TaxTMI 
TaxTMI 
2023 (10) TMI 1015
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....s and pistons for two wheelers and four wheelers since inception. During the relevant years the assessee had debited in P & L account certain amounts on account of foreign commission although the assessee has treated the aforesaid payments as foreign commission / export commission, however Ld. AO found that services rendered by these parties are not merely for the sale of products of the assessee company but for prospecting, marketing & providing comprehensive and integrated services. Thus, soliciting of business is only a part of it. As the aforesaid would fall within the purview of section 9(l)(vii). "fee for technical services which would be liable to be taxable in India as income deemed to have accrued/arisen in India. Accordingly Ld. AO had made the disallowance considering services to be a FTS and that assessee was liable to deduct tax u/s 195 which it has failed to do so therefore, disallowance u/s 40(a)(i) of the Act was made. 2.1 During A.Y. 2015-16, Ld. AO also made an addition of interest of section u/s 234A. 3. Ld. CIT(A) had sustained the additions for which the assessee is in appeal challenging the additions u/s 40(a)(i)(B) of the Act in both the AYs and the lev....
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....ion and development of business which would give enduring benefit to the assessee. The aforesaid is discernible from the following points of the agreement: Salient point of agreement with M/s. Asian Manufacturing LLC * As per the agreement, Asian Manufacturing LLC (AM) has knowledge and understanding of the automotive component manufacturing industry and marketing for such industry in the United States and North America. * As per para 1.6 of this agreement, AM agrees to use its best efforts to promote and market the products and solicit purchase orders from customers located in the territory for delivery of products in the Territory. * Further as per para 3 - AM shall be responsible to do the following with respect to the customers listed (a) Study the market for the Products in the Territory. (b) Appraise the potential of the market for the Product; (c) Procure RFQ's from the prospective customers; and (d) assist SBA in i) making presentations to the potential customers; ii) establishing pricing and other commercial negotiations for finalization of the order; iii) providing sales and....
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....eived by it from M/s. Sunbeam Auto Pvt. Ltd. 3. As per Article 12(4) of the India USA DTAA, the term FIS (Fee for Included Services) means payments of any kind to any person in consideration for the rendering of any technical or consultancy services. It is apparent that M/s. Asian Manufacturing LLC (AM) is providing the assessee comprehensive consultancy services related to business development and marketing and not merely soliciting of sales orders. The only objection of the assessee is, therefore, that the technical or consultancy service provided by M/s. Asian Manufacturing LLC (AM) does not satisfy the "Make Available" Clause of Article 12(4) of the DTAA between India and USA. It may be seen that as per the agreement M/s. AM is assisting and advising on commercial sales and contract development as well as in preparation of business proposals and bid documents to be submitted to the customers. Therefore, it is but natural that while receiving the above stated well paid for business services, the recipient of such service which is the assessee is automatically put on a learning curve. As can be seen that as per the agreement, M/s. AM is mandated to assist and ad....
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....s agent. * The paragraph on 'appointment and acceptance' specifies that M/s ETCS agrees to sell and promote the sale of the products of the principle. * The paragraph on agreement, describing the relationship of the party specifies the following. It is intended that the Marketing Representative shall be an impendent contractor and not exclusively devoted to the sales of Principal's product (s) or an agent or employment of this Principal. The Marketing Representative would not be representing any other company manufacturing Aluminum Die Casted Components to the company's listed in schedule a without taking the consent of the principal. Marketing Representative shall have no authority to act by or on behalf of the Principal nor shall the Marketing Representative be authorized to bind the Principal in any manner whatsoever. All knowledge and information that the Marketing Representative may acquire during the manufacturing and sales practices of the Principal, its operation and procedures shall be deemed to be proprietary and confidence to the Principle and Marketing Representative agrees to retain in confidence unless otherwise publicly available. ....
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....ing the software at the client's site. It requires on-site monitoring, especially when the customized software is developed. Hence, it cannot be equated with the commodities, where the role of a commission agent normally ends after supply of goods and receipts of money. In the present case, the commission agent has vast technical knowledge and experience. Further, he is also one of the directors of the taxpayer. He is able to secure orders only because of his vast technical knowledge and experience. As per the clause of the agreement, the commission agent is responsible in securing orders and for that purpose he has to assist the taxpayer in all respects including identifying markets, making introductory contacts, arranging meeting with prospective clients, assisting in preparation of presentations for target clients. The commission agent's duty does not end on securing the orders, but he has to monitor the status and progress of the project, meaning thereby, the commission agent is responsible for ensuring supply of the software and also for receiving the payments. All these activities could be carried on only by a person who has vast technical knowledge....
