relation to advertisement, publicity and sales promotion and since the entire amount paid for such services under the agreements has been held by us to be the 'business income' of the assessee, it follows that the amount received as contribution in respect of these programmes also represented its 'business income'. A perusal of copy of relevant programme guide placed at page No. 189 of assessee's paper book-II also clearly-shows that the purpose of the said programme was to promote the hotel business worldwide in mutual interest which was ancillary al1d incidental to the main job undertaken by the assessee company, to render services in relation to advertisement" publicity and sales; promotion of the Indian hotels/clients Worldwide and it has nothing to do, with the enjoyment of any right to property or information as contended by the learned Special Counsel for the Revenue before us. Moreover, as rightly, observed by the learned CIT(A) in his impugned orders, the payment of contributions, in respect of the said programme was not made by the Indian hotels/clients to the assessee company in pursuance of the agreements entered into between them and whole of the amount received as contribution under these programmes was to be given back to the members in the form of various rewards through SCI Points as per the scheme itself as is evident from the relevant, programme guide. In these circumstances, the amount received by the assessee company from the Indian hotels/clients in respect of the said programmes could not be treated as 'royalty' or 'fees for technical or included services' either under the, relevant provisions of the income-tax Actor even under the DTAA, rightly held, by the learned CIT(A). We, therefore, uphold his impugned orders on this issue and dismiss the relevant grounds raised by the Revenue in its appeals.

115.   In the result,

(a)           the appeals of the assessee for AY 1997-98 & 1998-99 are allowed;

(b)           the appeals of the assessee for AY 1995-96, 1996-97, 1999-2000 and 2000-01 are partly allowed; and

(c)           all the four appeals of the Revenue are dismissed.

Decision pronounced in the open Court on 4th October, 2006.