TMI Blog2021 (1) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... c. and that foreign agents who have received the commission have been working for the assessee for the past many years and if at all foreign agents are liable for making payment of income-tax, they are liable to pay the same in their own countries where they are working for gains and earned their income by way of commission from the assessee. As relying on assessee's own case [ 2019 (5) TMI 1602 - ITAT DELHI ] we are of the considered view that ld. CIT (A) has rightly deleted the addition made by the AO u/s 40(a)(ia) of the Act treating the same being not covered under the ambit of fee for technical services u/s 9 or 195 of the Act. - Decided in favour of assessee. - ITA No.4215/Del./2017 - - - Dated:- 29-1-2021 - Shri Anil Chaturvedi, Accountant Member And Shri Kuldip Singh, Judicial Member For the Assessee : Shri R.K. Mehra, CA For the Revenue : Shri Shailesh Kumar, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, ACIT, Circle 14 (1), New Delhi (hereinafter referred to as the Revenue ) by filing the present appeal sought to set aside the impugned order dated 10.04.2017 passed by the Commissioner of Income-tax (Appeals)-5, Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made by the AO u/s 40(a)(ia) of the Income-tax Act, 1961 (for short the Act ) as the services rendered by the foreign company towards sales promotions procurement of export services falls under sections 9/195 of the Act. 6. However, on the other hand, to repel the arguments addressed by the ld. DR for the Revenue, ld. AR for the assessee contended that since none of the services have been rendered by the foreign agent in India nor the payment of commission has been made in India, ld. CIT (A) has rightly deleted the addition and relied upon the order passed by the ld. CIT (A). 7. At the same time, ld. AR for the assessee contended that the issue in controversy is covered in favour of the assessee by the order passed by the Tribunal in assessee s own case in AYs 2011- 12 2012-13 in ITA Nos.4049 4050/Del/2015 order dated 28.05.2019 . 8. We have perused the order passed by the ld. CIT (A) who has thrashed the facts in detail and particularly in paras 3.1 3.2 of the impugned order discussed the factum of rendering services by overseas agent to the assessee and also discussed the detail of foreign commission agent whom payment of commission has been made. 9. Undi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant provisions read as under:- 5. Scope of total income.-- xxx (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a nonresident 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. Explanation 1.--Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India. xxx 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-1--For the purposes of this clause-- (a) in the case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reting a deeming clause, the courts have to be cautious that they should not expand the scope beyond what is mandated and required by the deeming clause. The deeming clause by its very nature enacts a fiction to treat what is unreal as real and, therefore, unless the situation is covered under the language of the provision, its scope should not be expanded and widened beyond what is clearly apparent and perceivable. In such cases, purpose should be ascertained why the legal fiction is created and then full effect should be given to it without being boggled down or bidden when it comes to the inevitable corollaries, because we imagine the unreal as real. 9. Section 9(1)(i) brings to tax income of a non-resident accruing or arising, whether directly or indirectly, through and from any business connection in India, or through or from any property in India etc. 10. What is meant by business connection ‟ has been interpreted by the Supreme Court in the case of CIT, Punjab versus R.D. Aggarwal and Co. [1965] 56 ITR 20 and subsequently in Barendra Prasad Ray versus ITO [1981] 129 ITR 295. We need not dwell on the said aspect in detail for several reasons, though Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the non-resident would be covered under the expression, fee for technical services as defined in Explanation 2 quoted above. There are three categories of technical services as per Explanation 2; managerial services, technical services and consultancy services, and it includes provisions for services of technical and other personnel albeit there are specific exclusions, but we are not concerned with the same in the present appeal. 14. The expressions managerial, technical and consultancy services have not been defined either under the Act or under the General Clauses Act, 1897. The said terms have to be read together with the word services ‟ to understand and appreciate their purport and meaning. We have to examine the general or common usage of these words or expressions, how they are interpreted and understood by the persons engaged in business and by the common man who is aware and understands the said terms. The expression management services was elucidated upon by this Court in J.K. (Bombay) Limited versus CBDT and Another, [1979] 118 ITR 312 in the following terms:- 6. It may be asked whether management is not a technical service. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering the business. 15. The services rendered, the procurement of export orders, etc. cannot be treated as management services provided by the non- resident to the respondent-assessee. The non-resident was not acting as a manager or dealing with administration. It was not controlling the policies or scrutinising the effectiveness of the policies. It did not perform as a primary executor, any supervisory function whatsoever. This is clear from the facts as recorded by the Commissioner of Income Tax (Appeals), which have been affirmed by the Tribunal. The Commissioner of Income Tax (Appeals) has quoted excerpts of the agreement between the respondent-assessee, who has been described as PAL ‟ , and the non-resident, who has been described as AGENTA ‟ . The relevant portions thereof read as under:- 2. Appointment (1) PAL hereby appoint AGENTA as its commission agent for sale of its products within the territory to the purchaser(s) during the terms of this agreement, subject to and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, has not placed copy of the agreement to contend that the aforesaid clauses do not represent the true nature of the transaction. The Assessing Officer in his order had not bothered to refer and to examine the relevant clauses, which certainly was not the right way to deal with the issue and question. 18. It would be incongruous to hold that the non-resident was providing technical services. To quote from Skycell Communications Ltd. and Anr. Vs. Deputy Commissioner of Income Tax and Ors. (2001) 251 ITR 53 (Mad), the word technical ‟ has been interpreted in the following manner:- Thus while stating that technical service would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute technical service to render it technical service . The meaning of the word technical as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood: a technical report. 2. of involving, or concerned with applied and industrial sciences: an important techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted as [1999] 242 ITR 208 had observed:- By technical services, we mean in this context services requiring expertise in technology. By consultancy services, we mean in this context advisory services. The category of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it. 21. The word consultant ‟ refers to a person, who is consulted and who advises or from whom information is sought. In Black ‟ s Law Dictionary, Eighth Edition, the word consultation ‟ has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It may mean a meeting in which parties consult or confer. For consultation service under Explanation 2, there should be a provision of service by the nonresident, who undertakes to perform it, which the acquirer may use. The service must be rendered in the form of an advice or consultation given by the non-resident to the resident Indian payer. 22. In the present, case com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niques related to applied science or craftsmanship would generally correspond to such special skills or knowledge, the provision of knowledge acquired in fields such as arts or human sciences would not. As an illustration, whilst the provisions of engineering services would be of a technical nature, the services of a psychologist would not. 40. The fact that technology is used in providing a service is not indicative of whether the service is of a technical nature. Similarly, the delivery of a service via technological means does not make the service technical. This is especially important in the e-commerce environment as the technology underlying the internet is often used to provide services that are not, themselves, technical (e.g. offering on-line gambling services through the internet). 41. In that respect, it is crucial to determine at what point the special skill or knowledge is used. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for the provision of a service will not be a technical fee, however, unless that special skill or knowledge is required when the service is provided to the customer. For e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to management), or functionality of that data or software, available for a fee. The fact that this data and software could be used by the customer in performing management functions or that the development of the necessary data and software, and the management of the business of providing it to customers, might itself require substantial management expertise is irrelevant as the service provided to the client is neither managing the client s business, managing the supplier s business nor developing that data and software (which may well be done by someone other than the supplier) but rather making the software and data available to that client. The mere provision of access to such data and software does not require more than having available such a database and the necessary software. A payment relating to the provision of such access would not, therefore, relate to a service of a managerial nature. Consultancy services 45. For the Group, consultancy services refer to services constituting in the provision of advice by someone, such as a professional, who has special qualifications allowing him to do so. It was recognised that this type of services overlapped the cat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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