TaxTMI 
TaxTMI 
2025 (11) TMI 2026
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....solution Panel-2, Mumbai ('DRP'): General Ground: 1. erred in assessing the total income at INR 52,06,95,454 instead of income offered to tax as per Return of Income ('ROI') at INR 16,93,95,185, Final assessment order barred by limitation: 2. erred in not appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order, and hence, the final assessment order dated 15 January 2025 is time barred and liable to be quashed; Addition of Buying Commission of INR 35,13,00,269: 3. erred in making addition in respect of Buying Agency Commission of INR 35,13,00,269 as Fees for Technical Services ('FTS') as per Article 12 of the Double Taxation Avoidance Agreement between India and the Swiss Confederation ('India-Swiss DTAA'); 4. erred in holding that the services rendered by Skechers SARL are in the nature of 'managerial", technical' or 'consultancy' services as per Article 12 of India-Swiss DTAA; 5. ought to have held that the buying commission income constitutes business income as per the provisions of Article 7 o....
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....r substitute the aforesaid ground of appeal at any time before the hearing of the appeal, as may be advised" 2.1 The Ld.AR submitted that the above ground is a legal issue and goes to the root cause of the case and no new records needs to be looked into for disposing off the issue. 2.2 The Ld.DR though could not object to the submission of the assessee did not support admission of additional ground. We have perused the submissions advanced by both sides in the light of records placed before us. 2.3 Considering the submissions and respectfully following the decisions of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Respectfully following the above, we admit the additional grounds raised by assessee in both the years under consideration. Accordingly, the additional grounds filed by assessee stand admitted. Brief facts of the case are as under: 3. The assessee is a company incorporated under the laws of the Swiss Confederation and is a tax resident of Switzerland. The assessee fil....
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....was thus submitted that the said income shall qualify as business income. It was also further stated that, in the absence of PE/ business connection in India, the said business income shall not be liable to tax in India as per Article 7 of India-Swiss Double Taxation Avoidance Agreement (IndiaSwiss DTAA). 3.5 In the draft assessment order, the Ld.AO proposed to deny beneficial provisions of India-Swiss DTAA on the ground that, the Tax Residency Certificate (TRC') submitted by the Assessee pertains to Korea-Swiss Treaty. 3.6 Further, the Ld.AO proposed to tax the receipt as business income on the ground that the assessee constitutes Significant Economic Presence ('SEP') in India on account of provisions of Explanation 2A to section 9(1)(i) of the Act. 3.7 Further, in the draft assessment order, the Ld.AO noted that, the assessee itself accepted that the receipt is in the nature of business income in its response dated 26/03/2024 and held that, the income shall be taxable as per provisions of the Act as income is deemed to accrue or arise in India because of business connection in India on account of SEP. 3.8 After considering the submissions made by the asses....
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....dence filed before your goodself, it is seen that the assessee has filed certificate of registration issued by Swiss Authority and not tax residency certificate. Therefore, in the absence of relevant TRC, the assessee is ineligible for taxation benefit under DTAA between India and Switzerland. Accordingly, to establish assessee's permanent establishment (PE) in accordance with DTAA is not needed. Consequently, the assessee's income is taxable under the provisions of the Act and not under the DTAA. In accordance with the provisions of section 9(1)(i) read with Explanation 2A and Rule 11UD, the assessee has business connection in lieu of "significant economic presence in India as the transaction value with Indian entity Skechers South Asia Pvt. Ltd. (SSAPL) exceeds prescribed threshold of Rs.2 crores. Therefore, the income received by assessee from SSAPL on account of sale of goods to it of Rs.4,47,18,608 is taxable u/s 9(1)(i) of the Act and buying commission of Rs. 35,13,00,269 is taxable as business income in India under aforesaid provisions on without prejudice basis. In absence of India specific account, Rule 10 of IT Rules may be invoked to compute taxable income u/s 9(....
