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TMI Blog2018 (7) TMI 1982X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of tax at source. The Assessing Officer opined that these payments were not allowable as a deduction in view of non-deduction of tax in terms of section 195 of the Income Tax Act, 1961 (hereinafter called 'the Act'). The assessee was asked to show cause as to why these payments may not be disallowed. In response, the assessee submitted before the Assessing Officer that the obligation to deduct tax at source was attracted only when the payment was chargeable to tax in India u/s 4 of the Act. The assessee also submitted before the Assessing Officer that the commission paid by the assessee to the agents was attributable to the orders booked by them and was not related to any other service and, therefore, on this ground also, the provisions for deduction of tax at source were not attracted. However, the Assessing Officer was of the opinion that in view of section 9(vii)(c) of the Act, the amount being paid as commission was actually in the nature of fees for consultancy services and, therefore, the income of such parties accrued through a business connection in India. The Assessing Officer invoked section 40(i) of the Act and disallowed an amount of Rs. 1,46,00,693/- and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the fact that the agents had rendered services abroad in the form of soliciting the orders and the commission was to be remitted to them abroad was wholly irrelevant for the purpose of determining the situs of their income. Reliance was also placed on the judgment of Hon'ble Apex Court in the case of GVK Industries Ltd. vs. ITO in Civil Appeal No. 7796 of 1997 wherein the Hon'ble Apex Court had held that where the services rendered by the agents pertain to skill, acumen and knowledge in the specialized field, the nature of services would come within the ambit and sweep of the term 'consultancy services' and, therefore, the tax at source would be deductible as the amount paid would be taxable under the head 'fee for technical services'. Ld. Sr. DR submitted that the impugned order deserved to be set aside. 4. In response, the Ld. AR submitted that the conclusion drawn by the Assessing Officer that the agents had provided any other service than that of marketing was factually incorrect. It was submitted that the ld. Commissioner of Income Tax (A) had also examined the various correspondences which had been submitted before the Assessing Officer and had, thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer has referred to certain correspondences and has reached a conclusion that the foreign commission agents were rendering services which were rather in the nature of consultancy services. However, the Ld. Commissioner of Income Tax (A) has reached a conclusion contrary to that of the Assessing Officer in this regard. Although the Ld. Sr. DR has argued vehemently against the impugned act of the Ld. Commissioner of Income Tax (A), he was unable to bring on record any cogent evidence to establish that the services being rendered by the foreign agents were something more than that of an ordinary marketing agent who was procuring orders from the foreign buyers on behalf of the assessee. The ITAT Delhi Bench in the case of Adidas Sourcing Ltd. vs. Asstt. DIT (International Taxation) reported in 150 TTJ 801 (Delhi) had the occasion to distinguish between services rendered under a 'Buying Agency Services Agreement' and 'Fee for Technical Services'. In this case, the coordinate Bench of ITAT Delhi has held that as per Explanation (2) to section 9(1)(vii) of the Act, in order to characterise a particular stream of income as fee for technical services, it is necessary that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided on 13.11.2013. In both these judgments we have held, that A.0. did not bring anything on record, which could demonstrate that nonresident agents were appointed as selling agents, designers or technical advisers. The payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus the TDS was not liable to be deducted under Section 195 of the Act. The disallowance made by A.O. under Section 40 (a) (i) for nondeduction of tax at source under Section 195 were not justified. Shri Bharat Ji Agrawal has tried to distinguish the judgments on the ground that in the present case there was sufficient material by way of written submissions of the assessee, who had stated in his reply on 20.12.2010 that the assessee is engaged in business of manufacture and export of finished leather, shoe upper and leather products. The assessee's main business being export business it has to take the service of foreign agents, who secure export orders and help in execution of such business. For the services rendered by the foreign agents, they are paid commission in foreign exchange by remitting the amount through bank. We find that the CIT (A) has c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Act. 5.3.4 The income of the non-resident was not chargeable to tax in India since the same was neither received in India nor had it accrued or deemed to accrue in India. Accordingly, the appellant was not required to deduct Tax at Source u/s 195 in respect of commission paid to the Foreign Agents. Disallowance u/s 40 (a) (i) is, therefore, deleted." Shri Bharat Ji Agrawal submits that the CIT (A) and ITA T have not considered the explanation added to Section 9 (1) (vii) by the Finance Act, 2010 w.e.f. 1.6.1976 and which provides that for the purpose of second proviso the income of such nonresident shall be deemed to accrue or arise in India under Clause (v) or Clause (vi) or Clause (vii) [of sub-section (1)] and shall be included in total income of non-resident whether or not, nonresident has residence or place of business or business commission in India; or non-resident has rendered services in India. We do not find that the fact situation contemplated or clarified in the explanation added by Finance Act, 2010 is applicable to the present case as in the present case the agents appointed by the assessee had their offices situate in a foreign country and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident to the respondentassessee. The non-resident was not acting as a manager or dealing with administration. It was not controlling the policies or scrutinizing the effectiveness of the policies. It did not perform as a primary executor, any supervisory function whatsoever. This is dear from the facts as recorded by the Commissioner (Appeals), which have been affirmed by the Tribunal. [Para 15] The non-resident, it is dear was appointed as a commission agent for sale of products within the territories specified and subject to and in accordance with the terms set out, which the non-resident accepted. The non-resident, therefore, was acting as an agent for procuring orders and not rendering managerial advice or management services. Further, the respondent-assessee was legally bound with the nonresidents' representations and acts, only when there was a written and signed authorization issued by the respondent-assessee in favour of the non-resident. Thus, the respondent- assessee dictated and directed the non-resident. The Commissioner (Appeals) has also dealt with quantification of the commission and as per agreement, the commission payable was the difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge acquired by the nonresident were for his own benefit and use. The non-resident procured orders on the basis of the said knowledge, information and expertise to secure 'their' commission. It is a case of self-use and benefit, and not giving advice or consultation to the assessee on any field, including how to procure export orders, how to market their products, procure payments etc. The assessee upon receipt of export orders, manufactured the required articles/goods and then the goods produced were exported. There was no element of consultation or advice rendered by the non-resident to the respondent-assessee. [Para 22] The technical services consists of services of technical nature, when special skills or knowledge relating to technical field are required for their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that allows him to do so. In the present case, the aforesaid requisites and required necessities are not satisfied. Indeed, technical, managerial and consultancy services may overlap and it would not be proper to view them in w ..... 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