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2016 (9) TMI 349

Head Note / Extract:
Withholding of tax at source under section 195 - Fees for Technical Services - service fee payable by the Applicant to DRL Russia under the Service agreement - India-Russia DTA - Held that:- The stand of the Department is based on the assumption that the reports of medical representatives of DRL Russia are sent to India which is being utilized in India for the purpose of brand promotion in Russia. The Department has further assumed that the marketing services for research agreement and marketing services for promotion of goods agreement are interconnected and they together constitute marketing services. According to the Department the marketing research team prepares presentations for the purpose of utilization by medical representatives when they make field visits and such presentations highlight the advantages that brand of DRL India have over other similar products of the competitors. During the course of hearing we repeatedly asked the CIT (IT & TP), Hyderabad, Mr. Singhania, whether he had any evidence to support his assumptions, particularly the fact that reports prepared by the product promotion team were in respect of brand promotion and were utilized in India by the applicant. He could not produce any. It is also noticed that the Department had conducted a survey u/s 133A of the IT Act in the business premises of the applicant but could not find any such evidence and did not even ask any question relating to this aspect in the statements recorded of senior executives.

The services rendered by DRL Russia in respect of agreement for promotion of goods cannot be treated as fees for technical services, it is not necessary to go into the argument whether such services will be covered by exception u/s 9(1)(vii)(b) of the Act though the applicant has argued that his case is covered by exception. However, it is suffice to say that the stand and argument of the applicant is completely faulty mainly because the product promotion agreement dated 30.1.2014 cannot be related with distribution agreement dated 16.2.2012 signed two years ago, under which exports were made. Therefore it cannot be said that service fees under product promotion agreement were paid in order to promote its products for enhancing export in Russian market

The service fee payable by the applicant to DRL Russia under the agreement for promotion of goods cannot be regarded for the purpose of fees for technical services.

The service fee paid by the applicant to DRL Russia is not taxable either under Article 7 or Article 22 of the India-Russia DTAA.


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