TMI Blog2017 (1) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the taxability of the commission agent’s income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions. TDS on payments are for subscription fees for specialized database containing copyright material - Held that:- We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon’ble Delhi High Court in the case of DIT Vs Nokia Networks OY [2012 (9) TMI 409 - DELHI HIGH COURT ]. In this case all that the assessee gets right is to access the copyri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Per Pramod Kumar, AM: 1. These cross appeals are directed against the order dated 5th November 2014 passed by the learned CIT(A), Gandhinagar, in the matter of tax withholding demands raised on the assessee under section 201 r.w.s 195 of the Income Tax Act, 1961, for the assessment year 2010-11. 2. We will first take up the appeal filed by the Assessing Officer. 3. In the first ground of appeal, the Assessing Officer has raised the grievance that the Ld. CIT(A) erred in law and on facts in directing the A.O. that the assessee is not in default under section 201(1) 201(1A) of the Act for not deducting tax while making remittance to non-residents under section 195 of the Act 4. Learned representatives fairly agree that this ground is somewhat general in nature and does not require any specific adjudication. 5. Ground no. 1 is thus dismissed. 6. In grounds of appeal numbers 2, 3, 4 and 5, which we will take together and which deal with the core issue requiring our adjudication in these cross appeals, the Assessing Officer has raised the following grievances: (2) The Ld. CIT(A) erred in law and on facts in directing the AO that commission pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residents of the tax jurisdictions with which Indian has tax treaties and such tax treaties have a specific article dealing with taxability of fees for technical services on the conventional pattern without a make available clause; and (c) residents of the tax jurisdictions with which Indian has tax treaties but these treaties have no specific article dealing with the taxability of fees for technical services . This categorization is important since the legal principles governing the taxability of amounts received by the export commission agent in these three categories will be quite different and distinct. In the present year, the recipients of the commission can be divided in these categories as follows: (a) residents of the tax jurisdictions with which Indian has tax treaties but these treaties have no specific article dealing with the taxability of fees for technical services : GMS Interneer Co. Ltd. Thailand Afras Ltd. UAE Narfoamkar JLT Iran (b) residents of the tax jurisdictions with which Indian has tax treaties and such tax treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re highly technical in nature and require highly skilled labour, technology and scientific knowledge. The products of Welspun include longitudinal submerged Arc welded pipes, Helical submerged Arc welded pipes, and High frequency Electric Resistance welded pipes. The pipes manufactured by the assessee are pipes of finest grades and international standards as assessee itself claimed. The pipes, plates and coils manufactured by the assessee are used in highly engineered and technical projects like, metro rail projects, international airport projects, water, oil and gas pipeline project. Wind power projects, off shore wind towers projects etc. The company claimed to manufacture and supply its technical products to most critical pipelines in the world in India and abroad. The company has supplied pipes for the world's deepest pipeline project Independence Trail (Gulf of Mexico), highest pipeline project (Peru LNG) longest pipeline (Canada US) and the heaviest pipeline (Persian Gulf). The company claimed to have esteemed clientele which include TransCanada Enterprise, Kinder Morgan, Texas Gas, Hunt Oil, Saudi Aramco, Elpaso, Exxon Mobil, PTTEP, Quatar Petroleum and DOW to name a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products of the assessee. It was also noted that the agent was also required to make market plans and establish marketing network of representatives to help and promote Welspun products. This work, according to the Assessing Officer, required expertise, technical skills and knowledge of highly technical products. It was the noted that the agent s work included providing information such as market development, activities of competitors, intentions and plans of clients and financial information on clients. This work further included, as noted by the Assessing Officer, providing advanced information about the tenders, gathering technical specifications of project and work incidental thereto. The agent was also expected to assist the assessee in identification of sub-contractors and logistic service provider, such as shippers and cargo handling agencies, so ensure smooth execution of contracts. The Assessing Officer further took note of the role of the agent in keeping the assessee abreast of all relevant political and economic changes which would affect business. So far as contract with Alfras was concerned, the Assessing Officer noted that the assessee s contention that it did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be treated as FTS in light of India-UAE DTAA and India Thailand DTAA; and (g) that in any case, the remittance neither accrues nor arises in India and the same cannot be deemed to accrue or arise in India, the same cannot be taxed in India and accordingly tax was not withheld in the light of section 195 of the Act. 13. None of these submissions, however, impressed the Assessing Officer. 