TaxTMI 
TaxTMI 
TaxTMI 
2017 (1) TMI 1084
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....oes 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) of the Act as well as the relevant provision of the corresponding DTAA. (4) Ld. CIT(A) erred in holding that wi....
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....vices': 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 Officer puts it in the impugned order, a "global manufacturer of steel pipes, offering the highest quality LSAW, HSAW and ERW pipes ranging from 0.5 inch to 129 inches, alon....
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.... 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 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'. So far as this set....
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....n 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 noted that under article 6 of the agreement the agent was to allow use of information concerning industrial and commercial experience. It was also noted that the agreement was in the ....
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....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 also the domestic law is to apply. The Assessing Officer thus held the assessee liable to deduct tax at source from these payments @ 20%, and raised tax withholding demands under section ....
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.... 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". It was then concluded that "in view of this, it is a very technical exercise to obtain the contracts since it involves complex process requiring elaborate discussion, technical expertise an....
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....equired 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 was termed as 'commission'; the payment thus made by the assessee was nothing, but a fee paid by the assessee to the outsiders/nonresidents for the 'managerial, technical and consultancy se....
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....s 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, the CIT(A), inter alia, held as follows: 4.8 On perusal of the definition of 'Managerial Services' as defined by Black's Law Dictionary, various ITAT rulings as well as Hon'ble Delhi High Court in....
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.... 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 relation to craftsmanship or engineering. The term 'Technical' as defined by the Hon'ble Madras High Court in the case of Skycell Communications 251 ITR 53, means "involving or concerning applied and industrial....
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....y 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 in business of development and software, (ii) To invest in and operate the sales and marketing operations from UK. * CIT v. Toshoku Ltd. [125 ITR 525] (SC) * ACIT v. Modern Insulators Ltd. [10 ITR (Trib.) 147] (i) The agent was to ensure ....
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....hich 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' was appointed to promote and market the products in South Africa. The scope of the services includes: i) To procure the orders from different buyers, ii) To negotiate the prices, other terms and intimate to the applicant, iii) To re-negotiate the terms if necessary based on instru....
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....vices 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 case because Endemot India had appointed its holding company to render highly technical services viz. legal and tax advisory, management of human resources, managing international operations, consulting for corporate development, mergers and acquisitions etc. Therefore, in light of these peculiar facts th....
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....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 fact, nothing really turns on Indo Iranian tax treaty not having a specific provision for taxation of income by way of fees for technical services. All other incomes, except for the income of enterprise operating aircraft, continue to be covered by the domestic taxation laws in entirety. In this view of the matt....
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....vant 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 other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such c....
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....ability 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 such an income is actually taxable under these articles. 27. The question then arises whether income earned by the recipients in question, i.e. Afras UAE and GMS Thailand, can be said to in the nature of an income which is not expressly dealt with by other operative articles (i.e. article 6 to 20) of the treaty. The income ear....
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....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 respective tax treaties, in India. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (Income Tax) Act shall apply to the extent they are more beneficial to that assessee". Quite clea....
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....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, was carried out in India. Even though deeming fiction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent's business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in India, and, therefore Explanation 1 to Section 9(1)(i) comes into play. 33. There are a couple of rulin....
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.... 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 revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least have persuasive value. We have no quarrel with this proposition. We have, with utmost care and deepest respect, perused the above rulings rendered by the Hon'ble Authority for Advance Ruling. With greatest respect, but without sligh....
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....tion, 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, but the amounts paid by the assessee are not for the rendition of these technical services nor the quantification of these amounts have any relation with the quantum of these technical services. The key to taxability of an amount under section 9(1)(vii) is that it should constitute "consideration" for rendition of technical services. The case of the revenue fails on this short test, as in the present case the a....
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....rried 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 findings are reproduced by us earlier in this order. While, for the sake of brevity, we need to repeat each of these reasons analysed by the learned CIT(A), suffice to say that we approve his well-reasoned findings and line of reasoning, and we will also briefly touch upon this aspect of the matter. Before we do so, we may take note of some of the clauses in a typical commission agreement entered into by the assessee with....
