TaxTMI 
TaxTMI 
2026 (6) TMI 1140
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....red in law & on facts in treating receipt from M/s Sajjan India Ltd. of Rs. 98,87,500/- as FTS without appreciating the fact that the remittance was for market support services provided by a resident of Germany who has offered to tax in Germany and no income accrued or arisen in India not being FTS but towards sale commission. 2.1 The Ld. Assessing Officer ought to have considered the direction given under DRP order by Hon' DRP panel 2 in which it was directed to treat the tax liability of the appellant being a Non-Resident as per Article 12(2) of India Germany DAA at 10%. On remittance received from M/s Sajjan India Ltd. of Rs. 98,87,500/- 3. The AO is statutorily bound to follow DRP directions as per Section 144C (10) of the Income Tax Act. 4. Applicant craves your honour's leave to add, alter or amend any grounds of objection at the time of hearing or before." AY 2019-20 "1. Ld. Assessing Officer and Ld. DRP failed to appreciate that notice u/s 148 being dated 10-05-23 being after lapse of 3 years from end of assessment year and alleged escaped income being Rs 19,26,245/- i.e. below Rs. 50,00,000/- notice issued is beyond time permi....
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....ia are liable to be taxed in India, such remittance be subject to deduction of tax at source u/s 195 and as such the Appellant be not liable for imposition of interest u/s 234B of the Act. 9. Without prejudice that no income is liable to be taxed in India Ld.AO erred in taxing certain Income at rate higher to 10% applicable to FTS. 10. Applicant craves your honour's leave to add, alter or amend any grounds of objection at the time of hearing or before." Since the issues involved in both the appeals are identical, they were heard together and are being disposed of by way of this common order. For the sake of convenience, A.Y. 2018-19 is taken as the lead case. The decision rendered therein shall apply mutatis mutandis to A.Y. 2019-20. 2. Brief facts of the case are as under:- 2.1. The assessee is a non-resident individual and a tax resident of Germany. The assessee filed his return of income on 19/06/2018 declaring a total income of Rs.1,98,940/-. Subsequently, based on certain information received through the Insight Portal, the assessment was reopened. The information available with the Ld.AO revealed that M/s. Sajjan India Ltd. had remitted an amoun....
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....es for Technical Services (FTS) under the provisions of the Act or the India-Germany DTAA. 2.7. With regard to the receipts received from M/s.PI Industries Ltd., the assessee submitted that the income was earned and received in Germany and, therefore, in terms of the provisions of the India-Germany DTAA, the same was not taxable in India in the absence of a Permanent Establishment (PE) in India. It was further submitted that, M/s. PI Industries Ltd., had already deducted tax at source under section 195 of the Act on the said payments. 2.8. Assessee thus submitted as under:- "a) The nature of the service rendered by the assessee is not fee for technical services (FTS) in nature as per Income-tax Act, 1961 as well as provisions of the DAA between India and Germany. b) Even the nature is remittances are FTS even than the same is not chargeable to tax as per provisions of section 9(1)(vii)(b) of the Act. c) The assessee being resident of Germany and based on source of income has offered the above remittances to tax Germany. d) Even M/s.P.I Industries Limited has deducted TDS, as per provisions of section 195 of the Act, the same is not taxable ....
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....y resident of India is not to be treated as deemed Income if the same is payable for the purpose of making or earning any Income from any source outside India. Here, the income which is earned by the assessee is definitely from a source in India and merely because an assessee has provided services outside India, it cannot be said the income is earned form a source outside India as the source definitely remains within the territorial jurisdiction of India. The Hon'ble Delhi High Court in the appeal number ITA No. 55/2012 & ITA No.57/2012 has examined source of export income in the case of CIT vs Havells India Ltd relevant part of the decision dated 21.05.2012 is reproduced as under: ".... 12. The question as to what is a source of income has been dealt with in some authoritative pronouncements. The Judicial Committee in Rhodesia Metals Ltd. v. Commissioner of Income Tax, (1941) 9ITR (Suppl.) 45 observed that a "source" means not a legal concept but one which a practical man would regard as a real source of income. This observation was adopted by Malik, J. in his separate but concurring judgment in the case of Rani Amrit Kaur v. CIT, (1946) 14 ITR 561, ....
