Assessee, a US company entered into a master franchise agreement (MFA) with an Indian company for franchise of Dominos Pizza Stores. It also, provided certain store/consulting services to the Indian Company and in consideration, Indian company paid store opening fees. Indian company also entered into sub-franchising agreements. Assessee was entitled to charge 3 per cent of sales of store of the Indian Company and further 3 per cent on sale of their sub-franchise store. The Tribunal held that Indian Company could not be said to be the Permanent Establishment of the assessee in India. This was because, the profit/loss from the business of Indian company and sub-franchisee belong to them and not to the assessee. Further, they were not storing goods on behalf of the assessee nor where they carrying out any activities on behalf of the assessee. It was held that none of the conditions or clauses of Art. 5 were attracted. Further, the restrictions in the MFA and the sub-franchising agreements were to safeguard the brand value and to ensure correct receipt of royalty income. (AY. 2012-13)
CIT(IT) v. Dominos Pizza International Franchising Inc. (2018) 171 ITD 321/ 193 TTJ 963/ 166 DTR 201 (Mum.)(Trib.)
S. 90 : Double taxation relief – Permanent Establishment – Assessee, a US company entered into a master franchise agreement with an Indian company for franchise of Dominos Pizza Stores – It provided certain store/consulting services to the Indian Company – Indian company paid store opening fees – assessee was entitled to charge 3 per cent of sales of store of Indian Company and further 3 per cent on sale of their sub-franchise store –Held, profit/loss from the business of Indian company and sub-franchisee belong to them – Held, none of the conditions or clauses of Permanent Establishment ,Article 5 were attracted and therefore, the Indian company did not constitute PE of the assessee in India-DTAA-India- USA.[Art.5 ]