TMI Blog2018 (7) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... ata s separate orders both dated 09.06.2015 passed in Appeal Nos.1359 1408/CIT(A)-24/(12-13) (13-14)/15-16 respectively; reversing the Assessing Officer s action raising principal and interest demands of ₹ 72,05,567/- and ₹ 23,05,781/- in former and ₹ 63,44,293/- and ₹ 14,59,187/- in latter assessment year; respectively, on account of tax payer s failure in deducting TDS on export commission paid to various UAE based payees, involving proceedings u/s 201(1)/201(1A) of the Income Tax Act, 1961 (Act). Both Learned Representatives state at the outset that the relevant facts giving rise to the impugned identical foreign export commission payments involve a common issue. We thus take up former assessment year 2012-13 in appeal No.1144/Kol/2015 as the lead case. 2. This assessee is a company engaged in hosiery business. It admittedly incurred the impugned export commission in case of four Dubai based payees M/s Profile Trading Company, Dubai, M/s Pierre Donna Cloths Trading, M/s Ali Rashed Al Abdooli Trading and M/s Yellow Flower Trading Company involving sums of ₹ 47,12,450/-, ₹ 1,84,303/-, ₹ 41,493/- and ₹ 1,22,08,069 respectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. 4) The Agents received the entire commission through remittances made by the appellant to the foreign territory and no part of the commission was paid to them in India. 5) The payment of commission was made to the foreign agents only after the receipts of the sale proceeds by the Indian Manufacturer. In the above facts of the case, the learned A.O. has held that since the goods are manufactured and / or supplied from India .and the payment is received by the agent only after the receipts of the sale proceeds by the Indian Exporter, the income earned by the agent accrues or arises in India and is therefore taxable in India and the appellant ought to have deducted TDS on same under section 195 of the Income Tax Act, 1961. On the contrary, the A. R. of the appellant has in his written submission stated that as the foreign agent is a non resident and has no permanent establishment in India as we1I as the fact that none of the services is rendered by the foreign agent in India and no part of the payment is made to him in India the income accruing to the foreign agent cannot be deemed to accrue or arise in India. The learned A. R. for the appellant has also referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the foreign territory. Further, the fact that the said commission becomes payable to the agent only after the receipt of the sales proceeds by the appellant in India also does not alter the character of the income because terms of payment has no bearing on the character of income, In this case., the income accrues to the foreign agent on the sales of goods but the same is payable only after the receipt of sales proceeds by the exporter. This has no material effect on the nature of income of the agent. I am also in agreement with the alternative argument put forward by the A.R. of the appellant that even if it is assumed that the income accruing to the foreign agent accrues or arises in India, the same is not taxable in view of the Double Taxation Avoidance Agreement between India and the U.A.E. I, therefore, hold that no TDS was to be deducted u/s 195 in respect of commission paid by the appellant to the foreign agents. 4. Learned Departmental Representative vehemently contends during the course of hearing that the CIT(A) has erred in law as well as on facts in concluding that the assesee s payments are not liable to be taxed in India qua the impugned targeted sale export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch person outside India or for the purposes of making or earning any income from any source outside India; or (c)** ** ** Explanation 1-.............* 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 .' * Not relevant for our purposes 32. So far as deeming fiction under section 9(1)(i) is concerned, it cannot be invoked in the present case since no part of the operations of the recipient's business, as commission agent, was carried out in India. Even though deeming fiction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent's business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations were carried out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of. The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency agreement, is the event of securing orders and not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order. In a reverse situation, in which an agent renders all the alleged technical services but does not secure any order for the principal i.e. the assessee, the agent is not entitled to any commission. Clearly, therefore, the event triggering the earnings by the agent is securing the business and not rendition of any services. In this view of the matter, in our considered view, the amounts paid by the assessee to its non-resident agents, even in the event of holding that the agents did indeed render technical services, cannot be said to be consideration for rendering of any managerial, technical or consultancy services (Emphasis by underlining supplied by us) . The services rendered by the agents, even if these services are held to be in the nature of technical services, may be technical services, but the amounts paid by the assessee are not for the rendition of these technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian principal, the consideration for securing business cannot be taxed under section 9(1)(vii) at all. This profits of such a business can have taxability in India only to the extent such profits relate to the business operations in India, but then, as are the admitted facts of this case, no part of operations of business were carried out in India. The commission agents employed by the assessee, therefore, did not have any tax liability in India in respect of the commission agency business so carried out. 37. On a more fundamental note, however, it is also a settled legal position by now that the services of the nature rendered by these commission agents cannot anyway be treated as fees for technical services anyway. Viewed thus, even the discussion on whether the amounts in question could be treated as 'consideration' for technical services, may be rendered academic in effect. Learned CIT(A) has very well summarized the judicial precedents in support of this line of reasoning, and, in an erudite and extended discussion, dealt with each limb of the definition of technical services. These findings are reproduced by us earlier in this order. While, for the sake of bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L in all possible way, as and when requested by the PRINCIPAL for the fulfillment of its obligations, in case of a contract within the TERRITORY. It includes assisting the PRINCIPAL in identifying subcontractors like logistics, shippers, cargo handling agencies for smooth execution of such contracts. 5.9a To send the PRINCIPAL periodic reports on business activity. 5.9b To keep the PRINCIPAL continuously apprises of all relevant Political/ Economic changes which would affect tie business, 5.9c To undertake not to divulge sales documents, catalogues, prices etc. to competitors and their agents and associates. Article 7 - PRINCIPAL'S OBLIGATIONS During the continuance of this Agreement the PRINCIPAL agrees : 7.1 To give the AGENT full support for promoting and creating market for the products of the PRINCIPAL in the TERRITORY. 