TaxTMI 
TaxTMI 
2013 (1) TMI 796
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....shown as the recovery of the share of that company in the indirect overhead expenses. The AO, however, found that CLSA India Ltd. had deducted tax at source from the said amount paid to the assessee. Keeping in view this fact as well as the provisions of section 9(1)(vii), he held that the amount in question received by the assessee company from CLSA India Ltd. was in the nature of fees for technical services which was chargeable to tax in the hands of the assessee. 4. The addition of Rs. 4,22,23,050/- made by the AO on account of the amount received from CLSA (India) Ltd. treating the same as fees for technical services was challenged by the assessee in an appeal filed before the learned CIT (Appeals). It was submitted before the learned CIT (Appeals) that the assessee company belongs to CLSA group of companies and as per the practice followed in the said group, a group company contributing to the generation of a particular revenue stream is required to share in such revenue from the other group companies in order to be able to cover its cost. It was submitted that CLSA (India) Ltd. (CLSAI in short), an Indian company, had entered into an indirect overhead expenses reimbursemen....
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....urnished by the assessee to show that it had charged only the amounts actually spent by it for providing services, its claim for reimbursement of expenses actually incurred could not be accepted. She, therefore, rejected the stand of the assessee on this issue and after referring to the terms and conditions of the relevant agreement and relying on certain judicial pronouncements, she proceeded to hold that the payment from CLSAI was received by the assessee company for providing technical services and the amount so received being in the nature of fees for technical services was rightly brought to tax by the AO in the hands of the assessee. 6. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The learned counsel for the assessee has filed before us the additional evidence in the form of relevant financial statements and working to show that the amount in question was received by the assessee company from CLSAI on account of recovery of indirect overhead expenses actually incurred by it without there being any markup or element of profit. He has also moved an application seeking admission of the said additional evidence a....
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....his preliminary issue and perusing the relevant material on record, we find that the additional evidence filed by the assessee is very much relevant for deciding the issue under consideration. As a matter of fact, the learned CIT (Appeals) has observed in her impugned order that the assessee could not support and substantiate its case that the amount in question received from CLSAI represents reimbursement of expenses actually incurred by producing the relevant supporting evidence and has also identified such documentary evidence which the assessee, according to her, could not produce. As submitted by the assessee in the application filed under Rule 29 of the Appellate Tribunal Rules, sufficient opportunity, however, was not given by the learned CIT (Appeals) to the assessee to produce the said evidence inasmuch as the same was called for on the date of last hearing which took place on Friday i.e. 11th January, 2008 and the order was passed immediately on Monday i.e. 14th January, 2008 leaving hardly any time to collect and file the said evidence. Having regard to all these facts of the case and keeping in view that the additional evidence filed by the assessee goes to the root of ....
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....ore, was chargeable to tax in its hands in India. 11. The addition made by the AO on account of referral fees treating the same as fees for technical services was challenged by the assessee in an appeal filed before the learned CIT (Appeals). It was submitted before the learned CIT (Appeals) that CLSA group is a leading equity brokerage house in the Asia Pacific Market serving about 1200 international clients mainly based in US and Europe. The assessee company belonging to the said group had established, developed and progressively expanded the group operations across the Asia Pacific markets and had contacts with persons outside India who were desirous of dealing in securities listed on NSE. It was submitted that the assessee company secured the business of institutional investors in respect of dealing in securities and referred the same to CLSAI, an Indian stockbroker for which total amount of Rs. 7,73,58,162/- was received by it from CLSAI as referral fees. It was contended that the services rendered by the assessee company to CLSAI thus were not in the nature of any managerial, technical or consultancy services and accordingly the referral fees received by it from CLSAI was ....
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....) of the Indian Income-tax Act. According to her, the situs of the source of relevant income is relevant in this context and the same is required to be determined according to the general principles of law in the light of the peculiar facts of each case. She noted in this context that the referral fees as per the terms and conditions of the agreement was payable to the assessee only after the referred client has executed transactions through CLSAI and has made full and final payment of brokerage for the said transactions to CLSAI. According to the learned CIT (Appeals), the referral fees arose out of the payment of brokerage made by the clients to CLSAI in India and the source of the said income for the assessee thus was execution by the referred clients of transaction in India through CLSAI. She held that although the assessee had rendered services abroad and also pursued and solicited clients there, the right to receive commission/referral fees arose in India only when the referred clients executed the transactions through CLSAI and made full and final payment to CLSAI in India. She held that the income from referral fees, therefore, was chargeable to tax in India in the hands of....