14. The Assessing Officer was of the view that to understand the character of income one has to look at the agreement and appreciate the nature of work done in consideration of which the income is received. He was of the view that the related agreement clearly showed that these were services agreements and the actual consideration for which these services are rendered are rendition of technical services. The responsibilities of the agents, under these agreements, showed that the agents are required to render the technical services, allow the use of information containing industrial, commercial and technical experience which was made available to the assessee, and that the consideration received for these services was nothing but fees for technical services. These payments, according to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices were rendered by these entities was in the nature of rendition of technical services. The argument of the assessee that the payment did not involve any income taxable in India was again rejected for these cases as well. It was held that the amounts received by these entities were taxable as fees for technical services in India, under section 9(1)(vii). It was also held that even in terms of the provisions of the tax treaties, the fees for technical services was taxable and the definition of fees for technical services was broad enough to cover any consideration for services of managerial, technical or consultancy nature. On the basis of this line of reasoning, the Assessing Officer once again held that withholding demands under section 201 r.w.s 195, for not deducting the tax at source. 16. The third category of cases, i.e. the cases of residents of the tax jurisdictions with which Indian does not have any tax treaties, did not have any different treatment either. The Assessing Officer noted that the assessee had payments of ₹ 93,88,514 to an Algeria based entity by the name of Chosamentin Kauomas, of ₹ 11,58,53,913 to another Algeria based entity by the name of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is not possible, without expertise, technical skills and knowledge of the highly technical products of the assessee i.e. pipes. iii) Providing information such as market development, activities of competitors intentions and plans of clients. iv) Providing financial information relating to the client. v) Providing information about market condition and possibility of developing business activity. vi) Providing advanced information regarding tenders, purchasing tenders, and relating documents, enquiries of the project, gathering for technical specification of the project etc. this activity of the agent is not an activity usually found in normal commission agents. The agent is an entity having ample knowledge and expertise, technical skills and knowledge for understanding the highly technical projects of the clients vis-a-vis highly technical products manufactured by the assessee. It is not much difficult to understand in view of this, that the services rendered by the agent is not just for export sales commission but in fact much more than that and falls within the ambit of rendering technical services. vii) The agent was also required to assist the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e into play as soon as any export commission was paid or became due; that as per Section 195 (1) of the Act, TDS is to be deducted on any interest or any some chargeable under the Act, which is payable to the non-resident; that according to Section 195 (2) of the Act; when the payer considers that the whole of such sum would not be income chargeable in the case of the recipient, then, the issue is to be decided by the Assessing Officer on an application by the assessee/payer; that a similar application of making the obligation on the payee is cast pay Section 195(3) of the Act, for non-deduction of TDS, or lesser deduction of TDS; that as such, there is no provision in the Act for making the payment to non-residents without deduction of TDS, in the absence of any decision/no objection certificate from the assessing authority u/s 195(2) of the Act; that hence, the commission paid by the assessee company to the non-resident was income due to accrue or arise in India within the meaning of Section 9 of the Act; that the assessee was liable to deduct TDS on the service charges paid by it to the non-resident 18. The above observations were made in the case of Alegria based entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of sub-activities of the overall activity are considered as managing the activity independently, then even a peon carrying cheque for deposit in bank would also claim that he also rendered the managerial services because it was he who planned and then executed the safe deposit of cheque into bank. It would also be worthwhile to refer to the discussion of Hon'ble Delhi Court wherein their lordships have vide para 14 stated that act of Managing includes controlling, directing and administering the business. Nonresident agents whose service is limited to procurement of orders cannot be treated as management services. Therefore, execution of small part of an overall activity independently cannot be considered as rendering of managerial services. 