TaxTMI 
TaxTMI 
2017 (1) TMI 1084
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....his ground is somewhat general in nature and does not require any specific adjudication. 5. Ground no. 1 is thus dismissed. 6. In grounds of appeal numbers 2, 3, 4 and 5, which we will take together and which deal with the core issue requiring our adjudication in these cross appeals, the Assessing Officer has raised the following grievances: (2) The Ld. CIT(A) erred in law and on facts in directing the AO that commission paid to export commission agents viz. (i) Abu Muneer Al- Hashmi Trading LLC (ii) Afras Ltd. (iii) Bumi Flow Technologies (M) SdnBhd. (iv) CGH Ltd. (v) Chosamentinkausomas (vi) Dynacoral Oil & Gas Sdn Bhd (vii) Global Synergy International Ltd. (viii) GMS Interneer Co. Ltd. (ix) M&M OCTG Venezuelen Distributor CA (x) Narfoamkarjit is not fees for Technical Services (FTS) both under section 9(1)(vii) as well as the relevant article of the DTAA. (3) The Ld. CIT(A) erred in law and on facts in directing the A.O. that the commission paid to such export sales commission agents ought to have been characterized as business income in the hands of such agents u/s. 9(1)(i)....
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....ndian has tax treaties but these treaties have no specific article dealing with the taxability of 'fees for technical services': GMS Interneer Co. Ltd. Thailand Afras Ltd. UAE Narfoamkar JLT Iran (b) residents of the tax jurisdictions with which Indian has tax treaties and such tax treaties have a specific article dealing with taxability of 'fees for technical services' on the conventional pattern without a 'make available' clause: Dynacoral Oil & Gas Sdn Bhd Malaysia Abu Muneer Al-Hashmi Trading Llc Oman Bumi Flow Technologies (M) Sdn Bhd Malaysia CGH Ltd Trinidad & Tobago (c) residents of the tax jurisdictions with which Indian does not have any tax treaties: Chosamentin Kauomas Algeria Global Synergy International Ltd. Algeria M&M OCTG Venezuelan Distributors CA Venezuela 9. Before we come to the core issue, i.e tax withholding requirements in respect of payments to export commission agents on the facts of this case, and consequences of failure, if any, in respect of the same, let us take note of some undisputed facts of this case. The assessee before us is, as the Assessing ....
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....il, Saudi Aramco, Elpaso, Exxon Mobil, PTTEP, Quatar Petroleum and DOW to name a few. It is evident from the brief profile narrated above that the manufacturing of specialized pipe is highly technical activity involving very technical complex exercise of technology and skilled labour and finest grade of raw material. Obviously to procure orders the company will do need specialist agents who can understand the technical nitty- gritty of the assessee's business and can demonstrate the assessee's business profile and quality of the products of the assessee to the potential clients to convince them to enter into in contract with the assessee company for supply of the pipes etc. and other allied works. In view of this, it is a very technical exercise to obtain the contracts since it involves a complex process requiring elaborate discussion, technical expertise and presentation of complex technical presentation on behalf of the assessee which can only be done by specialist in this field so as to convince the clients about Welspun's suitability to the contract to which it carries considerable amount. 11. Coming to the specific cases, the first set of cases of residents of th....
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....g Officer noted that the assessee's contention that it did not have any specific provision for rendition of services, on the same lines as GMS, but then he rejected this contention and observed that the agreement clearly states that it is a service agreement, that the agent is a well established marketing and trading company having significant experience in handling this kind of a work, that the technical knowledge so acquired by the Alfras has been shared by the assessee, and that the services are of the same nature as rendered by GSM, and hence these are technical services in nature. As regards the contract with N-JLT, it was noted that the though the assessee has made payments in different jurisdictions, since the recipient entity is tax resident of Iran, only the provisions of Indo Iran DTAA are applicable. It was also noted that the agent is a well established marketing and trading company having significant experience in handling this kind of a work, that the technical knowledge so acquired by the N-JLT has been shared by the assessee, and that the services are of the same nature as rendered by GSM and Alfras, and hence these are technical services in nature. It was also note....