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....AO has stated that the assessee has filed Certificate of Registration issued by the Swiss authority and not Tax Residency Certificate (TRIC). Therefore, in absence of relevant TRC, the assessee is ineligible for taxation benefit under DTAA between India and Switzerland 2.2 In this regard, the the Assessee wishes to invite your Honour's attention to the TRC submitted along with the application for admission of additional evidence dated 11 November 2024 (refer pg. no 204 of the Paper Book (PB) wherein & has been stated that Skechers SARL is subject to the Swiss federal, cantonal and municipal taxes in accordance with the applicable law. Therefore, Skechers SARL is a Tax Resident of Switzerland and is eligible to avail the benefits of India-Swiss DTAA. 3. Applicability of provisions of Significant Economic Presence 3.1 In the remand report, it has also stated that as per provisions of Section 9(1)(0) read with Explanation 2A of the Act read with Rule 11UD of the Rules, the Assessee has Significant Economic Presence ('SEP) in India and therefore sale of good and buying commission earned by Skechers SARL are taxable in India. In this regard, we wish to....
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.... require. 4.4 The DRP, after considering of the submissions of the assessee accepted the TRC and held that, the assessee is eligible to claim beneficial provisions of India-Swiss DTAA. The DRP also held that the buying commission cannot be brought to tax in India as business income. Instead the DRP recharacterized the buying commission as FTS under Article 12 of the India-Swiss DTAA, on the ground that the services rendered fell within the scope of managerial, technical, or consultancy services. 4.5 The DRP issued directions, vide order dated 24/12/2024, and directed the Ld.AO to treat the buying commission received by the assessee as Fees for Technical Services ('FTS') in accordance with Article 12 of the India-Swiss DTAA, and deleted other additions proposed by the Ld.AO in the draft assessment order. 5. On receipt of the DRP direction, the Ld.AO passed the impugned order on 15/01/2025, making addition for buying commission as FTS, and taxed at 10% as per provisions of Article 12 of India-Swiss DTAA. Aggrieved by the order of the Ld.AO, the Assessee preferred an appeal before this Tribunal. 6. The Ld.AR submitted that pursuant to an agreement dated 27/08/20....
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....the DRP direction. He submitted that, the DRP observed that, the Ld.AO failed to establish existence of PE in India. The DRP thus held that in the absence of PE, profit attribution does not arise. The Ld.AR submitted that the DRP thus rejected the findings of the Ld.AO on the nature of the buying commission to be Business income, and was held to be taxable in India by virtue of Article 5 of India Swiss DTAA r.w.Sec. 9(1)(i) of the Act. 6.5 He submitted that the DRP thereafter recharacterized the buying commission as FTS under Article 12 of India-Swiss DTAA, on the ground that the services rendered fell within the scope of managerial, technical, or consultancy services. 6.6 The Ld.AR submitted that, the services in respect of buying commission are rendered outside India and no service is rendered in India. Further, in the absence of provision of any managerial, technical or consultancy service, the said services are not in the nature of royalty/ FTS. Therefore, the said income shall qualify as business income. 6.7 The Ld.AR submitted that the assessee do not have a place of business in India from where such agency services are provided to SSAPL. Further, no employee of the ....
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....and factory capabilities. 81 4 Technical support for commercialization. Technical The technical expertise required includes in-depth knowledge of manufacturing processes, design specifications and production techniques. 81 5 Quality Assurance and Control Technical These services demand proficiency in quality control methodologies, defect identification and process improvement. 81 6 Logistics and Anti-Transshipment Policy Compliance. Technical These activities involve expertise in international trade regulations, logistic management and compliance. 82 7 Social and Environment Compliance Technical These functions require regulatory expertise, technical knowledge of environmental standards and monitoring systems. 82 5.4.2 In para 8.3.5.1, the Ld. DRP also classifies certain services as managerial services and in para 8.3.5.2 it has classified other services provided by the appellant as Consultancy Services. It may kindly be noted that there is some overlapping in the nature of services provided by the appellant. Such findings are tabulated hereunder: 8 Vendor identification, Order Placement Managerial ....
