TaxTMI 
TaxTMI 
2019 (5) TMI 1372
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....on 195 of the Act while making payment to the non-resident commercial agent. 3. Brief facts of the case are that the assessee has filed his return of income electronically on 30.9.2013 declaring total income at Rs. 40,73,120/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued on 3.9.2014 which was duly served upon the assessee. On perusal of accounts, it revealed to the AO that the assessee has been earning income from salary. He was running a proprietorship concern in the name and style of "Bion Healthcare". He has traded/exported medicines through this proprietorship concern. The AO thereafter observed that on perusal of the accounts it revealed that the assessee has debited expenditure of Rs. 1,79,73,760/- being payment made to CACMILSA/Carlos Avila Guilermo Celi. The ld.AO has noticed details of this payment as under: Nature of expenditure Head of Expenditure in P & L FCN $ 1NR Local Logistic cost at Ecuador Logistic cost @8% 60,765 3,372,438 Supply of goods to Various Hospital across Ecuador Distribution & Admin cost @10% 75,956 4,215,547 Custom clearance at Ecuador ....
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....in Section 9 itself under clause [vii] as any consideration (including lump sum) for rendering of any managerial, technical or professional services including the services of technical or other personnel. From the above discussion it is clear that the agreement is basically for hiring of services and it is not a mere case of CACMILSA acting as commission agent of the assessee. Rather. CACMILSA is providing a bunch of services which are predominantly in the nature of managerial, technical and consultancy services, which fall within the ambit of "Fees for Technical Services" for the purpose of Income Tax Act. From the website http://www.cacmilso.com it can be seen that CACMILSA is an agency which specializes in Pharmaceutical Sector. Assessee has booked the payment under various heads rather than making payment in lump sum as stipulated in the agreement. Therefore, TDS was required to be deducted on such payments under section 195. In the absence of the same the concerned expenses are liable to be disallowed under section 40(a)(i) of the Act. Hence, payments of Rs. 2,57,73,053/- made to CACMILSA (Mr. Carios G. Avila Celi) are being disallowed. Penalty u/s. 271(1)(c) is separately ini....
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....onsideration. Hence, I am of the considered opinion that appellant should have deducted tax at source on payment of Fees for Technical Services offered by CACMILSA/its director, Carlos Avila Guilermo Celi, 5.8 The second component of the payment made by the appellant is of Rs,77,99,293/-, The A.O, has made addition of this amount u/s.40(a)(i) for the reason that payment made for services obtained were in the nature of Fees for Technical Services. It is seen from the order of assessment that the said payment was debited in the ledger of marketing expenses against the name of Mr.Carios Avila Guilermo Celi. However, A.O. has observed that these payments were under the head marketing expenses but were incurred for market survey charges for three months and Registration fees, edisseur evaluation & analysis charges, transportation and notarization of dossiers, market analysis and tender survey. It is apparent from the narration mentioned that the appellant has spent this amount for market survey as well as consultancy services which lead to the award of contract from Government of Ecuador to the appellant. The expenditure made on market survey and consultancy services purely fal....
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.... of-the copies of the contract that must be delivered to the IESS, the cost of storage, transportation and in general all the expenses derived from the granting of the contract. .... .... .... .... .... .... 14.01 The IMPORTER undertakes to deliver the drugs acquired through this CONTRACT in all Units of IESS in accordance with the Schedule that for the effect will be delivered to the Coordination of Management of the Medical Units of IESS. .... .... .... .... .... .... The IMPORER must have a physical space specifically for drugs for the proper storage of the medicines that must be distributed to each of the nationwide Medical Units of the IESS in accordance with the schedule; if required, it must have a cold chain and space in accordance with standards. .... .... .... .... .... .... 23.02 All expenses derived from this contract will be home by the IMPORTER. In case of termination of mutual agreement, the payment of the notarial rights and of the copies will be at the expenses of the IMPORTER. .... .... .... .... .... .... 8. Taking us through complete agreement, the ld.counsel fo....
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....A). Both Revenue authorities have not doubted incurrence of expenditure or payment made by the assessee. They are of the view that since CACMILSA has provided managerial and consultancy services, which falls within the scope of managerial, technical and consultancy services as per the meaning of section 9 of the Income Tax Act, and therefore, element of income assessable in India is involved in such payments. The assessee should have deducted TDS before making such payments. Since the assessee failed to deduct TDS, therefore, expenditure deserves to be disallowed to the assessee. The ld.counsel for the assessee contended that both the Revenue authorities have failed to construe the meaning of expression "managerial, technical and consultancy services" employed in Explanation to section 9 while harping that such payment involved such services. He pointed out that had any consultancy/opinion given by CACMILSA being used by the assessee within India for enhancing its business, then payment qua that could be at most in the field of managerial and consultancy services. But here the payments have been made for fulfillment of obligations of different services required to be rendered outsi....