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....t fees for technical services. These payments, according to the Assessing Officer, were taxable under section 9(1)(vii) of the Income Tax Act, 1961. The assessee was, accordingly, held to be responsible for deduction at source from these payments under section 195 of the Act. The assessee's failure to do so, as held by the Assessing Officer, was to be visited with, inter alia, consequences set out in section 201 r.w.s.195 of the Act. As regards the treaty protection sought by the assessee, the Assessing Officer observed that the assessee has not furnished tax residency certificates. In any event, according to the Assessing Officer, the India Thailand and India UAE tax tretaies did not have any specific clause dealing with the fees for technical services, and, in the absence of such a provision, this income was required to be taxed as 'other income' under article 22 of the respective tax treaties, which, in turn, required it to be taxed as per domestic tax law of the jurisdiction in which the income has arisen. As regards, the India Iranian tax treaty, it was noted that it was a limited treaty which did not deal with the fees for technical services, and, accordingly, in this case al....
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....r Algeria based entity by the name of Global Synergy International Ltd, and of Rs. 1,40,83,539 to a Venezuela based entity by the name of M&M OCTG Venezuelan Distributors CA. Once again the assessee discussed the agreements entered by the assessee with these entities. It was noted that "convincing and negotiating with the client and passing on specific information about requirements of the prospective clients would indeed be in the nature of technical services and not an item in the course of normal agency activity". It was also noted that the agreement itself notes that "the agent will provide all necessary services to Wellspun Corp Ltd". The AO was also of the view that "manufacturing of specialized pipe was a highly technical activity involving very complex technical exercise of technology and skilled labour and finest grade of raw material" and that "obviously, to procure the orders, the assessee company will need specialist agents who can understand the nitty gritty of the assessee's business and can demonstrate the assessee's business profile and quality of products of the assessee to the potential clients to convince them to enter into a contract with the assessee company". ....
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....o assist the assessee in identification of sub contractors like logistics, Shippers, cargo handling agencies for the smooth execution of its contracts with the clients. viii) The agent was also required to apprise the assessee of all relevant political, economic changes which would affect the business. Again, this is a technical service; no normal commission agent can perform this task. For understanding the political and economic changes of a country, it requires a great knowledge and technical skill to interpret the politics, economics and geography of the particular region. ix) One to one interaction with the client wit regard to the business of the assessee, distribute the information and documentation relating to the products on behalf of the assessee thus rendering significant and complex technical exercise for the assessee. 17. The Assessing Officer then proceeded to analyze the provisions of Section 9(1)(vi) to hold as follows: (i) since the assessee had engaged these consultants not merely for sale of his products outside but to utilize the acumen and expertise of the outsiders/non-resident during the course of his business activity, the consideration for which....
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....en the same observations were reiterated and referred to in the case of entity based in Venezuela as well. The Assessing Officer also relied upon the Hon'ble Delhi High Court's judgment in the case of CIT Vs Sara International Limited [(2008) 8 DTR 309 (Del)] and a decision of the coordinate bench in the case of ITO Vs Device Driven India Pvt Ltd [(2014) 159 TTJ 1 (Cochin)]. It was also noted that the amounts so paid by the assessee were liable to be taxed in India under section 9(1)(vii) and the assessee had an obligation to withhold these tax liabilities under section 195 of the Act. The demands @ 20% were, accordingly, raised under section 201 r.w.s. 195 in respect of these amounts as well. 19. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the CIT(A). Learned CIT(A), for the detailed reasons set out in his order, concluded that the payments made by the assessee for the services rendered by the agents cannot be held to be fees for payment for technical services and that these payments were in the nature of commission earned from services rendered outside India and which had no tax implications in India. While doing so, t....
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....l qualifications. Further, the term "consultancy" excludes actual execution of work. In the facts of the case the Non-resident entities are not appointed by the appellant company to provide consultancy services. The AO has not brought on record any facts that the agents are providing strategic opinions or rendering advices to the appellant in the above payments. It is also not the case that the agents appointed were specialized professionals like engineers, architects, lawyers etc. who can render advices and provide opinions. The AO also has not brought anything on record to prove his contention that any of above recipients are technical experts in their respective fields. Therefore, I agree with the submissions made by the appellant that routine administrative work and coordination services cannot be included within the scope of 'consultancy services' as carried out by the above common agents as above. 4.10 On perusal of definition of the term "Technical Services" would mean to apply science, craftsmanship etc. Rendering engineering services would constitute technical services. In the facts of the case the services rendered by the Non-resident entities are not in relati....