4.9 On perusal of the definition of term Consultancy Services as defined by the Black's Law Dictionary, and the decision of the ITAT Mumbai in the case of UPS SCS (Asia) Ltd., 50 SOT 268 as well as Hon'ble Delhi High Court in the case of Panalfa Autoelektrik Ltd. (supra), I am inclined to agree with the contention of the appellant that providing of consultancy services would mean giving consultation by some professional h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reproduced a chart in its further submissions dated 22.5,2014 citing series of decisions wherein the courts/ tribunals have after taking into consideration the scope of services of export sales commission agent have discussed the applicability of Section 195. The appellant has also compared the scope of services prevalent in the cases relied upon with the scope of services rendered by above commission agents appointed by it The chart is being reproduced hereunder, for better appraisal of the facts: Contention of Assessing Officer Decision relied upon by the appellant in its submissions made before AO, where the scope of the services provided by the assessee are similar to the scope services provide to WCL and referred by AO in the order u/s. 201(1) 201(1A) of the Act, and the courts have ruled in favor of the appellant. i) The obligation of the agent was to develop, expand and promote diligently the sales and the marketing for the products with its best endeavors and facilities. This function could not be performed unless the agent has expertise, technical skills and ample knowledge of the highly technical products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) observation on the activities of competitors; (iv) Agent shall report immediately on particular profitable business possibilities and extraordinary events; (v) Agent is authorized to accept notification of defects by a customer. CIT v. EON Technologies Ltd. [343 ITR 366] (i) Marketing on behalf of assessee engaged in business of development and software; (ii) To invest in and operate the sales and marketing operations from UK. The non-resident agents in the above cases helped the assessee in getting the detailed information about the prevailing market conditions in the territory. Providing advanced information regarding tenders, purchasing tenders and relating documents. The agent neither takes any decision regarding participating in tenders not prepares and copies documentation relevant to the tender. Further it has been specifically mentioned in the agreement that it is in principal's scope to make the offer and to provide all informative data, catalogues and technical material regarding the principal's product and to provide competitive prices as far as possible to enab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied the ruling of Sara International Ltd. 8 DTR 309 (Delhi HC). Against which the appellant has submitted that the ruling was delivered by Hon'ble Delhi HC has finally ruled that the relationship between Sara International and PEC (its agent) was that of a principal and agent and that on analysis of the contract it became clear that M/s PEC was not rendering technical, consultancy and/or managerial services as defined under the Act. Hon'ble Delhi HC also held that all major work was carried out by Sara International and that M/s PEC was just a facilitator in transferring certain contracts of supply of goods. The case law relied by the AO is in fact misplaced and inappropriate. I have also perused the ruling of ITAT in the case of Cochin Device Driven (Cochin ITAT). The ITAT in the said case has made following important observations: - That the commission agent being a director of the company having vast experience and knowledge in the field of the software was managing existing clients and soliciting for business as well; It appears that Mr. Bala was a marketing director of the company. - That the software installation unlike other commodities requires the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 dated 7/2/2000 and submitted that the payments made to Nonresident commission agents could not be taxed in India in absence of the Permanent Establishment/business connection of those agents under Section 9(1)(i) of the Act. The appellant also submitted that the withdrawal of above circulars does not change the provisions of the Act and therefore commission payments can be taxed as business income of the Non-resident entities only. In this respect reliance was placed on the decision of Gujarat Reclaim and Rubber Projects Ltd, (35 taxmann.com 587) and Delhi HC in the case of CIT v/s. Angelique International Ltd. (359 ITR 9) wherein it has been held withdrawal of circular does not change the legal provision Section 5,9 and 195 of the Act Nowhere has the AO held that the Non-resident commission agents have a fixed place of business in the form of a PE in India. Therefore I am inclined to agree with the submissions made by the appellant. Respectfully following the above case laws, I hold that withdrawal of the circular should not make the commission paid taxable in India in absence of their business connection or a permanent establishment in India. 