TMI Blog2015 (11) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... are rendered in India is under the circumstances of little consequence. It is, again, upon examining and ascertaining the nature of the services that the AAR in Wallace Pharmaceutical (P.) Ltd. (2005 (9) TMI 26 - AUTHORITY FOR ADVANCE RULINGS ) held that the services provided by Penser Group, a tax resident of USA, were not limited to USA and, further, utilized in India and, accordingly, payments thereto warranted deduction of tax at source. The AAR has, in our view, sought to correctly apply the law in the matter – the issue being principally factual. It is again on account of this that the Hon’ble Court in Elkem Technology (2001 (4) TMI 65 - ANDHRA PRADESH High Court ), upon examining the nature and scope of the activities, held that no question of law, much less a substantial question of law, arises. In the case of Toshoku Ltd. (1980 (8) TMI 2 - SUPREME Court ), the product was ‘tobacco’, essentially a commodity (or a generic product), and which could be sold as such, adhering to the specifications as may be stipulated by law. Under the circumstances, in view of the foregoing, we only consider it fit and proper, even as observed during hearing – and to the agreements by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue s appeal for A.Y. 2009-10, i.e., to the extent of disallowance deleted on account of payment during the year. The respective cases 3. The assessee s case qua both the payments is essentially the same. The freight payment, which is on exports, is to the non-resident shipping companies, through their Agents in India. No services are rendered in India, nor do the payees have any Permanent Establishment (PE) in India. The ship owners (or companies), in any case, pay the taxes due on their income that arises or accrues in India. Commission, again, is allowed to non-residents, who undertake promotion of the assessee s a manufacturer of engineering goods, products abroad, whereat the agents are located/ resident. No service is rendered in India for any part of the income to accrue or arise in India, which is paid directly to the non-resident agent/s outside India. This, in fact, is a pre-requisite for the application of section 195, as clarified by the Hon ble Apex Court in G. E. India Technology Centre (P.) Ltd. vs. CIT [2010] 327 ITR 456 (SC), with the Hon ble Court per CIT vs. Toshoku Ltd. [1980] 125 ITR 525 (SC) having clearly held in the context of commission that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es payable to non-resident for developing business with foreign customers falls within the meaning of fee for technical services as defined under Explanation 2 to s. 9(1)(vii). The Board Circulars would not apply in view of the amendment by way of insertion of Explanation below section 9 by Finance Act, 2009 w.r.e.f. 01.04.1976. This sums up the cases of both the parties, who have also relied on case law in support of their respective cases. In addition is the assessee s alternate plea qua both the payments, i.e., of section 40(a)(i) as being applicable only on as much of the expenditure for the relevant year (A.Y. 2008-09) as outstands for payment, i.e., is payable , as at the end of the year, and toward which the assessee places reliance on the decision in Arcadia Share Stock Brokers (P.) Ltd. vs. Dy. CIT (in ITA No. 1871/Mum/2013 dated 22.12.2014). 4. We have heard the parties, and perused the material on record. 4.1 We shall take up both the sums (payments) separately. With regard to freight allowed to shipping companies, the matter, in our view, is squarely covered against the assessee by the decision in the case of Orient (Goa) (P.) Ltd. (supra). This was in fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to accrue or arise or deemed to accrue or arise in India. Toward this, the assessee s contention is that no services are rendered in India (the taxable territory). It is on this basis, as a reading of its decision in Toshoku Ltd. (supra) would reveal, that the Hon ble Apex Court held that the non-resident selling agents having acted outside India, their commission earned cannot be deemed to have either accrued or arisen in India. Where the services are rendered in India (taxable territory), the income therefrom, to that extent, would surely accrue or arise in India, so that one may not be required to even travel to the deeming provision of section 9, which in a way seeks to extend and to definition the scope of accrual by and through the concept of business connection . As explained in CIT vs. R. D. Aggarwal Co. [1965] 56 ITR 20 (SC), which stands referred to in Toshoku Ltd. (supra), and continues to govern the field, business connection involves the relationship between the business carried on by a non-resident (outside taxable territories), which yields profits or gains, and some activity in the taxable territories which contributes directly or indirectly to the earning of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., of no services having been rendered in India (taxable territory). There has been, however, no examination of the activities carried out by the non-resident agents, even as the Revenue claims the same to involve managerial and consultancy services, so that in nature and by definition the same would be fee for technical services, covered by section 9(1)(vii). The ld. AR, on being questioned in the matter, i.e., as to the nature and scope of the services rendered by selling or, as the case may be, consulting agents, conceded to the same, i.e., a complete absence of any examination in the matter. We consider both the assessee who only states of there being no written agreements between the assessee and the agents, as well as the Revenue, to be responsible for this. The law could not be applied without examining and determining the facts. The law provides the guidelines, the frame work, applying which to the facts as found, the issues as arising are to be decided/adjudicated. That is, the law could only be applied on the terra firma of the facts, which form the building block of any case. Not so doing would only amount to matching the colour of one case with that of another, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of some imported or indigenous material, etc. which may require re-negotiation. The exchange, thus, would be on a regular basis, across different buyers, each with its own set of requirements and issues. The assessee s view point on each aspect of the matter, and at each stage, has to be put across to the buyers, and vice-versa, constituting an effective dialogue between the two, which is the prime function of the agent as an intermediary. Why, it may also necessitate visits by either side, to another, besides by the Agent/s to India, apart from the regular exchange and flow of information through other modes of communication. How else, we wonder, the business take form and be undertaken? The ld. AR, on being questioned in the matter, i.e., as to the manner in which the business is undertaken, putting across this scenario, would fairly submit that the same is a distinct possibility, though he was not in a position to so affirm or commit in the matter. This is precisely why we stated both the assessee and the Revenue to be responsible for a complete factual indetermination of the matter. Merely stating that no services are rendered in India is under the circumstances of little co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Merilyn Shipping Transports (supra) holds the field no longer in view of the decisions by the Hon ble Courts, as in the case of CIT vs. Crescent Export Syndicate [2013] 216 Taxmann 258 (Cal) and CIT vs. Sikandarkhan N. Tunvar [2013] 357 ITR 312 (Guj), overruling Merilyn Shipping Transports (supra). The matter stands also discussed at length by the tribunal, as in the case of Raviraj Relempaadu [2014] 29 ITR 387 (Mum.)(Trib.) and ITO vs. Pratibhuti Viniyog Ltd. (in ITA No. 1689/Mum/2011 dated 22.08.2014), relied upon by the Revenue before us, also discussion and distinguishing the decision by the Hon ble Allahabad High Court in the case of CIT vs. Vector Shipping Services [2013] 85 CCH 201 (All); the issue of paid and payable being not before the Hon ble Court. The relevance on the decision in the case of Arcadia Share Stock Brokers (P.) Ltd. (supra), which further relies on Vector Shipping Services (supra), would therefore be of no moment. The assessee fails on its relevant ground and the Revenue succeeds. 7. In the result, the assessee s appeals are partly allowed for statistical purposes, and the Revenue s appeal is partly allowed. Order pronounced in the open c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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