TaxTMI 
TaxTMI 
2024 (7) TMI 1478
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....uthorities" for brevity) are bad in law and liable to be quashed. 2. Issuing notice under section 148 and passing the assessment order in the absence of 'reason to believe' as contemplated u/s 147. The notice u/s 148 issued and 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. 3. Without prejudice, 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. 4. The lower authorities have erred in passing the assessment order under section 147 read with section 144C without disposing off the appellant's objections to reasons stated for reopening recorded by passing a speaking order as contemplated by the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 1TR 19. The final assessment order passed in viol....
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....son purchasing the service, within the meaning of paragraph 4(b). Similarly, theme of a product which embodies technology shall not per se be considered to make the technology available." 10. That making available service does not make available knowledge, experience, skill, etc. The Appellant has to approach the subsidiary company every time to get new customers and maintain relationship with existing customers. The test of 'make available' as envisaged in the DTAA is therefore, not satisfied. 11. The lower authorities have erred in levying interest of Rs. 2,15,11,688/- u/s 234A and Rs. 2,96,63,485/- u/s 234B. On facts and circumstances of the case, interest under section 234A and 234B of the Act is not leviable. The appellant denies its liability to pay interest under section 234A and 234B of the Act. The appellant submits that each of the above grounds / sub grounds are independent and without prejudice to one another. 3. Ground No.1 is general in nature, which does not require any adjudication. 4. Ground Nos.2 to 4 are with regard to reopening of assessment, which were not pressed before us. Accordingly, these grounds are dismissed as not pressed....
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....ndia would not fall in the category of "Fees For Technical Services". 6.2 The ld. DRP confirmed the draft orders for these assessment years and thereafter the ld. AO passed the final assessment order. Against this assessee is in appeal before us. 6.3 The ld. A.R. submitted that the Assessee procures local sales orders for STEER products to be executed by the AE, and receives payments thereto from the customers which are further transmitted fully to AE. With respect to overseas sales commission, i.e., the receipts from Steer India towards Commission on Sales according to assessee it will not partake the nature of Fees for Services (FTS) under the act as it is neither managerial, consultancy nor services. Steer USA has not made available any knowledge, experience, know-how to its holding company Steer India. Steer USA is remunerated for rendering marketing and support services in the form of sales commission. 6.4 Further, the sales commission was computed based on the cost incurred by Steer USA along with Mark Up of 10% on total costs. Steer USA does not have any personnel except one or two individuals who were employed to demonstrate and explain the products / services to t....
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....nts Bangladesh Ltd Bangladesh Extruder Machinery Bangalore, Coimbatore _India 11 Jai Corp Limited India Machinery and its Parts Bangalore, Coimbatore _India 12 Namco Corporation Ltd. India Extruder Machinery Bangalore, Coimbatore _India 13 Dr. Reddy'S Laboratories Ltd India Extruder Machinery Bangalore, Coimbatore _India 14 Polyone Polymers (I) Pvt. Ltd India Machinery and its Parts Bangalore, Coimbatore _India 15 Agroha Colourtec Pvt Ltd India Machinery and its Parts Bangalore, Coimbatore _India 7.3 He submitted the list of few Patents Held by SEPL India, Bangalore are as stated below : S.No Patent /Publication Number Patent Description 1 11752681 Method For Producing Fused Unplasticised Polyvinyl Chloride Articles 2 11312041 Extruder Mixing Element 3 10239233 Element For A Co-Rotating Twin Screw Processor 4 10207423 Extruder Mixing Element For A Co-Rotating Twin Screw Extruder 5 8827538 Barrel Cooling And Heating System For Screw Extruder 6 8690473 Stress Concentration Free Spline Profile 7....
