TMI Blog2022 (5) TMI 1274X X X X Extracts X X X X X X X X Extracts X X X X ..... otion of sales (of services) and soliciting new clients. The scope of service and the nature of services rendered by these parties have been very illustratively defined in the MSAs with these parties and cannot be subject to any kind of different interpretation. While arriving at his conclusion, AO/ CIT(A) failed to appreciate the exact nature of services rendered by GBAs/ BDAs. Just by naming these parties as consultant in the MSAs who are actually engaged in carrying out activities for sale promotion and in lieu thereof getting commission cannot be the basis of concluding that the sums paid to these parties are in the nature of FTS and therefore liable to be taxed in India having accrued in India. In our view the entire payments to the GBAs/ BDAs in all the three assessment years under consideration are not FTS for the reasons that no specialised technical services are rendered to the assessee and that the assessee did not have any personal interaction with these service providers and that these service providers acted within the scope defined in the MSA. GBAs/BDAs are not paid for rendering any managerial, technical or consultancy services but only for promoting sale on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing disposed of by this common order. 2. The assessee is an individual. He is proprietor of M/s. Quantum Solutions India which is a contract research organisation and specializes in the area of pharmacovigilance (drug safety) services. 2.1 From 15CA/CB certificates filed by the assessee, the Ld. Assessing Officer ( AO ) noted that the assessee has remitted amounts to various parties outside India without deducting tax at source. He tabulated details thereof as under :- AY 2010-11 Sr. No. Name of the Party and Country of Residence Amount (in Rs.) 1. Invox consulting (Malavika)- Australia 19,67,584 2. Foresight group USA 7,18,683 3. Anup S Kumar USA 5,33,507 4. Axway- Singapore 16,03,281 5. Susanne Zuelli- Switzerland 94,645 6. Markus Spillman- Switzerland. 6,73,252 7. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the consultant which are covered under section 9(1)(vii) of the Income Tax Act, 1961 ( Act ) and not to the agent as claimed. The assesee was liable to deduct tax at source from fee paid for consultancy services. 2.4 Vide reply dated 17.5.2013 the assesee again submitted that the services rendered by GBAs were in the nature of business support services and not in the nature of managerial or technical or consultancy services. It was further claimed by the assessee that the services rendered by the GBAs did not in any manner make available any services to the assessee as envisaged in various DTAAs and as interpreted by various judicial authorities. It was emphasised that the impugned payments were purely in the nature of commission and not fees for technical services. 2.5 The Ld. AO did not agree. He was of the view that payments were made for consultancy services. Even the agreement with M/s. Abroms May (which the Ld. AO reproduced in his order) mentions the provider of services as Business Consultant . According to him the nature of services rendered by GBAs to the assessee, e.g. locating and identifying potential clients; presenting assessee s profile with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him to independently apply the technology and in future independently function without support from service provider, the concept of make available was not applicable and such payments qualified to be excluded from the ambit of FTS only on this ground. As regards payment of parties located in countries other than USA and UK (i.e. Switzerland) he held that these payments were in the nature of FTS as the DTAA with Swiss Confederation did not contain the exclusion clause of make available and need to suffer tax deduction at source which amounted to Rs. 15,98,506/- and Rs. 27,21,995/- pertaining to assessment year 2010-11 and 2011-12 respectively. For assessment year 2012-13 the Ld. CIT(A) directed the Ld. AO to verify whether payments of Rs. 48,27,260/- were made to the recipient in Switzerland and restrict such amount only for withholding tax. With regard to other payments in all the three years the Ld. CIT(A) held that the assessee need not deduct tax at source. Thus the assesee got part relief in all the three assessment years. 4.1 The findings of the Ld. CIT(A) for assessment year 2010-11 are reproduced hereunder. The findings are same for succeeding assessment years 2011-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows :- For purposes of this Article the term Fees for Technical Services'' means payments of any kind to any person in consideration for the rendering of any managerial, technical or consultancy services, including the provision of services by technical or other personnel. Thus, there is no make available clause in the aforesaid treaty. Thereafter a protocol was entered into between India and Switzerland on 16.02.2000' (Amending Notification No. GSR 74(E) dated 07.02.2001), whereby the protocol dated 02.11.1994 was amended. Further, this protocol was amended vide Notification No. SO 2903(E) dated 27.12.2011, which read