AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (7) TMI 116
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....2012-13 in appeal No.1144/Kol/2015 as the lead case. 2. This assessee is a company engaged in hosiery business. It admittedly incurred the impugned export commission in case of four Dubai based payees M/s Profile Trading Company, Dubai, M/s Pierre Donna Cloths Trading, M/s Ali Rashed Al Abdooli Trading and M/s Yellow Flower Trading Company involving sums of Rs. 47,12,450/-, Rs. 1,84,303/-, Rs. 41,493/- and Rs. 1,22,08,069 respectively totalling to Rs. 1,71,46,315/- in the relevant previous year. There is no quarrel that it had not deduced any TDS thereupon. Its case before the Assessing Officer was that neither the said payees has rendered any services in India nor had they set up their permanent establishment in India so as to attract section 91 (vii) of the Act. It sought to explain the said payees to have rendered merely secured overseas export orders in lieu of charging commission. All these failed to evoke the Assessing Officer's concurrence. He held in assessment order dated 23.05.2014 that the assessee had allotted its UAE and Middle East sales area territories to its payees for goods manufactured in India only, the said payees secured orders, the payer had to advertise its....
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....his written submission stated that as the foreign agent is a non resident and has no permanent establishment in India as we1I as the fact that none of the services is rendered by the foreign agent in India and no part of the payment is made to him in India the income accruing to the foreign agent cannot be deemed to accrue or arise in India. The learned A. R. for the appellant has also referred to various Board Circulars and Case laws in this regard. He has also distinguished the facts of the case of the appellant from the case law cited by the A.O. He has alternatively argued that even if the income is deemed to accrue or arise in India, in view of the Double Taxation Avoidance Agreement between India and UAE, the same income is liable to be taxed in UAE and no part of the same is to be taxed in India. The taxability of the income in India is to be determined with reference to Sec 5 and Sec 9 of the Income Tax Act' 1961. On going through the facts of the case it is clear that entire services were rendered in relation to sales and the sales were effected in foreign territory and these. persons do not have any Permanent Establishment in India. Based on these facts, law on th....
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....A.E. I, therefore, hold that no TDS was to be deducted u/s 195 in respect of commission paid by the appellant to the foreign agents." 4. Learned Departmental Representative vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in concluding that the assesee's payments are not liable to be taxed in India qua the impugned targeted sale export commission payments. He seeks to treat the said sums as commission u/s 194H setting into motion TDS deduction under Chapter XVII in the statute. We find no merit in Revenue's above argument. This tribunal's coordinate bench in DCIT vs Welspun Corporation Ltd. ITA No.48/Ahd/2015 decided on 03.01.2017 has considered all these issues in assesee's favour as under :- "4. We find that, as noted above, in the case of Welspun Corp Ltd (supra), the Co- ordinate Bench of this Tribunal has, inter alia, observed as follows:- "31. The scheme of taxability in India, so far as the non-residents, are concerned, is like this. Section 5 (2), which deals with the taxability of income in the hands of a non-resident, provides that "the total income of any previous year of a person who is a non-resident includes al....
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....ns 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 rulings by the Authority for Advance Ruling, which support taxability of commission paid to non-residents under section 9(1)(i), but, neither these rulings are binding precedents for us nor are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers & Driers (P.) Ltd. In re [2012] 343 ITR 385/206 Taxman 19/18 taxmann.com 325 (AAR - New Delhi), we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra, In re [2006] 284 ITR 564/155 Taxman 101 (AAR - New Delhi) which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a ITA No. 1534/Ahd/2015 M/s. Panasonic Energy Inddia Co ....
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....n 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 slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings. 34. Coming to Section 9(1)(vii)(b), this deeming fiction- which is foundational basis for the action of the Assessing Officer, inter alia, provides that the income by way of technical services payable by a person resident in India, except in certain situations- which are not attracted in the present case anyway, are deemed to be income accruing or arising in India. Explanation 2 to Section 9(1)(vii)defines 'fees fo....
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.... 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 amounts paid by the assessee are "consideration" for orders secured by the assessee irrespective of how and whether or not the agents have performed the so called technical services. 36. Let us sum up our discussions on this part of the scheme of Section 9, so far as tax implications on commission agency business carried out by non-residents for Indian principals is concerned. It does not need much of a cerebral exercise to find out whether the income from the business carried on by a non-resident assesse....
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.... 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 its commission agents. The key provisions in this agreement, a copy of which is placed before us at pages 103 to 109 of the paper- book, are as follows: Article 5 - AGENT'S OBLIGATION The AGENT shall carry out all the duties normally rendered by an AGENT including but not limited to the following: 5.1 To act exclusively on behalf of the PRINCIPAL and not source, procure or market products of similar type manufactured by competitive companies without prior written consent of the PRINCIPAL. ....
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....ceipt of an inquiry from the TERRITORY requiring direct supply . 7.3 The AGENT shall be entitled to commission as agreed upon in the contract. ITA No. 1534/Ahd/2015 M/s. Panasonic Energy Inddia Co Ltd vs. Pri. CIT Assessment year: 2009-107.4 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 with the AGENT for all correspondences and communications. Article 9 - TERMINATION. 9.1 This Agreement shall remain valid for a period of One year from the date of signing. The said Agreement can also be terminated by either party anytime giving notice to the other party of at least 90 days in advance by fax and followed by registered letter stating reasons for the termination. The agreement can be reinstated for....
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....NTERNATIONAL 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 all 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 entrepreneurial activity. The work actually undertaken by the agent is the work of acting as agent and so procuring business for the assessee but as the contemporary business models require the work of agent cannot simply and only be to obtain the orders for the product, as this obtaining of orders is invariably preceded by and followed b....
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....se 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 described as a technical service is the service being rendered to the buyer but the payment received by the commission agents is not for this service per se but for generating business orders for the assessee. Generating business or securing orders is an entrepreneurial activity and cannot, by any stretch of lo....
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....a 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 non-resident 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 consider the relevant provisions of the Act:-- (i) Section 40(a)(i) of the Act :-- "Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the follo....
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.... 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 non- resident 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 draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] :...................... [Explanation 2.- For the ....
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....he 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, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2 The underlying principle is that, the tax withholding liability of th....
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....x (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 of the decision, in the recent case, CIT v. Kikani Exports (P.) Ltd. [2014] 369 ITR 96/[2015] 232 Taxman 255/49 taxmann.com 601 (Mad.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:- - '....