TaxTMI 
TaxTMI 
2019 (5) TMI 1602
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....of Rs. 1,30,86,150/- made by the AO in view of withdrawal of Circular Nos. 23 of 1969 and 786 of 2000 by the CBDT vide which CBDT withdrew the immunity available to such foreign remittance. (iii) The decision of the Ld. CIT(A) is also contrary in view of Circular No.7/2009 of the CBDT (which is in existence) vide which it makes mandatory for the assessee to deduct TDS on foreign remittance." 3. The revenue has raised the following grounds of appeal for the Assessment Year 2012-13:- "(i) The Ld. CIT(A), on the facts and in the circumstances of the case and also in law, has erred in deleting the addition of Rs. 1,61,28,196/- made by the AO on account of commission expenses in view of provision of Section 195 and Section 9(1 )(i) of the Income-Tax Act. (ii) The Ld. CIT(A), on the fact and in the circumstances of the case and also in law, has erred in deleting the addition of Rs. 1,61,28,196/- made by the AO in view of withdrawal of Circular Nos. 23 of 1969 and 786 of 2000 by the CBDT vide which CBDT withdrew the immunity available to such foreign remittance. (iii) The decision of the Ld. CIT(A) is also contrary in view of Circular No.7/2009 of the CBDT (which is in existence)....
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.... an appeal before the ld CIT(A), who passed an order dated 24.03.2015 deleting the above disallowances as per para No. 4 of his order. Therefore, the revenue is in appeal before us. 7. The ld DR reiterated the findings recorded by the ld AO and ld AR relied upon the orders of the ld CIT (A). 8. We have carefully considered the rival contentions and also perused the orders of the lower authorities. The assessee has submitted a paper book showing that foreign agents rendered services out of India for procurement of the orders from the overseas buyers and for getting approval of the goods. No evidences were laid before us to show that any of the services by the agents were performed or rendered in India. Dealing with the other contention of the revenue the ld CIT(A) has dealt with the whole issue and deleted the above addition as per the para No. 4 to 4.4 of his order as under:- 4. "In ground no. 1, Ld. AR has impugned the addition of Rs. 1,30,86,150/- u/s. 40(a)(i) of the Income Tax Act in respect of commission paid to foreign commission agents without deduction of Tax at Source u/s. 195 of the Act. In this regard, Ld. AR has made detailed submission before me which have been co....
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....the assessee, as discussed above, unduly emphasized the other services which the commission agents are supposed to render, but cannot be treated as technical consultancy services. It has also been explained that services referred to in the affidavit were not in any way remotely connected with a technical consultancy but they were incidental to receive^ and execute the export orders meaning thereby that the first limb of the role of the commission agents ends with placing orders and the last limb ends when the goods are reached to the destination and have been accepted by the buyer and payments are realized from them and between there is no role of commission agents during the execution of the orders which shows that AO is wrong when he is equating such incidental services to the nature of technical consultancy. In this regard, Ld. AR placed reliance on the following judicial decisions: (i) Anand Transport P. Ltd. v. Asst. Commissioner of Income Tax (2015) 370 ITR 524 (Mad) (ii) Asst. Commissioner of Income Tax vs. Lohia Starlinger Ltd. (2014) 65 SOT 155 (Luk.) (Trib.) (iii) Dy. CIT vs. I.M. Gears (P) Ltd. (2014) 65 SOT 303 (Chen.) (Trib.) (iv) Asst. CIT vs. Karmin Internati....
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.... by CBDT, the question of taxability of such commission to income-tax has to be decided as per the provisions of section 9(1) of the Act. Such income (commission) in the hands of non-resident commission agents did not accrue or arise directly or indirectly, through or from any business connection in India or through the transfer of capital asset situated in India. The provisions of sec. 9(l) were hence not applicable to such payment of commission by appellant to nonresident agents and the and therefore were not taxable in India. Accordingly, provisions of Section 195 can also not be invoked in respect of such payments made, therefore, the appellant was not required to make any reference to the Assessing officer for determination of TDS rate u/s 195 of the Income tax Act. In view of the above, Ground 1 of the appellant is allowed and addition of Rs.l,30,86,150/-is deleted." 9. In any case, there is no dispute that the agents being located outside India and not resident of India were canvassing sales for the assessee for customers abroad. It is an admitted position by the AO himself that the agents are not resident in India further to make disallowance ld AO did not establish th....