as follows:- With reference to Article 10, 11 and 12 With reference to Article 10, 11, 12 and 22 The provisions of Article 10, 11, 12 and 22 shall not apply in respect to any dividend, interest, royalty, fees for technical services or other income paid, under, or as part of a conduit arrangement The term conduit arrangement means a transaction or series of transactions which is. structured in such a way that a resident of a contracting state entitled to the benefits of the agreement receives an item of income arising in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, I hold that the payments made to GBAs in Switzerland are in the nature of Fee for Technical Services and need to suffer tax deduction at source, though, the appellant claims them as Sales Promotion Services. To this extent action of the AO is confirmed with regard to the following payments:- S. No. Name and Country of residence FY 2009-10 (in Rs.) 1. Susanne Zuelli-Switzerland 94,645 2. Markus Spillman-Switzerland 6,73,252 3. Susanna Harkonen-Switzerland 8,30,609 Total 15,98,506 The appellant need not deduct tax with regard to other payments. The appellant, thus, gets part relief as detailed above in appeal for AY 2010- 11. 5. Aggrieved, the assessee is in appeal before us. 5.1 The Ld. AR submitted that the payments made to GBAs are in the nature of commission for sales promotion services rendered by them on which no tax is required to be deducted at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss consultant by profession, located in California, USA and capable of rendering such services to its clients, has sufficient experience in the field of business development and propagation, and has represented itself to be having adequate infrastructure and expertise to function as a propagation, liaison and coordinating agency. Whereas the First Party is desirous of expanding the scope of its current activities to the US market, and also of locating and identifying further business relating to export of IT-enabled services in the field of Pharmacovigilance, and is desirous of showcasing and presenting its profile solely with a view to propagating and soliciting business related to its present profile and for the purpose of identifying potential clients/companies, and further to functioning, as an agent for the clients availing services from the First Party, and also for rendering any post-completion services/assistance to the clients, has for this purpose identified the Second Party, and which has represented itself to be sufficiently experienced for this purpose and for providing services to the First Party anywhere in the world, and particularly in the US, as agreed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red: (a) A flat fee of USD 10,000 per month for services rendered between October 1, 2011 and September 30, 2012. (b) If any business/contract (one or more) materializes at any stage from the initiatives of the Second Party during this one year then the First Party shall pay to the Second Party a commission of 5% of the total value of each invoice raised by the First Party towards the fulfilment of such contract(s), within fifteen (15) days of submitting such, invoice(s). (c) Travel cost (for business- meetings/conferences/summits approved by the First Party) will be reimbursed to the Second Party, upon the receipt of an invoice with copy of the detailed bills to justify the expenses. 14. That upon termination of this Agreement, the Second Party shall promptly return all sales and marketing material provided by the First Party. 16. That the Second Party undertakes to maintain confidentiality of the information accessed by it during the course of rendering services to and on behalf of the First Party. 8. From the perusal of the scope of work as envisaged in the MSA it is evident that the GBAs/ BDAs act as a business promotion agents and promote sale (of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the whole agreement to arrive at the exact nature of arrangement and understanding between the assessee and the GBAs/ BDAs. A subjective and complete understanding of the arrangement, conduct, activities undertaken by the GBAs/ BDAs and transaction suitably reveals that the payments to these parties are in respect of promotion of business of the assessee in the overseas territories and for no other reason. 11. From the facts of the case, nature of business carried out by the assessee, arrangement with the GBAs/ BDAs, nature and scope of services rendered by these GBAs/BDAs discussed above it is obvious that the services rendered by these parties is purely for promotion of sales (of services) and soliciting new clients. The scope of service and the nature of services rendered by these parties have been very illustratively defined in the MSAs with these parties and cannot be subject to any kind of different interpretation. While arriving at his conclusion, the Ld. AO/ CIT(A) failed to appreciate the exact nature of services rendered by GBAs/ BDAs. Just by naming these parties as consultant in the MSAs who are actually engaged in carrying out activities for sale promotion a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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