TaxTMI 
TaxTMI 
2016 (9) TMI 349
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....oducers to the end customer by way of meeting with medical and pharmaceutical experts, participation in pharmaceutical circles and distribution of promotional materials to medical and pharmaceuticals experts. In consideration for these services the applicant was to remunerate DRL Russia on cost plus markup basis. Subsequently, this agreement came into effect from 30th January 2014. 2. The applicant requested for ruling on the following questions:- 1) Whether, on the facts and circumstances of the case, the service fee payable by the Applicant to DRL Russia under the Service agreement will be regarded as Fees for Technical Services ('FTS') under Section 9(1)(vii) warranting withholding of tax at source under section 195 of the Act? 2) Whether on the facts and circumstances of the case, the service fee payable under the Service agreement will be regarded as fees for technical services under Article 12 of the Agreement for avoidance of double taxation and prevention of fiscal evasion between India and the Russian Federation ('the India-Russia DTAA')? 3) If the answer to Question 1 & 2 is negative, whether on the facts and circumstances of the cases, the service fee payable by th....
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....hnical services ('FTS') under the provisions of Income-tax Act 1961 ('Act') or under the provisions of India Russia Double Taxation Avoidance Agreement. B. If it is treated as FTS, whether it will be covered by exception under section 9(1)(vii)(b) of the Act. 7. Article 12 of the India Russia DTAA defines FTS as follows: 'For the purposes of this Article, "fees for technical services" means payments of any kind in consideration of the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services mentioned in Article 14 and 15 of this Agreement." The definition of FTS under the India-Russia DTAA is similar to the definition of FTS under the Act. Section 9(1)(vii) of the Act reads as below: "(vii) income by way of fees for technical services payable by - (a) The Government ; or (b) A person who is a resident, except where the fees are payable in respect of services utilized in a business of profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) A person who is a non-residen....
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....consisting of medical representatives of DRL, Russia, comprised merely promotion services in nature by way of meeting doctors and pharmacies and thus, the activities carried out by product promotion team of DRL, Russia were purely commercial in nature and its role was that of an executor rather than of a manager managing the business of DRL India in Russia. It was submitted that such services did not require/ involve any expertise or technology and the services did not partake the rendering of any advice or opinion to the Applicant and thus such services did not fall within the ambit of "consultancy services" under section 9(1)(vii) of the Act. Without prejudice to the above, the applicant has stated that even if the product promotion service is considered as FTS, still it falls under the exception provided in Section 9(1)(vii)(b) of the Act and, hence, service fee payable to DRL Russia shall not be chargeable to tax as FTS. The applicant has argued that under the principle of source rule, income of a recipient is chargeable to tax in the country where the source of payment is located, where service provider or payee is located and where services are rendered by non-resident. The a....
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....respect of the "Subject of Agreement". II. One agreement is for provision of 'Consultancy and market research services' while the other is for provision of "Marketing services" III. Both were entered on 'principal-to-principal' basis. IV. Both are open-ended in terms of periodicity. V. In both, the consideration was fixed similarly, i.e. cost plus 4%. VI. In both, DRL Russia has to send periodical reports in confirmation of services having been rendered. Thus, in respect of 'goods', the applicant is the supplier and DRL Russia is the customer; in respect of the 'services', the relationship is just the reverse, i.e. DRL Russia is the supplier and the applicant the customer. (c) Considering that the contract for supply of goods by the applicant to DRL Russia, had been entered into in February, 2012 and there is nothing in the contract to suggest that the applicant would be involved in any manner in the actual marketing of those goods in Russia, there is no occasion to entertain the proposition that the marketing service rendered by the later to the applicant is in connection with actual marketing of any goods in Russia. (d) Marketing of pharmaceutical products is a speci....
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....an language as they are used in Russia. All other previous reports - Report on marketing strategy services, Brand Plan and Strategic Competitor Analysis - are submitted in English by DRL Russia to applicant. The presentations prepared by the market research team highlights the advantages that brands of DRL India have over other similar products of the competitors. As per the submission of the applicant, the DRL Russia adopts a two-pronged strategy to increase awareness about the products and thereby enhance sale of goods. The medical representatives promote the brands of DRL India by displaying the presentations prepared by the market research team before the doctors and experts in the relevant area. 13. The Department has made a distinction on the basis of facts involved with respect to the judgments relied upon by the applicant and has relied upon following case laws:- (i) International Hotel Licensing Company [2006](288 ITR 534) (AAR) (ii) GVK Industries vs ITO (2015) 54 taxmann.com 347 (SC) (iii) Wallace Pharmaceuticals (P) Ltd [2005] 278 ITR 97 AAR (iv) Intertek Testing Services India Pvt. Ltd., [2008] (175 Taxman 375) (AAR) 14. We have gone through the facts of the case....
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....ake field visits and such presentations highlight the advantages that brand of DRL India have over other similar products of the competitors. During the course of hearing we repeatedly asked the CIT (IT & TP), Hyderabad, Mr. Singhania, whether he had any evidence to support his assumptions, particularly the fact that reports prepared by the product promotion team were in respect of brand promotion and were utilized in India by the applicant. He could not produce any. It is also noticed that the Department had conducted a survey u/s 133A of the IT Act in the business premises of the applicant but could not find any such evidence and did not even ask any question relating to this aspect in the statements recorded of senior executives. 16. The facts presented by the applicant do not support the assumptions made by the department. The applicant has stated that medical representatives of DRL Russia merely promote the goods by way of meeting doctors and pharmacies and their activities are executory in nature since such services do not entail the rendering of advice to the applicant. Based on this fact it cannot be said that DRL Russia is providing any consultancy service. The Department....
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....ve any such conclusion on the basis of agreement for promotion of goods. The reports prepared by DRL Russia in respect of this agreement are merely statistical in nature and do not support this stand. Therefore, the services relating to promotion of goods cannot be categorized as consultancy services. 18. The alternative argument of the department relating to services being managerial in nature is also far-fetched because the job of medical representatives is merely to meet doctors and pharmacies. Such jobs cannot be said to be managing the affairs of DRL India in Russia. The ruling of this authority in the case of Intertek Testing Services India Ltd (supra) held that managerial services essentially includes controlling, directing or administering the business. All such elements are absent in this case. Therefore, the services rendered pursuant to this agreement cannot be classified as managerial services either. 19. As we have concluded the services rendered by DRL Russia in respect of agreement for promotion of goods cannot be treated as fees for technical services, it is not necessary to go into the argument whether such services will be covered by exception u/s 9(1)(vii)(b) o....