2024 (5) TMI 1206 - AT - Income Tax

Income deemed to accrue or arise in India - fee for included services - nature of services - sales commission received by assessee as accrued to the assessee in term of section 9(1) of the Act and taxable in India - assessee is a non-resident company in India and resident of USA - what is the nature of services, whether these services falls within the definition of included services in term of section 9(1) of the Act and can be held as fee for included services HELD THAT - These services rendered by assessee in no way can be called as fee for included services whereas these payments are for marked services - assessee has entered into a contract with SPI Technologies India Pvt. Ltd., who consequently entered into contract with end customers located in USA. However, assessee is not party to the master service agreement with the customers. All service contracts with customers in USA are entered by SPI Technologies India Pvt. Ltd., and it is SPI Technology India Pvt. Ltd., who is solely responsible for undertaking and executing the e-publishing work. Here, it is to be clarified that the role of the assessee is limited to liaising with the customers, understanding their workflow requirements and communicating the same to SPI Technologies India Pvt. Ltd., who undertakes the project execution. DRP and the AO wrongly noted that the amalgamation with the assessee and SPI Technologies India Pvt. Ltd., w.e.f. 01.04.2014 whereas actual facts are that the Laser words Pvt. Ltd., merged with SPI Technologies India Pvt. Ltd., w.e.f. 01.04.2014 and McGraw-Hill Companies Inc., w.e.f. 27.04.2010, who is the end customer of SPI Technologies India Pvt. Ltd. It is not a disputed fact that assessee receives sales commission as percentage of sales from new customers as well as existing customers on monthly basis. The role of assessee is not limited to identification of prospective / new customers in USA and once customer is onboard, the assessee interacts with the customer on a regular basis to understand the customer requirements. Hence, customer acts as a front-end contact point for the customers and the role of the assessee to understand the workflow requirements of the customers and communicate these requirements to the executives located in SPI Technologies India Pvt. Ltd., and for this, assessee charge commission on total sales and disclose this as sales commission. Nature of work executed on activities carried out cannot be equated with fee for included services as mentioned in 12(4) clause (b) of Indo-USA DTAA and hence, it cannot be taxed in India. It is to be considered as sales commission only. Hence, we delete the addition and allow the appeal of assessee on this issue.

Summary

Issues Involved:
1. Limitation period for filing the appeal.
2. Taxability of sales commission received by the assessee.
3. Classification of services as 'fee for included services' under section 9(1) of the Income Tax Act and Article 12(4) of the Indo-USA DTAA.

Issue-wise Detailed Analysis:

1. Limitation Period for Filing the Appeal:
The appeal by the assessee was barred by limitation by 89 days. The final assessment order was communicated to the assessee on 17.03.2021, and the appeal should have been filed by 16.05.2021. However, the appeal was filed on 13.08.2021. The delay was attributed to the Covid-19 pandemic, and the Hon'ble Supreme Court had condoned delays during this period up to 28.02.2022. Respectfully following the Supreme Court's directions, the delay was condoned, and the appeal was admitted.

2. Taxability of Sales Commission Received by the Assessee:
The assessee, a non-resident company in India and resident of the USA, engaged in e-publishing services, received a sales commission of Rs. 17,21,74,839/- from SPI Technologies India Pvt. Ltd. The AO held that this commission accrued and arose in India under section 9(1) of the Act and was taxable in India. The AO classified the marketing services provided by the assessee as 'fee for included services' instead of 'sales commission,' arguing that the services included training and technical inputs essential for understanding customer requirements and executing projects. The DRP upheld the AO's decision, relying on its earlier order for the assessment year 2015-16.

3. Classification of Services as 'Fee for Included Services':
The assessee argued that the services rendered were purely marketing services and should be classified as sales commission, not 'fee for included services.' The ITAT, in a similar case of SPI Global US Inc., had held that such services did not satisfy the 'make available' condition under Article 12(4) of the Indo-USA DTAA and hence were not taxable. The Tribunal examined the agreement between the assessee and SPI Technologies India Pvt. Ltd., noting that the assessee's role was limited to liaising with customers, understanding their requirements, and communicating these to SPI Technologies India Pvt. Ltd., which executed the projects. The Tribunal concluded that the services rendered by the assessee were marketing services and not 'fee for included services.' Therefore, the sales commission received by the assessee could not be taxed in India under Article 12(4) of the Indo-USA DTAA.

Conclusion:
The Tribunal allowed the appeal, holding that the sales commission received by the assessee was not taxable in India as 'fee for included services' and should be classified as sales commission. The addition made by the AO was deleted. The appeal filed by the assessee was allowed.