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....ent of Hon'ble Madras High Court in the case of CIT vs Faizan Shoes (P.) Ltd (2014) 48 taxmann.com 48 (Madras) iii. Decision of Bangalore Bench of Tribunal in the case of Exotic Fruits (P.) Ltd reported in (2013) 10 taxmann.com 348 (Bangalore- Trib.). iv. Decision of Bangalore Bench of Tribunal in the case of iRunway India (P) Ltd vs DCIT (2022) 138 taxmann.com 188 (Bangalore- Trib.) v. Decision of Bangalore Bench of Tribunal in the case of Deccan Creations (P.) Ltd vs DCIT (2022) 134 taxmann.com 144 (Bangalore-Trib.) vi. M/s. Ad2Pro Media Solutions P. Ltd. in ITA Nos.490 to 503/Bang/2019 dated 20.3.2020. 7.6 He submitted that the following judicial pronouncements have also taken an identical view:- * PCIT vs Puma Sports India (P.) Ltd (2021) 127 taxmann.com 169 (Karnataka} SLP dismissed by Supreme Court - (2022) 134 taxmann.com 60 (SC); * Bengal Tea & Fabrics Ltd.. v DCIT (2018) 91 taxmann.com 38 (Kolkata - Trib.); * DCIT v Divi's Laboratories Ltd (2011) 12 taxmann.com 103 (Hyd.); * CIT vs. Model Exims, (2014) 42 taxmann.com 446 (ALL) * Brakes India Ltd. v DCIT (2013) 33 taxmann.com 501 (Ch....
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....ed as technical service, it would be necessary that a technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. 8.3 She submitted that the assessee provides marketing services for highly engineered machinery from Inquiry to sales of the manufactured goods. To describe the parts and functionality of the machinery technical knowledge is required. Therefore, she submitted that the assessee is rendering consultancy services with the special expertise prospective buyers of the Indian company. Further in the preceding paragraphs we dealt with how the marketing services provided by the assessee to its AE is managerial and consultancy in nature and therefore falls within the ambit of fees for technical services. 8.4 She further submitted that, it is a clear case of using the market research and expertise of the foreign com any in India for expanding their products reach in global market through the assessee. The market, analysis, knowledge supplied by the assessee remains with the assessee forever and it could be even used in future for the business of the assessee in the form o....
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....ion Yes Yes 3 Quotation Support Yes 4 Negotiation Yes Yes 5 Customer Order No Yes 6 Manufacture and Inspection Yes No 7 Documentation and Collection Limited Yes 8 Post Contract Review Yes No 9 Technical Service after Sales Yes No 9.4 The contention of the ld. A.R. is that assessee rendered services through marketing officer at United States of America as follows: "(a) Inquiry: Inquiry involves identifying the potential customer and generating leads for Steer India's products. It also involves replying to preliminary inquiry from customers. Steer America perform this function. (b) Evaluation Steer America and SEPL discuss and understand the specific requirements of the customer and do the evaluation. The evaluation would include kind of material to be used, quality standards etc. Steer America perform this fimction with support of Steer India. (c) Quotation Based on the study of customer's requirement, Steer America tender the quotation to the customer. Steer America evaluate the customer's requirement and determine the price ....
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....Review Steer India follows up with the customers to ascertain whether the equipment's md related parts have been delivered as per agreed terms and conditions. (i) After Sales Technical Service This function involves providing after sales support, follow up with the customers to get feedback on the issues faced in operation of the machines and redressal of issues faced. SEPL India interacts with customers providing such Post Sales support." 9.5 As seen from the above, from the above functionaries executed by Steer America one can notice that other than getting potential customers connect and generating sales orders no other activity is performed by Steer America. All the technical activity is carried out by SEPL India including post-sales support, trouble shooting, replacement, warranties, technical writeups and training of the users. Dedicated technical team from SEPL India travels to customers location to train resources, trouble shoot, make technical evaluation and feasibility, address customer requirements and concerns, understand requirement, to provide solution. As all the Tech team is based out of Bangalore and are in India including Dr Babu ....
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....f services may have to be undertaken in appropriate proceedings. 9.7 The above AAR is not applicable in the present case as the activities carried out 'Intertek Group' vis-å-vis 'Steer America Inc' are completely different for as charted in the below and cannot be considered in nature of technical, managerial or consultancy in nature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA. 9.8 Contrary to this, ld. AO relied on the ruling of Advance Ruling in the case of Intertek Testing Services India (P) Ltd. cited (supra) and the comparison statement between Intertek Vs. Steer America Inc is as follows: 9.9 Further, the Assessing Officer has relied on the ITAT MUMBAI BENCH 'L' Ashapura Minichem Ltd. [2010] 40 SOT 220 (MUM.) where in it was held that an Indian resident company, entered into an agreement with a China based company - Under said agreement, assessee, which was in process of building alumina refinery, was to pay US Dollars one million in consideration of bauxite testing services by Chinese company and Test reports of bauxite samples were to cover complete chemical composition of bauxite....
