TaxTMI 
TaxTMI 
2022 (8) TMI 1297
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....IT(A) by changing the color of income, which 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 asses....
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....in rendition of managerial services to SIPL and, therefore, the commission 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 b....
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....n 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 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 proc....
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.... 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 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 ce....
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....ds:- "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 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 techni....
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.... on mutually agreeable dates and providing advice and counseling, 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 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 ....
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....tabase 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 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 softw....
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....Authority for Advance Rulings in Intertek Testing Services India [P] Ltd 307 ITR 418 has observed as under: "As pointed out by the Supreme Court in R. Dalmia vs. CIT 1977 CTR (SC) 130 : (1977) 106 ITR 895 (SC), 'management' includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering 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 o....
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....charged to various other entities, while retaining at the most, the mark-up charge of 7.5 per cent In the absence of the applicant furnishing any details of services actually rendered by ITM, UK, it is submitted that a conclusion cannot be drawn that the UK company is the real beneficial owner. It appears that the omission on the part of the applicant in spelling out the details of the actual services received by 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. Man....
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....d at by the ITAT, Mumbai, in the case of Yashraj Film Pvt. Ltd. Vs. ITO (IT) (2012) 231 ITR (T) 125 (Mum.). On a perusal of the facts involved in the aforementioned case, it emerges that the Tribunal had observed that as the services rendered by the nonresident service providers for making logistic arrangements were in the nature of commercial services, thus, the same cannot be treated as managerial, technical or consultancy services within 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 comme....
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....y on the aforesaid rulings of the AAR, for the reasons viz. (i). that as per Sec. 245S, the advance ruling is pronounced on the basis of facts of a particular case and hence, it is binding on only the applicant in respect of the transactions in relation to which advance ruling was sought; and (ii). that the ruling was rendered by the Hon‟ble AAR in context of different DTAA‟s, as against that involved in the case of the assessee. We have 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, B....
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....n from the other for executing particular job in a particular manner, it cannot be said that the former is managing that affair. It would mean that the directions of the latter are executed simplicity without there being any planning part involved in the execution and also the evaluation of the performance. In the absence of any ITA No.2426/Mum/2010 M/s.UPS SCS (Asia) Limited. 6 specific definition of the phrase "managerial services" as used in section 9(1)(vii) 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 ....
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....ntext, the Court concurs with the following findings of the ITAT: "Therefore, by export agreement, the assessee has not been transferred or permitted to use any patent, invention, model, design or secret formula. Similarly, HMCL, by way of export agreement, has not rendered any managerial, technical or consultancy services . In view of the above, we hold that export commission was neither royalty nor fee for technical services and, therefore, the assessee was not required to deduct 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 i....