TMI Blog2019 (5) TMI 1372X X X X Extracts X X X X X X X X Extracts X X X X ..... relying on TORRENT PHARMACEUTICALS LTD. [ 2013 (4) TMI 570 - GUJARAT HIGH COURT] expenses incurred by the assessee towards registration fees, evaluation and analysis charges, translation notarization of dossiers require to be allowed to the assessee. TDS liability on Market research of new pharma products and market survey charges debited by the assessee - Held that:- These are the information which will be used by the assessee for exploring new business venture and enhancing its capacity to conduct new business. Certainly, such information will fall within the managerial, technical consultancy services, therefore, the assessee was required to deduct TDS. Since the assessee has failed to deduct TDS on these payments, they deserve to be disallowed. - ITA No. 2136/Ahd/2017 - - - Dated:- 5-4-2019 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER For The Assessee : Shri S.N. Soparkar, AR For The Revenue : Shri Vinod Tanwani, Sr. DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER : Assessee is in appeal before the Tribunal against order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,215,547 Liasoning and Commission Commission @15% 113,9 6,170,229 326,6 17,973,760 4. Apart from the above, the ld.AO further found that the assessee has debited certain payments viz. ₹ 77,99,293.46/- (₹ 5,56,543.46/- on 16.01.2013 and ₹ 72,42,750/- on 20.02.2013) in ledger of Marketing expenses against Carlos Avila Guilermo Celi. As per narration mentioned in the ledger furnished by the assessee during the course of assessment, these payments under the head marketing expense were made for Market Survey Charges for three months and Registration fees, edisseur evaluation analysis charges, transaction and notorization of dossiers, market analysis tender survey respectively. Thus, total payment of ₹ 2,57,73,053/- has been made to CACMILSA/ Carlos Avila Guilermo Celli. 5. The ld.AO took note of the total payments of ₹ 2,57,73,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, TDS was required to be deducted on such payments under section 195. In the absence of the same the concerned expenses are liable to be disallowed under section 40(a)(i) of the Act. Hence, payments of ₹ 2,57,73,053/- made to CACMILSA (Mr. Carios G. Avila Celi) are being disallowed. Penalty u/s. 271(1)(c) is separately initiated for furnishing inaccurate particulars of income. 6. Dissatisfied with this order of the AO, the assessee carried the matter in appeal before the ld.CIT(A) who reproduced the assessment order as well as submissions of the assessee, but concurred with the AO. Brief finding recorded by the ld.CIT(A) reads as under: 5.7 In the rejoinder to the remand report, appellant has again mentioned that services that were provided by CACMILSA in the form of commission agent and hence chargeability to tax did not arise as per section 9 of the Act. I do not agree with the contention of the appellant. The services that have been provided by CACMILSA to the appellant have been mentioned in the agreement that was entered between the two. The first clause of the agreement itself mentions that Commercial Advisor that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is charges, transportation and notarization of dossiers, market analysis and tender survey. It is apparent from the narration mentioned that the appellant has spent this amount for market survey as well as consultancy services which lead to the award of contract from Government of Ecuador to the appellant. The expenditure made on market survey and consultancy services purely fall within the domain of 'Fees for Technical Services.' As the agency namely CACMILSA was specialized agency in the Pharmaceutical sector, it was able to provide correct consultancy services to the appellant which has resulted into awarding of contract to the appellant by Government of Ecuador. Therefore, I do not think that payment for market survey and consultancy services made to CACMILSA as a commission agent but were made on obtaining consultancy services on marketing of drugs to the said country. In the light of above referred facts, payment made to CACMILSA for ₹ 2,57,73,053/- (₹ 1,79,73,760 + ₹ 77,99,293} are in the form of payment for Fees for Technical Services the appellant was obliged to deduct tax at source u/s.195 of the Act. On failure of the appellant to deduct tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide Medical Units of the IESS in accordance with the schedule; if required, it must have a cold chain and space in accordance with standards. . . . . . . 23.02 All expenses derived from this contract will be home by the IMPORTER. In case of termination of mutual agreement, the payment of the notarial rights and of the copies will be at the expenses of the IMPORTER. . . . . . . 8. Taking us through complete agreement, the ld.counsel for the assessee appraised us that basically this agreement contemplates that foreign country has accepted its requirement for import of certain drugs, and in order to determine that requirement a brief background has been given in the contract itself as to how the requirement has been assessed by the contractee, and how the contract has been executed. According to the ld.counsel for the assessee, though this aspect is not relevant for adjudication of the controversy in hand, but in order to demonstrate that, this contract was entertained with the assessee by the Government of Ecuador at arm s length price. Both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat both the Revenue authorities have failed to construe the meaning of expression managerial, technical and consultancy services employed in Explanation to section 9 while harping that such payment involved such services. He pointed out that had any consultancy/opinion given by CACMILSA being used by the assessee within India for enhancing its business, then payment qua that could be at most in the field of managerial and consultancy services. But here the payments have been made for fulfillment of obligations