TMI Blog2018 (2) TMI 2071X X X X Extracts X X X X X X X X Extracts X X X X ..... from the records. Assessee did not produce the transfer pricing study nor the order of the ld. TPO, before us, which could have given a fair idea of the nature of services rendered by SGS, USA. Further, assessee also did not produce the invoices raised by SGS USA for services rendered by it, nor any communication between the said company and the assessee. Before coming to a conclusion whether services rendered by SGS USA to the assessee was of a nature which required deduction of tax at source as per Section 195 it is required to have a look on all the underlying documents. In our opinion, lower authorities should have made a thread-base study of the invoices, agreements entered between the assessee and its customers and the communication exchanged between assessee and SGS USA as well as assessee and its customers abroad. It was also necessary to verify the cost plus method followed by the assessee for its billing and verify what part of its profit were transferred to SGS USA, and whether such transfer was effectively for shifting of profits camouflaging it as commission. A wholesome view was not taken by any of the lower authorities. Coming to the judgment of Hon ble Apex Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and Revenue respectively directed against an order dated 01.03.2016 of ld. Commissioner of Income Tax (Appeals)-15, Chennai. Appeal of the assessee is taken up first for disposal. 2. Grounds taken by the assessee are reproduced hereunder:- I. That the non-taxability of Business Development Commission having been accepted by department pursuant to the order of learned CIT(A) against TDS order under section 201 may kindly be treated as having attained finality in favour of the Appellant. II That the Learned CIT(A) has erred in upholding the disallowance of Business Development Commission and arriving at the conclusion that payments made by the Appellant to US Parent Company towards Business development Commission (marketing services) result in income chargeable to tax in India: - a) Ignoring the decision of Apex court in the case of Toshoku Ltd 125 ITR 525 (SC); principles laid down in Shoorji Vallabhdas v. CIT 39 ITR 775 (SC), Thiagaraja Chetty Co. v. CIT[l] 24 ITR 535 (SC) and Madras High Court decision in the case of CIT v. Faizan Shoes Pvt. Ltd. 367 ITR 155(Mad). b) Disregarding the legal position that the withdrawal of circular 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the relationship between assessee and its prospective customers, actively pursued generation of new business and used its contacts and knowledge to identify new customers, make representations, carried out effective pre-sale follow up, helped negotiating and closing deals. (vi) For the marketing and sales promotion services, assessee paid SCG, USA, @5% of its turnover. (vii) Commission paid to SCG, USA was for rendering services outside India and no income accrued or arose to SCG, USA in India. (viii) Amounts paid to SCG, USA were not chargeable to tax under the Act and therefore there was no requirement of deducting tax at source on such payments (ix) SCG, USA was not having any business connection in India, and hence services rendered by it would not be liable for any tax in India. (x) Services rendered by SCG, USA were outside India and did not arise from any business connection in India. 5. Ld. Assessing Officer after considering the above submissions of the assessee held as under:- As per the provisions of Section 195, any person responsible for paying to a Non resident any sum chargeable to tax in India, which arise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof, service provider shall provide to company and company shall purchase from service provider, the services described in such service statements, billing and provision of services shall be as directed by this agreement and the applicable service statement. In the event of a conflict or inconsistency between a service statement and this agreement, the service statement will control. Service locations; (a) service provider shall provide the services from the locations where service provider provides the services as of the effective date or such other location as service provider may choose in its sole discretion unless the applicable service must be performed at a company location. In the decision of the Supreme Court in R. Dalmia Vs CIT 106 ITR 895 in which it was pointed out that management includes the act of managing by direction, or regulation or superintendence. The service provider is not engaged in a one-time agency for merely soliciting clients but also involves itself in the broad gamut of services pertinent to the client identification, soliciting, constant feedback etc. The key factor in managerial services is coordination and marketing and convincing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultancy fee as also the commission payable on the orders procured by the non-resident are deemed to be income arising to the said non-resident in India and are subject to TDS under section '195. It was held that consultancy fee payable to the non-resident for developing business with foreign customers falls within the meaning of fees for technical services as defined in explanation 2 to clause (vii) of subsection (i) of section 9. In the present case, Indijack Ltd. is providing composite services comprising commission agency as also services for ITA No.8822 of 2010 Armayesh Global Mumbai-A Bench promoting sales of the appellant in the foreign countries, although the nomenclature used by the appellant is commission. The payment thus falls within the meaning of fees for technical services which is subject to application of section 195(2) is applicable to a composite payment. In the present case therefore, since the payment made by the applicant to Sutherland Global Services is held to be a composite payment, the payment has an element of income' chargeable to tax in India, and therefore, the appellant is obligated to deduct tax at source. 5.1.5 The Hon'ble Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Now before us, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that 99% of the Revenue of the assessee was from export of services. According to him, assessee was running call centers and its customers were canvassed by its in principal USA. Relying on an Inter Company Services Agreement dated 1st July, 2005, ld. Authorised Representative submitted that services provided by SGS, USA were described, therein as under:- 1 Services Description: Service provider will provide company support as requested by company for company s business development activities, including the following:- 1.1 Sales 1.2 Marketing and 1.3 Lead generation 2 Location of services. At the facilities of service provider or as may be determined at the sole discretion of service provider 3 Personal. As designated from time to time by service provider 4 Fees. An amount equal to five percent (5%) of the gross revenue recognized by company from the sale of its services to third parties. Gross revenue shall not include any reimbursement of costs or other expenses by third parties for this fee calculation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities fell in error in invoking Section 40(a) (i) of the Act and making a disallowance. 10. Per contra, ld. Departmental Representative strongly supported the orders of the lower authorities. 11. We have considered the rival contentions and perused the orders of the authorities below. What we find is that assessee had never raised a plea before the ld. Assessing Officer regarding application of DTAA between India and USA. In fact, the only finding given by the ld. Assessing Officer was that the payments effected by the assessee to its principal abroad was liable for deduction of tax at source u/s.195 of the Act. There is no specific finding by the ld. Assessing Officer, on the nature of the payments made by the assessee to SGS, USA nor has he given the specific reasons why he considered it to be liable for deduction of tax at source. As against this, assessee had indeed raised a contention before the ld. Commissioner of Income Tax (Appeals) that the payments could not be considered as technical services even under DTAA. In our opinion, the nature of the services rendered by its principal to the assessee is not clear from the records. Assessee did not produce the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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