P.M Jagtap, A.M:— These two appeals filed by the assessee against two separate orders passed by the ld. CIT(A) 10, Mumbai dated 11-2-2010 and 4-3-2011 for assessment years 2006-2007 and 2008-2009 involve common issues and the same therefore have been heard together and are being disposed of by single consolidated order for the sake of convenience.

2. The assessee in the present case is a company incorporated in the Grand Duchy of Luxembourg and is a tax resident of Luxembourg. It maintains and operates the System Marketing Fund for the Courtyard International Hotel System (Fund) which is administered by Marriott International Inc. on behalf of various affiliated subsidiaries pursuant to contracts with owners or franchisees of the hotels. All Courtyard Hotels located outside of the USA and Canada are collectively referred to as Courtyard International Hotels. The primary activities of the Fund are to provide general brand advertising as well as sales and promotion services and materials intended to maximize general public recognition, acceptance and use of Courtyard International Hotels. During the years under consideration, 58 Courtyard International Hotels participated in the Fund including Palm Grove Bench Hotels Pvt. Ltd. (PGBHPL) in India. During the previous years relevant A.Y 2006-2007, PGBHPL made a total contribution of Rs. 49,16,203/- which, as claimed by the assessee, was comprising of a sum of Rs. 3,50,751/- as marketing fees and the balance amount of Rs. 45,65,452/- towards reimbursement of expenses actually incurred on marketing. In the previous year relevant to A.Y 2008-2009, the amount claimed to be received by the assessee from PGBHPL was Rs. 39,52,845/- on account of marketing fees and Rs. 1,10,83,868/- towards reimbursement of marketing expenses. In this year, Chalet Hotels Limited (CHL) and Viceroy Hotels Ltd. (VHL) also participated in the Fund and the amount received by the assessee from CHL and VHL on account of marketing fees was Rs. 3,04,23,756/- and Rs. 1,20,32,137/- respectively. The amount received towards reimbursement of expenses from CHL and VHL was Rs. 2,98,16,096/- and Rs. 2,73,11,652/- respectively. According to the assessee, it had no permanent establishment in India during the years under consideration and the amount of marketing fees received in these years being not in the nature of “fees for technical services”, the same was not chargeable to tax in India in its hand. Similarly, the amount received towards reimbursement of expenses was claimed to be not chargeable to tax in India by the assessee being not in the nature of “income”. Accordingly, returns of income for both the years under consideration were filed by the assessee declaring total income at “nil”.

3. In the assessments completed u/s. 143(3) of the Act for both the years under consideration, the A.O held that the payments made by the owners of the hotel to the assessee were for the use of international brand of Marriot and the amount of such payments therefore was chargeable to tax in the hands of the assessee in India as royalty. He also held that the said amount received by the assessee for the services rendered by way of advertisements and worldwide business promotion of the brand was alternatively covered within the wide scope of “Fees for technical Services” and the same was chargeable to tax in the hands of the assessee in India. Accordingly, the total amount of Rs. 49,16,203/- and Rs. 11,46,30,350/- received by the assessee on account of marketing fees and reimbursement of expenses in both the years under consideration i.e A.Y 2006-2007 and 2008-2009 respectively was brought to tax by the A.O in the hands of the assessee @ 20% on gross basis u/s. 115A of the Act. On appeal, the ld. CIT(A) upheld the orders of the A.O for both the years under consideration and dismissed the appeals filed by the assessee.

4. Aggrieved by the orders of the ld. CIT(A), the assessee has preferred these appeals before the Tribunal on the following grounds:—

For A.Y 2006-2007:

“Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Commissioner of Income-tax (Appeals) — 10, Mumbai has in order under section 250 of the Income-tax Act, 1961 (‘the Act’) erred on the following grounds:

(i) In adjudicating that the payments received by the Appellant under the International Marketing Program Participation Agreement (‘IMPPA’) are not in the nature of reimbursement of expenses without assigning any reasons.

(ii) In holding that the Appellant has business connection in India and consequently the payments received by Appellant under the IMPPA are deemed to accrue or arise in India.

(iii) In holding that the Appellant has a source of income in India and consequently the payments received by the Appellant under the IMPPA are deemed to accrue or arise in India.

(iv) In not considering that none of the Appellant's activities were performed in India and consequently not taxable in India.

(v) In relation to the payments received under the IMPPA, holding that the payment received by the Appellant is in the nature of fees for technical services and also in the nature of royalty for the use of international brand.

(vi) In holding that the Appellant has received sales and marketing fees from Palm Grove Hotels Pvt. Ltd., Hotel Raj Park Pvt. Ltd. and Advani Hotels & Resorts Ltd. However, factually the Appellant has received sales and marketing fees in the subject assessment year only from Palm Grove Hotels Pvt. Ltd.

(vii) In confirming the levy of interest under section 2348 of the Act.”