4.18 The AO is also not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation of fees for technical services in India Thailand tax treaty and India UAE tax treaty. There is also no dispute that GMS-Thailand and Afras-UAE did not have any permanent establishments in India. Clearly, therefore, income in the hands of the recipients of this income could neither be taxed in as business income or under the head fees for technical services. 24. The stand of the Revenue, however, is that the income embedded in the amounts received by the assessee could anyway be taxed as other income under the respective tax treaties. There is a decision of a coordinate bench of this Tribunal, in the case of DCIT VS TVS Electronics Ltd [(2012) 52 SOT 287 (Chennai)], which support this school of thought and holds that Admittedly, Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied . This school of thought did not find favour with the very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of a class not expressly dealt with in the preceding articles (e.g. an alimony or a lottery income) as well as income from sources not expressly referred to therein ( e.g. a rent paid by a resident of a Contracting State for the use of immovable property situated in a third State) . The Article covers income arising in third States as well as income from a Contracting State . In other words, an income is of such a nature as, on satisfaction of conditions specified in the related provision, could be taxed under any of these specific treaty provisions, cannot be covered by this residuary clause. Take for example, income earned by a resident of a contracting state by carrying on business in the other contracting state. When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as other income nevertheless. It is imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tities would have been taxable as business income. The income in question is thus clearly dealt with by article 7 read with article 5 and the reason why it has not been taxed is that the entities concerned did not have permanent establishments in India. 28. As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty or, for that purpose, under India UAE tax treaty, with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with the scheme of taxation of business profits under art. 7 and profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rescue of the recipients, and, therefore, the taxability in these cases is to be decided on the basis of the provisions in the domestic law. 31. The scheme of taxability in India, so far as the non residents, are concerned, is like this. Section 5 (2), which deals with the taxability of income in the hands of a non-resident, provides that the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year . There is no dispute that since no part of the operations of the recipient non-residents is carried out in India, no income accrues to these non-residents in India. The case of the revenue hinges on income which is deemed to accrue or arise in India . Coming to the deeming provisions, which are set out in Section 9, we find that the following statutory provisions are relevant in this context: Section 9- Incomes deemed to accrue or arise in India (1) The following incomes will be deemed to accrue or arise in India: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Driers Pvt Ltd [(2012) 343 ITR 385 (AAR)], we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra [(2006) 284 ITR 564] which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(i) properly. That was a case in which the non-resident commission agent worked for procuring participation by other non-resident entities in a food and wine show in India, and the claim of the assessee was that since the agent has not carried out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor participates in the India International Food Wine Show (to be held in India), and makes full and final payment to the applicant in India and that the commission income would, therefore, be taxable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person resident in India, except in certain situations- which are not attracted in the present case anyway, are deemed to be income accruing or arising in India. Explanation 2 to Section 9(1)(vii) defines fees for technical services as any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions 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 [Relevant portion highlighted by underlining] . 35. In the light of the above legal position, what we need to decide at the outset is whether the amounts paid by the assessee to the non-resident agents could be termed as consideration for the rendering of any managerial, technical and consultancy services . As we do so, it is useful to bear in mind the fact that even going by the stand of the Assessing Officer, at best services rendered by the nonresident to the agent included technical services but it is for this reason that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on commission agency business carried out by non-residents for Indian principals is concerned. It does not need much of a cerebral exercise to find out whether the income from the business carried on by a non-resident assessee, as a commission agent and to the extent it can be said to directly or indirectly accruing through or from any business