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....Guj); iv) Sun Pharmaceutical Industries Ltd. Vs. ACIT, (2016) 70 taxmann.com 94 (Ahd); On the strength of the above, the ld.counsel for the assessee contended that no disallowance deserves to be made in the hands of the assessee. On the other hand, the ld.DR relied upon orders of the Revenue authorities. 9. We have duly considered rival contentions and gone through the record carefully. The short question involved is, whether payments made to non-resident agency, CACMILSA would fall within the ambit of "fees for technical services" as per definition given in Explanation 2 to section 9(1)(vii) of the Income Tax Act. If yes, then on account of non-deduction of TDS under section 195 of the Act, payments are not allowable as deduction under section 40(a)(ia) of the Act. It emerges out from the record that the assessee was awarded tender by Ministry of Ecuador for supply of medicines to its 300 hospitals across country. The assessee had hired a local agency from Ecuador (Director Carlos Avila Guilermo Celi) in order to undertake various activities to fulfill conditions of the tender. We have extracted extensively different clauses of the agreement entered into by the asse....
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.... for the assessee. We find that ITAT, Mumbai in the case of UPS SCS (Asia) Ltd. Vs. ACIT (supra) has made analysis of the scope of Explanation-2 appended to section 9 of the Act. This Explanation reads as under: 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". 12. A bare perusal of the above provision would indicate that "fee for technical services" means any consideration for rendering of any "managerial, technical or consultancy services", but does not include the consideration for any construction, assembly etc. A perusal of the order of the ld.CIT(A) would indicate that basically, the ld.CIT(A) has construed the agreement between assessee and the CACMILSA for harping a belief that services rendered by the foreign agent was in the....
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....ration was equivalent to 45% of the value of the order from Ecuador. Out of this 45%, 8% was allocated towards logistic cost of Ecuador; 10% towards supply of goods to various hospitals i.e. cost of distribution and operation; 10% was allocated towards custom clearance i.e. 10% of the invoice value of import and custom clearance etc.; 15% for liaison and commission for the purpose of fulfillment of these activities. According to the assessee, these are simplicitor reimbursement of actual expenditure as well as commission to foreign agents for performing these activities on behalf the assessee. The assessee has not debited any other expenditure separately in his account, more so, the AO himself has not raised any doubt about incurrence of expenditure. How it could be said that the expenditure debited under these heads amounts to some technical services or managerial services paid by the assessee ? It is also pertinent to observe that all these services have been rendered in Ecuador out of Indian territory. No information supplied by the commercial agent has been used except to some extent the market research of pharma products in Vietnam given by said advisor. We will be dealing wit....
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....e may be, the non-resident agent is paid 2.5 per cent. commission on FOB basis. That appears to be a commission simpliciter. What is the nature of technical service that the so-called nonresident agent has provided abroad to the assessee is not clear from the order of the Assessing Officer. The opening of letters of credit for the purpose of completing export obligation is an incident of export and, therefore, the non-resident agent is under an obligation to render such services to the assessee, for which commission is paid. The non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India. The services rendered by the nonresident agent can at best be called as a service for completion of the export commitment. We are, therefore, of the considered opinion that the commission paid to the non-resident agent will not fall within the definition of fees for technical services. 15. Apart from the above, there are other large numbers of decisions referred by the ld.counsel for the assessee. Unanimous opinion of Hon'ble High Court as well as ITAT in all these decisions is that nature of services rendered by foreign agents req....
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....countries for the products market in the respective countries. Furthermore, these fees are to be paid on recurring basis depending upon the validity of the various registrations. The fees have been paid on expiry of the registration and out of total payment of Rs. 8,03,706/- is in respect of product registration in Poland. Likewise payments have been made in Vietnam, Russia, Ghana and China etc. We find that the exports over the years have increased from the export sale of Rs. 26 crores in financial year 1998-1999 to the exports have grown to Rs. 160 crores in financial year 2005-2006 an increase of more than 600%. Accordingly, these expenses are rightly allowed by CIT(A) and we confirm the same." 5. The findings of the Tribunal are justified on both the issues. The garden expenditure was for the purpose of maintaining garden to control the pollution. The company had put up an affluent treatment plant and pollution used to generate because of release of pollutants. The maintaining a garden helped in controlling pollution arising from the pollutants. It cannot be gainsaid that the expenses for garden had nexus with business activity. It can well be treated for business purp....