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....gent was also required to make plans and establish the marketing network of representatives to help/promote WCL products. Again, this function is not possible, without expertise, technical skills and knowledge of the highly technical products of the assessee i.e. pipes * Armayesh Global v. ACIT [51 SOT 564] (Scope of activities performed by the commission agents which corresponds to the observations of the learned AO on the left column of the table) (i) Procuring the export orders; (ii) Providing confirm export order; (iii) Providing the information regarding respective customer, getting the export order executed; (iv) Negotiating with all parties in territory; (v) Regularly visit the customer; (vi) Assist principle in collecting outstanding payments; (vii) give information on the economic development and market conditions; (viii) observation on the activities of competitors; (ix) Agent shall report immediately on Particular profitable business possibilities and extraordinary events; (x) Agent is authorized to accept notification of defects by a customer; * CIT v. EON Technologies Ltd. [343 ITR 366] (i) Marketing on behalf of assessee engaged ....
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....and market the products in South Africa. The scope of the services includes: i) Follow up regarding LC opening, shipment and payment, attending to queries regarding shipments. viii) The agent was also required to apprise the assessee of all relevant political, economic changes which would affect the business. Again, this is a technical service, no normal commission agent can perform this task. For understanding the political and economic changes of a country, it requires a great knowledge and technical skill to interpret the politics, economic and geography of particular region. This is an integral part of the gamut of activities to be performed by the agents. One such clause cannot be read out of context to bring the appellant under the tax net as not such information has been provided by the appellant during the tenure of the agreement. ix) One to one interaction with the client with regards to the business of the assessee, distribute the information and documentation relating to the products on behalf of the assessee thus rendering significant and complex technical exercise for the assessee. * SPAHI Projects Pvt. Ltd. [315 ITR 374] The South African company 'Z....
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....was residing abroad and rendering technical services which are in the nature of technical, consultancy and managerial in nature. Nothing has been brought on record by the AO either in the order or further submissions made by it that the Non-resident commission agents were in fact rendering technical services the appellant company and in fact the commission agents are not directors of the appellant company and/or they are also not authorized to fix prices, submit tenders without prior approval and authority of the appellant company. I have also perused the decision of the International Hotel Licensing (IHL) relied upon by the AO. In the said case IHL was engaged in the business of conducting international advertising, marketing and sales program for Marriott group of hotels. Conducting such programs require technical skill, knowledge and expertise. In the facts of the case, none of the agents are authorized to carry out marketing and sales program outside India. Therefore, this case law relied upon by the AO is not applicable to the facts of the case. I have also perused the decision of Endemol India 40 taxmann.com 345. This case is also not applicable to the facts of the present ca....
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....t taxable in India then there would be no need for making an application before the AO u/s.195(2) of the Act. Therefore, I reverse the finding of the AO holding that obtaining a certificate u/s.195(2) is sine qua non to every payment made to a Non-resident. 20. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 21. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 22. So far as the first category of cases are concerned, i.e. payments to the residents of the tax jurisdictions with which Indian has tax treaties but these treaties have no specific article dealing with the taxability of 'fees for technical services', are concerned, it is important to note that India does not have a comprehensive double taxation agreement with Iran. The India Iran Double Taxation Avoidance Agreement [Indo Iranian tax treaty, in short; (1973) 91 ITR (Stat) 31] is a limited agreement for avoidance of double taxation of income of enterprise operating aircraft, and its benefit, therefore, is restricted to this category of enterprise. Given this fa....
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....ips, in this context, also observed that, "Since the said income does not fall as miscellaneous income, the same cannot be brought under art. 22." As we deal with this aspect of the matter, and to explain the same principle in little more detail, let us first take a look at the relevant treaty provisions. The relevant treaty provisions are as follows: India Thailand tax treaty ARTICLE 22- Other income Items of income of a resident of a Contracting State, wherever arising, not expressly dealt with in the foregoing Articles may be taxed in that State. Such items of income may also be taxed in the Contracting State where the income arises. India UAE tax treaty ARTICLE 22- Other income 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement, shall be taxable only in that Contracting State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the....