of different services required to be rendered outside India. These obligations were of the assessee under the agreement entered into with Government of Ecuador for the supply of drugs. The CACMILSA is only a service provider in different fields, i.e. delivery, logistics, packaging etc. The assessee has bifurcated the payments made to such CACMILSA under four different categories i.e. local logistic cost at Ecuador, supply of goods to various hospitals, custom clearance at Ecuador, liaisoning and commissioning. Three out of four components of the bifurcation extracted (supra) represent reimbursement. He pointed out that bifurcation of the expenses have been reproduced by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition given in Explanation 2 to section 9(1)(vii) of the Income Tax Act. If yes, then on account of non-deduction of TDS under section 195 of the Act, payments are not allowable as deduction under section 40(a)(ia) of the Act. It emerges out from the record that the assessee was awarded tender by Ministry of Ecuador for supply of medicines to its 300 hospitals across country. The assessee had hired a local agency from Ecuador (Director Carlos Avila Guilermo Celi) in order to undertake various activities to fulfill conditions of the tender. We have extracted extensively different clauses of the agreement entered into by the assessee with Ecuador government. A perusal of those clauses along with finding recorded by the ld.Revenue authorities, it would reveal that these activities included liaison with the local authorities, registration of products at Ecuador, export of goods to Ecuador, clearing of goods from custom authorities, storage in warehouse, re-packaging the goods hospital wise and physical delivery of goods to various hospitals across the country. The assessee had entered into an agreement on 21.11.2012 with CACMILSA. As per this agreement, appellant was required to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,973,760 11. On behalf of the assessee, a large number of decisions were relied upon by the ld.counsel for the assessee. We find that ITAT, Mumbai in the case of UPS SCS (Asia) Ltd. Vs. ACIT (supra) has made analysis of the scope of Explanation-2 appended to section 9 of the Act. This Explanation reads as under: 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 . 12. A bare perusal of the above provision would indicate that fee 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. A perusal of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for technical services being consultancy are concerned, it would be applicable if some consideration is given for rendering some advice, opinion etc. for the execution of any work. Now consideration was equivalent to 45% of the value of the order from Ecuador. Out of this 45%, 8% was allocated towards logistic cost of Ecuador; 10% towards supply of goods to various hospitals i.e. cost of distribution and operation; 10% was allocated towards custom clearance i.e. 10% of the invoice value of import and custom clearance etc.; 15% for liaison and commission for the purpose of fulfillment of these activities. According to the assessee, these are simplicitor reimbursement of actual expenditure as well as commission to foreign agents for performing these activities on behalf the assessee. The assessee has not debited any other expenditure separately in his account, more so, the AO himself has not raised any doubt about incurrence of expenditure. How it could be said that the expenditure debited under these heads amounts to some technical services or managerial services paid by the assessee ? It is also pertinent to observe that all these services have been rendered in Ecuador out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion paid by the assessee to the non-resident agent would come under the term fees for technical services . In the case on hand, for procuring orders for leather business from overseas buyers - wholesalers or retailers, as the case may be, the non-resident agent is paid 2.5 per cent. commission on FOB basis. That appears to be a commission simpliciter. What is the nature of technical service that the so-called nonresident agent has provided abroad to the assessee is not clear from the order of the Assessing Officer. The opening of letters of credit for the purpose of completing export obligation is an incident of export and, therefore, the non-resident agent is under an obligation to render such services to the assessee, for which commission is paid. The non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India. The services rendered by the nonresident agent can at best be called as a service for completion of the export commitment. We are, therefore, of the considered opinion that the commission paid to the non-resident agent will not fall within the definition of fees for technical services. 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.02.2013 Registration fees, edisseur evaluation analysis charges, translation notarization of dossiers, market analysis tender survey 7242750 17. At the time of hearing, the ld.counsel for the assessee submitted that Hon ble Gujarat High Court in the case of CIT Vs. Torrent Pharmaceuticals Ltd., 29 taxmann.com 405 (Guj) has laid down that expenses incurred by the assessee in foreign country for registration of its products for marketing and promoting sales is to be allowed as revenue expenditure. He placed on record judgment of Hon ble Gujarat High Court in the case of CIT Vs. Torrent Pharmaceuticals (supra). Hon ble High Court took note of the finding recorded by the Tribunal, and thereafter laid down as under: Further, these payments are made to drug regulatory authorities in various countries for the products market in the respective countries. Furthermore, these fees are to be paid on recurring basis depending upon the validity of the various registrations. The fees have been paid on expiry of the registration and out of total payment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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