connection in India, is required to be taxed under section 9(1)(i) or under section 9(1)(vii), of the Income Tax Act, 1961. The answer is obvious. Deeming fiction under section 9(1)(i) read with proviso thereto, as we have seen in the earlier discussions, holds the key, and lays down that only to the extent that which the operations of such a business is carried out in India, the income from such a business is taxable in India. When no operations of the business are carried on India, there is no taxability of the profits of such a business in India either. The question then arises whether in a situation in which, in the course of carrying on such business, the assessee has to necessarily render certain services, which are of such a nature as covered by Explanation 2 to Section 9(1)(vii), and even though the assessee is not paid any fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but not limited to the following: 5.1 To act exclusively on behalf of the PRINCIPAL and not source, procure or market products of similar type manufactured by competitive companies without prior written consent of the PRINCIPAL. 5.2 To use its best endeavors and facilities to develop, expand and promote diligently, the sale and the market for the Products. The agent will be responsible of making the necessary market plans and establish the marketing network of representatives to help promote Welspun products. 5.3 To provide the PRINCIPAL with information such as marker developments, activities of competitors, intentions and plans of clients to the maximum of his knowledge. 5.4 Endeavor to provide the PRINCIPAL prompt advance information regarding tenders. To forward to the PRINCIPAL tender documents, inquiries etc, with full technical specifications well ahead - as much as he can - of tender closing. 5.5 The AGENT on behalf of the PRINCIPAL, will purchase tender documents and forward the same to the PRINCIPAL well ahead - as much as he can - of tender closing. The cost of purchase of such tender documents shall be reimbursed by the PRINCIPAL to the AGE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date of signing. The said Agreement can also be terminated by either party anytime giving notice to the other party of at least 90 days in advance by fax and followed by registered letter stating reasons for the termination. The agreement can be reinstated for a further period of two years based on mutual agreement and then after its termination another period of five years. 9.2 In the event of the termination, the AGENT will furnish all the relevant information to the PRINCIPAL and will be responsible for realization of payments outstanding till date within the TERRITORY. Also the AGENT shall return all the customers records and other data relating to the Company's business or Services which may be in his possession. 9.3 In the event of termination, if any contract is concluded after the termination date, but the exercise has commenced prior to the termination date, the agent is entitled for the applicable commissions. SALES COMMISSION FOR THE SONATRACH GK3 PROJECT WELSPUN will pay GLOBAL SYNERGY INTERNATIONAL LTD. in its capacity as agent for WELSPUN a sales commission, based on the FOB mill sales price for the GK 3 project equal to: i) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so procuring business for the assessee but as the contemporary business models require the work of agent cannot simply and only be to obtain the orders for the product, as this obtaining of orders is invariably preceded by and followed by several preparatory and follow up activities. The description of agent s obligation sets out such common ancillary activities as well but that does not override, or relegate, the core agency work. The consideration paid to the agent is also based on the business procured and the agency agreements donot provide for any independent, standalone or specific consideration for these services. The services rendered under the agreement cannot, therefore, be considered to be technical services in nature or character. The services rendered in the course of rendering agency services are essentially business services and to obtain the business. We have also noted that, so far as rendition of technical services is concerned, one of the main points in the case of the revenue, as evident from a plain reading of the impugned order under section 201, is that manufacturing of specialized pipe was a highly technical activity involving very complex technical exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment received by the commission agents is not for this service per se but for generating business orders for the assessee. Generating business or securing orders is an entrepreneurial activity and cannot, by any stretch of logic, be treated as a technical service per se . The same is the position with regard to assistance with respect of logistics, such as shipping and handling services, with respect to sale forecasting, with respect to gathering information on markets, business environment and on specific buyers and with respect to development of sales network. All these services are essentially integral part of, and are thus aimed at, developing business for the assessee and securing orders for the assessee from the right persons. Neither these services can be viewed on a standalone basis divorced from the economic activity