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2019 (6) TMI 783 - AT - Income TaxTDS u/s 195 - referral fee paid to a foreign concern, in USA for introducing clients to the assessee - income deemed to accrued or arisen in India - disallowance u/s 40(a)(i) for non deduction of tds - PE in India - HELD THAT:- As the facts involved in the case before us i.e pertaining to taxability of referral fees paid by the assessee to the foreign concern, for the services rendered by it abroad, are more or less similar to the facts as were there in the case TOSHOKU LIMITED (AND ANOTHER APPEAL) [1980 (8) TMI 2 - SUPREME COURT] we respectfully follow the same and conclude that the referral fees received by the foreign concern in the case before us, cannot in so far clause (i) to Sec. 9(1) is concerned, be held, to have ‘deemed to accrued or arisen in India’. As regards clause (ii), clause (iii) and clause (iv) of Sec. 9(1), it is observed that as the same are in context of income by way of (i). salaries earned in India; (ii) income by way of salary payable by the government; and (iii). dividend paid by an Indian company, respectively, therefore, the same are not relevant in the backdrop of the facts involved in the case before us. Managerial services - As the foreign concern was only rendering its services abroad for referring or introducing customers to the assessee, and was not rendering managerial advice or management services, therefore, the referral income received by the said foreign agency from the assessee cannot be held to have been received by it for rendering any managerial services. Technical services - As the foreign agency viz. Newmark & Company Real Estate Inc., New York, USA, was only rendering referral services to the assessee, and was not undertaking or performing any “technical services” where special skills or knowledge relating to a technical field were required, therefore, it can safely be concluded that the referral fees received by the foreign agency from the assessee was not towards technical fees. Consultancy fees - As the foreign agency by using its skill, business acumen and knowledge which was acquired by it for its own benefit, was only referring customers to the assessee, therefore, it cannot be said that it was providing any consultancy services to the assessee. No obligation was cast upon the assessee to deduct tax at source on the amount was paid to the foreign concern viz. Newmark & Company Real Estate Inc., New York, USA, towards referral fees, for the reason viz. (i) that, as the services rendered by the foreign concern for introducing a client did not did not “make available” any technical knowledge, experience, skill, know-how or processes to the assessee, therefore, the same did not fall within the realm of “Fees for included services” as envisaged in Article 12 of the India-USA, DTAA; and (ii). that, as the aforesaid payment made to the foreign concern for the services which were rendered entirely in USA, constituted its business profits within the meaning of Article 7 of the India-USA DTAA, therefore, in the absence of any Permanent Establishment (‘PE’) of the said foreign concern in India, the said amount could only be brought to tax in USA. Even as per Sec. 90(2) of the Act, in pursuance of the beneficial provisions of the India- USA DTAA, as the referral fees received by the foreign concern was not taxable in India, therefore, no obligation was cast upon the assessee to have deducted any tax at source on the said payment. Accordingly, for the said reason also no disallowance u/s 40(a)(i) of the referral fee was called for in the hands of the assessee. - Decided in favour of assessee.
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