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.... real and intimate relation between the business activities carried on by the applicant outside India and the activities of the hotel owner in India, a business connection exists within the meaning of section 9(1)(i) and the amount received by the applicant from Indian Hotel would be taxable in India being in the nature of fees for technical services as defined in section 9(1)(vii). She also relied on the decision of the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) wherein it was held that services rendered by the managers are managerial or consultancy services within the meaning of section 9(1)(vii) read with Explanation 2 and, therefore, the management commission and the selling commission are income by way of fees for technical services deemed to accrue or arise in India. The learned CIT (Appeals) held that referral fees paid by CLSAI to the assessee in the present case was for services utilized for the purpose of business carried on in India and irrespective of the place where the said services were rendered, the amount of referral fees should be deemed to accrue or arisen in India. For this purpose, she relied on clause (b) of section 9(1)(vii) wher....
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.... book. He submitted that as explained in the said note, the assessee-company was engaged in securing the business of institutional investors in respect of transactions of buying and selling securities and referring the same to CLSA India, an Indian Stockbroker. He submitted that the assessee had business relationship with various financial institutions outside India which required services of a broker in relation to investment activities carried out by such institution in Indian capital market. He submitted that the assessee referred the orders of such overseas institutional clients to CLSAI being Indian stockbroker and received an amount of Rs. 7,73,58,162/- as a referral fees from CLSAI. Relying on this note submitted before the AO explaining the nature of referral fees as well as the contents of referral agreement placed at page No. 19 to 21 of his paper book, the learned counsel for the assessee contended that the services rendered by the assessee to CLSAI for which the referral fees was received by it cannot be said to be in the nature of managerial, technical or consultancy services so as to bring the same within the definition of fees for technical services given in section ....
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.... assessee's case, double tax avoidance treaties were involved whereas in the present case there is no such treaty. As regards the decision of Hon'ble Delhi High Court in the case of Eon Technology (P.) Ltd. (supra) relied upon by the learned counsel for the assessee, he contended that it was a case of commission paid on export and not the case for fees for technical services and the same, therefore, is not applicable in the present case. He contended that the latter decision of Hon'ble Delhi High Court in the case of Haveli Industries Ltd.(copy filed), on the other hand, is directly applicable to the facts of the present case as the services in that case were rendered and utilized by the Indian Company in India. He also relied on the decision of ITAT Special Bench, Mumbai in the case of Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 to contend that advisory services are clearly covered in consulting services as contemplated in Explanation 2 to section 9(1)(vii). 17. In the rejoinder, the learned counsel for the assessee submitted that in case of fees for technical services covered u/s 9(1)(vii), place of accrual of income is not relevant as rightly contended b....
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....nt company qua CLSAI. In this regard, he relied on the decision of the ITAT, Jaipur Bench in the case of Asstt. CIT v. Modern Insulator Ltd. [2012] 20 taxmann.com 335. 19. In reply to the arguments raised by the learned counsel for the assessee at the time of clarification, the learned DR submitted that the amount in question on account of referral fees was paid by CLSAI to the non resident company for referring the clients. He submitted that this reference was made by CLSAI while advising their clients to go to CLSAI using their experience and expertise in the field. He submitted that the transactions were to be executed ultimately by CLSAI in India which gave rise to the payment of referral fees. He contended that the source of income of the referral fees thus was in India and the payment of such fees to the extent of 30% of the commission received was made by CLSAI not just for referring the clients but mainly because of the expertise of CLSA as a result of which the clients had approached it for making a reference. He contended that the income on account of referral fees thus accrued to CLSA only when the corresponding transactions were completed in India and the source of r....