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.... taxability in the source state. 26. It is also important to bear in mind the fact that article 21 states that it applies to the "items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement". Therefore, it is not the fact of non taxability under the operative articles (i.e. article 6 to 20) which leads to taxability under residuary clause in article 22, but the fact of income of that nature being covered by those articles which can lead to taxability under article 22. There could be many such items of income which are not covered by these specific treaty provisions, such as alimony, lottery income, gambling income, rent paid by resident of a contracting state for the use of an immoveable property in a third state, and damages (other than for loss of income covered by specific provisions of the treaty) etc. This is how UN Model Convention Commentary, which is referred to earlier in this order, also explains the scope of this article. In our humble understanding, therefore, article 21 does not apply to items of income which can be taxed in any situations under article 6-20 whether or not suc....
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....n FTS clause, the FTS gets taxed even in the absence of the PE or the fixed base, but the character of FTS receipt is the same, i.e. business income or professional (independent personal) income, in the hands of the same. When there is no FTS clause, this sub categorization of income becomes irrelevant, because FTS or any other business receipt, the income embedded in such receipts gets taxed only if there is a permanent establishment or fixed base- as the case may be. The scope of business profit and independent personal service completely covers the fees for technical services as well. With FTS article or without FTS article, the income by way of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article relating to the fees for technical services. 29. In view of the above discussions, in our considered view, even if the receipts in question are in the nature of fees for technical services in the hands of Afras UAE and GMS Thailand, these receipts are not taxable in the hands of these entities, in terms of the respec....
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....n India; (b) (c) (d).....* (vii) income by way of fees for technical services payable by- (a) ..............* (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or 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) ............* Explanation 1-.............* 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 recipient chargeable under the head" Salaries". * Not relevant for our purposes 32. So far as deeming fiction under section 9(1)(i) is concerned, it cannot be invoked in the present case since no part of the operations of the recipient's business, as commission agent, ....
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....n 9(1)(i) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i), and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1)(i), which is what is material in the context of the situation that we are in seisin of. The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the....
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....nt triggering crystallization of liability of the assessee, under the commission agency agreement, is the event of securing orders and not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order. In a reverse situation, in which an agent renders all the alleged technical services but does not secure any order for the principal i.e. the assessee, the agent is not entitled to any commission. Clearly, therefore, the event triggering the earnings by the agent is securing the business and not rendition of any services. In this view of the matter, in our considered view, the amounts paid by the assesse to its non-resident agents, even in the event of holding that the agents did indeed render technical services, cannot be said to be "consideration for rendering of any managerial, technical or consultancy services (Emphasis by underlining supplied by us)". The services rendered by the agents, even if these services are held to be in the nature of technical services, may be technical services,....
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....ered during the course of carrying on such agency commission business on behalf of Indian principal, the consideration for securing business cannot be taxed under section 9(1)(vii) at all. This profits of such a business can have taxability in India only to the extent such profits relate to the business operations in India, but then, as are the admitted facts of this case, no part of operations of business were carried out in India. The commission agents employed by the assessee, therefore, did not have any tax liability in India in respect of the commission agency business so carried out. 37. On a more fundamental note, however, it is also a settled legal position by now that the services of the nature rendered by these commission agents cannot anyway be treated as fees for technical services anyway. Viewed thus, even the discussion on whether the amounts in question could be treated as 'consideration' for technical services, may be rendered academic in effect. Learned CIT(A) has very well summarized the judicial precedents in support of this line of reasoning, and, in an erudite and extended discussion, dealt with each limb of the definition of technical services. These findin....
