TMI Blog2019 (5) TMI 1602X X X X Extracts X X X X X X X X Extracts X X X X ..... section but the criteria for satisfying them have also not been established. Even Otherwise Section 9(1)(i) is applicable on the net the profits of a non - resident which can reasonably be attributed to operations carried out in India. In the prsesnt case the agents have not carried out any operations in India. He also did not specify that what kind of services in the nature of Managerial, Technical or consultancy rendered by these agents to assessee to fall the services under the definition of Fees for technical services u/s 9 (1) (vii) . The principle still holds good that the payments to non-resident are liable for tax in India only if they satisfy the test of chargeability in India. In the present case the ld AO has not established it. - Decided in favour of assessee - ITA No. 4049 And 4050/Del/2015 - - - Dated:- 28-5-2019 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri R. K. Mehra, CA For the Revenue : Shri K Hauthang, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These appeals are filed by the revenue against the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16128196/- for Assessment Year 2012-13. 5. Fact for AY 2011-12 shows that assessee filed its return of income on 22.09.2011 declaring income of ₹ 58835330/-. The ld AO found that the assessee has paid a commission of ₹ 13086150/- to foreign commission agent. He asked assessee to furnish copies of the agreement and details of evidence of tax deduction at source u/s 195 of the Act along with evidence of services provided by concern parties. Assessee submitted vide letter dated 30.12.2013 the above information. It was stated that the services have been provided by these commission agent from their respective countries and they do not have any permanent establishment in India. As per the letter dated 15.01.2014 and 21.01.2014 the assessee submitted party wise details of commission along with details of all the emails exchanged with then for the commission payment. The ld AO rejected the explanation of the assessee stating that foreign commission agents were rendering services which included getting approvals of samples of the assessee from the overseas buyers before the stage of production itself, services of negotiating order on behalf of the assessee with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of this he invoked the provisions of section 9(1 )(i) and 9(l)(vii) of the IT Act. It has been submitted that legal position with regard to provisions of section 9(1)(i) was explained to the AO vide letter dated 19.02.2012 which deals with the case where income is accruing or arising whether directly or indirectly through or from any business connection in India and the Explanation-1 deals with such part of income which is reasonable^ attributable to the operations carried out in India whereas section 9(l)(vii) deals with the Income by way of fees for technical services. It has further been submitted that AO also heavily relied upon the withdrawal of circular no. 23 of 1969, circular no. 786 of 2000 vide another circular no. 7 dated 22.10.2009 and reliance has also been placed on the decision of SK Boilers and Driers Pvt. Ltd. reported in (2012) 68 DTR (AAR) 106. 4.1 In the written submissions, it has been explained by Ld. AR that provisions of section 195(1) and 195(2) are not applicable in the case of assessee as it is not required to withhold any tax u/s. 195 while making remittances to payee. It has further been submitted that if the payee was not lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the AO in the order not make any difference whatsoever since it would simply mean that after the withdrawal of the circulars, the law has to be applied as interpreted before the introduction of the beneficial circulars and that there is no change in the language of section 195 of the Act. Further, Ld. AR has filed letter dated 24.02.2015 wherein he made detailed submissions on the issue of commission paid to foreign agents for getting exports order and for rendering incidental services to accomplish exports sales which are not in the nature of fee for technical services in terms of section 9(l)(vii). He, further, relied upon the various decisions of Hon ble Supreme Court, High Courts and ITAT explaining what types of services do not constitute technical services and the consultancy services. In this letter, he has provided the gist of case laws relating to provisions of section 9(i)(vii) along with extracts of decisions of the above judicial authorities. 4.4 I have considered the detailed submission made by the assessee, judicial pronouncements relied upon by Ld. AR and observations of the Assessing Officer in the Assessment Order. The Appellant has placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. Therefore it is not a case where the non-resident agents are carrying on any business activity in India. Assessee has engaged the services of non-resident agents outside India on pure commercial considerations for its sales outside India and also to pursue the payments to be made by the purchasers as located abroad. 10. The ld AO has also not established that what is the business connection of those agents in India in terms of provisions of section 9(1) (i) of the act. The ld AO has merely mentioned these section but the criteria for satisfying them have also not been established. Even Otherwise Section 9(1)(i) is applicable on the net the profits of a non - resident which can reasonably be attributed to operations carried out in India. In the prsesnt case the agents have not carried out any operations in India. 