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.... right to receive the commission arises in India when the order is executed by the applicant in India. It was also held that fact that the agents have rendered services abroad in the form of soliciting the orders and the commission is to be remitted to them abroad are wholly irrelevant for the purpose of determining the situs of their income. According to that ruling provision of section 195 would apply since the right to receive the commission arises in India when the order is executed by the applicant in India 14. However the above decision has been relied up on by revenue in many such decisions but has been dealt with holding that no tax is required to be deducted where services by agents are not rendered in India in following cases :- i. Deputy Commissioner of Income-tax, Circle- 16(1), New Delhi vs. Taj International (P.) Ltd. [2018] 96 taxmann.com 222 (Delhi - Trib.) [20- 07-2018] ii. Deputy Commissioner of Income-tax, Cir.-2(1)(1), Ahmedabad vs. Gujarat Microwax (P.) Ltd. [2018] 96 taxmann.com 644 (Ahmedabad - Trib.) [24-05-2018] iii. Deputy Commissioner of Income Tax, OSD Range 1, Ahmedabad vs. Bio Tech Vision Care (P.) Ltd. [2018] 93 taxmann.com 20 (Ahmedabad - Trib....
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.... [22-06-2012] xx. Deputy Commissioner of Income-tax, Spl. Range-23, Mumbai vs. Sandoz (P.) Ltd. [2012] 23 taxmann.com 430 (Mumbai) [09-05-2012] 15. Further honourable Delhi High court in [2014] 49 taxmann.com 412 (Delhi)/[2014] 227 Taxman 351 (Delhi)/[2014] 272 CTR 117 (Delhi) in DIT V Panalfa Autoelektrik Ltd has dealt with the identical issue about taxability of commission payment u/s 9 (1) 91) and ( (1) (vii) of the act and has decided the issue as under :- "4. The Assessing Officer relying upon the decision of the Authority for Advance Rulings in In Re: Wallace Pharmaceuticals (P.) Ltd., In re [2005] 278 ITR 97/48 Taxman 347 (AAR) held that the commission payment to the non-resident company on procuring orders was taxable as 'fee for technical service' under sub-clause (b) to Section 9(1) (vii) of the Act. The initial direction that the tax should be deducted at source @ 20% recorded in the order dated 4th May, 2010, was modified/reduced to 10% vide order dated 8th November, 2010 after recording that deduction at a higher rate would not be applicable in the present case. 5. The Commissioner of Income Tax (Appeals), however, reversed the aforesaid finding holding ....
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....h person outside India or for the purposes of making or earning any income from any source outside India; or ** ** ** 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".' 7. Section 5(2) states that total income of a person, who is a nonresident, includes income from all sources which (a) is received or deemed to be received in India in such year by or on behalf of such person; (b) accrues or arises in India; or (c) is deemed to accrue or arise in such year in India. Explanation 1 of the aforesaid section clarifies that income accruing or arising out of India shall not be deemed to be received in India by reason of the fact that it is taken into account in a balance sheet prepared in India. We are required to decide, whether the commiss....
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....son of". There is no finding by the Assessing Officer and there is no allegation that a non-resident was carrying on any operation whatsoever in India. Thus, there is no question of attributing any income to operations carried on by the non-resident in India. No such argument has been addressed. 11. The Assessing Officer in his order under Section 195/197 of the Act has relied upon the judgment in the case of Wallace Pharmaceuticals (P.) Ltd. (supra), which has been distinguished on facts by the first appellate authority and the Tribunal. The factual matrix, including the agreement between the assessee and the non-resident and the terms, have not been spoken of by the Assessing Officer. These have been referred to and examined by the Commissioner of Income Tax (Appeals). But first, we examine Section 9(1)(vii) of the Act. 12. In the present case, clause (b) to Section 9(1)(vii) would be applicable as the respondent-assessee, the payer was a resident of India. The exceptions carved out under clause (b) are not applicable as it is not the case of the respondent-assessee that the fee paid was in respect of services to be utilised in business or profession carried out by the payer ....
