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TMI Blog2013 (10) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... 99,061/- to Dohler Middle East, Dubai for the AY 2010-11 were in the nature of managerial services u/s 9(1)(vii) of the Act and consequently, liable for deduction of tax at source u/s 195 of the Act. ITA Nos.1011, 1012 & 1013/12 - Ays.2008-09, 2009-10 & 2010-11: Orders u/s 201(1A) of the Act: 3. The assessee company has also raised three similar grounds for all the AYs under dispute, the gist of which is: Whether the CIT (A) was justified in confirming the levy of interest u/s 201(1A) of the Act? 3.1. As the issues raised in these appeals being inter-connected and pertaining to the same assessee, they were heard, considered and disposed of, for the sake of convenience, in this consolidated order. 4. Briefly stated, the facts of the issues are as under: The assessee is engaged in the business of processing of fruit products and exporting the same to the various non-resident customers in Saudi Arabia, Bahrain, Dubai, etc., through its non- resident agents. For the purpose of exports, the assessee had entered into an agency agreement with the non-resident agents to whom the commission was being paid as per the terms and conditions. The commission, it appears, was being remitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Aggrieved, the assessee took up the issues before the CIT (A). After due consideration of the contentions of the assessee as recorded in his order, quoting the judgment of the Hon'ble Supreme Court in the case of CIT v. Toshoku Limited [ 125 ITR 525 (SC)] and also examining the agreements between the assessee and its non-resident customers, the CIT (A) had recorded his findings as under: "(On page 6 ................................................ The above facts noticed from the agreements make it clear that in respect of remittance made to M/s Food Specialities Limited, UAE, the appellant failed to produce any evidence in respect of the payment made for the financial year 2007-08 to establish that the income was not chargeable to tax in India Further, from the agreement produced for subsequent period, it is evident the services are in the nature of managerial services and, therefore, comes under the purview of section 9(1)(vii) of the Income-tax Act. Similarly, the fact revealed from the agreement discussed above in respect of remittances made to M/s Dohler Middle East Ltd., UAE, it is clear that the payment was made for the managerial services which comes under the purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and no income arose on the payments of commissions to such agents, the assessee was not obliged to deduct tax at source u/s 195 of the Act as attributed by the Revenue. To strengthen his argument, learned AR had placed reliance on the following case laws: (a) JCIT v. M/s Wifi Networks P. Ltd in ITA Nos.189 & 190/Bang/2012 dated 8.3.2013; (b) Sri Subbraman Subramanian v. ACIT - (2013) 140 ITD 707 (Bng); (c) ITO v. M/s. Faizan Shoes Pvt. Ltd in ITA No.2095/Mds/2012 dated 23.4.2013 - ITAT, Chennai D. Bench; (d) ITO v. M/s. Reliance International - (2013) TaxCorp (INTL)5395 (ITAT, Lucknow); & (e) Linde AG v. ITO - 62 ITD 330) 6.1. On the other hand, the learned DR supported the stand of the authorities below on the issue. It was, further, submitted that as the issue has since been elaborately analyzed and came to a right conclusion by the CIT (A) in his findings under dispute, the same requires to be sustained. 7. We have carefully considered the rival submissions, duly perused the relevant materials on record and also the case laws on which the assessee's representative had placed strong reliance. The only issue which requires to be adjudicated is whether the assessing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or technical services u/s 9(1)(vii) of the Act. When the issue reached the Tribunal for adjudication, the Bench had, after taking into account the rival submissions as recorded therein, observed as under: "10.4.1. .......The learned counsel for the assessee placed on record the agreement dt 15.5.2006 pertaining to the relevant period under consideration. As per the agreement, the non- resident is to carry out extensive survey to assess the market potential at Uganda for value added services specifically for SMS, IVRS, Didin, CRBT, USSD etc., the short term and long term prospects for the assessee company, and to furnish the details of the Telecom Products currently being offered by existing UAS vendors. The assessee paid the market survey fees to the non-resident in consideration for rendering the above services. 10.4.2. Since the Treaty between India-UAE does not contain an article in respect of 'fees' for technical services, the payment of market survey fees will have to be regarded as 'business profit' as per Article of the treaty. The non-resident was carrying on business in UAE in the field of market survey and the assessee has availed his service for a consideration / fees. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain rates per unit of labour employed and by effecting economics in the scale of wages it offers to its employees earns a margin of profit for itself. This is clearly in the nature of a business and Article 7 will be attracted. 13. The fact that the remuneration paid to the assessee may be in the nature of technical fee within the scope of section 9(1)(vii) does not make a difference. Fees of this nature can be earned in business or otherwise. If earned in the course of business, they constitute income from business. There is o incompatibility between recognizing the receipts as royalties or technical fees and also looking upon them as the profits of a business. Judicial decisions have recognized the principle in regard to other types of receipts such as dividends and interest. That being so, when technical fees are received in the course of business, one cannot deny them the treatment envisaged by Article 7, specially intended for application to business income.........." The ITAT, Mumbai, in the case of Christiani & Neilsen Coperhogan (supra) at Para 8 thereof has held as under: "........The fees for 'technical services' in the normal business parlance is a part of