AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1372
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....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 Importation & Custom clearing 75,956 4,215,547 Liaso....
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....ial, 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 initiated for furnishing inaccurate particulars of income." 6. Dissatisfied with this order of the AO, the ass....
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....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 fall within the domain of 'Fees for Technical Services.' As the agency namely CACMILSA was specialized agency in the ....
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....he 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 for the assessee appraised us that basically this agreement contemplates that foreign country has accepted its requirement for import of certain drugs, and in order to determine that requirement a brief background has been given in th....
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....gerial, 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 outside India. These obligations were of the assessee under the agreement entered into with Government of Ecuador for the supply of drugs. The CACMILSA is only a service provider in different fields, i.e. delivery, logistics, packaging e....
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....nd, 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 assessee with Ecuador government. A perusal of those clauses along with finding recorded by the ld.Revenue authorities, it would reveal that these activities included liaison with the local authorities, registration of products at Ecuador, export of goods to Ecu....
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....ces" 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 nature of "managerial, technical or consultancy services". For this purpose, the ld.CIT(A) has observed that first clause of the agreement itself mention that commercial advisory i.e. CACMILSA has agreed to provide services which consisted of support, management, general advice and other actio....
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....alue 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 with this issue in the latter part of this order. The ITAT in the case of CIT Vs. Mahindra & Mahindra Ltd., in ITA No.2811/MUM/2003 has held that in respect of reimbursement of expenses, there is no obligation to deduct tax at source. For this conclusion, ITAT has relied upon the decision of Hon'b....
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....g 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 required to be determined on the basis of the agreement, and if these services are simplicitor for procurement of some contract, and fulfillment of certain export obligations like logistic, warehousing etc. then these will not be termed as service in the nature of technical services or managerial and cons....