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.... receipt of the sale proceeds emanate from him from outside India. He is, therefore, only the source of the monies received. The income component of the monies or the export receipts is located or situated only in India. We are making a distinction between the source of the income and the source of the receipt of the monies. In order to fall within the second exception provided in Section 9(1) (vii)(b) of the Act, the source of the income, and not the receipt, should be situated outside India. That condition is not satisfied in the present case... ... Be that as it may, as we have already pointed out, since the source of income from the export sales cannot be said to be located or situated outside India, the case of the assessee cannot be brought under the second exception provided in the Section." (Emphasis supplied) Therefore, the remittances received by the assessee is taxable as per provisions of section 9(1)(vii) r.w.s. 5 of the IT Act, 1961. c) The assessee himself aware that payment received from M/s. PI Industries Ltd of Rs. 1,84,96,014/- duly brought to tax by deducting TDS upon the same. The nature of service rendered by the assessee to....
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....cal services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. .... ARTICLE 14 INDEPENDENT PERSONAL SERVICES 1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities, in that case, only so much of the income as is attributable to that fixed bas....
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....hands of the assessee. 3.1. The DRP, after considering the submissions of the assessee, observed and held as under: "6.2. Discussion and Directions of the Panel: 6.2.1 In this case, the AO has proposed to make an addition of Rs. 1,84,96,014/- by treating the remittances received by the assessee from PI Industries Limited as fees for technical services (FTS) taxable u/s 9(1)(vii) r.w.s 5 of the Act. 6.2.2 From the perusal of the agreement dated 25.10.2014 it is seen that PI Industries Ltd had taken the services of the assessee as an "Advisor" for formulation an implementation of the company's growth strategy; to oversee the company's foray into new product discovery; and to establish and oversee the company's representative office in Dusseldorf, Germany for coordinating new product initiatives and leverage for other commercial possibilities to expand the business of the company. PI Industries Limited had also fixed a specified sum as remuneration for these services rendered by the assessee. PI Industries Ltd had also done TDS at the rate of 10% by treating the remittance as FTS. 6.2.3 However, the Panel notes that the applicant assessee has sti....
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....ixed a specified sum as remuneration for these services rendered by the assessee. It is clearly mentioned in the agreement that the payments are subject to the necessary applicable taxes as per the Indian Income Tax Act along with the DTAA with Germany. 7.2.3 The AO has held that the services being provided by the assessee were in the nature of "consultancy" and involved giving of advice/opinion/recommendation or counselling or advisory services. The agreement dated 20.02.2015 categorises the assessee as a "Marketing Advisor". 7.2.4 The applicant assessee has on the other hand pleaded that the remittances be treated as "export commission". 7.2.5 The Panel notes that the plea of the applicant assessee to treat the remittances as "export commission" is fallacious. The agreement between Sajjan India Ltd and the assessee has been entered by treating the later as a "Marketing Advisor" and not as a "Commission Agent". Moreover, the assessee is being given a fixed remuneration, which is not linked to the export sales at all. The agreement does not talk of "export commission" at all. Moreover, the assessee, as a Marketing Advisor, is rendering a host of services ....