of securing orders, nor any payment can be said to be for rendition of these services inasmuch as it is not the rendition of these services but securing business of the assessee which triggers the income accruing to the non-resident agents of the assessee and it is securing of business for the assessee which is the proximate cause of the income accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Section 40(a)(i) of the Act : - Section 40 - Amounts not deductible: Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head Profits and gains of business or profession , - (a) in the case of any assessee - (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable, - (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVIIB and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. [Explanation 1] :............... [Explanation 2.- For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has - (i) a residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. Explanation 4 to Section 9 (1) (i) of the Act: - Section 9 - Income deemed to accrue or arise in India - (1) The following incomes shall be deemed to accrue or arise in India : (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. ** ** ** Explanation 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred that the person making the remittance, namely, the assessee, in the instant case, has committed a default in discharging his tax withholding obligations because such obligations come into existence only when the recipient has a tax liability in India. 9.2 The underlying principle is that, the tax withholding liability of the payer is inherently a vicarious liability on behalf of the receipient and therefore, when the recipient / foreign agent does not have the primary liability to be taxed in respect of income embedded in the receipt, the vicarious liability of the payer to deduct tax does not arise. This vicarious tax withholding liability cannot be invoked, unless primary tax liability of the recipent / foreign agent is established. In this case, the primary tax liability of the foreign agent is not established. Therefore, the vicarious liability on the part of the assessee to deduct the tax at source does not exist. 10. Further, just because, the payer / assessee has not obtained a specified declaration from the Revenue Authorities to the effect that the recipent is not liable to be taxed in India, in respect of the income embedded in the particular payment, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, CIT v. Kikani Exports (P.) Ltd. [2014] 369 ITR 96/[2015] 232 Taxman 255/49 taxmann.com 601 (Mad.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under: - '... the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly deleted.' 16. When the transaction does not atract the provisions of Section 9 of the Act, then there is no question of applying Explanation 4 to Section 9 of the Act. Therefore, the Revenue has no case and the Tax Case Appeal is liable to be dismissed. 6. Clearly, therefore, the payment of commission in the hands of the nonresident agent, as long as such an agent carries ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehousing and pick up services on the cargo exported by Menlo on behalf of its customers. Having noted the nature of services provided by the assessee outside India, for which Menlo India made the payment, let us consider if these can be described as managerial or technical or consultancy services. 7. First we will consider the ambit of 'managerial services' to test whether the instant services can qualify to be so called. Ordinarily the managerial services mean managing the affairs by laying down certain policies, standards and procedures and then evaluating the actual performance in the light of the procedures so laid down. The managerial services contemplate not only execution but also the planning part of the activity to be done. If the overall planning aspect is missing and one has to follow a direction from the other for executing particular job in a particular manner, it cannot be said that the former is managing that affair. It would mean that the directions of the latter are executed simplicity without there being any planning part involved in the execution and also the evaluation of the performance. In the absence of any specific definition of the phrase man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance or the execution of any work. It is only when some consideration is given for rendering some advice or opinion etc., that the same falls within the scope of consultancy services . The word 'consultancy' excludes actual 'execution'. The nature of services, being freight and logistics services provided by the assessee to Menlo India has not been disputed by the authorities below. There is nothing like giving any consultation worth the name. Rather such payment is wholly and exclusively for the execution in the shape of transport, procurement, customs clearance, delivery, warehousing and picking up services. That being the position, we opine that the payment in lieu of freight and logistics services cannot be ranked as consultancy services. 