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....ential manufacturers who can match the quality and standards of appellant's products etc. the appellant has protected its overall interests in India. 3. In view of the above, the Revenue strongly relies on the order of the Ld. DRP passed in the above lines and asserts that the appellant company was providing services to the Indian Entity which were in the nature of FTS as per Article 12 of India-Swiss DTAA and therefore, the Revenue prays that this appeal on this count be dismissed. 6.11 The Ld.AR in response submitted that the term Fees for Technical Services defined under para 4 of Article 12 of the India - Swiss DTAA reads as under: "4. For purposes of this Article the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any managerial, technical or consultancy services, including the provision of services by technical or other personnel. 6.12 He submitted that, as per the provisions of the Act as well as India-Swiss DTAA, for any stream of income to be characterized as 'fees for technical services', it is necessary that some kind of 'managerial', "technical' or 'cons....
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.... developing, defining and evaluating the goals of the organization and the alternative policies that will lead towards the goals: (b) getting the organization to adopt the policies: (c) scrutinizing the effectiveness of the policies that are adopted, and (d) initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organizations 15. The services rendered, the procurement of export orders, etc. cannot be treated as management services provided by the non-resident to the respondent-assessee. The non- resident was not acting as a manager or dealing with administration. It was not controlling the policies or scrutinising the effectiveness of the policies. It did not perform as a primary executor, any supervisory function whatsoever... ......... 19. Further, would be incongruous to hold that the non- resident was providing technical services. The non-resident had not undertaken or performed 'technical services', where special skills or knowledge relating to a technical field were required. Technical field would mean applied sciences or craftsmanship invol....
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....larly, the delivery of a service via technological means does not make the service technical. This is especially important in the e-commerce environment as the technology underlying the internet is often used to provide services that are not, themselves, technical (e.g. offering online gambling services through the internet). 41. In that respect, it is crucial to determine at what point the special skill or knowledge is used. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for the provision of a service will not be a technical fee, however, unless that special skill or knowledge is required when the service is provided to the customer. For example, special skill or knowledge will be required to develop software and data used in a computer game that would subsequently be used in carrying on the business of allowing consumers to play this game on the internet for a fee. Similarly, special skill or knowledge is used to create a troubleshooting database that customers will pay to access over the Internet. In these examples, however, the relevant special skill or knowledge is not used when providing the service for which th....
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....pplier's business nor developing that data and software (which may well be done by someone other than the supplier) but rather making the software and data available to that client. The mere provision of access to such data and software does not require more than having available such a database and the necessary software. A payment relating to the provision of such access would not, therefore, relate to a service of a managerial nature. Consultancy services 45. For the Group, "consultancy services" refer to services constituting in the provision of advice by someone, such as a professional, who has special qualifications allowing him to do so. It was recognized that this type of services overlapped the categories of technical and managerial services to the extent that the latter types of services could well be provided by a consultant. (iii) Decision of Hon'ble Madras High Court in case of Skycell Communication Ltd. v. DCIT reported in (2001) 251 ITR 53 observed that the meaning associated with the word 'technical' is 'involving or concerning applied and industrial science'. The Ld.AR submitted that in the present case, the services a....
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....s acting in the capacity of the agent. 6.16 The Ld.AR also placed reliance on following decisions wherein it has been held that buying commission is not covered under the definition of managerial, technical and consultancy services and shall not be taxable as FTS: * Decision of Hon'ble Supreme Court in case of PCIT vs. Puma Sports India (P.) Ltd. Reported in (2022) 285 Taxman 191 * Decision of Hon'ble Delhi High ourt in case of CIT vs. Springer Nature Customer Services Centre GMBH reported in 458 ITR 728 * Decision of Hon'ble Karnataka High Court in case of PCIT vs. Puma Sports India (P.) Ltd. Reported in(2021) 434 ITR 69 * Decision of cooridate bench of this Tribunal in case of Linde AG vs. ITO reported in (1997) 62 ITD 330 * Decision of cooridate bench of this Tribunal in case of DCIT vs. Samsung Engg. Co. Ltd reported in (2011) 43 SOT 38 * Decision of cooridate bench of this Tribunal in case of Endemol South Africa (Proprietary) Ltd. Reported in (2018) 67 ITR(T) 520 * Decision of cooridate bench of this Tribunal in case of ITP Publishing India P Ltd vs. ACIT in ITA No. 4407/Mum/2019 vide order dated 13/01/2023 ....