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....ditionally identified with the running of business. Therefore, management as a process is practised throughout every organization from top management through middle management to operational management.' Recently this Court in CIT v. Bharti Cellular Ltd., [2009] 319 ITR 139/[2008] 175 Taxman 573 had observed:- 'The word "manager" has been defined, inter alia, as: "a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc." It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression "manager" and consequently "managerial service" has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.' Reference can be also made to the decision of the Authority for Advance Rulings in Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418/175 Taxman 375, wherein it was elucidated:- 'First, about t....
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.... contemplated herein at the date of execution of this agreement and at any time in future during the terms of this agreement shall be deducted from the commission (as described herein above) before the same is paid and transferred to the bank account of AGENTA (herein referred to as the commission payable)" 16. The non-resident, it is clear was appointed as a commission agent for sale of products within the territories specified and subject to and in accordance with the terms set out, which the non-resident accepted. The non-resident, therefore, was acting as an agent for procuring orders and not rendering managerial advice or management services. Further, the respondent-assessee was legally bound with the non-residents' representations and acts, only when there was a written and signed authorization issued by the respondent-assessee in favour of the nonresident. Thus, the respondent-assessee dictated and directed the nonresident. The Commissioner of Income Tax (Appeals) has also dealt with quantification of the commission and as per clause 4, the commission payable was the difference between the price stipulated in the agreement and the consideration that the respondent-....
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..... Technical field would mean applied sciences or craftsmanship involving special skills or knowledge but not fields such as arts or human sciences (see paragraph 24 below). 20. The moot question and issue is whether the non-resident was providing consultancy services. In other words, what do you mean by the term "consultancy services"? This Court in Bharti Cellular Ltd. (supra) had referred to the term "consultancy services" in the following words:- '14. Similarly, the word "consultancy" has been defined in the said Dictionary as "the work or position of a consultant; a department of consultants." "Consultant" itself has been defined, inter alia, as "a person who gives professional advice or services in a specialized field." It is obvious that the word "consultant" is a derivative of the word "consult" which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said Dictionary as "ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action". It is obvious that the service of consultancy also necessarily ....
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....ent-assessee upon receipt of export orders, manufactured the required articles/goods and then the goods produced were exported. There was no element of consultation or advise rendered by the non-resident to the respondent-assessee. 23. Decision in the case of Wallace Pharmaceuticals (P.) Ltd. (supra) is clearly distinguishable as in the said case the non-resident consultant had to perform several services in the nature of attending meetings on mutually agreeable dates and providing advice and counselling, which were in the nature of consultancy services as they entailed support from a product team, compliance with all legal and administrative formalities, including registration and marketing strategy, creation of entry into new markets, development and distribution channels, etc. The work being rendered was in the nature of services as a consultant to the Indian assessee. It included an element of advice and was certainly recommendatory in nature. 24. The OECD Report on e-commerce titled, Tax Treaty Characterisation Issues arising from e-commerce: Report to Working Party No.1 of the OECD Committee on Fiscal Affairs dated 01st February 2001, has elucidated:- 'Technical ser....
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....lf require substantial technical skills is irrelevant as the service provided to the client is not the development of that data and software (which may well be done by someone other than the supplier) but rather the service of making the data and software available to that client. For example, the mere provision of access to a troubleshooting database would not require more than having available such a database and the necessary software to access it. A payment relating to the provision of such access would not, therefore, relate to a service of a technical nature. Managerial services 43. The Group considers that services of a managerial nature are services rendered in performing management functions. The Group did not attempt to give a definition of management for that purpose but noted that this term should receive its normal business meaning. Thus, it would involve functions related to how a business is run as opposed to functions involved in carrying on that business. As an illustration, whilst the functions of hiring and training commercial agents would relate to management, the functions performed by these agents (i.e. selling) would not. 44. The comments in paragraphs 40....