10. The only left over component of the definition of fees for technical services taken note of by the ld. CIT(A) is technical services . He observed that the assessee's business structure is time bound service coupled with continuous real time transmission of information by using and also making available its technology in the form of sophisticated equipments and software etc. The learned CIT(A) has held that : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .O. granted deduction u/s 80 O. By exercising the power u/s 263, the learnedCIT held the assessment order to be erroneous and prejudicial to the interest of the Revenue to the extent of granting deduction u/s 80 0. When the matter came up before the Tribunal, it was observed that the issue is debatable and hence outside the ambit of section 263. Apart from that, it was also observed that the assessee was engaged in integrated air and ground transportation of time sensitive packages to various destinations rendering commercial services. It was in this context that the assessee was held to be eligible for deduction u/s 80 O. At this juncture it will be useful to note that at the material time section 80 O provided for deduction on any 'income by way of royalty, commission, fees or any similar payment received by the assessee from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd software.' He was swayed by the contention of the assessee that the Manlo India or the ultimate customer could track the movement of cargo with the help of computers. We have noted supra that the consideration received by the assessee did not include any consideration for the supply of any equipment to Manlo India. Now we will examine as to whether the use of computer in any manner for knowing the location of the cargo at a particular time, can be held as technical service. 14. Explanation to section 9(1)(vii) defines the expression fees for technical services as consideration for rendering 'managerial, technical or consultancy services'. It is seen that there is no definition of the term technical services in the Act. 15. The principle ofnoscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. This rule is wider in scope than the rule ofejusdem generis. In order to discover the meaning of a word which has not been defined in the Act, the Hon'ble Supreme Court has applied the principle ofnoscitur a sociis in several cases including AravindaParamila Works Vs. CIT [(1999) 237ITR 284 (SC)]. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich similar activities were said to have been performed. In the case of Armyesh Global Vs ACIT [(2012) 51 SOT 564 (Mum)] , the coordinate bench has, inter alia, observed as follows: 16. We have considered the issue and examined the facts on record. The learned Assessing Officer tried to invoke the definitions of technical services on the commission paid to the foreign company. The reason being that commission payment to non resident is not covered by the provisions of section 40(a)(ia), as it has only applicable to any interest royalty, fees for technical services or other sum chargeable under this act which payable outside India on which tax is deductible at source but has not been deducted. The Assessing Officer made out a case that the commission paid is Tees for technical services' without specifying what are the technical/Managerial services rendered by the said company to the assessee. Assessee indeed entered into an agreement for propagation of its handicraft products with the non resident company. The copies of the agreement have been placed before the authorities. The agreement clearly shows that the non resident company was to get commission for promoting the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same time, convey to the principal, the Agent's observations with respect to activities of competitors. The Agent shall report immediately on particular profitable business possibilities and extraordinary events. 2.4. The Agent shall abstain from any competition whatsoever against the principal and shall not promote competition by third persons. In particular, the Agent shall not act for competitive firms as a commercial Agent, Commission Merchant or Distributor, nor shall the Agent associate directly or indirectly with competitive firms. The Agent shall not, for all time exploit or disclose to other persons any business and production secrets of the principal that have been communicated to them or which they have otherwise come to know, irrespective of whether or not the contract is still in force. 2.5 The Agent shall observe the rules of fair competition and be responsible for any violation of the same. 2.6 The Agent is not authorized to accept payments directly in their own name but shall assist the principal in collecting outstanding payments. The Agent is also authorized to accept notification of defects by a customer, as well as the statement of a custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by such person in India or for the purposes of making or earning any income from any source in India : [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.] [Explanation 1. - For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] 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 . 19. As can be seen from the above sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non resident agents are not taxable in India, nothing really turns on the circular, as de hors the aforesaid circular, we have adjudicated upon the taxability of the commission agent s income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions. 42. In view of these discussions, we uphold the relief granted by the CIT(A) and decline to interfere in the matter. 