TaxTMI 
TaxTMI 
2008 (5) TMI 447
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.... under consideration, the assessee had paid commission to certain parties. During the survey conducted under section 133A on 24-7-2000, it was noticed that no tax was deducted at source under section 195 on such foreign remittances made on account of commission to foreign agents. It was also noticed that no application whatsoever was made to the income-tax authorities under section 195(2) or 195(3) whereby the assessee could be exempted from deducting tax at source. The assessee's explanation was that it was remitting such commission since three decades without any deduction of tax at source and never had the department raised any objection for the same. It was contended that the agents did not render any service in India and reference was made to the Board's Circular Nos. 23 and 786, dated 23-7-1969 and 7-2-2000 respectively. The contention was that if the sum payable to the non-resident was not chargeable to tax in India, section 195 was not applicable. The assessee also relied on certain judicial pronouncements. The Assessing Officer was not convinced with the Explanation of the assessee. According to him, the income was clearly chargeable to tax in terms of section 5(2)(a) and ....
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....yee and that either the assessee or the payee should have approached the Assessing Officer to obtain the necessary certificate under section 195(2) or 195(3) as the case may be. Taking us through the order of the CIT(A), the learned Departmental Representative again emphasised the contentions of the Assessing Officer narrated by the CIT(A) in his order. Next, he took us through one of the agreements to point out that the commission was paid not only for the sales effected by the foreign agent but also for certain other services rendered by the latter. The services pointed out by him were to promote and popularize the products of the assessee, to secure orders for the assessee and it was argued that since the orders were in the name of the assessee and sales were made in India , income accrued to the payee in India. Further, he pointed out from the agreement that the agent was to provide commercial information to the assessee and also to provide after-sales service to the customer. Based on these facts, it was argued that it was a composite agreement because of various services to be provided by the payee and hence the income was chargeable to tax not only under the Act but also und....
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....as received in India. Section 9(1)(vi) or 9(1)(vii) are not at all the foundation of the Assessing Officer's order. He distinguished the judgments relied upon by the learned Departmental Representative and submitted that no decision of the Supreme Court or the High Court or the Tribunal was at variance with the Circulars of the Board. He relied on the judgment of the Andhra Pradesh High Court in the case of CIT v. Sundwiger EMFG & Co. [2003] 262 ITR 110. 6. We have duly considered the rival contentions and the material on record. In the case of Sundwiger EMFG & Co. (supra), an Indian company had entered into contract with certain foreign companies for supply of different types of capital equipment. Further, a separate contract was also entered into between the parties for providing technical services covering supervision of erection, start-up, putting into commission, etc. For the purpose of providing technical services, the non-resident had to send on deputation its employees who were specialists to India. Apart from the payment of DM 475 per day, the Indian company had to meet the expenses of travel, living and out of pocket expenses of the specialists coming to India. It was ....
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.... recapitulate, his argument is that since the agent is required to secure information about the demand of products and, furnish the same to the assessee, it is a commercial information the payment for which is deemed to be royalty. Generally, royalty is a payment made to landowners for mining rights. It is also a payment for the use of a patent. It is also a payment to an author by a publisher on the sales of a book. These are general illustrations of the payment of royalty. In Jowitt's Dictionary of English Law, 5th Edition, Volume 2, on page 1595, 'royalty' is defined as 'a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee'. This definition envisages that there must be an existing owner of the mining right or of the patent and so on. The owner of such a right can assign his right to another to use it and in consideration of which the payment made to the owner would be royalty. This royalty would generally be proportionate to the exploitation of the right used by it. The Commercial information which the agent in our case is expected to provide to the assessee is not such over which....