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....munication & expeditious action. 5.9 To assist the PRINCIPAL in ail possible way, as and when requested by the PRINCIPAL for the fulfillment of its obligations, in case of a contract within the TERRITORY. It includes assisting the PRINCIPAL in identifying subcontractors like logistics, shippers, cargo handling agencies for smooth execution of such contracts. 5.9a To send the PRINCIPAL periodic reports on business activity. 5.9b To keep the PRINCIPAL continuously apprises of all relevant Political/ Economic changes which would affect tie business, 5.9c To undertake not to divulge sales documents, catalogues, prices etc. to competitors and their agents and associates. Article 7 - PRINCIPAL'S OBLIGATIONS During the continuance of this Agreement the PRINCIPAL agrees : 7.1 To give the AGENT full support for promoting and creating market for the products of the PRINCIPAL in the TERRITORY. 7.2 To inform the AGENT on receipt of an inquiry from the TERRITORY requiring direct supply. 7.3 The AGENT shall be entitled to commission as agreed upon in the contract. 7.4 To take into consideration the recommendations made by the AGENT while making the offer. 7.5 ....
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....RNATIONAL LTD., in its capacity as agent for WELSPUN, a sales commission, based on the FOB mill sales price for the GK 3 project equal to: i) 4.10% of the FOB Mill value in U.S. Dollar for the quantity shipped is last (18") Shipment. a) GLOBAL SYNERGY INTERNATIONAL LTD agrees to unconditionally to fulfill the scope set therein by the virtue of this addendum. b) This commission is over the above the commission payable by Welspun to Global Synergy as specified in Annexure-1 of Agency agreement dated 29th day of June, 2008. All sales commission shall be paid in U.S. Dollars to the bank account to be advised by GLOBAL SYNERGY, details of which are available with WELSPUN. Unless otherwise agreed, the sales commission shall be payable by WELSPUN to GLOBAL SYNERGY INTERNATIONAL LTD., as interim payments on prorate basis after realization of the payments received by the PRINCIPAL within a reasonable time but not exceeding 30 days from receipt of payment by WELSPUN. 38. As is clear from the above provisions of the agreement, the work that the agent has to done under this agreement, as is stated unambiguously in the agreement itself, is to "carry out ail the ....
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....d to suggest that in the former case, he is selling and the latter, he will be rendering technical services. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical details, is only towards the end of selling. In a technology driven world that we live in, even simplest of day to day gadgets that we use are fairly technical and complex. Undoubtedly when a technical product is being sold, the person selling the product should be familiar with technical specifications of the product but then this aspect of the matter does not anyway change the economic activity. Nothing, therefore, turns on the details of the products being technical. It was also noted that by the Assessing Officer that "it is a very technical exercise to obtain the contracts since it involves complex process requiring elaborate discussion, technical expertise and present of complex technical presentation, on behalf of the assessee, which can only be done by a specialist in this field so as to convince the clients about Welspun's suitability to the contract". This at best signifies complexity in the businesses and the need of technical inputs in the pr....
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....erein Their Lordships have, inter alia, observed as follows: 5. The main contention of the learned counsel for the assessee / respondent is that the agency commission / sales commission paid by the assessee to non-resident agents, for the services rendered by them, outside India, in procuring export orders for the assessee, would not attract or partake the character of "fees for technical services" as explained in the context of 9 (1) (vii) of the Act and therefore, there is no scope for the application of the provisions of Section 195 of the Act (Tax Deducted at Source). It is also contended that as the non-resident agents have neither business connection in India nor they have permanent establishment in India, they are liable to be taxed in India. 5.1 Yet another contention of the learned counsel for the assessee is that: (a) the assessee paid the amount by way of commission to foreign agents for the services rendered outside India; (b) the Tax Deduction at Source (TDS) is required to be made on all payments to non-residents, only if such payments are liable to be taxed in India. (c) following the decision of this Court, CIT v. Faizan Shoes (P.) Ltd. [2014] 367 ....
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.... any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub section (1) of section 139 thirty per cent of, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.' (ii) Explanation 2 to Section 195(1) of the Act :- 'Section 195 - Other sums: (1) Any person responsible for paying to a nonresident not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income charge....