For A.Y 2008-2009:

“Based on the facts and circumstances of the case, the Appellant respectfully submits that the learned Commissioner of Income-tax (Appeals) — 10, Mumbai has, in its order under section 250 of the Income-tax Act, 1961 (‘the Act’), erred on the following grounds:

1. In applying the ruling rendered by the Authority for Advance Rulings in the Appellant's case without giving cognizance to the fact that a special leave petition has been filed with the honorable Supreme Court of India and that the matter is pending before the honorable Supreme Court for hearing

2. In holding that payments received by the Appellant towards reimbursement of expenses under the International Marketing Program Participation Agreement (‘IMPPA’) are not in the nature of reimbursement of expenses.

3. In holding that the Appellant has business connection in India and consequently the payments received by Appellant under the IMPPA are deemed to accrue or arise in India.

4. In holding that the Appellant has a source of income in India and consequently the payments received by the Appellant under the IMPPA are deemed to accrue or arise in India.

5. In not considering that none of the Appellant's activities were performed in India and consequently not taxable in India.

6. In holding that the payment received by the Appellant towards marketing fees pursuant to the IMPPA are in the nature of fees for technical services as well as royalty under the provisions of the Act.

7. In holding that the payments received by the Appellant towards reimbursement of expenses under the IMPPA are in the nature of fees for technical services as well as royalty under the provisions of the Act.”

5. During the course of appellate proceedings before the Tribunal, the assessee has filed applications seeking admission of the following additional ground of appeal which identical in both the years under consideration:—

“Based on the facts and circumstances of the case, the appellant respectfully submits that the ld. Commissioner of Income-tax (Appeals) - 10, Mumbai has in its order under section 250 of the Income-tax act 1961 (“the Act”) erred on the following ground:

“1. In not appreciating that the payments received by the Appellant under the IMPPA were not taxable as per the ‘principle of mutuality’.”

6. We have heard the arguments of the ld. Representatives of both the sides on the issue of admission of additional ground. Although, the ld. D.R has agreed that the issue raised by the assessee in the additional ground is purely a legal issue, she has strongly objected to the admission of the said additional ground on the basis that all the relevant facts to decide the issue raised by the assessee in the additional ground are not available on record. She has contended that the Hon'ble Supreme Court has laid down certain specific guidelines for applying the “principle of mutuality” in the case of Bangalore Club v. CIT, 350 ITR 509. She has submitted that some of the conditions laid down by the Hon'ble Supreme Court in this regard are that there should not be any taint of commerciality and there must be a complete identity between the contributors and participants. She has contended that since this issue was not raised by the assessee either before the A.O or before the ld. CIT(A), the occasion to examine/verify as to whether the assessee satisfied all the conditions to claim the benefit of principle of mutuality did not arise. She has contended that the adjudication of the issue as to whether the principle of mutuality is applicable in the case of the assessee as raised in the additional ground may require investigation into the new facts which are not available on record and urged that the additional ground raised by the assessee should not be admitted.

7. The ld. Counsel for the assessee, on the other hand, has submitted that although the issue regarding applicability of principle of mutuality in this case has been raised by the assessee for the first time before the Tribunal, the said claim is being made on the basis of terms and conditions of the relevant agreements and other documents which are already part of record before the A.O He has contended that no new material or investigation into new facts is required to adjudicate upon the issue raised by the assessee in the additional ground. He urged that the additional ground raised by the assessee may therefore be admitted and the matter can be restored to the file of the A.O for deciding the issue raised by the assessee therein relating to application of principle of mutuality after necessary verification.

8. After considering the rival submissions and perusing the relevant material available on record, we are of the view that the additional ground raised by the assessee in its appeals for both the years under consideration deserves to be admitted. The issue raised by the assessee in this appeal is a legal issue and this position has been accepted by the ld. D.R She, however, has objected to the admission of the additional ground by submitting that the adjudication of the issue raised therein may require investigation into new facts. She, however, has not been able to point out specifically what exactly are the new facts or material which may be required to adjudicate the issue raised by the assessee in the additional ground. The ld. Counsel for the assessee, on the other hand, has submitted that the claim of the assessee for the applicability of principle of mutuality in its case as made in the additional ground is based on the relevant agreements and other documents which are already part of the record of the A.O In our opinion, whether the assessee satisfies the conditions for application of principle of mutuality as per the decision of Hon'ble Supreme Court in the case of Bangalore Club (supra) is the matter of verification/examination which can be done by the A.O independently. In so far as the admission of additional ground is concerned, what is to be seen at this stage is whether the issue involved therein is a legal issue and all the relevant facts required to decide the said issue is available on record. After having considered the submissions of both the sides, we are of the view that these conditions are satisfied in the present case. We, therefore, admit the additional ground raised by the assessee in both the present appeals and restore the matter to the file of the A.O with a direction to decide the same on merit after giving the assessee an opportunity of being heard.

9. Since the issue raised in the additional ground by the assessee is a preliminary issue which goes to the root of the matter, the ld. Representatives of both the sides have agreed that the other issues involved in both these appeals as raised in the original grounds need not be decided at this stage and the same may be kept open with a liberty to the assessee to raise the same again if it fails on the preliminary issue relating to its claim for applicability of principle of mutuality.

10. In the result, appeals of the assessee are treated as partly allowed for statistical purpose.