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TMI Blog2015 (2) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... sident persons outside India for representation charges. In I.T.A. No. 498, the Revenue is aggrieved with the action of Ld. CIT(A) by which he had deleted the addition on account of excess depreciation on computer peripherals. The Revenue is also aggrieved with the action of Ld. CIT(A) by which he had deleted the addition of Rs. 1,75,49,089/- made by A.O. u/s 40(a)(i) on account of tour expenses paid by assessee without deduction of TDS. The Revenue is further aggrieved by the action of CIT(A) by which he had deleted the addition of Rs. 2,77,62,022/- made by A.O. u/s 40(a)(i) on account of payments made to overseas representatives without deducting tax at source. The 1st ground of appeal in I.T.A. No. 1989 in Assessment Year 2008-09 is similar to the ground of appeal taken by assessee in I.T.A. No. 210. However the assessee has further taken ground No.2 whereby Ld. CIT(A) had confirmed the disallowance of expenditure incurred on account of commission paid to nonresident persons outside India u/s 40(a)(i) without deduction of tax at source. In I.T.A. No. 1778, the Revenue is aggrieved with the deletion of depreciation on computer peripherals which the A.O. had disallowed as excess d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious courts. As regards the disallowance made by A.O. on account of tour expenses, Ld. CIT(A) deleted the same in Assessment Year 2007-08 by holding as under: "5.2 I do not find myself in agreement with the observation of the AO that the ratio of Transmission Corporation of AP is applicable to the case of assessee. The observations of the Supreme Court in Transmission Corporation of AP (supra) have to be read in the context of the question before the court i.e. whether tax was deductible on the gross trading receipts or only on the' pure income profits'. The court was not concerned with the case where the receipt was not chargeable to tax in the hands of the recipient at all. On the other hand the observations of the court make it clear that liability to deduct tax at source arises only when the sum payable to the nonresident is chargeable to tax. This view has also been followed by the jurisdictional High Court of Delhi in the case of Van Oord ACZ Inda (P) Ltd. v CIT (2010) 323 ITR 130(Del): 189 Taxman 232( Del) 230 CTR(Del) 365. On the issue as to whether section 195(1) arises only if the payment is chargeable to tax in the hands of the recipient, 1 find that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of "Business Connection" given in Explanation 2 of section 9 (i) of the Act. In view of the discussion made above, it is held that the disallowance of Rs. 1,75,49,089/- on account of tour expenses being payment made to non-resident tour operators by invoking the provisions of section 40(a)(i) of the Act is not justified and the same is deleted. As a result, ground of appeal NO.2 is treated as allowed." 3.1 In Assessment Year 2008-09, similar addition amounting to Rs. 4,39,66,623/- was deleted by following his order in Assessment Year 2007-08. 4. As regards the addition made by A.O. u/s 40(a)(i) a total addition of Rs. 2,77,62,022/- was made in Assessment Year 2007-08. Ld. CIT(A) in Assessment Year 2007-08 allowed relief to the extent of Rs. 1,90,74,062/- and upheld the remaining addition to the extent of Rs. 86,87,960/-. The deletion made by Ld. CIT(A) related to the following heads of expenditure:: Participation expenses 31,12,116/- Commission 40,25,472/- Rebate to foreign tour operators 90,92,510/- Refunds for unutilized services 05,91,380/- Annual membership fees 01,03,689/- Reimbursement for expenses to overseas representatives 21,48,895/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in Section 9(i)(vii) services rendered by nonresident person must be of managerial, technical or consultancy in nature. Explaining the meaning of managerial, consultancy and technical services as explained by courts/Tribunals, Ld. A.R. submitted that none of the services rendered by nonresident agents of the assessee fell into managerial, consultancy or technical services and in this respect, our attention was invited to paper book pages 98-101 and 119-122 where a copy of agreement entered into by assessee with non-resident agents of USA and UK were placed. From the contents of these agreements, the Ld. A.R. submitted that the nature of services to be provided by these agents are in the nature of marketing and promotion of the assessee's business outside India in order to attract foreign tourists travelling to India. The marketing services do not involve any supervision or administration of any business carried out by the appellant. It was submitted that the said services do not involve imparting of any advice or consultation by nonresident appellant In India which can be used by assessee. It was submitted that the services rendered by overseas agents were meant for foreign to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t where consideration was paid lump sum for availing marketing services instead of commission with reference to percentage of sales / profits, the payments were held not to be in the nature of fee for technical services: i) Rich Graviss Producs (P) Ltd., Vs Addl. CIT: 49 Taxman.com 531 (Mum.) ii) CLSA Ltd. Vs ITO 56 SOT 254 (Mum) iii) DCIT Vs I.M. Gears (P) Ltd. 65 SOT 303 (Chennai) iv) DCIT Vs Farida Prime Tannery P. Ltd. 64 SOT 145 (Chennai) v) ITO Vs Trident Exports 149 ITD 361 (Chennai) vi) Real Resourcing Ltd. Vs DIT 322 