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TMI Blog2014 (9) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee made an application dated 16th February, 2010 under Section 195(2) for authorization to remit Euro 1,40,055.53 as commission for arranging export sales and realizing payments to M/s. Agenta World Trading and Consulting Establishment, a non-resident company registered in Liechtenstein. There is no Double Taxation Avoidance Agreement between India and Liechtenstein and, therefore, in the present appeal we are only concerned with the question of receipt, accrual or deemed accrual of the said income in India as per the mandate of the Act. 4. The Assessing Officer relying upon the decision of the Authority for Advance Rulings in In Re: M/s. Wallace Pharmaceuticals P. Ltd. [2005] 278 ITR 97 (AAR) held that the commission payment to the non-resident company on procuring orders was taxable as 'fee for technical service' under sub-clause (b) to Section 9(1) (vii) of the Act. The initial direction that the tax should be deducted at source @ 20% recorded in the order dated 4th May, 2010, was modified/reduced to 10% vide order dated 8th November, 2010 after recording that deduction at a higher rate would not be applicable in the present case. 5. The Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h person outside India or for the purposes of making or earning any income from any source outside India; or xxx Explanation 2.-For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient, or consideration which would be income of the recipient chargeable under the head 'Salaries'.' 7. Section 5(2) states that total income of a person, who is a non-resident, includes income from all sources which (a) is received or deemed to be received in India in such year by or on behalf of such person; (b) accrues or arises in India; or (c) is deemed to accrue or arise in such year in India. Explanation 1 of the aforesaid section clarifies that income accruing or arising out of India shall not be deemed to be received in India by reason of the fact that it is taken into account in a balance sheet prepared in India. We are required to decide, whether the commission paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng by the Assessing Officer and there is no allegation that a non-resident was carrying on any operation whatsoever in India. Thus, there is no question of attributing any income to operations carried on by the non-resident in India. No such argument has been addressed. 11. The Assessing Officer in his order under Section 195/197 of the Act has relied upon the judgment in the case of Wallace Pharmaceuticals P. Ltd. (supra), which has been distinguished on facts by the first appellate authority and the Tribunal. The factual matrix, including the agreement between the assessee and the non-resident and the terms, have not been spoken of by the Assessing Officer. These have been referred to and examined by the Commissioner of Income Tax (Appeals). But first, we examine Section 9(1)(vii) of the Act. 12. In the present case, clause (b) to Section 9(1)(vii) would be applicable as the respondent-assessee, the payer was a resident of India. The exceptions carved out under clause (b) are not applicable as it is not the case of the respondent-assessee that the fee paid was in respect of services to be utilised in business or profession carried out by the payer outside India, or for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, management as a process is practised throughout every organization from top management through middle management to operational management.' Recently this Court in CIT versus Bharti Cellular Limited and Others, [2009] 319 ITR 139 had observed:- 'The word "manager" has been defined, inter alia, as: "a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc." It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression "manager" and consequently "managerial service" has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.' Reference can be also made to the decision of the Authority for Advance Rulings in In Re: Intertek Testing Services India Private Limited, [2008] 307 ITR 418, wherein it was elucidated:- 'First, about the connotation of the term 'managerial'. The adjective 'managerial' relates to mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent shall be deducted from the commission (as described herein above) before the same is paid and transferred to the bank account of AGENTA (herein referred to as the commission payable)' 16. The non-resident, it is clear was appointed as a commission agent for sale of products within the territories specified and subject to and in accordance with the terms set out, which the non-resident accepted. The non-resident, therefore, was acting as an agent for procuring orders and not rendering managerial advice or management services. Further, the respondent-assessee was legally bound with the non-residents' representations and acts, only when there was a written and signed authorization issued by the respondent-assessee in favour of the non-resident. Thus, the respondent-assessee dictated and directed the non-resident. The Commissioner of Income Tax (Appeals) has also dealt with quantification of the commission and as per clause 4, the commission payable was the difference between the price stipulated in the agreement and the consideration that the respondent-assessee received in terms of the purchase contract or order, in addition to a pre-determined guarantee consideration. Again, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fields such as arts or human sciences (see paragraph 24 below). 20. The moot question and issue is whether the non-resident was providing consultancy services. In other words, what do you mean by the term 'consultancy services'? This Court in Bharti Cellular Limited and Others (supra) had referred to the term 'consultancy services' in the following words:- '14. Similarly, the word 'consultancy' has been defined in the said Dictionary as 'the work or position of a consultant; a department of consultants.' 'Consultant' itself has been defined, inter alia, as 'a person who gives professional advice or services in a specialized field.' It is obvious that the word 'consultant' is a derivative of the word 'consult' which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said Dictionary as 'ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action'. It is obvious that the service of consultancy also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or advise rendered by the non-resident to the respondent-assessee. 23. Decision in the case of M/s Wallace Pharmaceuticals Private Limited (supra) is clearly distinguishable as in the said case the non-resident consultant had to perform several services in the nature of attending meetings on mutually agreeable dates and providing advice and counseling, which were in the nature of consultancy services as they entailed support from a product team, compliance with all legal and administrative formalities, including registration and marketing strategy, creation of entry into new markets, development and distribution channels, etc. The work being rendered was in the nature of services as a consultant to the Indian assessee. It included an element of advice and was certainly recommendatory in nature. 24. The OECD Report on e-commerce titled, Tax Treaty Characterisation Issues arising from e-commerce: Report to Working Party No.1 of the OECD Committee on Fiscal Affairs dated 01st February 2001, has elucidated:- 'Technical services 39. For the Group, services are of technical nature when special skills or knowledge related to a technical field are required for the provision of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by someone other than the supplier) but rather the service of making the data and software available to that client. For example, the mere provision of access to a troubleshooting database would not require more than having available such a database and the necessary software to access it. A payment relating to the provision of such access would not, therefore, relate to a service of a technical nature. Managerial services 43. The Group considers that services of a managerial nature are services rendered in performing management functions. The Group did not attempt to give a definition of management for that purpose but noted that this term should receive its normal business meaning. Thus, it would involve functions related to how a business is run as opposed to functions involved in carrying on that business. As an illustration, whilst the functions of hiring and training commercial agents would relate to management, the functions performed by these agents (i.e. selling) would not. 44. The comments in paragraphs 40 to 42 above are also relevant for the purposes of distinguishing managerial services from the service of making data and software (even if related to management), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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