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TMI Blog2019 (6) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the agreements. In the previous year relevant to the AY 2012-13 only the retainer fee as per the agreement was paid and no order procurement services in real terms were materialized by the said non-resident. Thus, the Explanation Clause of Section 9 (vii) of the Act will not be applicable on the ground that income was from the source outside India. Both the non-resident assessee derived their income as their business activity and their business profit is determined under Article 7 of DTAA between India and USA as well as from Article 7 of DTAA between India and Belgium and will then decide as to where business income will be taxable. Therefore, none of the provisions of the Section 9 of the Act will be applicable in the present case, business income cannot be treated as fees for technical services as held by the AO. AO as well as CIT(A) was not correct in treating the order procurement services rendered by the non-residents and commission/retainer fee as royalty and fees for technical services. Transactions was between India and Switzerland and not between two different non-resident as is in the present case. The order of the CIT(A) is set aside. - Decided in favour o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Navos B.V.B.A, Belgium ₹ 6,58,242/- The Assessing Officer observed that no tax was deducted at source on these payments under section 195 of the Income tax Act. Both these parties are non-residents. They have rendered the order procurement services abroad and have no business connection or permanent establishment in India. Since their income was not chargeable under the provisions of I.T. Act read with Section 5 and 9, no tax was deductible under section 195 of the I.T. Act. Without prejudice to the above, the services rendered by both the above parties are neither royalty nor fees for technical services. In the previous year relevant to A.Y. 2012- 13, only the retainer fee was paid and no services infact were rendered by the above parties and hence provisions of section 9(l)(vii) will not be attracted. Even otherwise, such services when rendered will fall under the exception clause of sub-clause (b) of clause (vii) of sub-section (1) of section 9 as such service are for the purpose of making or earning any income from the customers outside India. Even then, the Assessing Officer has considered these pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by non residence was royalty or fee for technical services. In Para 2.4 of his order, the Assessing Officer quoted Article 12 of the DTAA between India and Belgium which has given the definition of both royalty and fees for technical services. The Ld. AR submitted that in a case of assessee company both the foreign parties for rendered or procurement services as their business activity and for which they were paid commission/retainer ship fee. These services can neither be called as technical or Consultancy Services nor as a royalty as per definition given in the relevant Article to DTAA. None of these two companies were having any office or permanent establishment in India. No payment was received by these non-resident parties in India and thus their income was not taxable in India and accordingly Sub-Section 2 of Section 5 was not attracted and consequently Section 195 of the Act was not applicable. Even Section 9 of the Act is not applicable as the amount received by both the non residence was neither royalty nor fees for technical services as alleged by the Assessing Officer. The payments were business provides of both the non-resident assessee s and as per Article 7 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also been considered as business income as held by AAR in Tele soft Pvt. Ltd 267 ITR 725 recently CBDT has issued Circular No. 4/15 dated 26/3/2015 emphasizing legislative intent with regard to Section 9 read with Section 195 of the Act. Legislative intend is very clear as to Section 5 including Sub Section 2 of the Section 5 wherein it is clearly state that if income does not accrue or arise in India nor is it received in India income in the hands of nonresident will not be taxable in India. In such a situation, neither Section 9 is attracted nor Section 195 of the Act. Therefore, the Ld. AR submitted that no TDS is required to be deducted on the payments made to non residence by the assessee company and thus question of disallowance u/s 40(a)(ia) does not arise. 7. The Ld. DR submitted that the CIT(A) as well as the Assessing Officer was correct in making addition. The Ld. DR submitted that it is evident from the terms of the agreement that consulting services are the running theme in the agreements drawn up with the non-residents. The services provided is in the nature of advisory services based upon the skills of the non-resident. The agreements clearly are i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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