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....ers rest of the activity is predominantly taken care by SEPL India as evident from the services and functions listed supra. 9.15 The Learned Assessing Officer in the impugned order under surmise and conjectures have made out list of reasons to treat overseas sales commission as Fee for Technical Services, without appreciating the fact that Assessee Steer America Inc, does not render services resulting in provision 'Fee for Technical Services' (FTS) or Make available Technical Knowledge to Steer India. 9.16 Further, Hon'ble Karnataka High Court in the case of CIT Vs. Ad2Pro Media Solutions Pvt. Ltd. 455 ITR 648 (Karn) held as under: "The assessee has made payments to the US Company which does not have any permanent establishment in India. [Para 8] The revenue's case is payments made to the US Company for marketing services take the character of FTS and chargeable to tax in India. [Para 9] Thus, according to the revenue the royalties and fees for included services may also be taxed in the Contracting State. [Para 10] The Assessing Officer's view is that assessee utilizes the services of the US Company even in the negotiations ....
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....he case of Exotic Fruits (P.) Ltd reported in (2013) 10 taxmann.com 348 (Bangalore- Trib.), the Bangalore Bench of the Tribunal held that payment made to the non-resident agents does not fall within the meaning of managerial services as mentioned under section 9(1)(vii) Act and not required to deduct TDS under section 195. Further, it has been held that in the absence of permanent establishment(s) of such agents in India, the export commission income of the agents was not liable to be taxed in India and thus, the assessee was not obliged to effect any deduction of tax on the commission payments made to the agents who were positioned overseas. 9.21 Further, the Bangalore Bench of Tribunal in the case of iRunway India (P) Ltd vs DCIT (2022) 138 taxmann.com 188 (Bangalore-Trib.) had held that where assessee has obtained certain sales consulting services from USA and commission is based on fixed percentage of sales, then merely because the service provider is technically qualified, sales commission paid for enabling sale could not become payment for rendering technical services and therefore, TDS is not applicable. 9.22 Similarly, the Bangalore Bench of Tribunal in the case of De....
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....CIT [2016] 159 ITD 924 (Kolkata ITAT) held that Simple marketing services rendered by foreign subsidiary in form of introducing foreign institutional investors to invest in capital markets in India and no technical service was being made available, payments made to subsidiaries would not fall within definition of 'fees for technical services'. 9.26 The Delhi Bench of Tribunal in the case of Bombardier Transportation Sweden AB v. Deputy Commissioner of Income Tax, Circle 1(1)(2), New Delhi, Assessment year 2011-12 reported in [2021] 125 taxmann.com 277 (Delhi - Trib.), held that - During year under consideration, assessee, a Swedish company, rendered intermediary services like marketing, sales, business development, project management, customer services, etc., to its Indian AE [BTIN] and received fees therefore Assessing Officer held that revenue earned by assessee from intermediary services rendered to BTIN was taxable in India as fee for technical services. Payment of consideration would be regarded as 'fee for technical/included services' only if twin test of rendering services and making technical knowledge available at same time is satisfied. Since intermedia....
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....ts of the analysis) cannot be regarded as "FTS" as defined in Article 12 of the India-Singapore DTAA, since no element of "technology" is contained in the said "consultancy" services. 9.29 The Bangalore Bench of Tribunal in the case of ABB Inc. v. Deputy Director of Income-tax-International Taxation, Circle-1(1), Bangalore reported in [2015] 59 taxmann.com 159 (Bangalore - Trib.), in Assessment year 2009-10 held that Assessee, an American company, earned certain fees for providing business development and market support services to its AEs in India - Since services provided by assessee did not involve enabling recipient of services to utilize knowledge or know how on his own in future without aid of service provider, 'make available' clause was not satisfied and, accordingly, consideration for such services could not be taxed under article 12(4)(b) of India US tax Treaty 9.30 The Mumbai Bench of Tribunal in the case of ITO v. Skill Infrastructure Ltd. [2015] 62 taxmann.com 33 (Mumbai - Trib.) held that an Indian company had merely availed services of U.K. Company for global market survey to determine business prospects to carry out project in India were neither geared....
