2014 (9) TMI 706 - HC - Income Tax

Commission paid to non-resident for procuring export orders Technical service or not u/s 9(i)(vii) - Whether the Tribunal was right in holding that the commission paid to M/s. Agenta World Trading and Consulting Establishment for procuring export orders, is not fee for technical services u/s 9(i)(vii) Held that - Commission paid for arranging of export sales and recovery of payments cannot be regarded as consultancy service rendered by the non-resident - The non-resident had not rendered any consultation or advice to the respondent-assessee - The non-resident no doubt had acquired skill and expertise in the field of marketing and sale of automobile products, the Tribunal and the CIT(A) had noticed that the non-resident did not act as a consultant, who advised or rendered any counseling services - The skill, business acumen and knowledge acquired by the non-resident were for his own benefit and use - The non-resident procured orders on the basis of the said knowledge, information and expertise to secure their commission - There was no element of consultation or advise rendered by the non-resident to the respondent-assessee. The technical services consists of services of technical nature, when special skills or knowledge relating to technical field are required for their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that allow him to do so these requisites and required necessities are not satisfied - Indeed, technical, managerial and consultancy services may overlap and it would not be proper to view them in water tight compartments Decided against revenue.

Issues Involved:
1. Whether the commission paid to a non-resident company for procuring export orders is considered "fee for technical services" under Section 9(1)(vii) of the Income Tax Act, 1961.
2. Interpretation and application of Sections 5(2), 9(1)(i), and 9(1)(vii) of the Income Tax Act, 1961.
3. Examination of the nature of services rendered by the non-resident company.

Issue-wise Detailed Analysis:

1. Whether the commission paid to a non-resident company for procuring export orders is considered "fee for technical services" under Section 9(1)(vii) of the Income Tax Act, 1961:
The High Court examined whether the commission paid to M/s. Agenta World Trading and Consulting Establishment by the assessee for procuring export orders qualifies as "fee for technical services" under Section 9(1)(vii) of the Income Tax Act, 1961. The Assessing Officer had classified the commission as "fee for technical services," relying on the decision in the case of Wallace Pharmaceuticals P. Ltd. However, the Commissioner of Income Tax (Appeals) and the Tribunal reversed this finding, holding that the commission payment was not in the nature of "fee for technical services." The Court upheld this conclusion, noting that the non-resident company was acting as a commission agent and not providing managerial, technical, or consultancy services as defined under the Act.

2. Interpretation and application of Sections 5(2), 9(1)(i), and 9(1)(vii) of the Income Tax Act, 1961:
The Court interpreted Sections 5(2), 9(1)(i), and 9(1)(vii) of the Act to determine the taxability of the commission paid to the non-resident company. Section 5(2) includes all income received or deemed to be received in India by a non-resident. Section 9(1)(i) deals with income accruing or arising through business connections in India. The Court noted that the Assessing Officer had not invoked Section 9(1)(i) and there was no finding that the non-resident was carrying out any operations in India. Section 9(1)(vii) deems certain incomes to accrue or arise in India, including fees for technical services. The Court emphasized that the scope of deeming provisions should not be expanded beyond their clear language.

3. Examination of the nature of services rendered by the non-resident company:
The Court analyzed whether the services rendered by the non-resident company could be classified as managerial, technical, or consultancy services. The expressions "managerial, technical, and consultancy services" were not defined under the Act, so the Court referred to general usage and judicial interpretations. Managerial services involve controlling, directing, or administering a business, while technical services require special skills or knowledge in a technical field. Consultancy services involve providing advice or professional opinions. The Court found that the non-resident company was merely procuring export orders and not providing any managerial, technical, or consultancy services to the assessee. The non-resident's role was limited to acting as a commission agent, and there was no element of advice or consultation provided to the assessee.

Conclusion:
The Court concluded that the commission paid to the non-resident company for procuring export orders does not qualify as "fee for technical services" under Section 9(1)(vii) of the Income Tax Act, 1961. The substantial question of law was answered in favor of the respondent-assessee, and the appeal was dismissed.

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