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2024 (7) TMI 435 - AT - Income TaxIncome deemed to accrue or arise in India - FTS - treatment to Commission income and receipts from Subscription fee - Assessee is in the business of publishing and selling of books and journals receiving income Subscription fee from third party end users customers in India on behalf of the SMG Affiliated Publisher entities which the revenue treated as FTS - HELD THAT - As decided by Hon ble Jurisdictional High Court in assessee s own case for the A.Y. 2013-14 2023 (7) TMI 618 - DELHI HIGH COURT for a service to be construed as a technical service, it should involve the application of some special skill or knowledge concerning the technical field. Consultancy service involves offering advice, or extending advisory services by a professional, although there could be an overlap between technical and consultancy services. In some cases, consultancy services may involve entering a technical field. There are also cases where consultancy services involve rendering advice, with or without expertise in technology. There is nothing in the Commissionaire Agreement which is suggestive of the fact that the respondent/assessee was required to discover, develop, or define/evaluate the goals that SIPL had to reach, or even frame policies that led to these goals, or supervise or execute or change policies that were already adopted. The respondent/assessee was not performing, as it were, executive or supervisory functions. All that the respondent/assessee was obliged to do was render support to business operations. There is no reference to any special skill or knowledge that the respondent/assessee personnel brought to bear in rendering the services encapsulated in the Commissionaire Agreement. Promotion, sale, or distribution of SIPL's publications, or rendering support services of the nature referred to in Article 3 of the Commissionaire Agreement, although involving human intervention, do not, in our view, fall in the category of technical and/or consultancy services. There were no special skills or knowledge that the respondent/assessee's personnel were required to possess to render the services that were contemplated under the Commissionaire Agreement. The respondent/assessee also did not render any professional advice, or service concerning a specialized field. As indicated above, for a service to be categorized as a technical service, it had to be concerned with applied science, i.e., using scientific knowledge for practical applications, or industrial science concerning, relating to or derived from industry. The subscription amount cannot be treated as royalty, having regard to the fact that there is nothing on record to suggest that the respondent/assessee has granted the right in respect of copyright to the concerned subscribers of the e-journals. All that the respondent/assessee did was to sell the copyrighted publication to the concerned entities, without conferring any copyright in the said material. Decided in favour of assessee. Therefore, the contention of DR that on account of there being human intervention, the services rendered by the respondent/assessee should be considered as technical services, is a submission, which according to us, is completely misconceived. Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 63,71,49,019/- to the "Nil" income declared by the assessee. 2. Treatment of commission income and subscription fee as Fee for Technical Services (FTS) under the Income Tax Act and India-Germany Double Taxation Avoidance Agreement (DTAA). 3. Aggregation of commission income and subscription fee. 4. Classification of commission income as consultancy of technical nature. 5. Non-adherence to ITAT's previous decision for AY 2013-14. 6. Classification of subscription fee as consultancy of technical nature. 7. Levy of interest under sections 234B and 234A of the Income Tax Act. 8. Initiation of penalty proceedings under Section 270A of the Income Tax Act. Detailed Analysis: 1. Addition of Rs. 63,71,49,019/- to the "Nil" income declared by the assessee: The assessee contested the addition made by the Assessing Officer (AO) to the "Nil" income declared in its return for AY 2020-21. The AO had made an addition of Rs. 63,71,49,019/-, which was challenged by the assessee on various grounds. 2. Treatment of commission income and subscription fee as FTS under the Income Tax Act and DTAA: The AO/Dispute Resolution Panel (DRP) had treated the commission income of Rs. 5,31,86,587/- and subscription fee of Rs. 58,39,62,432/- as FTS under the provisions of the Income Tax Act and Article 12 of the India-Germany DTAA. The assessee argued that these incomes should not be classified as FTS, as they did not involve any managerial, technical, or consultancy services. 3. Aggregation of commission income and subscription fee: The assessee contended that the AO/DRP erred in aggregating the commission income and subscription fee and collectively characterizing them as FTS. The assessee argued that these incomes were of different natures and should be treated separately. 4. Classification of commission income as consultancy of technical nature: The AO/DRP had classified the commission income received from Springer Nature India Private Limited (SNIPL) as consultancy of technical nature. The assessee argued that it was merely providing support services as per the Commissionaire Agreement and did not render any professional, advisory, or technical service. 5. Non-adherence to ITAT's previous decision for AY 2013-14: The assessee pointed out that the AO/DRP did not follow the ITAT's decision in the assessee's own case for AY 2013-14, where it was held that the commission income from SNIPL did not fall within the ambit of FTS. 6. Classification of subscription fee as consultancy of technical nature: The AO/DRP had treated the subscription fee received from third-party end-customers in India on behalf of Springer Nature Group's affiliated publisher entities as consultancy of technical nature. The assessee argued that it merely collected the subscription fee on behalf of affiliated publisher entities and did not provide any consultancy services to third-party end customers. 7. Levy of interest under sections 234B and 234A of the Income Tax Act: The AO had levied interest of Rs. 17,29,845/- under section 234B and Rs. 1,77,240/- under section 234A of the Income Tax Act. The assessee contested the levy of these interests. 8. Initiation of penalty proceedings under Section 270A of the Income Tax Act: The AO had initiated penalty proceedings under Section 270A for alleged underreporting of income due to misreporting. The assessee challenged the initiation of these proceedings. Reasoning and Analysis: Commission Income: The Tribunal referred to the Hon'ble High Court's order in the assessee's own case for AY 2013-14, where it was held that the commission income did not fall within the ambit of FTS. The Tribunal noted that the commission income was for services such as promotion, sale, and distribution of products, which did not involve any managerial, technical, or consultancy services. The Tribunal emphasized that the services rendered by the assessee were support services and did not involve any special skills or knowledge. Subscription Fee: The Tribunal also referred to the High Court's order, which held that the subscription fee could not be treated as royalty. The Tribunal noted that the subscription fee was for the sale of copyrighted publications and did not involve any transfer of copyright. The Tribunal concluded that the subscription fee could not be classified as FTS or royalty. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the commission income and subscription fee could not be classified as FTS or royalty. The Tribunal also set aside the levy of interest under sections 234B and 234A and the initiation of penalty proceedings under Section 270A. Order Pronounced: The order was pronounced in the open court on 05/07/2024, allowing both appeals of the assessee.
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