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2022 (8) TMI 1297 - AT - Income TaxIncome deemed to accrue or arise in India - receipt claimed as commission income is nothing but royalty taxable u/s 9(1)(vi) - India-Germany DTAA - commission income received by the assessee from Springer Nature India Private Limited SNIPL as fee for technical services FTS under Article 12 of the India-Germany DTAA by the CIT(A) by changing the color of income, which was treated as royalty by the Assessing Officer - HELD THAT - To construe any payment as FTS, payment should be a consideration for rendering of any managerial services. The ld. CIT(A) was of the firm belief that the assessee was involved in rendition of managerial services to SIPL and, therefore, the commission received for such services is in the nature of FTS. Interestingly, the concept of FTS is not present in the OECD Model Convention. However, it finds mention in the UN Model Convention wherein Article 12A grants the source country a primary right to tax such fee from technical services. In fact, the Commentary to the UN Model Convention lays down clear guidance in respect of the meaning of the term managerial services Managerial services entail the element of management of the business of the service recipient in a substantial manner. In our view, mere provision of support services cannot be labeled as managerial services. Hiring of outside parties to receive support in respect of the operational aspects of a business cannot qualify as managerial services unless the service provider lays down policies or executes such policies by managing the personnel of the service recipient. In light of the afore-stated judgments, we do not find any merit in the findings of the ld. CIT(A) by treating the commission as managerial service under the India Germany DTAA. There is no dispute that the assessee has received commission as per the Commissionaire Agreement with SIPL which is nothing but export commission/sales commission, which has been treated as FTS. We set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned addition. Decided in favour of assessee. Non grant of credit of TDS claim as per the return of income - HELD THAT - We direct the AO to consider the claim as per the provisions of law and allow full credit of TDS after due verification. This ground is allowed for statistical purposes.
Issues Involved:
1. Classification of commission income as Fee for Technical Services (FTS) or Royalty under the India-Germany DTAA. 2. Non-grant of credit of TDS claim. Issue-wise Detailed Analysis: 1. Classification of Commission Income: The common grievance in both appeals is the classification of commission income received by the assessee from Springer Nature India Private Limited (SNIPL) as Fee for Technical Services (FTS) under Article 12 of the India-Germany DTAA by the CIT(A), contrary to the Assessing Officer's (AO) treatment of the income as royalty. Facts: - The assessee, a company incorporated under German laws and a tax resident of Germany, is engaged in publishing books and journals. - On 02.01.2013, the assessee entered into a Commissionaire Agreement with SIPL, appointing it as a non-exclusive sales representative globally. - The services provided under the agreement included customer service, order handling, invoicing, delivery, debtor management, contract management, and processing of complementary copies. Assessment by AO: - The AO treated the commission income as royalty taxable under Section 9(1)(vi) of the Income-tax Act, 1961, and under the India-Germany DTAA at 10%. CIT(A) Decision: - The CIT(A) disagreed with the AO's classification of the income as royalty but reclassified it as FTS based on the managerial nature of the services provided. Tribunal's Analysis: - The Tribunal considered the definition of FTS under the India-Germany DTAA and the Act, noting that managerial services involve the application of knowledge, skill, or expertise in managing an enterprise. - The Tribunal referenced various judgments, including the Hon'ble Jurisdictional High Court in Panalfa Autoelektrik Ltd and the Authority for Advance Rulings in Intertek Testing Services India Private Limited, which elucidated that managerial services must involve substantial management functions, not merely support services. - The Tribunal concluded that the services provided by the assessee were operational support services and did not involve substantial management functions. Hence, they could not be classified as managerial services under FTS. Judgments Referenced: - The Tribunal cited several judgments, including Hero Motocorp Ltd and Farida Leather Company, which supported the view that export commission or sales commission does not constitute FTS or royalty. Conclusion: - The Tribunal set aside the CIT(A)'s findings, directing the AO to delete the addition and treat the commission income as neither royalty nor FTS. 2. Non-grant of Credit of TDS Claim: Facts: - The assessee claimed that the credit for TDS was not granted as per the return of income. Tribunal's Direction: - The Tribunal directed the AO to verify and allow the full credit of TDS as per the provisions of law. Outcome: - The appeals were allowed in part for statistical purposes, with directions to the AO regarding the TDS claim. Final Order: - ITA No. 434/DEL/2019: Allowed in part for statistical purposes. - ITA No. 3826/DEL/2019: Allowed. The order was pronounced in the open court on 23.08.2022.
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