43. In the result, the appeal filed by the Assessing Officer is, therefore, dismissed. 44. We now take up the appeal filed by the assessee. 45. Ground nos 1 and 2, as learned counsel fairly agree, need be taken up for specific adjudication. These grounds are as follows: 1. On the facts and in the circumstances of the case the Learned CIT(A) has grossly erred in holding the assessee to be 'assessee in default' under section 201(1) r.w.s. 201(1A) of the Income-tax Act, 1961 ('the Act'). The Learned CIT(A) ought to have appreciated that no lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon ble Bombay High Court s judgment in the case of DIT Vs Sun and Breadstreet Information Services India Pvt Ltd [(2011) 318 IITR 95 (Bom)]. As for the judgment of Hon ble Karnataka High Court in Samsung s case, we note that it is a non jurisdictional High Court judgment and as there are conflicting decisions of Hon ble non jurisdictional High Courts, we have adopted the one which is in favour of the assessee. That is the only objective method we find for dealing with conflicting opinions of Hon ble non jurisdictional High Courts. As we do so, we may also refer to the following observations made by a coordinate bench of this Tribunal in the case of RKP Co Vs ITO (ITA No 106/Rpr/2016; order dated 24th June 2016): It is thus evident that views of these two High Courts are in direct conflict with each other. Clearly, therefore, there is no meeting ground between these two judgments. The difficulty arises as to which of the Hon ble non jurisdictional High Court is to be foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmiry Ponri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. Therefore, what follows is that in the peculiar circumstances of the case and looking to the nature of the provisions with which we are presently concerned, the view expressed by the Hon ble Delhi High Court in the case of Ansal Landmark (supra), which is in favour of assessee, is required to be followed by us. Revenue does not, therefore, derive any advantage from Hon ble Kerala High Court s decision in the case of Thomas George Muthoot (supra) 51. Ground no. 3 is thus allowed. 52. In ground nos. 4, 5 and 6, which we will take up together, the assessee has raised the following grievance 4. On facts and in circumstances of the case, the Ld. CIT(A) erred in concurring with the view of the Ld. Assessing Officer and holding that supervision charges paid to Buck Subish Millan Company Limited (Trinidad) as Fees for Technical Services both under section 9(1)(vii) of the Act as well as Article 12(3)(b) of DTAA between India and Trinidad. 5. Without prejudice, the Ld. CIT(A) ought to have appreciated the view of appellant that the payments to Buck Subish Millan Company Ltd. (Trinidad) is made for the purpose of earnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 The CIT(A) ought to have appreciated that for the purpose of section 195A, the rates for grossing up should be the rates in force as per section 2(37A) of the Act as against rates as stipulated u/s 206AA of the Act. 57. Learned representatives agree that both the above issues are covered by the coordinate bench decision in the case of DDIT vs Serum Institute of India Pvt Ltd [(2014) 40 ITR (Trib) 684 (Pune)], even as learned Departmental Representative dutifully relied upon the authorities below. 58. We find that so far as the treaty provisions are concerned, the grossing up does not come into play. There is no dispute or controversy about this position, nor, in a treaty situation, the provisions of the domestic law, unfavourable to the assessee, can be pressed into service- as is the unambiguous legal position under section 90(2) of the Act. The provisions of Section 206AA cannot also be, for the same reasons, pressed into service either. While on this issue, a coordinate bench of this Tribunal, in the case of Serum Institute of India (supra), has observed as follows: 7. We have carefully considered the rival submissions. Section 206AA of the Act has been includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent they are beneficial to the assessee. In this context, it would be worthwhile to observe that the DTAAs entered into between India and the other relevant countries in the present context provide for scope of taxation and/or a rate of taxation which was different from the scope/rate prescribed under the Act. For the said reason, assessee deducted the tax at source having regard to the provisions of the respective DTAAs which provided for a beneficial rate of taxation. It would also be relevant to observe that even the charging section 4 as well as section 5 of the Act which deals with the principle of ascertainment of total income under the Act are also subordinate to the principle enshrined in section 90(2) as held by the Hon ble Supreme Court in the case of Azadi Bachao Andolan and Others (supra). Thus, in so far as the applicability of the scope/rate of taxation with respect to the impugned payments make to the non-residents is concerned, no fault can be found with the rate of taxation invoked by the assessee based on the DTAAs, which prescribed for a beneficial rate of taxation. However, the case of the Revenue is that the tax deduction at source was required to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