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....ts remitted from India, even if FTS, not taxable in India, Appellant being a non-resident Individual of Germany entitled to benefit of Article 14 of India- German DTAA. 2. Ld. AO erred in passing an order u/s 147r.w.s.144C(13) dated 29.12.2024 without considering that notice u/s 148 being issued on 28.04.2022 draft assessment issued on 28.03.2024, final assessment ought to be completed by 31.03.2024 under the provisions of Sec. 153, as time not being extended for 144C proceedings. 3. Ld. AO erred in imposing interest u/s 234B of Rs. 80,03,448/- while computing tax liability without considering the fact that if remittances made from India are liable to be taxed in India, such remittance be subject to deduction of tax at source u/s 195 and as such the Appellant be not liable for imposition of interest u/s 234B of the Act." 4.1. We have considered the application dated 04/04/2025 filed by the assessee seeking admission of the additional grounds reproduced hereinabove. 4.1.1. It is observed that the additional grounds raised by the assessee are purely legal in nature and go to the root of the assessment. The adjudication of these grounds does not require any fre....
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....TAA. 5.2. Briefly, the Ld. AR submitted that the receipts received from M/s. Sajjan India Ltd. were towards business support and marketing services rendered by the assessee in Germany. It was submitted that the services were performed outside India, the consideration was received in Germany, and the same was offered to tax in the assessee's German tax return as business income. 5.2.1. The Ld.AR further submitted that the services rendered by the assessee did not involve any technical expertise, specialised knowledge or consultancy/advisory functions and, therefore, the receipts could not be characterised as Fees for Technical Services either under the Act or under the India-Germany DTAA. 5.2.2. With regard to the receipts from M/s. PI Industries Ltd., the Ld. AR submitted that the income was earned and received in Germany and, in the absence of any Permanent Establishment (PE) in India, the same was not taxable in India under the provisions of the India-Germany DTAA. It was further submitted that tax had already been deducted at source by M/s. PI Industries Ltd. under section 195 of the Act on such payments. 5.3. The Ld.AR submitted that the services rendered by the ass....
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....iled are technical or consultancy in nature. It was further held that the expression "technical services" refers to services which require expertise in technology, whereas "consultancy services" would mean services involving an element of advice or consultation. 4.3.5. Placing reliance on the aforesaid decision, the Ld. AR submitted that the services rendered by the assessee, being in the nature of market support and business development services, do not satisfy the requirements of FTS under either the Act or the India-Germany DTAA. 4.3.6. The Ld.AR further submitted that while rendering the aforesaid decision, the Hon'ble Bombay High Court considered the judgment of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. v. DCIT reported in 251 ITR 53, wherein it was observed that Fees for Technical Services would ordinarily refer to services involving the application of specialised knowledge in the field of applied and industrial science. 4.3.7. It was submitted that Hon'ble Bombay High Court, after considering the nature of services rendered in the said case, concluded that the services did not partake the character of technical services and....
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....Germany DTAA dealing with Independent Personal Services. 4.4.2. Referring to Article 14 of the India-Germany DTAA, the Ld.AR submitted that income derived by an individual resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in the State of residence unless (i) the individual has a fixed base regularly available in the other Contracting State, or (ii) his stay in the other State exceeds 120 days during the relevant fiscal year. It was submitted that neither of the aforesaid conditions was satisfied in the present case, as the assessee had neither a fixed base in India nor had his stay exceeded the prescribed threshold. 4.4.3. The Ld.AR further submitted that the assessee furnished valid Tax Residency Certificate (TRC) evidencing his residence in Germany. Accordingly, the income earned from M/s. PI Industries Ltd. and M/s. Sajjan India Ltd. was taxable only in Germany and could not be subjected to tax in India under the provisions of the India-Germany DTAA. 4.5. The Ld.AR placed reliance on the decision of Hon'ble Bangalore Bench of the Tribunal in the case of WiFi Networks....
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.... the Article relating to Fees for Technical Services. He submitted that this Tribunal, while considering the issue, observed that the expression "professional services" appearing in the relevant Article of the DTAA has not been specifically defined either under the DTAA or in the OECD Model Convention. He also submitted that this Tribunal, however, referred to the decision of Hon'ble Kolkata Bench of the Tribunal in the case of Graphite India Ltd. v. DCIT reported in (2003) 78 TTJ 418, wherein the scope and meaning of the expression "professional services" was examined by observing as under: "The definition of "professional services, which are termed as "independent personal services' in the phraseology employed in tax treaties, is, however, not defined in tax treaties or even official commentaries on UN and OECD Model Conventions. The meaning of this term is illustrated by some examples of typical liberal professions, and this enumeration of professions has only an explanatory character. The Law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edn.) defines "profession', inter alia, as involving' the idea of an occupation requiring either purely intellect....
