2018 (2) TMI 2071

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....ted as having attained finality in favour of the Appellant. II That the Learned CIT(A) has erred in upholding the disallowance of Business Development Commission and arriving at the conclusion that payments made by the Appellant to US Parent Company towards Business development Commission (marketing services) result in income chargeable to tax in India: - a) Ignoring the decision of Apex court in the case of Toshoku Ltd 125 ITR 525 (SC); principles laid down in Shoorji Vallabhdas v. CIT 39 ITR 775 (SC), Thiagaraja Chetty & Co. v. CIT[l] 24 ITR 535 (SC) and Madras High Court decision in the case of CIT v. Faizan Shoes Pvt. Ltd. 367 ITR 155(Mad). b) Disregarding the legal position that the withdrawal of circular 23 of 1969 does not alter the law settled by Apex court rulings cited above. III. Without prejudice to the generality of the foregoing, the learned CIT(A) has erred in upholding the taxability of Business development Commission Ignoring that the definition of 'fees for included services' in the India - USA DTAA is narrower compared to the definition of 'Fees for Technical services' under the Act". 3. Grievance raised by t....

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....vices outside India and no income accrued or arose to SCG, USA in India. (viii) Amounts paid to SCG, USA were not chargeable to tax under the Act and therefore there was no requirement of deducting tax at source on such payments (ix) SCG, USA was not having any business connection in India, and hence services rendered by it would not be liable for any tax in India. (x) Services rendered by SCG, USA were outside India and did not arise from any business connection in India. 5. Ld. Assessing Officer after considering the above submissions of the assessee held as under:- "As per the provisions of Section 195, any person responsible for paying to a Non resident any sum chargeable to tax in India, which arise through Business connection in India, under the Section 9(i)(a) should suffer Tax. The provisions of section 9(i)(a) also categorically says that necessary tax has to be deducted on the Business provision commission paid. Hence the said amount is disallowed under Section 40(a)(i)". With the above observations, he disallowed the claim u/s.40(a)(i) of the Act. 6. Aggrieved, assessee moved in appeal before the ld. Commissioner of I....

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....rovide the services from the locations where service provider provides the services as of the effective date or such other location as service provider may choose in its sole discretion unless the applicable service must be performed at a company location. In the decision of the Supreme Court in R. Dalmia Vs CIT 106 ITR 895 in which it was pointed out that management includes the act of managing by direction, or regulation or superintendence. The service provider is not engaged in a one-time agency for merely soliciting clients but also involves itself in the broad gamut of services pertinent to the client identification, soliciting, constant feedback etc. The key factor in managerial services is coordination and marketing and convincing the prospective buyer to make the deal. Therefore, payments made to the service provider are covered under managerial services and is not commission simplicitor. Reliance is placed on SRK Consulting Engineers (1998) 230 ITR (AAR) to hold that the sum pab1e to non-resident is chargeable u/s. 9W(vii). Hence, TDS should be deducted u/s. 195. Since tax was not deducted payment made to nonresident is disallowed u/s 40(a)(i). Reliance is also pl....

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....the present case, Indijack Ltd. is providing composite services comprising commission agency as also services for ITA No.8822 of 2010 Armayesh Global Mumbai-A Bench promoting sales of the appellant in the foreign countries, although the nomenclature used by the appellant is commission. The payment thus falls within the meaning of "fees for technical services" which is subject to application of section 195(2) is applicable to a composite payment. In the present case therefore, since the payment made by the applicant to Sutherland Global Services is held to be a composite payment, the payment has an element of "income' chargeable to tax in India, and therefore, the appellant is obligated to deduct tax at source. 5.1.5 The Hon'ble Punjab & Haryana High Court in the case of P.M.S. Diesels vs. CIT [ITA No.716 of 2009) (O&M) dated 29.04.2015 has held that consequences under Section 40(a)(ia) of IT Act would operate on account of failure to deduct tax at source under Chapter XVII-B of the Act and the term 'payable' has been used in that source. While disagreeing with the Hon'ble Allahabad High Court in the case of Vector Shipping Services P. Ltd., it has been ....

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....re described, therein as under:- 1 Services Description: Service provider will provide company support as requested by company for company's business development activities, including the following:- 1.1 Sales 1.2 Marketing and 1.3 Lead generation 2 Location of services. At the facilities of service provider or as may be determined at the sole discretion of service provider 3 Personal. As designated from time to time by service provider 4 Fees. An amount equal to five percent (5%) of the gross revenue recognized by company from the sale of its services to third parties. Gross revenue shall not include any reimbursement of costs or other expenses by third parties for this fee calculation. 5 Cost Reimbursement. None According to him, there was no element of any technical services in the work done, by the said SGS, USA. As per the ld. AR what was received by the assessee was purely marketing services. To a question from the Bench, regarding the method in which assessee was billing its customers, ld. Authorised Representative submitted that assessee was following a cost plus method. Ld. Authorised Representative....

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....act, the only finding given by the ld. Assessing Officer was that the payments effected by the assessee to its principal abroad was liable for deduction of tax at source u/s.195 of the Act. There is no specific finding by the ld. Assessing Officer, on the nature of the payments made by the assessee to SGS, USA nor has he given the specific reasons why he considered it to be liable for deduction of tax at source. As against this, assessee had indeed raised a contention before the ld. Commissioner of Income Tax (Appeals) that the payments could not be considered as technical services even under DTAA. In our opinion, the nature of the services rendered by its principal to the assessee is not clear from the records. Assessee did not produce the transfer pricing study nor the order of the ld. TPO, before us, which could have given a fair idea of the nature of services rendered by SGS, USA. Further, assessee also did not produce the invoices raised by SGS USA for services rendered by it, nor any communication between the said company and the assessee. Before coming to a conclusion whether services rendered by SGS USA to the assessee was of a nature which required deduction of tax at sour....