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....all income from whatever source derived which is received or is deemed to be received in India by or on behalf of such person or accrues or arises or is deemed to accrue or arise to him in India during the relevant previous year. By virtue of clause (i) of section 9(1), all income accruing or arising whether directly or indirectly through or from any business connection in India or source of income in India, inter alia, are treated as income which is deemed to accrue or arise in India. The learned CIT (Appeals) has relied on the provisions of section 5(2) and section 9(1)(i) as also the decision of the Authority for Advance Ruling in the case of Rajiv Malhotra (supra) to hold that the right to receive the referral fees having arisen to the assessee in India, the income on account of such referral fees was deemed to accrue or arise in India and the same was thus taxable in India in the hands of the assessee-company. 21. In the case of Star Cruise India Travel Services (P.) Ltd. (supra) cited by the learned counsel for the assessee, a similar issue arose for the consideration of coordinate bench of this Tribunal relating to taxability of cruise package money received by the non-re....
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....orce under section 245S of the Act, do not impress us, and we decline to be guided by the same. Revenue thus derives no support from these observations either. In view of these discussions, and bearing in mind entirely of the case, we uphold the relief granted by the learned Commissioner (Appeals) and decline to interfere in the matter. This conclusion is also in harmony with the conclusions arrived at by a Coordinate Bench in assessee's own case for the assessment years 2002-03 to 2005-06, reported in Dy. DIT v. Star Cruises India Travel Services (P.) Ltd. [2010] 39 SOT 18 (Mum.) and vice versa." 22. The similar issue came up for consideration before the Hon'ble Delhi High court in the case of Eon Technology (P.) Ltd. (supra) wherein the assessee company in India which was engaged in the business of development and export of software had paid commission to its holding company in U.K., namely, ETUK on sales and amounts realized on export contracts procured by ETUK for the assessee. The issue involved for the consideration of Hon'ble Delhi High Court was that whether the commission income earned by ETUK was taxable in India being income accrued or deemed to accrue in ....
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....hereon is clearly misplaced. 24. In the case of Havells India Ltd. (supra), the issue before the Hon'ble Delhi High Court in the context of disallowance u/s 40(a)(ia) of the Act was whether the testing fee paid to the US Company was chargeable to tax in India. The US Company had specialized knowledge and facilities for carrying out the type of testing and the necessary certification, which was required by the assessee. According to the AO, the testing report and certification given by the US Company represented technical services which made available technical knowledge, experience and skill to the assessee because they were utilized in the manufacture and sale of the products in the business of the assessee carried on in India. The stand of the assessee was that the testing and certification were necessary for the export of its products and thus the relevant services provided by the US Company were actually utilized for such export and were not utilized for the business activities of production in India. The assessee thus made an attempt to cover its case in the exception provided in clause (b) of section 9(1)(vii) which deals with the fees payable by resident in respect of....
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.... be taxable in India. In this regard, it was held by the Authority for Advancing Ruling that the terms of the IMPPA and the relevant facts of the case were sufficient to show that the real and intimate relationship did exist between the business activities carried on by the applicant outside India and the activities of the owner in India, namely, running of hotel business and paying the contribution to the applicant. It was held that there was a direct nexus between the business of the applicant outside India and the activities of the owner in India and the existence of business connection was clearly established attracting the provisions of section 9(1)(i) to the amounts in question. It was also noted by the Authority for Advance Ruling that advertising on TV in foreign channels was very much accessable in India and such advertisement having the effect in India, payment by the owner for the purposes of service of advertisement had the relation to the activities of the applicant which generated activities of the owner of the hotel business. The Authority for Advance Ruling held that the applicant thus had a source of income in India. It was also held by the Authority that the servi....
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....referred clients after it had realized in full the amount from the customers. On these facts which are similar to the facts of the present case, application was filed seeking advance ruling from the authority on whether the referral fees received by the applicant from CWI could be characterized as business income or income by way of fees for technical services and whether any tax was liable to be deducted by CWI from the payment of referral fees to the applicant. The Authority ruled that no activity except that by making a referral fees from Singapore to the Indian company had been done in India and, therefore, the referral fees remitted by CWI to the applicant was neither received nor deemed to be received by the applicant in India. It was also held that there did not exist any real and intimate relation between the activities carried on outside India by the applicant and the activities in India that contributed to the earning of income. The authority ruled that it was the prerogative of the customers to decide whether it wanted to avail of the services of CWI or not and even CWI was not bound to enter into a deal with the referred customer. It was held that there was thus no busi....