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TMI Blog2022 (8) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... ax such fee from technical services. In fact, the Commentary to the UN Model Convention lays down clear guidance in respect of the meaning of the term managerial services Managerial services entail the element of management of the business of the service recipient in a substantial manner. In our view, mere provision of support services cannot be labeled as managerial services. Hiring of outside parties to receive support in respect of the operational aspects of a business cannot qualify as managerial services unless the service provider lays down policies or executes such policies by managing the personnel of the service recipient. In light of the afore-stated judgments, we do not find any merit in the findings of the ld. CIT(A) by treating the commission as managerial service under the India Germany DTAA. There is no dispute that the assessee has received commission as per the Commissionaire Agreement with SIPL which is nothing but export commission/sales commission, which has been treated as FTS. We set aside the findings of the ld. CIT(A) and direct the Assessing Officer to delete the impugned addition. Decided in favour of assessee. Non grant of credit of TDS claim as per the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing but royalty taxable u/s 9(1)(vi) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] and also under the DTAA with Germany and concluded assessment by taking the same as royalty @ 10% under India Germany DTAA. 8. The matter was challenged before the ld. CIT(A). The ld. CIT(A) was convinced with the challenge that the commission so received is not royalty but changed the color of assessment by treating the commission received as FTS as per India Germany DTAA by holding as under: "It is absolutely clear that the role of the appellant is to manage and provide managerial sendee to the Indian entity on a global basis. The said managerial services are clearly classifiable as FTS under the India- Germany Treaty. The appellant has quoted a number of judgments to suggest that the amount does not classify as FTS. However the judgments are with reference to the specific facts of the cases and specific to the nature of services being rendered by the parties for which the consideration was given. The appellant has not tried to explain as To how the services rendered by it are similar to the services of the parties whose judgments have been quoted. In the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51, in relation to "Managerial, technical and consultancy services", has observed as under: "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 toward the goals, (b) getting the organization to ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the non- resident to the respondent-assessee. 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 writt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was providing technical services. To quote from Skycell Communications 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 tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egory of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required 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 nonresident 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-res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring services would be of a technical nature, the services of a psychologist would not. 40. The fact that technology is used in providing a service is not indicative of whether the service is of a technical nature. Similarly, the delivery of a service via technological means does not make the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing it to customers, might itself require substantial management expertise is irrelevant as the service provided to the client is neither managing the client‟s business, managing the supplier‟s business nor developing that data and software (which may well be done by someone other than the 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ination of public relations issues and audit services and advice on global income-tax policies. Arrangement and coordination of global insurance can perhaps fall under this category, though in the absence of details, we do not want to express firm view. Another point we would like to clarify is that from the nomenclature used in the invoice i.e. 'management fee', it cannot be inferred that all the services under the agreement rendered to the applicant are managerial services. The label given in the invoice is not important, much less decisive. In fact, the expression 'management fee' is not found in the agreement. It is described in the agreement as service charge or fee and the same description is given in the application also. In the note, the applicant stated that management charges relate to 'support services'. Support services are not necessarily equivalent to services of managerial nature. 14.1 Keeping the above observations in view, the classification of services as managerial may have to be undertaken in an appropriate proceeding. 15. There are certain services which may not come under either technical or consultancy or managerial. At any rate, a doubt arises in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultancy services which do not 'make available' technical knowledge, experience etc. and therefore do not fall within the ambit of cl. (c) of art. 13.4. But, some of them satisfy the test of making available 'technical knowledge' etc. and therefore taxable as FTS under art. 13.4 of Treaty. There are also services which can be categorized as managerial. There are some which do not fall under either of the three categories. We have given sufficient indication of all such services, on a broad analysis. 17.1 It is made clear that nothing in this ruling shall preclude the concerned IT authorities to determine the cost of services etc. on arm's length basis by taking resort to the provisions of s. 92 of IT Act, 1961. 18. 2nd Question : As indicated earlier, while discussing question No. 1, it is not possible to hold, on the basis of the material placed before this Authority, that all the services rendered do not fall under FTS and that the entirety of service fee charged to the applicant does not constitute the income of ITM, UK under the Treaty. There is some grey area in respect of certain services, as pointed out in the course of discussion supra. However, we have interpreted art. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved as regards rendering of such services would constitute business profits of the said overseas service providers. It was further observed, that as the said service providers had no Permanent Establishment (P.E) in India during the year under consideration, hence the business profits were not taxable in India in their hands as per Article 7 of the respective tax treaties between India and the abovementioned countries. We have deliberated at length on the facts involved in the case before us, and find that the nature of services rendered by the overseas service providers in the aforementioned case of Yashraj Films Pvt. Ltd.(supra) are somewhat similarly placed and rather overlapping to some extent, as in comparison to the services rendered by the assessee in the case before us. In terms of our aforesaid observations, we find that our view that the services rendered by the assessee are administrative services and not in the nature of managerial, technical or consultancy services, also stands fortified by the aforesaid order of the coordinate bench of the Tribunal. We thus, in the backdrop of our aforesaid deliberations, and finding ourselves to be in agreement with the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower authorities had declined to take cognizance of the observations of the Hon‟ble AAR on the ground that the "tax treaties‟ involved in the said case were different as against that involved in the present case, however, there is no mention of any such material fact which could persuade us to conclude that the definition of "FTS" in the said respective tax treaties would be absolutely unworkable, and hence could not be applied in the case before us. We thus, are of the considered view, that the lower authorities had erred in failing to appreciate that the ruling rendered by the Hon‟ble AAR in the case of Endemol Argentina and Utopia Films, though was not binding, but did have a persuasive value while adjudicating the issue under consideration. Be that as it may, we are not impressed by the outright scrapping by the lower authorities of the aforesaid rulings rendered by the Hon‟ble AAR in context of taxability of Line production services provided by the overseas service providers viz. (i). Endemol Argentina (Nonresident);and (ii). Utopia Films (Non-resident) to the assessee company viz. Endemol India Pvt. Ltd. However, we are of the considered vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his act of the worker cannot be described as managing the goods because he simply followed the direction given to him. On the other hand, `managing' encompasses not only the simple execution of a work, but also certain other aspects, such as planning for the way in which the execution is to be done coupled with the overall responsibility in a larger sense. Thus it is manifest that the word `managing' is wider in scope than the word `executing'. Rather the later is embedded in the former and not vice versa. 8. Adverting to the facts of the instant case it is observed that the assessee performed freight and logistics services outside India in respect of consignments originating from India undertaken to be delivered by Menlo India. The role of the assessee in the entire transaction was to perform only the destination services outside India by unloading and loading of consignment, custom clearance and transportation to the ultimate customer. In our considered opinion, it is too much to categorize such restricted services as managerial services. We, therefore, jettison this contention raised on behalf of the Revenue." 17. A perusal of the aforementioned judgments of the Hon'ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution of technical knowledge, experience, expertise, skill or technical know-how of the processes involved or consist in the development and transfer of a technical plan or design. The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of fees for technical servicesas explained in the context of Section 9 (1) (vii) of the Act. 12. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical servicesand therefore, explanation (2) to Section 9 (1) (vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee's case. 13. In this case, the commission payments to the non-resident agents are not taxable in India, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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