TaxTMI 
TaxTMI 
2013 (1) TMI 106
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....fficer has erred in law and in fact, in holding that the agreement for buying agency services was entered into prior to May 1997 and accordingly a rate of 30% would apply in the case of the assessee. 3. The Learned assessing officer has erred in law and in fact, in proposing to initiate penalty proceeding under section 271AA of the Act, without appreciating the fact that the relevant transfer pricing documents i.e. transfer pricing report of the assessee was submitted in the course of assessment proceedings. 4. The Learned assessing officer has erred in law and in fact, in proposing to levy penalty under section 271BA of the Act, without appreciating the fact that the assessee had already furnished the report of the accountant under section 92E of the Act, before the due date prescribed under section 139(1) of the Act. 5. The Learned assessing officer has erred in law and in fact, in proposing to levy interest under sections 234B and 234D of the Act. 6. The Learned assessing officer has erred in law and in fact, in proposing to withdraw interest granted under section 244A of the Act. 7. The Learned assessing....
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....Accordingly, the same was considered to be taxable on gross basis @ 30% in the assessment order on the ground that the agreement for providing such services was entered on 18 June 1999. DRP confirmed with the view of the AO. Aggrieved assessee is before us. 3. Ld counsel for the assessee apropos respective grounds contends as under: 3.1 The assessee has entered into a buying agency services agreement ('BAS Agreement'), dated 18 June 1999, with AIMPL (formally known as 'Adidas India Trading Private Limited') for providing 'Buying Agency Services'. The scope of work was subsequently extended and the fee was enhanced vide Amendments dated 5 April 2000 and 21 August 2001. All these agreements are placed on the paper book. 3.2 As per the BAS agreement, during the relevant AY, ASL was required to provide services to AIMPL in relation to purchase of goods from outside India, for and on behalf of AIMPL in accordance with the terms of the agreement. For the year under consideration, ASL received remuneration in the form of buying commission @ 8.25% of the invoice amount of the merchandise. The total commission earned by ASL during the year under consideration is Rs 1.13 crores. ....
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....e. Reference can be made to clauses 2.3, 2.4, 2.9 and 9.1 of the BAS agreement which make it clear that the appellant was working under the control and supervision of AIMPL and the appellant did not have any authority to conclude contracts on behalf of AIMPL. Hence, the services rendered by ASL are not managerial services in nature. The buying agency services provided by the assessee are not managerial in nature as the said services are provided under the instruction and overall control and supervision of AIMPL. In this regard, various clauses of the BAS agreement are referred which make it clear that the assessee was working under the control and supervision of AIMPL and had neither decision making authority nor capacity to bind the assessee. It's role was only in the context of routine buying support services and have no inkling to be termed as Managerial services. (ii) Technical services - The services are not technical in nature as no technical knowledge belonging to art, science or profession was required. The assessee was merely facilitating AIMPL in procuring the merchandise from outside India and ensuring smooth transmission of the merchandise to AIMPL. The said ac....
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....f AIMPL. 3.7 Each function in the agreement cannot be characterized and categorized on the basis of its individual nature. The overall functions need to be cumulatively ascertained as the consideration is paid for all the functions collectively. It will not be appropriate to pick and choose each of the function and characterize some of them as managerial, technical or consultancy in nature. Reliance in this regard is placed on the recent decision of CIT v. NIIT Ltd. and Horizontal Drilling International S.A. v. CIT [1999] 237 ITR 142. 3.8 Further reliance is placed on the following judgments for the meaning of the words 'managerial', 'technical' and 'consultancy': (iv) UPS SCS (Asia) Ltd. v. Asstt. DIT [2012] 50 SOT 268 - The assessee a Hong Kong based company had entered into a Regional Transportation Services Agreement with Menlo Worldwide Forwarding (India) Private Limited for providing freight and forwarding and logistic services to each other. The Mumbai ITAT in connection with the export consignment services (i.e. services in relation to custom clearance and transportation of goods to the ultimate customer outside India) held that such services did not qualify as man....