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....ty, technical fees and any other sum chargeable under this Act. The section provides that the sums covered by the sub-clause, which are chargeable under the Act and are payable outside India, shall not be allowed as an expenditure to the assessee, unless tax is paid thereon or is deducted therefrom under Chapter XVII-B of the Act. 7.3 Section 195(1) of the Act deals with deduction of tax from payment to non-residents and foreign companies. Section 195(1) of the Act comes into play at a stage where the payer, who is enjoined to deduct the tax, either credit such income to the account of the payee or make payment thereof, whether in cash / cheque / draft or any other mode. The taxability of such amount in the hands of the payee or occasioning of the taxable event is alien for the purpose of Section 195(1) of the Act. 7.4 Section 195(2) is an enabling provision, enabling an assessee to file an application before the Assessing Officer to determine the appropriate proportion of the sum chargeable and upon such determination, the tax has to be deducted under Section 195(1) of the Act. The payment is made credited to the account of the payee. 8. The question now....
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....e any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of "fees for technical services" as explained in the context of Section 9(1)(vii) of the Act. 12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of "fees of technical services" and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Offi....
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....deration for rendering of any "managerial, technical or consultancy services" but does not include the consideration for any construction, assembly etc. The learned CIT(A) has held the services rendered by the assessee as fees for technical services' coming with in the sweep of "managerial, technical or consultancy services". On the contrary, the contention of the assessee has remained before the authorities below as well as us that the such services do not fall within the ambit of any of the categories taken note of by the authorities below. We will examine as to whether the services so provided by the assessee fall within the scope of 'managerial, technical or consultancy services' as per Explanation 2 to section 9(1)(vii). 6. In order to appreciate the nature of services more elaborately, it is relevant to consider the terms of the Agreement entered into between the assessee and Menlo India executed on November 7, 2006 with effect from 1st June, 2005, a copy of which is available on page 1 onwards of the paper book. The scope of services has been given in clause 1.1. In the recital clause it has been provided that the assessee- company may require Menlo India to p....
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.... in the way prescribed. It is quite natural that some sort of application of mind is required in each and every aspect of the work done. As in the above example when the worker will lift the goods, he is expected to be vigilant in picking up the goods moving towards the carrier and then placing them. This act of the worker cannot be described as managing the goods because he simply followed the direction given to him. On the other hand, 'managing' encompasses not only the simple execution of a work, but also certain other aspects, such as planning for the way in which the execution is to be done coupled with the overall responsibility in a larger sense. Thus it is manifest that the word 'managing' is wider in scope than the word 'executing'. Rather the later is embedded in the former and not vice versa. 8. Adverting to the facts of the instant case it is observed that the assessee performed freight and logistics services outside India in respect of consignments originating from India undertaken to be delivered by Menlo India. The role of the assessee in the entire transaction was to perform only the destination services outside India by unloading and load....
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....tely execute a Trademark license agreement for the use of any marks or brands owned by United Parcel Service of America, Inc. The fee payable by Contractor under paragraph 3.1 will not include any royalty amount relating to the use of intangible property or information." 11. On going through clause 2 of the Agreement, it is obvious that Menlo India shall 'separately execute a technology and software license agreement' for the provision of computer equipment and software supplied by the assessee. It is nobody's case that the consideration in question relates to the supply of any computer equipment and software by the assessee to Menlo India. We fail to appreciate as to how this clause 2 makes the services provided by the assessee as "technical". Rather clause 2 mandates to execute a separate Technology and Software license agreement for the provision of computer equipment and software. How is it that the consideration for the services can be attributed to a proposed agreement, which has yet to see the light of the day. 12. The learned CIT(A) has also harped on "transportation of time sensitive packages" with a view to bring the services provided by the assessee wit....
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....r' between them. In order to qualify for deduction under this section, the income could have resulted from the rendering of 'technical or professional services' or commercial knowledge, experience or skill etc. When the tribunal in Blue Dart Express Limited (supra) held the assessee to be entitled to deduction, it was considering all the species of the services set out in section 80-O and not only 'technical or professional services'. It was in the light of such language of the provision that the Tribunal held the assessee to be eligible for relief u/s 80-O.We are currently dealing with section 9(1)(vii), being the 'fees for technical services' and the definition of such expression is restricted only to 'managerial, technical or consultancy services' and does not have any such elements as are there in section 80-O. The decision in the case of Blue Dart Express Limited (supra) came up for consideration before the Mumbai bench of the tribunal in Dampskibsselskabet AF 1912 Vs. Addl.DIT (International Taxation) [(2011) 51 DTR 148] (to which one of us, namely, the ld. JM is party) in which it has been held that the ratio laid down in that case cannot ....
