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TMI Blog2014 (9) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 292/2014 - - - Dated:- 18-9-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. Kamal Sawhney, Sr. Standing Counsel with Mr. Sanjay Kumar, Jr. Standing Counsel. For the Respondent : Mr. Satyen Sethi, Advocate. ORDER Sanjiv Khanna, J. The present appeal by the Revenue, which arises out of proceedings under Section 195/197 of the Income Tax Act, 1961 ( Act , for short), relating to assessment year 2010-11 on an application filed by Panalfa Autoelektrik Ltd. (assessee, for short), requires adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India. xxx 9. Income deemed to accrue or arise in India.-(1) The following incomes shall be deemed to accrue or arise in India- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation-1-For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unreal as real and, therefore, unless the situation is covered under the language of the provision, its scope should not be expanded and widened beyond what is clearly apparent and perceivable. In such cases, purpose should be ascertained why the legal fiction is created and then full effect should be given to it without being boggled down or bidden when it comes to the inevitable corollaries, because we imagine the unreal as real. 9. Section 9(1)(i) brings to tax income of a non-resident accruing or arising, whether directly or indirectly, through and from any business connection in India, or through or from any property in India etc. 10. What is meant by business connection has been interpreted by the Supreme Court in the case of CIT, Punjab versus R.D. Aggarwal and Co. [1965] 56 ITR 20 and subsequently in Barendra Prasad Ray versus ITO [1981] 129 ITR 295. We need not dwell on the said aspect in detail for several reasons, though Circular No. 23 dated 23rd July, 1969 issued by the Central Board of Direct Taxes would not be applicable as it stands withdrawn with effect from 22nd October, 2009 vide Circular No.7 of 2009. Firstly, the Assessing Officer had not invoked the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services, and it includes provisions for services of technical and other personnel albeit there are specific exclusions, but we are not concerned with the same in the present appeal. 14. The expressions managerial, technical and consultancy services have not been defined either under the Act or under the General Clauses Act, 1897. The said terms have to be read together with the word services to understand and appreciate their purport and meaning. We have to examine the general or common usage of these words or expressions, how they are interpreted and understood by the persons engaged in business and by the common man who is aware and understands the said terms. The expression management services was elucidated upon by this Court in J.K. (Bombay) Limited versus CBDT and Another, [1979] 118 ITR 312 in the following terms:- 6. It may be asked whether management is not a technical service. According to an Article on Management Sciences , in 14 Encyclopaedia Britannica 747, the management in organisations include at least the following: (a) discovering, developing, defining and evaluating the goals of the organization and the alternative policies that will lead towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The non-resident was not acting as a manager or dealing with administration. It was not controlling the policies or scrutinising the effectiveness of the policies. It did not perform as a primary executor, any supervisory function whatsoever. This is clear from the facts as recorded by the Commissioner of Income Tax (Appeals), which have been affirmed by the Tribunal. The Commissioner of Income Tax (Appeals) has quoted excerpts of the agreement between the respondent-assessee, who has been described as PAL , and the non-resident, who has been described as AGENTA . The relevant portions thereof read as under:- 2. Appointment (1) PAL hereby appoint AGENTA as its commission agent for sale of its products within the territory to the purchaser(s) during the terms of this agreement, subject to and in accordance with terms and conditions set out herein and AGENTA agrees to and accepts the same. (2) It is agreed by and between the parties that AGENTA S representations and acts on behalf and for PAL viz-a-viz any third party shall be legally binding on PAL only when the same are authorized by virtue of a written and signed authorisation executed by PAL in favour of AGENTA. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Ltd. and Anr. Vs. Deputy Commissioner of Income Tax and Ors. (2001) 251 ITR 53 (Mad), the word technical has been interpreted in the following manner:- Thus while stating that technical service would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute technical service to render it technical service . The meaning of the word technical as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood: a technical report. 2. of involving, or concerned with applied and industrial sciences: an important technical achievement. 3. resulting from mechanical failure: a technical fault. 4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. Having regard to the fact that the term is required to be understood in the context in which it is used, fee for technical services could only be meant to cover such things technical as are capable of being provided by way of service for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to perform it. 21. The word consultant refers to a person, who is consulted and who advises or from whom information is sought. In Black s Law Dictionary, Eighth Edition, the word consultation has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It may mean a meeting in which parties consult or confer. For consultation service under Explanation 2, there should be a provision of service by the non-resident, who undertakes to perform it, which the acquirer may use. The service must be rendered in the form of an advice or consultation given by the non-resident to the resident Indian payer. 22. In the present, case 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, but in the facts, as notice by the Tribunal and the Commissioner of Income Tax (Appeals), the non-resident did not act as a consultant, who advised or rendered any counseling se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service technical. This is especially important in the e-commerce environment as the technology underlying the internet is often used to provide services that are not, themselves, technical (e.g. offering on-line gambling services through the internet). 41. In that respect, it is crucial to determine at what point the special skill or knowledge is used. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for the provision of a service will not be a technical fee, however, unless that special skill or knowledge is required when the service is provided to the customer. For example, special skill or knowledge will be required to develop software and data used in a computer game that would subsequently be used in carrying on the business of allowing consumers to play this game on the internet for a fee. Similarly, special skill or knowledge is used to create a troubleshooting database that customers will pay to access over the Internet. In these examples, however, the relevant special skill or knowledge is not used when providing the service for which the fee is paid, i.e. allowing the consumer to play the computer game or consult t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplier) but rather making the software and data available to that client. The mere provision of access to such data and software does not require more than having available such a database and the necessary software. A payment relating to the provision of such access would not, therefore, relate to a service of a managerial nature. Consultancy services 45. For the Group, consultancy services refer to services constituting in the provision of advice by someone, such as a professional, who has special qualifications allowing him to do so. It was recognised that this type of services overlapped the categories of technical and managerial services to the extent that the latter types of services could well be provided by a consultant. We broadly agree with the aforesaid observations. However, in the case of selling agents, we add a note of caution that taxability would depend upon the nature of the character of services rendered and in a given factual matrix, the services rendered may possibly fall in the category of consultancy services. Paragraphs 41 and 42 do not emanate for consideration in the present case, and effect thereof can be examined in an appropriate case [How ..... X X X X Extracts X X X X X X X X Extracts X X X X
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