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....n the case of CIT v. Toshoku Ltd [1980] 125 ITR 525 held that commission earned by the non-resident for acting as the selling agent for the Indian exporter, wherein such non-resident was rendering services from outside India does not accrue in India. 3.10 Circular 23 of 1969 and 786 of 2000 were issued in the context of sales commission payable by a resident exporter to the agents outside India and reiterated that the income paid to an agent is not taxable if the operations are carried out by the agent outside India. 3.11 Further, it may be noted that the nature of operation undertaken by a sales agent are similar to a buying agent and, therefore, if the income of a sales agent cannot be taxed in India then the income of buying agent also cannot be taxed in India. 3.12 For sake of completeness, it is submitted that the said circulars have been withdrawn by the recent Circular 7 of 2009. Nonetheless the said withdrawal is prospective from 22 October 2009 and would not alter the situation for the relevant AY. The said Circular 7 at para 3 clearly states that Circular 23 is withdrawn with 'immediate effect' i.e. 22 October 2009. 3.13 Reliance in this regard is placed on th....
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.... reliance on the website of the whole Group and held that the assessee is providing consulting and managerial services to AIMPL. The AO has ignored the principal agent relationship between ASL and AIMPL and has held that ASL in its own capacity rendered managerial services to AIMPL. AO failed to appreciate that each manufacturer invoice quotes AIMPL as the buyer with assessee acting 'as buying agent' of AIMPL. Thus not only the clauses of agreement but also the supporting documentations, actual conduct of the parties demonstrates that assessee worked as a buying agent. It was accordingly remunerated for buying services commission and not FTS. D. Development of suppliers data base is out of assesses own business requirements and not a technical service to AIMPL : The assessee being in the business of sourcing services, maintains a database in ordinary course of business to update the potential suppliers and give options to buyers for sourcing of the products. AO without appreciating the correct facts has assumed that ASL was providing services to AIMPL by building a database of suppliers. The AO has failed to appreciate the fact that AIMPL was only interested in the fina....
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....ifferent sets of agreements are in place; and (iii) two distinct and differing methods for the remuneration have been agreed upon, there is ample evidence that the two arrangements are not connected with each other. This is also obvious from the fact that most of the Group entities (approx 80) utilize the 'buying agency services' of ASL while only a small number of entities (approx 15 Asia Pacific Region distribution entities) receive the management services from ASL. 3.16 Further, it may be noted that both OECD TP Guidelines as well as Indian regulations adhere to the principle that Revenue should analyse transactions and the underlying contracts based on the transaction actually undertaken by the associated enterprises as it has been structured by them and should not re-characterize such transactions/contracts. 3.17 It is argued that rendering procurement services outside India does not constitute a business connection of ASL in India as section 9(1)(i) of the Act provides that, an income of a non-resident can be taxable in India if it is attributable to a business connection in India. It is not in dispute that the sourcing services provided to AIMPL by the assesse....
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.... commission paid to assessee thereby inferring that the payment of commission also includes payment for technology giving it color of FTS. The Ld DR also relied on the general extracts of Adidas website as pointed out by the AO in the assessment order. 5. We have heard the rival contentions and pursued the submissions made by the parties in detail. The main issue for consideration is whether the consideration received by the assessee from AIMPL under the Buying Agency Services Agreement ('BAS') could be characterized as 'fees for technical services' under section 9(1)(vii) of the Act and accordingly by taxed under the provisions of section 115A of the Act. Explanation 2 to section 9(1)(vii) defines 'fees for technical services' as under: 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 ....
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....ervice in the sense of technical education is concerned with teaching applied sciences and special training in applied sciences, technical procedures and skills required for practice of trade or profession, especially those involving the use of machinery or scientific equipment. If the information is given for the use of the machinery or scientific equipment it would partake the character of fees for technical services but when it is only for the procurement of the scientific equipments it would be a simple service of commercial and industrial nature. It, therefore, cannot be termed as a technical service for which the procurement fees charged by the assessee cannot be a consideration for technical services. The third category is managerial service. The managerial service, as aforesaid, is towards the adoption and carrying out the policies of an organisation. It is of permanent nature for the organisation as a whole. In making the stray purchases, it cannot be said that the assessee has been managing the affairs of the Indian concern or was rendering managerial services to the assessee." 5.3 The copies of the Buying Agency Services agreement are placed on record, the nature of s....