7.2 To inform the AGENT on receipt of an inquiry from the TERRITORY requiring direct supply . 7.3 The AGENT shall be entitled to commission as agreed upon in the contract. ITA No. 1534/Ahd/2015 M/s. Panasonic Energy Inddia Co Ltd vs. Pri. CIT Assessment year: 2009-107.4 To take into consideration the recommendations made by the AGENT whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to 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) 4.10% of the FOB Mill value in U.S. Dollar for the quantity shipped is last ITA No. 1534/Ahd/2015 M/s. Panasonic Energy Inddia Co Ltd vs. Pri. CIT Assessment year: 2009-10 (18 ) Shipment. (a) GLOBAL SYNERGY INTERNATIONAL LTD agrees to unconditionally to fulfill the scope set therein by the virtue of this addendum. (b) This commission is over the above the commission payable by Welspun to Global Synergy as specified in Annexure-1 of Agency agreement dated 29th day of June, 2008. All sales commission shall be paid in U.S. Dollars to the bank account to be advised by GLOBAL SYNERGY, details of which are available with WELSPUN. Unless otherwise agreed, the sales commission shall be payable by WELSPUN to GLOBAL SYNERGY INTERNATIONAL LTD., as interim payments on prorate basis after realization of the payments received by the PRINCIPAL within a reasonable time but not exceeding 30 days from receipt of payment by WELSPUN. 38. As is clear from the above provisions of the agreement, the work that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent. Whether a salesman sells a handcrafted souvenir or a top of the line laptop, he is selling nevertheless. It will be absurd to suggest that in the former case, he is selling and the latter, he will be rendering technical services. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical details, is only towards the end of selling. In a technology driven world that we live in, even simplest of day to day gadgets that we use are fairly technical and complex. Undoubtedly when a technical product is being sold, the person selling the product should be familiar with technical specifications of the product but then this aspect of the matter does not anyway change the economic activity. Nothing, therefore, turns on the details of the products being technical. It was also noted that by the Assessing Officer that it is a very technical exercise to obtain the contracts since it involves complex process requiring elaborate discussion, technical expertise and present of complex technical presentation, on behalf of the assessee, which can only be done by a specialist in this field so as to convince the clients about Welsp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial precedents- including Hon'ble Madras High Court's judgment in the case of CIT v. Farida Leather Co. [(2016) 66 taxmann.com 321 (Madras)], wherein Their Lordships have, inter alia, observed as follows: 5. The main contention of the learned counsel for the assessee/respondent is that the agency commission/sales commission paid by the assessee to ITA No. 1534/Ahd/2015 M/s. Panasonic Energy Inddia Co Ltd vs. Pri. CIT Assessment year: 2009-10 non-resident agents, for the services rendered by them, outside India, in procuring export orders for the assessee, would not attract or partake the character of fees for technical services as explained in the context of 9(1)(vii) of the Act and therefore, there is no scope for the application of the provisions of Section 195 of the Act (Tax Deducted at Source). It is also contended that as the non-resident agents have neither business connection in India nor they have permanent establishment in India, they are liable to be taxed in India. 5.1 Yet another contention of the learned counsel for the assessee is that: (a) the assessee paid the amount by way of commission to foreign agents for the services rendered out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thirty per cent of, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub- clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.' (ii) Explanation 2 to Section 195(1) of the Act :-- 'Section 195 - Other sums: (1) Any person responsible for paying to a non- resident not being a company, or to a foreign company, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sub-clause made applicable to interest have been extended to payment of royalty, technical fees and any other sum chargeable under this Act. The section provides that the sums covered by the sub-clause, which are chargeable under the Act and are payable outside India, shall not be allowed as an expenditure to the assessee, unless tax is paid thereon or is deducted therefrom under Chapter XVII-B of the Act. 7.3 Section 195(1) of the Act deals with deduction of tax from payment to non- residents and foreign companies. Section 195(1) of the Act comes into play at a stage where the payer, who is enjoined to deduct the tax, either credit such income to the account of the payee or make payment thereof, whether in cash / cheque / draft or any other mode. The taxability of such amount in the hands of the payee or occasioning of the taxable event is alien for the purpose of Section 195(1) of the Act. 7.4 Section 195(2) is an enabling provision, enabling an assessee to file an application before the Assessing Officer to determine the appropriate proportion of the sum chargeable and upon such determination, the tax has to be deducted under Section 195(1) of the Act. The payment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly to the non-residents abroad, does not involve any technical knowledge or assistance in technical operations or other support in respect of any other technical matters. It also does not require any contribution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of fees for technical services as explained in the context of Section 9(1)(vii) of the Act. 12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical services and therefore, explanation (2) to Section 9(1)(vii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above quoted provision indicates that the fees for technical services means any consideration for rendering of any managerial, technical or consultancy services but does not include the consideration for any construction, assembly etc. The learned CIT(A) has held the services rendered by the assessee as fees for technical services' coming with in the sweep of managerial, technical or consultancy services . On the contrary, the contention of the assessee has remained before the authorities below as well as us that the such services do not fall within the ambit of any of the categories taken note of by the authorities below. We will examine as to whether the services so provided by the assessee fall within the scope of 'managerial, technical or consultancy services' as per Explanation 2 to section 9(1)(vii). 6. In order to appreciate the nature of services more elaborately, it is relevant to consider the terms of the Agreement entered into between the assessee and Menlo India executed on November 7, 2006 with effect from 1st June, 2005, a copy of which is available on page 1 onwards of the paper book. The scope of services has been given in clause 1.1. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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