AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2024 (6) TMI 810
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bangalore (hereinafter referred as "AO" for brevity) and the Honourable DRP-2, Bengaluru (hereinafter referred as "DRP" for brevity) ("AO" and DRP collectively referred as "lower authorities" for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO REASSESSMENT 2. The lower authorities have erred in: i. Issuing notice under section 148 and passing the order in the absence of 'reason to believe' as contemplated u/s 147. The Notice u/s 148 issued and the order so passed on mere suspicion, conjecture or surmise without any 'reason to believe' that income has escaped assessment and solely with a view to make further investigation is invalid, bad in law and liable to be quashed; ii. Without there being no 'live link' between the material relied on and the formation of belief that income has escaped assessment, the requirements of 'reason to believe' are not satisfied and consequently the assessment order passed is bad in law and liable to be quashed. ii. Issuing notice under section 148 and making reassessment merely on the basis of assessment conducted in the case of Algonomy Software Pvt Ltd....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned subsidiaries of M/s Algonomy Software Private Limited erstwhile known as M/s. Manthan Software Services Private Limited (herein after referred as 'ASPL' for brevity). The Assessee provides sales and marketing services to ASPL for product/services in the territory of North American, South American, the Caribbean markets and Singapore. For the years under consideration, the learned AO initiated reassessment proceedings u/s 147 of the Act. The AO passed draft assessment orders u/s 144C wherein it is alleged that the sales commission received by the Assessee from ASPL partakes the character of FTS both as per the Act and DTAA. Accordingly, the ld. AO taxed sales commission received as FTS and levied tax as per section 115A r/w DTAA (Article 12). The year wise details of additions made in the draft assessment order has been tabulated below: Assessee Assessment year Sales commission in Rs. MSI 2013-14 6,17,46,103 2014-15 10,37,07,948 2015-16 9,67,65,647 2016-17 35,79,87,595 MSPL 2016-17 1,10,39,572 2.1 The Assessee filed objections before DRP. The ld. DRP rejected the Objections of the Assessee. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices (Para 6.7 of the order). Finally at Para 10.2, it is concluded that services are technical in nature. The DRP has confirmed the finding of AO (Page 4 of the DRP order). The DRP has also observed that services of assessee assist MSSPL in making managerial/business decision. In the instant case, the assessee acted as intermediary and facilitates sale of software products/services outside India. On perusal of copy of sale and marketing agreement dated 11.02.2009 entered between the assessee and MSSPL, it is seen that the assessee rendered the following services. * Promoting the software product/services on behalf of the Appellant; * Co-Ordination between the customers in North American, South American and Caribbean market and MSSPL; * Following up with the customers in North American, South American and Caribbean market for collection of amount. 10. In the instant case, the assessee is not providing any technical, managerial or consultancy services rather has been engaged to act as authorized business partner to market and promote the products or services of MSSPL outside India In fact, the AO/DRP have not even concluded as to what is the natur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that allow him to do so. In the present case, the aforesaid requisites and required necessities are not satisfied. Indeed, technical, managerial and consultancy services may overlap and it would not be proper to view them in watertight compartments, but in the present case this issue or differentiation is again not relevant." 11. The Hon'ble Supreme Court in the case of CIT v Toshoku Ltd (1980) 125 ITR 525 (SC) held that the sales commission paid to the commission agents outside India was not taxable in India. The Apex Court observed that the sales commission earned by the non-resident agents cannot be deemed to accrue or arise in India. 12. The Hon'ble Madras High Court in the case of CIT vs Faizan Shoes (P.) Ltd (2014) 48 taxmann.com 48 (Madras) had held that Assessee was not liable to deduct tax at source when non-resident agent provides services outside India on payment of commission. 13. In the case of Exotic Fruits (P.) Ltd reported in (2013) 40 taxmann.com 348 (Ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * CIT v Orient Express (2015) 56 taxmann.com 331 (Madras); * Divya Creation v ACIT (2017) 86 taxmann.com 276 (DelhiTrib.); and * Khimji Visram & Sons v ACIT (2014) 52 taxmann.com 485 (Mumbai- Trib.). 16. In light of the above judicial pronouncements, the income received towards sales commission does not satisfy the definition of "FTS" under the Act as it is not in the nature of Managerial, Technical or Consultancy Services. 17. The AO has relied on the judgment of Hon'ble Supreme Court in case of GVK Industries Ltd vs ITO (2015) 54 taxmann.com 347 (SC) where in it was held that services provided by Switzerland based company for raising required finance from international organisations on most competitive terms, payment made to swiss company for rendering such consultancy services amounted to 'fee for technical service' liable to tax in India. The above judgment of Hon'ble Apex Court is not applicable to facts of the present case. In the above judgment Hon'ble Supreme Court observed that the non-resident entity provided various services like advising the assessee on various aspects like financial structure, and security package to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....les and marketing services provide by the assessee is not covered under sub clause (a) to Article 12(4) of India-USA DTAA as it is not ancillary to application or enjoyment of any right. Further, clause (b) to Article 12(4) of India-USA DTAA is only applicable if the services are in the nature of technical or consultancy services, which make available knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. The sales and marketing services rendered by assessee is not in the nature of technical or consultancy services. The AO has submitted that services are in the nature of project management of services and the same has been confirmed by the DRP. The project management services does not constitute technical or consultancy services and therefore are outside the ambit of "FIS" as defined in India-USA DTAA. Even if it is assumed without admitting that marketing services is technical or consultancy in nature, it did not make available any technical knowledge, experience, know-how, process to MSSPL. The term "make available" under the treaty law postulates a concept wherein the recipient of the services is n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ices. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dgment of Delhi High Court in the case of DIT v. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Del.) 23. The Kolkata Tribunal decision in the case of On process Technology India (P.) Ltd v DCIT (2018) 96 taxmann.com 428 (Kolkata-Trib.) is squarely applicable to the facts of the present case. In the aforesaid case, the Tribunal rendered decision in the context of India-USA DTAA. The Tribunal held that the act of securing orders and soliciting business by the foreign marketing companies does not make available any technical knowledge or technical service and the same is not taxable either u/s 9(l)(vii) or under India-USA DTAA. Reliance is also placed on the decision of Delhi Tribunal in the case Rajinder Kumar Aggarwal (HUF) vs DCIT [2021] 131 taxmann.com 252 (Delhi-Trib.) 24. The AO has stated that marketing services rendered by the assessee are technical in nature and which are used by MSSPL for development of business, which results in enduring benefit. Accordingly, the A.O. has concluded that make available is satisfied as there is transfer of skill and knowledge which falls within the ambit of technical services. The DRP has also confirmed the view of the A.O. T....