TaxTMI 
TaxTMI 
2015 (11) TMI 1447
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....sessee: Sr. No. Nature of payment A.Y. 2008-09 A.Y. 2009-10 a) Freight Rs.3,13,54,353 Rs.2,40,09,150/- b) Commission Rs.1,41,00,556/- Rs.1,41,56,894/- There was admittedly neither deduction of tax at source by the assessee, nor any certificate toward non-deduction of tax u/s. 195(2) stood obtained by it. Though the ld. CIT(A) approved the Revenue's case in principle, i.e., qua the applicability of section 40(a)(i) of the Act to the said payments in the facts and circumstances of the case, he accepted the assessee's alternate contention of the said provision being applicable only on that part of the expenditure incurred for the year that remained unpaid as at the year-end. This argument, then, constitutes the assessee's alternate plea (vide Ground 5) for A.Y. 2008-09, and also explains the Revenue's appeal for A.Y. 2009-10, i.e., to the extent of disallowance deleted on account of payment during the year. The respective cases 3. The assessee's case qua both the payments is essentially the same. The freight payment, which is on exports, is to the non-resident shipping companies, through their Agents in India. No services are rendered in India, nor do the payees have an....
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....rges (income) of the shipping company. The Hon'ble Court considered the Circular No. 723 dated 19.9.1995 issued by CBDT. As regards the commission income, the Revenue places reliance on the decision in the case of Elkem Technology vs. Dy. CIT [2001] 250 ITR 164 (AP), wherein it stands clarified that the income to accrue or arise in India, it is not necessary that the service should be rendered in India, i.e., in the territorial jurisdiction of India, and it would be sufficient if the services are utilized in India. In fact, the nomenclature 'commission' is misleading, and the services qualify as fees for technical services, as clarified in Wallace Pharmaceutical (P.) Ltd., In RE [2008] 195 CTR AAR 63. In that case, it was held that irrespective of the description as 'commission', consultancy fees payable to non-resident for developing business with foreign customers falls within the meaning of 'fee for technical services' as defined under Explanation 2 to s. 9(1)(vii). The Board Circulars would not apply in view of the amendment by way of insertion of Explanation below section 9 by Finance Act, 2009 w.r.e.f. 01.04.1976. This sums up the cases of both the parties, who have also rel....
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....ct. Reference in this context may be made to the decision in G. E. India Technology Centre (P.) Ltd. (supra). As such, the receipt shall not become taxable in India merely because the assessee did not apply for or seek a sanction of the Revenue to remit the payment to a non-resident without deduction of tax at source, as envisaged u/s. 195. True, s. 195(2) operates as a safeguard, but would not by itself lead to the satisfaction of the condition of 'chargeable under the provisions of the Act' specified in s. 195(1). It is only on this condition being met that the provision of s. 195, falling under Chapter XVII, shall come into play. This, then, provides the legal basis to resolve the issue before us. The next question that confronts us is if any part of 'commission' income can be said to accrue or arise or deemed to accrue or arise in India. Toward this, the assessee's contention is that no services are rendered in India (the taxable territory). It is on this basis, as a reading of its decision in Toshoku Ltd. (supra) would reveal, that the Hon'ble Apex Court held that the non-resident selling agents having acted outside India, their commission earned cannot be deemed to have eith....
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.... the taxable and the non-taxable territories, and any income arises to the non-residents on account of that relationship, as the law is, and stands explained. That is, the said Circular is in conformity with the law. The same cannot even otherwise overrule the law as explained by the Hon'ble jurisdictional High Court in Orient (Goa) (P.) Ltd.(supra) with reference to the decision in CST vs. Indra Industries [2001] 248 ITR 338 (SC), and which is even otherwise trite law (refer: Commissioner of Central Excise vs. Ratan Melting & Wire Industries (in Civil Appeal No. 4022 of 1999 dated 14.10.2008). The subsequent withdrawal of the said Circular is thus, under the circumstances, of little assistance to the assessee. In the facts of the present case, the assessee claims likewise, i.e., of no services having been rendered in India (taxable territory). There has been, however, no examination of the activities carried out by the non-resident agents, even as the Revenue claims the same to involve managerial and consultancy services, so that in nature and by definition the same would be fee for technical services, covered by section 9(1)(vii). The ld. AR, on being questioned in the matte....
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....ty, leading to the production of the product prototype and approval thereof, to the trial production, before the regular production commences and supplies made. In other words, the assessee's product is not a standardized, but a customized one, with, rather, customization itself being a long drawn process. All this, as indicated before, would require interaction of high calibre between the concerned parties, with the agents presumably co-coordinating the same - that being their function. Even subsequent to the stage of the regular supplies, there may be not so infrequent changes - automobiles witnessing changes in design and models on a regular basis, or on account of changes in other variables impacting the terms of the trade, viz. fluctuations in foreign exchange market; the price of some imported or indigenous material, etc. which may require re-negotiation. The exchange, thus, would be on a regular basis, across different buyers, each with its own set of requirements and issues. The assessee's view point on each aspect of the matter, and at each stage, has to be put across to the buyers, and vice-versa, constituting an effective dialogue between the two, which is the prime func....