TMI Blog2022 (11) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2 to Section 9(1)(vii) broadly speaking, the said Explanation prescribes that 'fees for technical services, means any consideration for rendering of any managerial, technical or other consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembling, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'salaries'. We may fruitfully refer to the scope of services rendered by these two companies to the assessee. Both the contract dt. 18.01.2016, which are reproduced hereinabove, clearly mentioned that services were required to be rendered by these persons for reference only and for that purpose, the agreement was entered between the parties for making the payment in US Dollars in the case of M/s. CX Partners Pte Limited and INR 16.96 million in US Dollars in the case of M/s. Koi Structured Credit PTE Ltd. In the said letter, it was categorically mentioned that the fee paid by the assessee would only be restricted to reference only and it was also mentioned that 'the reference fees' her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of referral fees by the assessee to M/s. CX Intermediate Capital Fund(I) Pte. Ltd. is further supported by the agreement and Form 15CB issued by the Chartered Accountant. In view of the above, we are of the opinion that the charges paid by the assessee were in the nature of 'referral fees' only. Merely because the assessee had refereed the fee was payable by the Indian Company to one of these two entities, consultancy charges cannot be a ground to hold that the nature of the payment was covered by Explanation 2 to section 9(1)(vii). Second limb of challenge by the Ld. DR was that the AO in the order had mentioned that there were PE of these two companies in Delhi - Hence, the order passed by the AO was correct. Though it is correct that AO had mentioned the existence of offices of these companies in Delhi, however, the AO had failed to bring on record anything except mentioning of office address and PAN number in the order. AO is required to bring on record form of activities, which were carried out by these companies in India. Merely existence of an office of one of the sister concerns of these companies is not sufficient for the AO to conclude that the investor c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 crores were paid as reference fee to the above said two companies. Further, it was submitted that the reference services rendered by these two companies were not in the nature of 'technical services' and further submitted that those services were rendered outside the country. Therefore, there was no occasion to deduct the tax at source. It was further submitted that the services rendered by these two Singapore based concerns do not fall within the ambit of 'fee for technical services'. 5. The Ld. DR had drew our attention to Explanation - 2 to Section 9(1)(vii) of the Act which clearly mentions that the 'fee for technical services' would include managerial, technical or consultancy services and the services rendered by the said Singaporean companies to the assessee would fall within the scope of 'fee for technical services'. 6. The Ld. DR further drawn our attention to the paragraphs 4.3 and 4.6 of the assessment order where the Ld. AO has mentioned as under: 4.3. As per copy of the ledger, the amounts were paid on 22.01.2016 and narration of the payments made to the above stated Singapore concerns is as under:- CX partners Pte. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agraphs 5.3 to 5.6 which are the following effect. 5.3. I have carefully considered the assessment order, grounds of appeal and AR's submissions in this regard. The AO in the assessment order held that the appellant has paid an amount of Rs. 8 crores as 'referral fee' to M/s. CX partners pte Limited, Singapore and to M/s. Koi structured Credit pte. Ltd. Singapore to acquire the capital fund of Rs. 370 crores by way of debentures. The liaison services were carried out by a non-resident agent outside India. The question arises whether the amount paid to liaison services rendered by a Nonresident outside India will be taxed in India or not. 5.4 Section 5 of the Income tax Act defines the income which is chargeable under the Act. In the case of Non-resident income received or deemed to be received in India or income accruing or arising or deemed to accrue or arise in India from whatever source is chargeable. Since the income is received outside India, it cannot be said to be received, accrue, or arise in India. 