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....cannot be conceived without the direct involvement of man. These services can be rendered with or without any equipment, but the human involvement is inevitable. Moving in the light of this rule, there remains no doubt whatsoever that the technical services cannot be contemplated without the direct involvement of human endeavor. Where simply an equipment or a standard facility albeit developed or manufactured with the use of technology is used, such a user cannot be characterized as using 'technical services'. 16. Coming back to the facts of the present case, even if we accept the learned first appellate authority's point of view that the computer could be used in tracing the movement of the goods, such use of computer, though indirect, remote and not necessary, can not bring the payment for freight and logistics services within the purview of "technical services". The essence of the consideration for the payment is rendering of services and not the use of computer. If incidentally computer is used at any stage, which is otherwise not necessary for rendering such services, the payment for freight and logistics will not partake of the character of fees of 'technic....
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....01, India hereinafter referred to as "Principal" and Indijack Limited, 99 Breck Nock Road, London N19 5 AB, U.K. - hereinafter referred to as "Agent"- the following is agreed upon: - Article 1- Object of Agreement 1.1. The principal entrusts the Agent with the non exclusive agency for the following contractual territory (area): Worldwide 1.2. The principal also has the right to operate actively' in he aforementioned territory (area). 1.3. The agency covers the following products: Hand embroidered products of any and all kinds. 1.4. The Agent covenants and agrees to represent the principal on a commission basis. Article 2- Duties of the Agent 2.1 It shall be the Agent's duty to negotiate contracts with the overseas party. Furthermore, the Agent shall act on the principal's behalf in conformity with provisions hereinafter enumerated. The Agent shall not be authorized to enter into a contract or otherwise to bind the principal. The principal shall be free to conclude, or to refuse the conclusion of a contract negotiated by the Agent. 2.2 While negotiating contracts of sale the Agent shall act in conformity with all the conditions and particularly of....
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.... are providing any technical/managerial services. The said company was responsible for arranging timely payment from the customers and commission was paid only after the sales amount was received. Since the services were rendered outside India, the provisions of section 5 cannot be applied to the commission paid so as to make it taxable in India. 18. This aspect can also be examined in another way as already given a finding by the Bench earlier and which is also not in dispute, that the foreign company does not have any PE in India. Therefore, the commission paid to the foreign company which has to be considered as business income and cannot be taxed in India as per the DTAA between India and UK. The definition of 'fee for technical services' between UK and India does not include managerial services. However, neither the Assessing Officer nor the CIT (A) considered the issue of DTAA, even though assessee mentioned the same in its submissions before the authorities. The definition of technical services as per the Income Tax Act is as under: "9.(1) The following incomes shall be deemed to accrue or arise in India: (i)...(ii)...(iii)....(iv)...(v)...(vi) (vii) Inco....
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....endered cannot be regarded as royalty or fees for technical services and it was held that the same was not taxable under section 9(1)(vii). Similar issue was also considered by the Hon'ble Delhi High Court in the case of Director of Income Tax vs. Sheraton International Inc. 313 ITR 267 where certain payments for advertising, publicity and sales promotion services were considered and held that those payments cannot be considered as either royalty or for technical services. Since the Non Resident does not have any PE in India, such income which is to be considered as business income was not taxable in India. 41. We are in considered agreement with the views so expressed by the coordinate bench. In view of these discussions, as also bearing in mind entirety of the case, we uphold well reasoning findings of the learned CIT(A) that the commission payments made to the non resident agents did not have any taxability in India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, fo....
