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TMI Blog2022 (9) TMI 1555X X X X Extracts X X X X X X X X Extracts X X X X ..... ican and the Caribbean markets. MSSPL had entered into Sales & Marketing agreement with the assessee. For the assessment year 2012-2013, an amount of Rs 3,47,83,552/- has been received by the assessee as sales commission. The assessee did not file the return of income on the premise that commission income is not taxable in India. 3. There was a survey in the case of MSSPL and proceedings u/s 201 of the I.T. Act was completed. Consequently, proceedings were initiated U/S 147 of the Act in the case of the assessee by issue of Notice U/S 148(1) dated 29.03.2019. The assessee filed a return of income on 13.06.2019, wherein it declared 'Nil' income. The learned AO vide Notice dated 18.06.2019 furnished the reasons for reopening the assessment. It was stated that services provided by the assessee are taxable as FTS both as per the Act and DTAA and as return of income has not been filed, the above income has escaped assessment. 4. Against the reasons, the assessee filed objections before the AO on 01.07.2019. The assessee made detailed submissions as to why sale commission received from MSSPL is not taxable. It is stated that the above objections have not been disposed by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing the assessment order under section 147 read with section 144C without disposing off the appellant's objections to reasons stated for reopening recorded by passing a speaking order as contemplated by the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19. The final assessment order passed in violation of the decision of the Supreme Court is bad in law and liable to be quashed. Taxability of Sales Commission: 4. The lower authorities have erred in : (i) Not appreciating that sales commission received from ASPL is not taxable in India as per the provisions of Income Tax Act, 1961 (`Act'); (ii) Not appreciating that services provided by appellant does not qualify as FTS as per Act and does not satisfy the test of `Make Available' as envisaged in India-USA DTAA and therefore does not qualify as fees for included services under DTAA. 5. The lower authorities have erred in placing reliance on the judicial decisions which are distinguishable both on facts of the case and provisions of law. 6. Without prejudice to the above, the learned AO/DRP has erred in not granting credit for TDS remitted by ASPL in response to orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (2011) 12 taxmann.com 103 (Hyd.); (xi) CIT vs. Model Exims, (2014) 42 taxmann.com 446 (ALL) (xii) Brakes India Ltd. v DCIT (2013) 33 taxmann.com 501 (Chennai - Trib.); (xiii) Sri Subbaraman Subramanian v Asst CIT (2013) 30 taxmann.com 236 {Bangalore - Trib.); (xiv) ACIT v India Shoes Exports (P.) Ltd (2015) 57 taxmann.com 303 (Chennai-Trib.); (xv) ACIT v Evergreen International Ltd (2018) 91 taxmann.com 111 (Delhi -Trib.); (xvi) CIT v Orient Express (2015) 56 taxmann.com 331 (Madras); (xvii) Divya Creation v ACIT (2017) 86 taxmann.com 276 (Delhi-Trib.); and (xviii) Khimji Visram & Sons v ACIT (2014) 52 taxmann.com 485 (Mumbai- Trib.). (xviii) GVK Industries Ltd. v. ITO (2015) 54 taxmann.com 347 (SC). (xix) Foster Wheeler France SA (IT-62-ITAT-2016 CHNY). 7. The learned AR also took us through the decisions relied on by the AO and distinguished the same. It contended that in the case laws relied on by the A.O., the services rendered were engineering and IT services, which were purely technical in nature, whereas in the instant case the assessee was rendering only marketing services. Without prejudice to the contention that the assessee was only rendering mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managerial or consultancy services rather has been engaged to act as authorized business partner to market and promote the products or services of MSSPL outside India In fact, the AO/DRP have not even concluded as to what is the nature of services rendered by the assessee. The decision regarding what are the products/services that are to be developed or provided, the price to be charged to the customer etc. are solely taken by MSSPL. The assessee does not play any role in the decision-making process. Further, once the assessee procures the orders, it is at the discretion of MSSPL whether to sell the product or render services to identified customers. The Hon'ble Delhi High Court in case of DIT (International Taxation) vs Panalfa Autoelectrik Ltd (2014) 49 taxmann.com 412 (Delhi) held that commission paid by the assessee to its foreign Agent for arranging export sales and recovery of payments could not be regarded as fee for technical services under section 9(l)(vii) of the I.T. Act. The High Court held that the skill, business acumen and knowledge acquired by the non-resident were for his own benefit and use. The relevant finding of the Hon'ble High Court reads as follows:- "22. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to deduct tax at source when non-resident agent provides services outside India on payment of commission. 13. In the case of Exotic Fruits (P.) Ltd reported in (2013) 40 taxmann.com 348 (Bangalore- Trib.), the Bangalore Bench of the Tribunal held that payment made to the non-resident agents does not fall within the meaning of managerial services as mentioned under section 9(l)(vii) of the I.T. Act and not required to deduct TDS under section 195. Further, it has been held that in the absence of permanent establishment(s) of such agents in India, the export commission income of the agents was not liable to be taxed in India and thus, the assessee was not obliged to effect any deduction of tax on the commission payments made to the agents who were positioned overseas. 14. The ITAT in the case of iRunway India (P) Ltd vs DCIT (2022) 138 taxmann.com 188 (Bangalore-Trib.) had held that where assessee has obtained certain sales consulting services from USA and commission is based on fixed percentage of sales, then merely because the service provider is technically qualified, sales commission paid for enabling sale could not become payment for rendering technical services and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on various aspects like financial structure, and security package to be offered to the lender, study of various lending alternatives for the local and foreign borrowings, making assessment of expert credit agencies worldwide and obtaining commercial bank support on the most competitive terms, assisting the assessee-company in loan negotiations and documentations with the lenders, structuring, negotiating and closing financing for the project in a coordinated and expeditious manner. The above services are clearly in the nature of consultancy services as they assist in decision making. However, in the instant case, the assessee has rendered sales and marketing services to MSSPL. No consultancy services are rendered and in fact even the AO has concluded that assessee has rendered technical services. Therefore, the above decision of Hon'ble Supreme Court in GVK Industries is not applicable to the facts of the present case. Further, the decision does not deal with the taxability under the treaty. 18. The AO has also relied on the order of Chennai Tribunal in the case of Foster Wheeler France SA [TS-62-ITAT 2016 CHNY]. In this regard, we are of the view that the said case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecipient of the services is not only benefited by the services but there is also a transfer of the technology, processes, skill etc., to the recipient in a manner which will enable the latter to apply the technology, processes, skill etc., in future without recourse to the service provider. The term "make available" encompasses some sort of durability and stability with reference to the transfer of technology, processes and skill etc., so that the same is not regarded as transient or ephemeral. 21. As per Memorandum of Understanding ("MOU") on Article 12 of the Treaty, entered into by the Government of India and the Government of USA on May 15, 1989, the technology is considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service. In this context, we rely on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v De Beers India Minerals (P.) Ltd. 21 taxmann.com 214 (Kar.), wherein the Honourable High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA. the liability, to tax is not attracted. .................... 22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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