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....e 2(d) of the Buying Agency Agreement, assessee quotes ex-factory prices and negotiates payment terms under SSAPL's supervision. * As per Clause 2(e) of the Buying Agency Agreement, assessee arranges logistics and documentation for importation, subject to SSAPL's prior approval. * As per Clause 2(f) of the Buying Agency Agreement, assessee inspects merchandise at vendor sites and reports non-conformities to SSAPL; * As per Clause 2(g) of the Buying Agency Agreement,assessee undertakes various support functions such as production oversight, costing, R&D coordination, and commercialization; * As per Clause 2(i) of the Buying Agency Agreement, the assessee assists SSAPL in returning defective merchandise and recovering dues from vendors; * As per Clause 2(j) of the Buying Agency Agreement, the assessee ensures supplier quotations include complete details; * As per Clause 2(k) of the Buying Agency Agreement, the assessee certifies the origin of goods in line with SSAPL's anti-transshipment policy ; * As per Clause 2(I) of the Buying Agency Agreement, the assessee vets suppliers for transshipment violations and a....
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....(4), the commission income earned by the assessee cannot be brought to tax in India. Accordingly Ground No. 4 raised by the assessee stands allowed. Additional Ground No.8-9 8. The Ld.AR submitted that the DRP exceeded its powers and tried to review order of the Ld.AO. He submitted that the DRP enhanced the issue which was already verified, adjudicated and accepted by the Ld.AO and Assessee and was not in dispute before the Hon'ble DRP. He submitted that the DRP acted beyond the powers provided by the Legislature. We have heard the rival submissions of both sides on this issue. 8.1 The powers of DRP are provided in section 144C of the Act which is reproduced as under for ready reference: "(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), Issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; . (c) evidence furn....
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....the cases involving transfer pricing issues in the case of any person having international transactions of in case of a foreign company. It has been provided under sub-section (B) of section 1440 that DPP may confirm, reduce or enhance the variations proposed in the craft order of the Assessing Officer. In a recent judgement, it was held that the power of DRP is restricted only to the issues raised in the craft assessment order and therefore it cannot enhance the variations proposed in the order as a result of any new issue which comes to the notice of the panel during the course of proceedings before it This is not in accordance with the legislative intent It is accordingly proposed to insert an Explanation in the provisions of section 144C to clarify that the power of the DRP enhance the variation shall include and shall always be deemed to have included the power to consider any matter arising out of the assessment proceedings relating to the all assessment order This power to consider any issue would be irrespective of the fact whether such matter was raised by the eligible assessee or not The amendment will be effective retrospectively from ....
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....st issue a show-cause notice, or at least communicate its intent to alter the income's characterization before finalizing its directions. 8.8 In the present case, it is noted that, the DRP before proceeding to recharacterize the assessee's receipt of buying commission as Fees for Technical Services (FTS), called for remand report from the Ld.AO vide letter dated 13.12.2024 and also called upon the assessee to furnish its submissions vide letter dated 24.12.2024, thereby providing an opportunity to object to the proposed recharacterisation of the income. 8.9 The procedural steps undertaken by the DRP clearly evidence adherence to the principles of natural justice before proposing any recharacterisation of income. By calling for a remand report from the Assessing Officer and simultaneously affording the assessee an opportunity to furnish detailed submissions, the DRP ensured a fair and transparent process. This demonstrates that the assessee was not taken by surprise and was provided ample opportunity to explain its position. Accordingly, the contention of Ld.AR that the recharacterisation was beyond the jurisdiction of the DRP is untenable. 8.10 On the contrary, the DRP's p....