ITR 558 (AAR) 9. Without prejudice to the above arguments, Ld. A.R. submitted that even otherwise taking into account the provisions of DTAA the assessee was not liable to deduct tax at source as the provisions of DTAA overrides the provisions of income tax act. It was submitted that the provisions of DTAA if are beneficial to nonresident, i.e. which goes to reduce the liability of nonresident vis a vis provisions contained in the act, then provisions of DTAA are applicable. Inviting our attention to Annexure-1 attached with the synopsis, Ld. A.R. submitted that all payments were made to residents of countries with which India had DTAA. Inviting our att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. Therefore, these services provided by overseas nonresident agents was in the form of managerial services who were managing the offices of assessee and therefore the provisions of such services were covered in the fee for technical services as defined in Section 9(i)(vii) of the Act. Inviting our attention to Ld. CIT(A)'s order, Ld. D.R. submitted that Ld. CIT(A) has extensively discussed the provisions of DTAA and, therefore, all arguments of Ld. A.R. were taken care of by Ld. CIT(A) for disposing off the appeals. 11. In his rejoinder, Ld. A.R. submitted that agents were not managing the business of the assessee and they were just procuring the business on behalf of the assessee and it was submitted that in the case law of Adidas Sourcing Ltd. definition of managerial services has been discussed. As regards the discussion by Ld. CIT(A) with respect to DTAA, the Ld. A.R. submitted that Ld. CIT(A) has held that Act was amended with retrospective effect and therefore DTAA was not applicable, which was not correct as the provisions of DTAA always overrides the provisions of the Act. As regards revenue's appeals, Ld. D.R. relied upon the order of A.O. whereas Ld. A.R. relied upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. Let us examine the contract entered into by assessee with a few overseas nonresident agents. The agreements demonstrate that assessee was to pay commission and retention charges for advancement of business of the assessee. The primary services to be provided to assessee by the overseas agent Mr. Ashok Sultan as placed in paper book pages 98-101 is reproduced below: "6. Responsibilities of LPTI: To comment of Mr. Sultan's suggestions & reports without undue delay. To communicate marketing and sales leads to Mr. Sultan for follow up and execution, To keep Mr. Sultan properly and promptly informed on policies, rats and status. A Bi-weekly booking forecast to be supplied to Mr. Sultaln. To keep and confirm booking as and made by Mr. Sultan based on the availability. To supply ,Mr. Sultan with sales aids, tariffs & brochures free of charge, custom charge paid. To include Mr. Sultan's name, address, telephone & fax number in its advertising in the areas covered by LPTI. To provide complimentary services for travel agents, tour operators as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and MIC (Meetings Incentives, Congresses) market place. Cost of mailing will be billed separately. Mr. Naresh Sarvaria will represent Le Passage to India Tours and Travels Pvt. Ltd. during specified UK Scotland and Ireland Travel Trade Fairs as agreed mutually, cost and out of pocket and travel expenses will be billed by him separately. Mr. Naresh Sarvaria will promote Le Passage to India Tours & Travels Pvt. Ltd. through the media and will assist Le Passage to India Tours and Travels Pvt. Ltd. with press releases, editorials, interviews etc. Mr. Naresh Sarvaria will keep Le Passage to India Tours and Travels Pvt. Ltd. informed about the key industry trends, opportunities and developments in the UK, Scotland & Ireland markets, tour operators, and MIC Planners meetings, incentives, congresses. Mr. Naresh Savaria wil be at the disposal of Le Passage to India Tours and Travels Pvt. Ltd. Mr. Naresh Sarvaria will track and justify all costs, including pre approved out of pocket expenses and communication costs directly linked to the marketing of Le Passage to India Tours and Travels Pvt. Ltd. Mr. Naresh Sarvaia will if requested by Le Passage to India Tours and Travel Pvt. Ltd. cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of TDS on commission payments as noted by us at page 6 of our order. Therefore, keeping in view all facts and circumstances and keeping in view the case laws relied upon by Ld. A.R. we hold that representation charges and commission paid by assessee were not liable to be taxed in India and consequently no tax was required to be deducted and therefore disallowance u/s 40(a)(i) was not warranted. Since, we have decided the issue in favour of the assessee based upon the first limb of the arguments advanced by the Senior Counsel we do not deem it necessary to deal with other two limbs of arguments advanced by the senior counsel. In view of above, appeals filed by the assessee are allowed. 17. Now, coming to the appeals filed by the revenue, we find that as regards payment of tour expenses and other expenses paid without deduction of TDS, Ld. CIT(A) has passed a very elaborate and speaking order and Ld. D.R. was unable to controvert any of his findings, therefore, we do not find any infirmity in the same. Similarly, Ld. CIT(A) has allowed depreciation on computer peripherals based upon various decisions of the courts wherein we do not find any infirmity. 18. In view of above, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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