TaxTMI 
TaxTMI 
2022 (8) TMI 1297
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....h was treated as royalty by the Assessing Officer. 3. The representatives of both the sides were heard at length, the case records carefully perused and relevant documentary evidences brought on record duly considered in light of Rule 18(6) of the ITAT Rules. 4. Briefly stated, the facts of the case are that the assessee is a company incorporated in accordance with the German laws and is a tax resident of Germany. The assessee is engaged in the business of publishing of books and journals in the field of research, education, and professional business. 5. On 02.01.2013, the assessee entered into a Commissionaire Agreement with SIPL by which the assessee was appointed as a nonexclusive sales representative on a global basis to promote, grant and distribute the products of SIPL. 6. As per the terms of the Commissionaire Agreement, the assessee provided services relating to Customer service, Order handling, Address maintenance, Invoicing, Delivery, physical as well as online, Debtor management services, Contract management, Processing of complementary copies and translated published copies. 7. While completing the scrutiny assessment, the Assessing Officer formed a strong belief t....
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....mmission received for such services is in the nature of FTS. 11. Interestingly, the concept of FTS is not present in the OECD Model Convention. However, it finds mention in the UN Model Convention wherein Article 12A grants the source country a primary right to tax such fee from technical services. In fact, the Commentary to the UN Model Convention lays down clear guidance in respect of the meaning of the term 'managerial services' which is evident from the following extract: "63. The ordinary meaning of the term "management" involves the application of knowledge, skill or expertise in the control or administration of the conduct of a commercial enterprise or organization. Thus, if the management of all or a significant part of an enterprise is contracted out to persons other than the directors, officers or employees of the enterprise, payments made by the enterprise for those management services would be fees for technical services within the meaning of paragraph 3. Similarly, payments made to a consultant for advice related to the management of an enterprise (or of the business of an enterprise) would be fees for technical services. " 12. The Hon'ble Jurisdictional High C....
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....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 In Re: Intertek Testing Services India Private Limited, [2008] 307 ITR 418, wherein it was elucidated:- "First, about the connotation of the term "managerial". The adjective "managerial" relates to manager or management. Manager is a person who manages an industry or business or who deals with administration or a person who organizes other people‟s activity [New Shorter Oxford Dictionary]. As pointed out by the Supreme Court in R. Dalmia v. CIT [1977] 106 ITR 895, "management" includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering the business." 15. The services rendered, the procurement of export orders, etc. cannot be treated as management services provided by the non- resident to the respondent-assessee. The non-resident was not acting....
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....ns and acts, only when there was a written and signed authorization issued by the respondent-assessee in favour of the non-resident. Thus, the respondent-assessee dictated and directed the non-resident. 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-assessee received in terms of the purchase contract or order, in addition to a pre-determined guarantee consideration. Again, an indication contra to the contention that the non-resident was providing management service to the respondent-assessee. 17. The Revenue, which is the appellant before us, has not placed copy of the agreement to contend that the aforesaid clauses do not represent the true nature of the transaction. The Assessing Officer in his order had not bothered to refer and to examine the relevant clauses, which certainly was not the right way to deal with the issue and question. 18. It would be incongruous to hold that the non-resident was providing technical services. To quote from Skycell Communications Ltd. and Anr. Vs. D....
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....r 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 entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant." The AAR in the case of In Re: P.No. 28 of 1999, reported as [1999] 242 ITR 208 had observed:- "By technical services, we mean in this context services requiring expertise in technology. By consultancy services, we mean in this context advisory services. The category of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it." ....
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....arkets, 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 services 39. For the Group, services are of technical nature when special skills or knowledge related to a technical field are required for the provision of such services. Whilst techniques related to applied science or craftsmanship would generally correspond to such special skills or knowledge, the provision of knowledge acquired in fields such as arts or human sciences would not. As an illustration, whilst the provisions of engineering services would be of a technical nature, the services of a psychologist would not. 40. The fact that technology is used in providing a service is not indicative of whether the service is of a technical nature. Similarly, the delivery of a service via technological means does not make the service tech....
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....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 to 42 above are also relevant for the purposes of distinguishing managerial services from the service of making data and software (even if related to management), or functionality of that data or software, available for a fee. The fact that this data and software could be used by the customer in performing management functions or that the development of the necessary data and software, and the management of the business of providing it to customers, might itself require substantial management expertise is irrelevant as the service provided to the client is neither managing the client‟s business, managing the supplier‟s business nor developing that data and software (which may well be done by someone other than the suppl....
