Non-resident US company's sales commission for customer liaison not taxable as "fee for included services" under section 9(1)

ITAT Chennai held that sales commission received by a non-resident US company for liaising with customers and communicating requirements to an Indian entity does not constitute "fee for included services" under section 9(1) of the Income Tax Act. The assessee's role was limited to customer interaction and requirement communication, not service execution. The tribunal distinguished this from included services, noting the Indian entity was solely responsible for project execution. The addition was deleted and the assessee's appeal was allowed, treating the payment as sales commission not taxable in India.

---

---

Issues Involved:
1. Limitation period for filing the appeal.
2. Taxability of sales commission received by the assessee.
3. Classification of services as 'fee for included services' under section 9(1) of the Income Tax Act and Article 12(4) of the Indo-USA DTAA.

Issue-wise Detailed Analysis:

1. Limitation Period for Filing the Appeal:
The appeal by the assessee was barred by limitation by 89 days. The final assessment order was communicated to the assessee on 17.03.2021, and the appeal should have been filed by 16.05.2021. However, the appeal was filed on 13.08.2021. The delay was attributed to the Covid-19 pandemic, and the Hon'ble Supreme Court had condoned delays during this period up to 28.02.2022. Respectfully following the Supreme Court's directions, the delay was condoned, and the appeal was admitted.

2. Taxability of Sales Commission Received by the Assessee:
The assessee, a non-resident company in India and resident of the USA, engaged in e-publishing services, received a sales commission of Rs. 17,21,74,839/- from SPI Technologies India Pvt. Ltd. The AO held that this commission accrued and arose in India under section 9(1) of the Act and was taxable in India. The AO classified the marketing services provided by the assessee as 'fee for included services' instead of 'sales commission,' arguing that the services included training and technical inputs essential for understanding customer requirements and executing projects. The DRP upheld the AO's decision, relying on its earlier order for the assessment year 2015-16.

3. Classification of Services as 'Fee for Included Services':
The assessee argued that the services rendered were purely marketing services and should be classified as sales commission, not 'fee for included services.' The ITAT, in a similar case of SPI Global US Inc., had held that such services did not satisfy the 'make available' condition under Article 12(4) of the Indo-USA DTAA and hence were not taxable. The Tribunal examined the agreement between the assessee and SPI Technologies India Pvt. Ltd., noting that the assessee's role was limited to liaising with customers, understanding their requirements, and communicating these to SPI Technologies India Pvt. Ltd., which executed the projects. The Tribunal concluded that the services rendered by the assessee were marketing services and not 'fee for included services.' Therefore, the sales commission received by the assessee could not be taxed in India under Article 12(4) of the Indo-USA DTAA.

Conclusion:
The Tribunal allowed the appeal, holding that the sales commission received by the assessee was not taxable in India as 'fee for included services' and should be classified as sales commission. The addition made by the AO was deleted. The appeal filed by the assessee was allowed.

---