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....ct. He then referred to Article 12(4) of the India-US DTAA and relied upon the decision of Mumbai Bench of the Tribunal in Mckinsay and Co. Vs. ADIT 284 ITR (AT) 227. 11.5 The Ld. AR further submitted that the Hon'ble Delhi High Court has also considered the scope of the expression 'make available' in Article 13(4)(c) of the DTAA with UK in DIT v. Guy Carpenter & Co. Ltd. (2012) 346 ITR 504 (Delhi). The Ld. AR also placed reliance on the decision of Hon'ble Madras High Court in CIT vs. Orient Express (2015) 56 Taxmann. Com 331(Mad) and DCIT vs. McFills Enterprise (P) Ltd. (2019) 101 taxmann.Com 212 (Ahmedabad-Trib) 11.6 According to the Ld. AR services rendered outside India are not taxable under the India-USA DTAA. He pointed out that there is no dispute that the non-resident sales agents rendered service outside India. He submitted that in Ishikawajma- Harima Heavy Industries Ltd. vs. DIT (2007) 288 ITR 408 (SC), the Hon'ble Supreme Court held that whatever was payable by a resident to a non-resident by way of technical fees would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basi....
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....ding AYs. The modus operandi was also explained. The assessee receives the orders from parties through agents electronically and the goods are dispatched directly to the party with a copy invoice to agents. The role of the agent is for procuring orders/RFQ and getting the payment released from party. When the goods are exported and the payments are released by the party, the agents raise invoice in respect of commission giving complete details of sale invoice, the amount received and its commission. 12.1 It was also submitted before the Ld. AO/CIT(A) that no information in the nature of technical, management or consultancy services had been provided by any of the agent. The assessee had no PE in USA. Both the agents are tax residents of USA and had no business connection in India nor they have any PE in India. None of the agents is related to any of the Director of the company directly or indirectly. All the payments have been made in US$ through proper banking channels. 12.2 We have perused the agreement dated 31.08.2004 between the assessee (SBA) and Asian Manufacturing LLC USA (AM) at page 152-162 of Paper Book as also the agreement dated 01.06.2004 between the....
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....ies to any customer on behalf of SBA or to enter into any agreement of any kind on behalf of SBA. 2. Independent Contractor Status 2.1 SBA shall exercise no control over the activities and operations of AM, each being recognized hereunder as an independent contractor and free agent. 2.2 As AM is an independent contractor, it is not liable in any form or relations to any claim the customer may have towards SBA, including claims that may result from non-performance of timely delivery and quality problems. 3.0 AM shall be responsible to do the following with respect to the customers listed in Annexure C: a) study the market for the Products in the Territory; b) appraise the potential of the market for the Product, c) procure RFQ's from the prospective customers; and d) assist SBA in: i) making presentations to the potential customers; ii) establishing pricing and other commercial negotiations for finalization of the orders: iii) providing sales and after sales service to the customer on behalf of SBA; and iv) any other commercial or non commercial negotiation or any such matter ....
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....due confidentiality at all times and shall not disclose any Confidential Information to any person or entity or earlier discharge or termination thereof except that AM may disclose such information as it is required to disclose by law or judicial process or, as may be required for enforcement of this agreement. Similarly, SBA shall also observe the same level of prudence and care in exercising and maintaining secrecy of the confidential information/trade secrets of AM. SBA also agrees to observe the same level of prudence and care in exercising and maintaining secrecy of the confidential information/trade secrets of AM. This clause shall survive the termination of this Agreement. 10.2 AM, Solanki and SBA shall each undertake all necessary action to protect the Confidential Information against misuse, loss, destruction, alteration or deletion from their respective premises. This clause shall survive the termination of this Agreement" 12.3 The relevant portion of agreement between SBA (Principals) and ETCS LLC (Marketing Representative) are hereunder: "Appointment and Acceptance Principals hereby appoint and authorize Marketing Representative the r....
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....3. After going through the agreement entered into by the assesee with AM and ETCS we are not inclined to agree with the view of the Ld. AO/CIT(A). As per the Explanation 2 to section 9(1)(vii) 'fees for technical services' means any consideration for the rendering of any managerial, technical or consultancy services. Article 12(4) of DTAA between India and USA also defines 'fees for included services' to mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge/experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. None of the ingredient contained in the definition of "Fees for technical services" as per Explanation 2 to section 9(1)(vii) and/or in Article 12(4) of the IndiaUSA DTAA is found in the impugned payment of commission by the assessee to AM and ETCS. I....
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.... In Panolfa Autoelektrik Ltd. (supra) the AY 2010-11 was involved. The Ld. AO held that the commission payment to the non-resident company on procuring orders was taxable as 'fees for technical service' under sub-clause (b) to section 9(1)(vii), and thus assessee was liable to deduct tax at source while making said payments. On appeal, the Ld. CIT(A) reversed the aforesaid finding holding that the commission payment was not in the nature of 'fees for technical service' ITAT confirmed the order of the Ld. CIT(A). On appeal by the Revenue the Hon'ble High Court of Delhi held that commission paid by the assessee to its foreign agent for arranging of export sales and recovery of payment could not regarded as fees for technical services under section 9(1)(vii) of the Act. The decision (supra) squarely applies to the facts of the assessee's case. 15. As to the reference by the Ld. AO to the Explanation to section 9(2) as substituted by the Finance Act, 2010 w.r.e from 01.06.1976, the Hon'ble Delhi High Court in Nokia Network OY (supra) has held that unilateral amendment of the domestic statute cannot be read into the Treaty with another sovereign state. Moreover it is now well s....