11. He also did not specify that what kind of services in the nature of Managerial, Technical or consultancy rendered by these agents to assessee to fall the services under the definition of Fees for technical services u/s 9 (1) (vii) of the act . 12. It is also true that Circular No. 23 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1, Ahmedabad vs. Bio Tech Vision Care (P.) Ltd. [2018] 93 taxmann.com 20 (Ahmedabad - Trib.) [18-04-2018] iv. Bengal Tea Fabrics Ltd. vs. Deputy Commissioner of Income Tax, Circle-4, Kolkata [2018] 91 taxmann.com 38 (Kolkata - Trib.) [28-02- 2018] v. Divya Creation vs. Assistant Commissioner of Income-tax, Circle-2, Noida [2017] 86 taxmann.com 276 (Delhi - Trib.) [14-09-2017] vi. Inductotherm (India) (P.) Ltd. vs. Deputy Commissioner of Income-tax, Circle-4, Ahmedabad [2017] 83 taxmann.com 181 (Ahmedabad - Trib.) [24-05-2017] vii. Deputy Commissioner of Income-tax, Circle 2 (1) (1), Ahmedabad vs. Elitecore Technologies (P.) Ltd. [2017] 80 taxmann.com 6 (Ahmedabad - Trib.) [31-03-2017] viii. Deputy Commissioner of Income-tax (International Taxation), Ahmedabad vs. Welspun Corporation Ltd. [2017] 77 taxmann.com 165 (Ahmedabad - Trib.) [03-01-2017] ix. G. Shoes Exports vs. Assistant Commissioner of Income-tax, Mumbai [2016] 75 taxmann.com 133 (Mumbai - Trib.) [24-10-2016] x. Deputy Commissioner of Income-tax (OSD) Circle-8, Ahmedabad vs. Troikaa Pharmaceuticals Ltd. [2017] 88 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection that the tax should be deducted at source @ 20% recorded in the order dated 4th May, 2010, was modified/reduced to 10% vide order dated 8th November, 2010 after recording that deduction at a higher rate would not be applicable in the present case. 5. The Commissioner of Income Tax (Appeals), however, reversed the aforesaid finding holding that the commission payment in the present case was not in the nature of 'fee for technical service' and he distinguished the decision in the case of Wallace Pharmaceuticals P. Ltd. ( supra ). The said finding has been affirmed by the Tribunal in the impugned order. 6. In order to appreciate the controversy, we would first like to refer and interpret Sections 5(2), 9(1)(i) and 9(1)(vii) of the Act, though, the Assessing Officer in the present case had not invoked Section 9(1)(i) of the Act. The relevant provisions read as under:- '5. Scope of total income . - ** ** ** (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken by the recipient, or consideration which would be income of the recipient chargeable under the head Salaries .' 7. Section 5(2) states that total income of a person, who is a nonresident, includes income from all sources which (a) is received or deemed to be received in India in such year by or on behalf of such person; (b) accrues or arises in India; or (c) is deemed to accrue or arise in such year in India. Explanation 1 of the aforesaid section clarifies that income accruing or arising out of India shall not be deemed to be received in India by reason of the fact that it is taken into account in a balance sheet prepared in India. We are required to decide, whether the commission paid to non-resident would be income deemed to be earned in India. 8. Section 9, as is clear from the heading itself, does not deal with income which is received or accrued or has arisen in India but deals with income which does not fall under any of the aforesaid categories. Section 9 creates a deeming fiction of income which is not received in India or accrues or arises in India but is deemed to accrue or arise in India. While interpreting a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/197 of the Act has relied upon the judgment in the case of Wallace Pharmaceuticals (P.) Ltd . ( supra ), which has been distinguished on facts by the first appellate authority and the Tribunal. The factual matrix, including the agreement between the assessee and the non-resident and the terms, have not been spoken of by the Assessing Officer. These have been referred to and examined by the Commissioner of Income Tax (Appeals). But first, we examine Section 9(1)(vii) of the Act. 12. In the present case, clause (b) to Section 9(1)(vii) would be applicable as the respondent-assessee, the payer was a resident of India. The exceptions carved out under clause (b) are not applicable as it is not the case of the respondent-assessee that the fee paid was in respect of services to be utilised in business or profession carried out by the payer outside India, or for the purpose of making or earning of any income from any source outside India. The respondent-assessee's manufacturing unit was in India and it would be proper to hold that the source of income would be the manufacturing unit of the respondent-assessee in India, even if the sale proceeds were on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional management.' Recently this Court in CIT v. Bharti Cellular Ltd. , [2009] 319 ITR 139/[2008] 175 Taxman 573 had observed:- 'The word manager has been defined, inter alia, as: a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc. It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression manager and consequently managerial service has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.' Reference