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....y. 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 To provide all informative data, catalogues and technical material (all in the English Language) regarding the PRINCIPAL'S products and activities and keep the AGENT informed about all relevant charges. 7.6 To offer competitive prices as far as possible to enable the sale of the products as the agent is only entitled for commissions and not fixed salary on his work. 7.7 The PRINCIPAL nominates Mr. Ranjit Lala as the contact person wit....
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....nergy 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 duties normally rendered by an agent" including but not limited to the activities specified therein. The consideration for which the payment made to the commission agent is obtaining of the orders and not any services per se. The consideration is computed on the basis of business procured. Obviously, if there are no business generated for the principal, the agent gets nothing. Quite clearly, what is done by the agent is not a rendition of service but pure entrepreneuri....
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....ng 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 process of businesses, particularly when the products being dealt with are technical products, but then merely because technical inputs are needed in carrying out business activity, it does not become a technical service rather than a business activity. At the cost of repetition, we must emphasize the important distinction between a business activity, requiring understanding of related technology, and rendition of technical services simplictor. In any case, what has been....
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....here 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 ITR 155/226 Taxman 115/48 taxmann.com 48 (Mad.), the assessee is not liable to deduct tax at source, when the nonresident agent provides services outside India on payment of commission. 5.2 The contention of the Revenue is that such services are attracted by Explanation (2) to Section 9 (1) (vii) of the Act and therefore TDS certificate is essential. 6. Whether this contention is correct, is the issue to be decided. 7. In order to appreciate this contention, it is necessary to....
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....n 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 chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or dra....
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....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 is, whether the assessee ought to have deducted tax at source as contemplated under Section 195 of the Act, when the assessee paid commission to foreign agent. 9. This question has been answered by the Hon 'ble Supreme Court, in the case of G.E.India Technology Centre (P.) Ltd. (supra), in which, it is very categorically held that the tax deducted at source obligations under Section 195(1) of the Act arises, only if the payment is chargeable to tax in the hands of the non-resident recipient. 9.1 Therefore, merely because a person has not deducted tax at source or a remittance abroad, it cannot be inferred that the person making the remittance, namely, the assessee, ....
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....saction 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 Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the non resident agents are not taxable in India, as the agents are remaining outside, services are rendered abroad and payments are also made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision G.E.India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9(1)(i) of the Act with corresponding introduction of Explanation 2 to Section 195(1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter ....
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.... 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 perform logistics services such as transport, procurement, custom clearance, sorting, delivery, warehousing and picking up services (Local services) within India (Local operating area). It has further been provided that Menlo India may also seek similar services from the assessee- company such as transport, procurement, customs clearance, sorting, delivery, warehousing and pick up services (International services) outside India. In the present appeal we are concerned with the "International services" provided by the assessee to Menlo outside India. These services comprise of transport, procurement, customs clearance, sorting, warehousing and pick up services on the cargo exported by Menlo on behalf of its customers. Having noted the nature of serv....
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....39;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 loading of consignment, custom clearance and transportation to the ultimate customer. In our considered opinion, it is too much to categorize such restricted services as managerial services. We, therefore, jettison this contention raised on behalf of the Revenue. 9. Now we take up the next component of the definition of "fees for technical services", being 'consultancy services', which has been pressed into service by the learned CIT(A) to fortify his view that the amount received by the assessee is covered within section 9(1)(vii). The word "consultancy" means giving some sort of consultation de hors the performance or the execution of any work. It is only when some consideration is given for rendering some advice or opinion etc., that the s....
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....nical". 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 within the fold of "technical services". In reaching this conclusion the learned CIT(A) also relied on the order passed by the Mumbai bench of the Tribunal in Blue Dart Express Limited Vs. JCIT. Let us examine the facts of that case. The assessee there claimed deduction u/s 80-O in respect of its foreign exchange earnings for rendering technical / professional services to a US Multi International company. During the course of assessment proceedings, the A.O. required the assessee to furnish the nature of services rendered and also the calculation of deduction. The assessee did it. On being satisfied the A.O. granted deduction u/s 80-O. By exercising the power u/s 263, the learnedCIT held the assessment order to be erroneous and prejudicial to the interest ....