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....g the business. Seemingly, some services can be classified either under managerial or some other head. In such a situation, the test to be applied is whether they are predominantly managerial in nature. Whatever services are enumerated under the head "Administrative management" cannot automatically be brought within the purview of the managerial services. In fact, many of them may not appropriately fall under managerial services. To give some examples, the maintenance of trade marks register and arranging renewals, preparation and distribution of brochures and other promotional material, maintenance of central claims register or providing professional tax advice, are not predominantly managerial services. Yet, they were included under the head "Administrative management". To give few instances of managerial services, we may make mention of coordination of public relations issues and audit services and advice on global income-tax policies. Arrangement and coordination of global insurance can perhaps fall under this category, though in the absence of details, we do not want to express firm view. Another point we would like to clarify is that from the nomenclature used in the invoice ....
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....y it from the payee of the fee i.e. ITM, UK has given scope for this argument. The argument is evidently based on certain assumptions. It is not proper to proceed on the assumption that the ITM, UK is incapable of rendering any technical or consultancy services and that its role is merely that of a conduit, in the absence of definite material leading to such inference. The omission on the part of the applicant in furnishing the details of actual services cannot be stretched too far. On the basis of the facts appearing on the record, it is not possible to arrive at a finding in this proceeding that the beneficial owner of fee is someone else. 17. In view of the foregoing discussion, the first question defies a precise answer-either in the affirmative or negative. Many of the services catalogued in the agreement and in the note are technical/consultancy services which do not 'make available' technical knowledge, experience etc. and therefore do not fall within the ambit of cl. (c) of art. 13.4. But, some of them satisfy the test of making available 'technical knowledge' etc. and therefore taxable as FTS under art. 13.4 of Treaty. There are also services which can be categorized as ....
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....the meaning given in Explanation 2 to Sec. 9(1)(vii) of the Act. In the aforementioned case, the assessee had made payments to various overseas services providers belonging to U.K, Poland, Brazil, Canada & Australia for services availed in connection with the shooting of different films. The services rendered by the aforementioned nonresident service providers included arranging for extras, arranging for the security, arranging for locations, arranging for the accommodations for the cast and crew, arranging for necessary permissions from local authorities, arranging for makeup of the stars, arranging for insurance cover etc. The Tribunal after deliberating on the nature of the aforementioned services concluded, that as the same were purely commercial services falling in the category of logistic arrangement services, thus, the consideration received as regards rendering of such services would constitute business profits of the said overseas service providers. It was further observed, that as the said service providers had no Permanent Establishment (P.E) in India during the year under consideration, hence the business profits were not taxable in India in their hands as per Article 7....
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....e deliberated at length on the aforesaid observations of the lower authorities and are unable to persuade ourselves to accept the same. We find that though it is an admitted fact that an "advance rulings‟ having been rendered on the basis of the facts of a particular case, thus, would only be binding on the applicant, and that too in respect of the transactions in relation to which the same was obtained, however, such ruling would still have a persuasive value in respect of other parties as well and accordingly, may be relied upon by the authority itself or by the applicant/department. We find that our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Columbia Sportswear Company Vs. DIT, Bangalore (2012) 346 ITR 161 (SC). We are further of the considered view, that though the lower authorities had declined to take cognizance of the observations of the Hon‟ble AAR on the ground that the "tax treaties‟ involved in the said case were different as against that involved in the present case, however, there is no mention of any such material fact which could persuade us to conclude that the definition of "FTS" in the said respe....
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....ii) defining the "fees for technical services", it needs to be considered in a commercial sense. It cannot be interpreted in a narrow sense to mean simply executing the directions of the other for doing a specific task. For instance, if goods are to be loaded and some worker is instructed to place the goods on a carrier in a particular manner, the act of the worker in placing the goods in the prescribed manner, cannot be described as managing the goods. It is a simple direction given to the worker who has to execute it in the way prescribed. It is quite natural that some sort of application of mind is required in each and every aspect of the work done. As in the above example when the worker will lift the goods, he is expected to be vigilant in picking up the goods moving towards the carrier and then placing them. This act of the worker cannot be described as managing the goods because he simply followed the direction given to him. On the other hand, `managing' encompasses not only the simple execution of a work, but also certain other aspects, such as planning for the way in which the execution is to be done coupled with the overall responsibility in a larger sense. Thus it is man....
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....uct tax at source on the payment of export fee. Once the assessee was not required to deduct the tax at source, it cannot be said that the assessee failed to deduct tax at source so as to apply Section 40(a)(ia)." 21. Similarly, the Hon'ble Madras High Court in the case of Farida Leather Company 238 Taxmann.com 473 has held as under: "11. In the instant case, it is seen, admittedly that the non-resident agents were only procuring orders abroad and following up payments with buyers. No other services are rendered other than the above. Sourcing orders abroad, for which payments have been made directly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the ....