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....ngs of the Ld. Assessing Officer that the remittances towards subscription charges paid to: Metal Bulletin (UK); and The Datamyne Inc. (USA) be characterized as royalty u/s 9(1)(vi) of the Act as well as under the applicable article of DTAA. 47. So far as these payments are concerned, there is no dispute that these payments are for subscription fees for specialized database containing copyright material. The AO has held these payments to be in the nature of royalty. In appeal, learned CIT(A) has confirmed the action of the Assessing Officer, and in doing so, followed Hon'ble Karnataka High Court's judgment in the case of CIT Vs Samsung Electronics Ltd [(2012) 345 ITR 494 (Kar)]. The assessee is aggrieved and is in appeal before us. 48. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 50. We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of cop....
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....nable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted". This principle has been consistently followed by the various authorities as also by the Hon'ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P) Ltd. & Anr. vs. CBDT & Ors. (1988) 75 CTR (SC) 20 : (1989) 175 ITR 523 (SC), it has been reiterated that the above principle of law is well established and there is no doubt about that. Hon'ble Supreme Court had, however, some occasions to deviate from this general principle of interpretation of taxing statute which can be construed as exceptions to this general rule. It has been held that the rule of resolving ambiguities in favour of tax-payer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman vs. Barron 1952(2) AIR 393 and followed by apex Court in Mangalore Chemicals & Fertilizers Ltd. vs. Dy. Commr. of CT (1992) Suppl. (1) SCC 21 and Novopan India Ltd. vs. CCE & C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, "in case of ambiguity, a taxing statute should be constr....
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....e issue is covered by decision of a coordinate bench of this Tribunal, in the case of DCIIT Vs Virola International [(2014) 147 ITD 519 (Agra)], to the extent that so far as remittances before 8th May 2010 are concerned, the assessee cannot be expected to deduct tax at source from these payments inasmuch as the amendment under section 9(1)(vii) was effected on that day and the assessee could not be expected to give effect to the law, while discharging his tax withholding obligations, prior to that date. Learned Departmental Representative also fairly accepts this legal position even as he relies upon the stand of the authorities below. 54. In view of the above discussions, we remit the matter to the file of the Assessing Officer for exclusion of the cases, if any, of remittances having been made before 8th May 2010 which shall remain uninfluenced by the amendment in section 9(1)(vii) with effect from this date. 55. Ground nos. 4, 5 and 6 are thus allowed for statistical purposes in the terms indicated above. 56. In ground nos. 7 and 7.1, the assessee has raised the following grievances: 7. Without prejudice to the above, on facts and in circumstances of the case, the learn....
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....ssee was responsible for deducting tax on payments made to non-residents on account of royalty and/or fee for technical services. The dispute before us relates to the payments made by the assessee to such non-residents who had not furnished their PANs to the assessee. The case of the Revenue is that in the absence of furnishing of PAN, assessee was under an obligation to deduct tax @ 20% following the provisions of section 206AA of the Act. However, assessee had deducted the tax at source at the rates prescribed in the respective DTAAs between India and the relevant country of the non-residents; and, such rate of tax being lower than the rate of 20% mandated by section 206AA of the Act. The CIT(A) has found that the provisions of section 90(2) come to the rescue of the assessee. Section 90(2) provides that the provisions of the DTAAs would override the provisions of the domestic Act in cases where the provisions of DTAAs are more beneficial to the assessee. There cannot be any doubt to the proposition that in case of non-residents, tax liability in India is liable to be determined in accordance with the provisions of the Act or the DTAA between India and the relevant country, which....
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....on-resident cannot be looked upon as a charging provision. In-fact, in the context of section 195 of the Act also, the Hon'ble Supreme Court in the case of CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC) observed that the provisions of tax withholding i.e. section 195 of the Act would apply only to sums which are otherwise chargeable to tax under the Act. The Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT, (2010) 327 ITR 456 (SC) held that the provisions of DTAAs along with the sections 4, 5, 9, 90 & 91 of the Act are relevant while applying the provisions of tax deduction at source. Therefore, in view of the aforesaid schematic interpretation of the Act, section 206AA of the Act cannot be understood to override the charging sections 4 and 5 of the Act. Thus, where section 90(2) of the Act provides that DTAAs override domestic law in cases where the provisions of DTAAs are more beneficial to the assessee and the same also overrides the charging sections 4 and 5 of the Act which, in turn, override the DTAAs provisions especially section 206AA of the Act which is the controversy before us. Therefore, in our view, where the tax has been deducted on t....