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....ical 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 be universally applied. Due to material difference in the language of sections 9(1)(vii) and 80-O as discussed above, we hold that the decision in Blue Dart Express Limited (supra),can not be held to be supporting the case of the Revenue. 13. The ld. CIT(A) in reaching the conclusion that the assessee rendered 'technical services' also observed that its 'business structure is time bound service coupled with continuous real time transmission of information by using and also making available advanced technology in the form of sophisticated equipment and software.' He was swayed by the contention of the assessee that the Manlo India or the ultimate customer could track the movement of cargo with the help of computers. We have noted supra ....
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....e 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 'technical services'. We, therefore, repel this contention raised on behalf of the Revenue. 17. Thus it can be noticed that the payment made to the assessee in question is not a consideration for managerial or technical or consultancy services. That being the position, it cannot fall within the ambit of section 9(1)(vii). 40. We may also take note of another decision of a coordinate bench dealing with materially similar question dealing with taxability of income in the hands of non resident commission agents, representing Indian principal, in which similar activities were said to have been performed. In the case of Armyesh Global Vs ACIT [(2012) 51 SOT 564 (Mum)], the coordinate bench has, inter alia, observed as follows: 16. We have considered the issue a....
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....nt 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 delivery and payment as fixed by the principal. 2.3 The Agent shall be responsible for negotiating with all parties in their territory (area). The Agent shall travel in their territory (area) regularly to visit customers, and is bound to keep concluded contracts secret. The Agent shall always keep the principal informed about their activities and shall supply the principal, at least once every quarter, with reports on economic developments and market conditions in the territory (area) and at the same time, convey to the principal, the Agent's observations with respect to activities of competitors. The Agent shall report immediately on particular profitable business possibilities and extraordinary events. 2.4. The Agent shall abstain from any competition whatsoev....
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....s 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) 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 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) a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved b....
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.... 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, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon'ble Supreme Court in the case of GE India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 456 (SC)], payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the ....
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....cord 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 copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT Vs Nokia Networks OY [(20113) 358 ITR 259 (Del)]. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon'ble Bombay High Court's judgment in the case of DIT Vs Sun and Breadstreet Information Services India Pvt Ltd [(2011) 318 IITR 95 (Bom)]. As for the judgment of Hon'ble Karnataka High Cour....
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....lainly 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 construed in favour of a tax-payer does not apply to a provision giving taxpayer relief in certain cases from a section clearly imposing liability". This exception, in the present case, has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. vs. Dadabhoy's New Chirmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. Therefore, what follows is that in the peculiar circumstances of the case and looking to the nature of the provisions with which we are presently concerned, the view expressed by the Hon'ble Delhi High Court in the case of Ansal Landmark (supra), which is in favour of assessee, is required to be followed by us. Revenue does not, therefore, derive....
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....influenced 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 learned CIT(A) has erred in dismissing the following ground of appeal raised as infructuous : "13. Without prejudice to the above, on facts and in circumstances of the case, the learned AO erred in grossing up the amount of remittances made for the purpose of section 195A of the Act by applying the rates mentioned in section 206AA of the Act, as the same is not rates in force as per section 2(37A) of the Act, " 7.1 The CIT(A) ought to have appreciated that for the purpose of section 195A, the rates for grossing up should be the rates in force as per section 2(37A) of the Act as against rates as stipulated u/s 206AA of the Act. 57. Learned representatives agree that both the above issues are covered by the coordinate bench decision in the case of DDIT vs Serum Institute of India Pvt Ltd [(2014) 40 ITR (Trib) 684 (Pune)], even as learned Depar....
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....ovisions 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, whichever is more beneficial to the assessee, having regard to the provisions of section 90(2) of the Act. In this context, the CIT(A) has correctly observed that the Hon'ble Supreme Court in the case of Azadi Bachao Andolan and Others vs. UOI, (2003) 263 ITR 706 (SC) has upheld the proposition that the provisions made in the DTAAs will prevail over the general provisions contained in the Act to the extent they are beneficial to the assessee. In this context, it would be worthwhile to observe that the DTAAs entered into between India and the other relevant countries in the present context provide for scope of taxation and/or a rate of taxation which was different from the scope/rate prescribed under the Act. For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of t....