can be also made to the decision of the Authority for Advance Rulings in Intertek Testing Services India (P.) Ltd. , In re [2008] 307 ITR 418/175 Taxman 375, wherein it was elucidated:- 'First, about the connotation of the term managerial . The adjective managerial relates to manager or management. Manager is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction contemplated herein at the date of execution of this agreement and at any time in future during the terms of this agreement shall be deducted from the commission (as described herein above) before the same is paid and transferred to the bank account of AGENTA (herein referred to as the commission payable) 16. The non-resident, it is clear 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 non-residents' representations and acts, only when there was a written and signed authorization issued by the respondent-assessee in favour of the nonresident. Thus, the respondent-assessee dictated and directed the nonresident. The Commissioner of Income Tax (Appeals) has also dealt with quantification of the commission and as per clause 4, the commission payable was the difference between the price stipulated in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case. The non-resident had not undertaken or performed technical services , where special skills or knowledge relating to a technical field were required. Technical field would mean applied sciences or craftsmanship involving special skills or knowledge but not fields such as arts or human sciences (see paragraph 24 below). 20. The moot question and issue is whether the non-resident was providing consultancy services. In other words, what do you mean by the term consultancy services ? This Court in Bharti Cellular Ltd. ( supra ) had referred to the term consultancy services in the following words:- '14. Similarly, the word consultancy has been defined in the said Dictionary as the work or position of a consultant; a department of consultants. Consultant itself has been defined, inter alia, as a person who gives professional advice or services in a specialized field. It is obvious that the word consultant is a derivative of the word consult which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said Dictionary as ask advice for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation and expertise to secure their commission. It is a case of self-use and benefit, and not giving advice or consultation to the respondent-assessee on any field, including how to procure export orders, how to market their products, procure payments etc. The respondent-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 advise rendered by the non-resident to the respondent-assessee. 23. Decision in the case of Wallace Pharmaceuticals (P.) Ltd. ( supra ) is clearly distinguishable as in the said case the non-resident consultant had to perform several services in the nature of attending meetings on mutually agreeable dates and providing advice and counselling, which were in the nature of consultancy services as they entailed support from a product team, compliance with all legal and administrative formalities, including registration and marketing strategy, creation of entry into new markets, development and distribution channels, etc. The work being rendered was in the nature of services as a consultant to the Indian assessee. It included an el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve the provision of the use of, or access to, data and software (see, for example, categories 7, 8, 9, 11, 13, 15, 16, 20 and 21 in annex 2). The service of making such data and software, or functionality of that data or software, available for a fee is not, however, a service of a technical nature. The fact that the development of the necessary data and software might itself require substantial technical skills is irrelevant as the service provided to the client is not the development of that data and software (which may well be done by someone other than the supplier) but rather the service of making the data and software available to that client. For example, the mere provision of access to a troubleshooting database would not require more than having available such a database and the necessary software to access it. A payment relating to the provision of such access would not, therefore, relate to a service of a technical nature. Managerial services 43. The Group considers that services of a managerial nature are services rendered in performing management functions. The Group did not attempt to give a definition of management for that purpose but noted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Estel Communication (P.) Ltd. [2009] 318 ITR 185 (Del) and Skycell Communications Ltd. ( supra )]. 25. Thus, 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 allow 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 watertight compartments, but in the present case this issue or differentiation is again not relevant. 16. Further LD DR could not show us any infirmity in the order of the LD CIT (A), we also do not find any infirmity in the order of the LD CIT (A), and hence, the disallowance made by the LD AO has correctly been deleted by the LD CIT (A). Hence we confirm the order of the LD CT (A). Accordingly the entire three grounds rose in appeal for AY 2011-12 is dismissed. 17. Coming t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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