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....therefore, were not taxable in India. 4.7. Per contra, the Ld.DR vehemently opposed the submissions advanced on behalf of the assessee. It was submitted that the services rendered by the assessee were in the nature of managerial and consultancy services and, therefore, squarely fall within the ambit of Fees for Technical Services (FTS). The Ld. DR placed reliance on Article 12(5) of the India-Germany DTAA and contended that the consideration received by the assessee is taxable in India as FTS. 4.7.1. The Ld. DR further submitted that the provisions of section 9(1)(vii) read with section 5 of the Act are attracted in the present case, as the income has accrued and arisen in India from services rendered to Indian entities. It was contended that the assessee is a highly qualified professional possessing substantial experience and expertise in the relevant field and that the services rendered by him involved the application of specialised knowledge and skill. 4.7.2. It was submitted that, having regard to the terms of engagement and the actual nature of services rendered by the assessee to M/s. PI Industries Ltd. and M/s. Sajjan India Ltd., the services cannot be regarded as m....
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....ssee rendered any technical advice, provided technical know-how, or offered consultancy in relation to the manufacturing activities of the company. 5.1.2. On the contrary, the material available on record indicates that the assessee was primarily engaged in identifying potential customers, developing business opportunities and supporting the company's marketing efforts in overseas markets. The services rendered were therefore essentially in the nature of market support and business development services. From the agreement placed at pages 11 to 17 of the paper book, it is observed that the assessee was entitled to receive a lump-sum consideration of Euro 1,00,000 for undertaking such activities. 5.1.3. In respect of the receipts from M/s. Sajjan India Ltd., it is noted that the role of the assessee was restricted to identifying prospective customers for the products manufactured by the company and facilitating the marketing of such products in overseas markets. The assessee contended that the services were rendered entirely outside India and the corresponding consideration was also received outside India. 5.1.4. It was in the aforesaid factual background that the assessee d....
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....professions has only an explanatory character. The Law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edn.) defines "profession', inter alia, as involving' the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale of arrangements for the production or sale of commodities'. This definition, barring the words "as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale or arrangements for the production or sale of commodities" is incidentally the same as assigned by Scrutton LJ in IRC vs. Maxse (1919) 1 KB 647 referred to in LB Curzon's Law directory. Referring to Hon'ble Bombay High Court's judgment in the case of Sakharam Narayan Kherdekar vs. City of Nagpur Corpn. AIT 1964 Bom. 200, at p. 210, the Law Lexicon further states that "an activity to be profession must be one carried on by an individual by his personal skill, intelligence and dependent on individual characterist....
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....l inputs would not take the same outside the ambit of professional services, as long as the services are rendered through the individual's own specialised knowledge and independent skill. 5.6. Further, merely because the services may involve an element of advice or specialised understanding, the same cannot automatically be classified as Fees for Technical Services under Article 12 of the DTAA. Article 14 is a specific provision governing income derived by an individual from independent professional activities, whereas Article 12 is a general provision dealing with FTS. Therefore, where the services rendered by an individual fall within Article 14 and the conditions prescribed therein are satisfied, the income cannot be brought to tax under Article 12 merely by giving a different characterisation to the services. 5.7. In view of the foregoing discussion, we hold that the receipts received by the assessee from M/s. Sajjan India Ltd. and M/s. PI Industries Ltd. are in the nature of income derived from independent professional services rendered by the assessee in his individual capacity, based on his personal expertise, market experience and business knowledge and were not in th....