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....2018-19 and 2019-20 wherein held that Assessee, a tax resident of Singapore, was engaged in business of rendering management consultancy and other related services to hotels. It had entered into three separate agreements with third party Indian hotels and earned revenue towards management fee and license fee. During assessment proceedings, Assessing Officer noticed that assessee also had receipts from Indian hotels on account of marketing and reservation receipts and reimbursement receipts. He was of view that said receipts were for services ancillary and subsidiary to trade mark license agreement for use of trade mark and brand name, which was in nature of royalty and would fall within ambit of FTS under article 12(4)(a) of India-Singapore DTAA Therefore, he brought entire receipts to tax by treating it as FTS. However, it was found that marketing and reservation activities performed by assessee were not only distinct and different from license fee but they were done under two distinct and separate agreements and could not be treated to be ancillary and subsidiary to license fee. Hence, such fee would not fall under article 12(4)(a) of treaty. Similarly, nature of services rendere....
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....ices provided by assessee were neither in nature of technical or consultancy services under article 12(4) and even make available condition provided under article 12(4)(b) was not satisfied. Thus, consideration received by assessee could not be treated as FIS under article 12(4)(b) and, consequently, impugned addition made by Assessing Officer was to be deleted. 9.36 In the case of "On process Technology India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-2 (2), Kolkata reported in [2018] 96 taxmann.com 428 (Kolkata - Trib.)", (MAY 24, 2018) for the Assessment year 2012-13 wherein held that assessee-company was engaged in business of providing of BPO services and real estate. To secure orders and solicit business from foreign customers, assessee engaged services of foreign marketing companies to whom market support fees was paid. Assessing Officer held that since orders were executed in India, income accrued to payees in India and in terms of sections 9(1)(i) and 5(2)(b), same was chargeable to tax in India. It was noted that nature of services performed by foreign companies did not involve rendering or providing or making available to assessee any technical service or ....
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....lving software and digital technology. Assessee entered into a marketing agreement with its holding company. As per agreement, assessee was responsible for carrying out marketing functions like executing and implementing marketing strategy and providing support in identifying customers, understanding their requirements and liaise between customers and company. In consideration for marketing services provided, assessee received sales commission. Assessing Officer held that nature of services were 'fee for included services' instead of 'sales commission' as claimed by assessee. It was noted that role of assessee was not limited to identification of prospective / new customers in USA and once customer was onboard, assessee interacted with customer on a regular basis to understand customer requirements. Since nature of work executed on activities carried out could not be equated with 'fee for included services' as mentioned in article 12(4) of DTAA, hence, it could not be taxed in India. It was to be considered as sales commission only. 9.40 In the case of Manthan System Inc, Bangalore vs Assistant Commissioner of Income Tax, on 20 May, 2024, ITA No.394 to 39....
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....ld not be regarded as fee for technical services under section 9(1)(vii) Circulars and Notifications : Circular No. 23, dated 23-7- 1969 and Circular No. 7, dated 22-10-2009 9.44 In the case of CIT v. Farida Leather Company [2016] 287 CTR 565 (Madras HC) wherein held that Agency commission/sales commission paid to non-resident agents, for services rendered outside India, in procuring export orders would not partake character of 'fees for technical services' 9.45 In the case of DCIT v. Welspun Corporation Ltd. [2017] 183 TTJ 697 (Ahd. ITAT) wherein it was observed and held that Assessee paid commission to non-resident export commission agents for highly technical products. It was held that just because a product is highly technical does not change the character of activity of the sale agent. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical skills, is only towards the end of selling. Payment to non-resident commission agents was for securing orders and not for rendering any managerial, technical or consultancy services per se. The commission paid to non-resident export commission agents is not tax....
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....c experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, "fees for included services" means 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. 5. Notwithstanding paragraph 4, "fees for included services" does....
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....tem Negotiation of discounts/best service levels in procurement policies in particular IT hardware and services and - Information Technology Services: centralised services to the Group, managing and centralizing e-mail, video conferencing, developing system design and networks and updating desktop and internet standard - management of the global internet site Marketing Services: - preparation and distribution of brochures, other promotional material including corporate website and divisional/regional sub- Co., 18 Steer America Inc 文 2 ✓ X 2 2 5.1 ☑ sites 5.2 Divisional specific marketing services ✓ 5.3 Exploring Market for Steer India Products ✓ 5.4 Identifying the Potential Customers ☑ ✓ 5.5 To understand the customer requirements with respect to STEER India products ✓ 5.6 Submission of Price Estimate based on Listing Prices/ Standard ✓ Prices 5.7 囡 ✓ Price Negotiation as per the Terms and conditions 5.8 Placement of Back to Back orders received from its customers to India ....