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TMI Blog2013 (9) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... tic research' made by the overseas entity - In Explanation 2 of clause (vii) (supra) of section 9(1) with effect from 01.04.1977, fee for 'technical services' means any consideration paid for 'technical' or 'consultancy' services – It is held that word 'technical' services would imply an operation involving skilled precision which 'systematic research' also involves – Payment made to overseas entity amounts to fees for 'technical' services - Hence, assessee was liable to deduct TDS as per the provisions of the Act, failure of which would entail disallowance under section 40(a)(ia) of the Act – Decided in favor of Revenue. - I.T.A. No. 2100/Mds/2012 - - - Dated:- 11-3-2013 - N. S. Saini And S. S. Godara , JJ. For the Appellant : Shaji P. Jacob For the Respondent : Vikram Vijayaraghavan ORDER:- PER : S. S. Godara This Revenue's appeal is directed against the order of the Commissioner of Income Tax (Appeals) I, Coimbatore dated 23.08.2012 in Appeal No. 449/11-12 for the assessment year 2009-10, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the Act ]. 2. The grounds of appeal raised by the Revenue are as under: 1. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical Services means any payments of any amount to any person other than the payments to an employee of the person making payments in consideration of the services of managerial, technical or consultancy nature including the provisions of services of technical or other personal. 2.8 It is further submitted that the decisions relied upon by the CIT(A) were prior to the withdrawal of Circular No.786 dated 07.02.2000; 2.9 It is submitted that the decision of the Delhi High Court in the case of CIT v. Eon Technology P Ltd. 15 taxmann.com 391 cannot be said to be applicable because of the principle of res judicata . 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored. 3. In support of the grounds, the DR vehemently argued that the CIT(A) has wrongly deleted the addition made by the Assessing Officer under section 40(a)(ia) of the Act for not deducting TDS qua the payment made by the assessee to its overseas agent. By placing reliance on the case law [2012] 134 ITD 697 (Mumbai) in the case of De BeersUK Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy, he invoked section 40(a)(ia) of the Act and disallowed/added the amount in question of ₹ 3,74,09,773/-. 8. The assessee carried the matter in appeal, wherein the CIT(A) has deleted the addition by holding as under: 4.3 I have gone through the submissions made by the appellant and also the order of the Assessing Officer. The Assessing Officer observed that the assessee company has not deducted TDS on the commission payments as per provisions 195 of the Income tax Act and disallowed the sum of commission paid. The Assessing Officer has also examined the agreement copies filed by the assessee with regard to the commission paid to foreign agent. The AO opined that the services rendered by the foreign agent we in the nature of technical services and concluded that as the amounts paid to the non-residents are deemed to have arisen in India u/s 9(1)(vii) and therefore, are chargeable to tax in India. The assessee company ought to have deducted TDS u/s 195 of the Income tax Act. The AO further concluded that in the absence of application u/s 195(2) to the concerned AO, the assessee ought to have deducted tax either at the rates prescribed for the relevant assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said that any technical services are provided by the foreign agent. The agents were acting on behalf of the appellant in supplying the products to the foreign buyers and also ensuring timely payment by the buyers for all exports performed by the appellant. 4.6 The AO has also drawn reference to the withdrawal of Circular No.786 dated 7.2.2000 and Circular No.23 of 1969 to support his view. The Circular No.7 of 2009 was issued only on 22nd October, 2009 which is much after the end of the assessment year and therefore the same cannot be held applicable for the assessment year 2009-10. The ld. AR also submitted some judicial pronouncements relating to above withdrawal of Circulars. (i) M/s Siemens Aktiengeselischaft (2009) 34 SOT 16 (Mum.) A circular in operation through the relevant assessment year cannot be held to be inoperational simply by reason of the fact that it has been withdrawn in the year 2009. The withdrawal of such circulars will be effective only after the said dated of 22nd October, 2009 by which these circulars have been withdrawn with immediate effect . (ii) DCIT v. Sanjeev Gupta [2001] 50 DTR 225 (iii) ACIT v. Modern Insulators 56 DTR 362 (2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 held that In our view, Section 195(2) is based on the principle of proportionality . The said subsection gets attracted only in cases where the payment is made composite payment in which a certain proportion of payment has an element of income chargeable to tax in India. It is in this context that the Supreme Court stated, if no such application is filed, income tax on such sum is to be deducted and it is the statutory obligation of the person responsible for paying such 'sum' to deduct tax thereon before making payment. He has to discharge the obligation to TDS . 4.7 As seen from the facts of this case, Agent is a non-resident. Agent is operating his business activities outside India. The commission paid related to services provided outside India. The agent does not have any permanent establishment or permanent business place in India. The commission was remitted to the agent directly outside India. 4.8 All the above conditions bring to a reasonable conclusion that the commission paid in the facts of the present case to the non-resident agent is not taxable in India. The ITAT Madras 'A' Bench in the case of Indopel Garments Pvt. Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer on the facts of this case. The Assessing Officer was thus clearly in error in proceeding to invoke disallowance under section 40(a)(i) on the short ground that the assessee did not deduct tax at source from the foreign remittance . The ITAT 'D' Bench, in the case of ACIT, Company Circle-II(l) v. M/s Eagle Piers (P) Limited on similar facts, relying on the judgement of Hon'ble Supreme Court in case of GE India Technology Centre (P.) Ltd v. Commissioner of Income tax and another 327 ITR 456. Referring to the above discussion and the judgements relied on by the appellant in his submissions, I direct the Assessing Officer to delete the addition. This ground of appeal is allowed. Therefore, the Revenue is aggrieved. 9. In the instant case, the only contention of the Revenue before us is that the payee in question had rendered technical services in the nature of 'systematic research' to the assessee and received fee in lieu thereof, which is liable to be taxed as per Article 13 (clause 4) of the Indo-Italian DTAA. In reply, the assessee has produced before us copy of the agreement (supra) wherein the obligations of the payee are stated as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. (ii) to (vi) xxxxxxxxx (vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : [Explanation 1 xxxxxxxxxxxxxxxxxxxxx] Explanation [2].-For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries .] Similarly, in ..... 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