the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f market survey fees to a resident of UAE in the present case will fall under Article 7, i.e., 'business profit', in the absence of an article in the India-UAE treaty dealing with 'fees for technical services'. It is a settled principle that business profit of a resident of a contracting state is not chargeable to tax in the other contracting State unless the non-resident carried out the business through a PE in India. In the case on hand, revenue has not established that the non-resident has a PE in India. Hence in the absence of the PE in India, the business profit of the non-resident is not taxable in India. Even if it is considered that the payments made to non-resident will fall under Article 22 of the Treaty viz. "Other Income", then also the payments are not taxable to tax in India since as per Article 22, income of a resident shall be taxable only in that contracting State i.e., UAE and not in India. In this view of the matter, the payment made to the non-resident was not chargeable to tax in India and, therefore, there was no liability to deduct tax at source in respect of the said payment under section 195 of the Act....." (ii) In the case of Sri Subbaraman Subramanian v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not providing any technical services to the assessee. The commission payment made to non-residents also does not fall under the category of royalty or fee of technical services, therefore, the Explanation to sub-section (2) of section 9 has no application to the facts of the assessee's case. We see that this case is squarely covered by the decision of the Supreme Court in the case of GE India Technology Cen. P Ltd v. CIT (327 ITR 456) wherein the Hon'ble Supreme Court held that the assessee is not liable to deduct TDS when non-residents provided service outside India. It was held that when the services are provided outside India, the commission payments made to non-residents cannot be treated as income deed to accrue or arise in India, therefore, the provisions of section 195 has no application. In order to invoke the provisions of section 195 of the Act, the income should be chargeable to tax in India. Here, the commission payments to non-residents are not chargeable to tax in India and, therefore, the provisions of section 1095 are not applicable. In the circumstances, we sustain the order of the Commissioner of Income-tax (Appeals) in deleting the disallowance made under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncur as it is correct both on facts and on law, we uphold the same and dismiss the Revenue ground on this issue in AY 2008-09 and allow assessee's grounds in AY 2007-08...." 7.5 For appreciation of facts, we extract the CIT (A)'s observations verbatim as reproduced by the Tribunal in its order (supra) as under: "4.3. On page 7.......................... The next question for consideration is the effect of withdrawal of Circular No.23 of 1969 and 786 of 2000 by the CBDT vide Circular No.7 of 2009. I have considered the facts of the case. In the Circular No.23 of 1969 dtd 23.9.1969 some illustration instances of non-resident having business connection in India had been given as under: - Maintaining a branch office in India for the purchase or sale of goods or transacting other business, - Appointing an agent in India for the systematic and regular purchase of raw materials or other commodities, or for sale of the non-resident's goods, or for other business purposes - Erecting factory in India where the raw produce purchased locally is worked out into a form suitable for export abroad. - Forming a local subsidiary company to sell the products of the non-resident parent company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Circular issued by CBDT, the question of taxability of such commission to income- tax has to be decided as per the provisions of section 9(1) of the Act. I am of considered view that the provisions of sec. 9(1) are not applicable to the commission paid to such non-resident agents. Such income (commission) in the hands of non-resident commission agents did not accrue or arise directly or indirectly, through or from any business connection in India. Such income to the non-resident commission agents did not accrue or arise in India through or from any property in India or through the transfer of capital asset situated in India. In the facts and circumstances the provisions of sec. 9(1) were not applicable to such payment of commission by appellant to non-resident agents. The year under consideration is AY 2008-09 covering the previous year period 1.4.2007 to 31.3.2008. The CBDT issued Circular No.7 of 2009 in the year 2009. In the above mentioned case, the Bench of ITAT have held that withdrawal of such Circular is not having retrospective effect and will be applicable prospectively. In the facts and circumstances, even if it is assumed that the withdrawal of Circular No.23 of 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant portion of the assessment order read as follows: ".......................................................................................... During the course of assessment proceedings books of accounts were verified with reference to bills/vouchers. Further the details of sundry debtors/sundry creditors, details of loans and advances, details of direct & indirect expenses, details of processing charges, travelling expenses, professional fees, details of all statutory payments made, details of TDS made etc., were obtained and verified. After examining the details filed and after discussion with the Accounts Manager of the company, the assessment is completed, determining the total income as under: Total assessed income Rs.2,20,91,560/-." [As declared by the assessee in its ROI] 7.9 The facts and circumstances of the issue as deliberated upon and also in conformity with the judicial views (supra), we are of the considered view that authorities below were not justified in bringing the assessee's case under the purview of s. 201 (1) of the Act. In substance, the assessee was not liable to deduct tax at source while making payments of commissions to non-resident agents. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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