5.5 Section 9 gives the income which is deemed to accrue or arise in India. The income in the case of the recipient does not arise through or from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI had issued a Certificate of Registration in favour of M/s. KOI Structured Credit PTE Ltd. on 03.09.2014 as a Foreign Portfolio Investor. This company is also having a registered office in Singapore and the same is clear from its profile at Page 98 of the paper book. M/s. Samena India Credit (Singapore) Pvt. Ltd. is a company incorporated in Singapore and this company was also granted a Certificate of registration by SEBI recognized as a Foreign Portfolio Investor, vide certificate dt. 18.04.2016. Similarly, DMI Income Fund PTE Limited was also recognized as Foreign Portfolio Investor vide certificate dt. 23.04.2015 issued by the SEBI and is also a company registered in Singapore and doing business thereof. The fifth company that invested in assessee company on account of referral made by these two companies was Arch Reinsurance Limited, which is located in Bermuda with the SEBI registration number INBRF042815. 11. It was submitted by the Ld. AR that all these five companies which have invested in the assessee company were doing their business outside India. However, they are recognized as Foreign Portfolio Investors by the SEBI. 12. It was submitted by the Ld. AR that M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n us in relation to the fees payable by the Company in relation to the issuance of the Debentures. Under this letter, the Company agrees to pay to Koi Structured Credit Pte Limited a fee of INR 16.96 million in US Dollars at the exchange rate prevalent on the date of payment due upon successful subscription of the Debentures. The fees herein shall be payable by the Company without any set-off, counterclaim, withholding or deduction of any kind. The fetter shall be governed by and construed in accordance with the laws of India. Please indicate agreement to the terms of this Letter by signing and returning the enclosed copy of this Letter. 15. Ld. AR had submitted that out of the total debentures issued by the assessee for Rs. 400 crores, only five parties, namely 1) CX Intermediate Capital Fund I Pte Ltd. 2) Samena India Credit (Singapore) Pvt. Ltd. 3) KOI Structured Credit PTE Ltd. 4) Arch Reinsurance Limited and 5) DMI Income Fund Pte Ltd. have contributed a sum of Rs. 370 crores, which were referred to these two companies. It was the further contention of assessee that none of the services were rendered in India, and therefore, the assessee was not in obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early mentioned that services were required to be rendered by these persons for reference only and for that purpose, the agreement was entered between the parties for making the payment of INR 63.04 million in US Dollars in the case of M/s. CX Partners Pte Limited and INR 16.96 million in US Dollars in the case of M/s. Koi Structured Credit PTE Ltd. In the said letter, it was categorically mentioned that the fee paid by the assessee would only be restricted to reference only and it was also mentioned that 'the reference fees' herein shall be payable by the company without any set-off, counterclaim withholding (including withholding tax) or deduction of any kind under any applicable laws in India . It is clear that the referral fees of INR 63.04 million US Dollars were required to be paid by the assessee to this company namely, M/s. CX Partners Pte Limited without withholding any tax after completion of the transaction and similarly, INR 16.96 million in US Dollars was to be paid to M/s. Koi Structured Credit PTE Ltd. without withholding any tax. 19. Once the investments were made by a company situated outside India on the referral of these two companies, then the questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, in the case of DCIT vs. M/s. Credit Suisse AG (ITA No. 1247/Mum/2016 dt. 09.02.2018) at Paras 7 and 8 had held as under: 7...................................... In this context, the Authority for Advance Rulings in the case of Cushman Wakefield(S) Pte. Ltd., (supra) has dealt with a somewhat similar situation, wherein the applicant was a resident of Singapore, who had earned commission from an India based entity for having referred customers. As per the Authority for Advance Rulings, such 'referral fee', being in the nature of 'commission' was to be treated as being in the nature of 'business income'; both, under the Act as well as under the Indo-Singapore Double Taxation Avoidance Agreement (DTAA), and not as fees for technical services'. To the similar effect is the decision of the Mumbai Tribunal in the case of CLSA Ltd., (supra) wherein also referral fee earned by a nonresident assessee from an India based entity for referring certain international clients was held not to be in the nature of fees for technical services' within the meaning of Section 9(1)(vii) of the Act. Notably, the aforesaid decisions have also been referr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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