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TMI Blog2022 (10) TMI 1104X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from third party customers - HELD THAT:- it is not the case of the Revenue that there was transfer of copyright by the assessee - As respectfully following the judgement of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [ 2021 (3) TMI 138 - SUPREME COURT] , AO directed to delete the additions. - Shri Shamim Yahya, Accountant Member And Shri Kul Bharat, Judicial Member For the Appellant : S/Shri Himanshu Sinha, Bhuwan Dhooper Vibhu Gupta, Advocates For the Respondent : Ms. Rashmita Jha, CIT DR ORDER PER KUL BHARAT, JM : The present appeal filed by the assessee for the assessment year 2013- 14 is directed against the order of Ld. CIT(A)-23, New Delhi dated 22.01.2019. 2. The assessee has raised following grounds of appeal- 1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in assessing the total income of the Appellant for the relevant AY at Rs. 16,90,72,945/- as against the returned income of NIL filed by the Appellant. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in recharacterizing the commission income of Rs. 22,89,835/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that as per related party disclosure, the equal amount has been shown as receipt from the assessee under the head subscription income outside India. 5. Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. 6. Ground No.1 raised by the assessee is general in nature, needs no separate adjudication. 7. Ground No.4 raised by the assessee is against levy of interest u/s 234A and 234B of the Act, are consequential and Ground No.5 is premature, hence dismissed. 8. Apropos to remaining grounds i.e. Ground Nos. 2 and 3, Ld. Counsel for the assessee submitted that the issues are squarely covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in the Group Company. He further reiterated the submissions made in the written submissions, the same are reproduced as under:- 1.1. The Appellant is a Company incorporated under the German laws and is a tax resident of Germany. During the subject year, the Appellant was a part of Springer Group, which was engaged in the business of publishing of books and journals in the field of research, education, and professional business. The Appellant acted as a commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of managerial services and thus, taxable as fees for technical services ( FTS ). Further, out of the total receipts of INR 24,84,114, the CIT(A) deleted the addition to the extent of INR 1,94,279/- and confirmed the balance addition as FTS. [Relevant findings @ Page 35 to 36 of the CIT(A) Order] b) Confirmed the action of the Ld. AO in treating subscription fees of INR 16,67,83,110 received by the Appellant as royalty. [Relevant findings @ Page 37 to 42 of the CIT(A) Order] c) Deleted the addition of INR 2,62,85,204/- in respect of sale of online journal and books which had been treated as royalty income by the Ld. AO. [Relevant findings @ Page 42 to 43 of the CIT(A) Order] 1.6. Aggrieved by the order of the Hon ble CIT(A), the Appellant has preferred the present appeal before this Hon ble Tribunal. 2. Appellant s plea before the Hon ble Tribunal: Ground No. 1- General in nature Ground No. 2 - That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in recharacterizing the commission income of INR 22,89,835 earned by the Appellant from its Associated Enterprise, i.e., Springer Nature India Private Limited [ SNIPL / ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt along with invoices were duly filed by the Appellant before the Ld. AO as well as Ld. CIT(A). However, the Ld. CIT(A), in gross ignorance of the contemporaneous documentary evidences filed by the Appellant, held that the Appellant had not discharged its onus to disclose necessary facts regarding the nature of receipts. Further, the CIT(A) proceeded to treat the commission income of INR 22,89,835 of the Appellant as FTS. 2.5. It is humbly submitted that the conclusions of CIT(A) are factually as well as legally incorrect. While holding the commission income as FTS, the Ld. CIT(A) even failed to mention the limb under which the services rendered by the Appellant qualifies as FTS under DTAA i.e. whether the services are in the nature of managerial, technical or consultancy. Further, the Ld. CIT(A) failed to appreciate that the Appellant had duly discharged its onus by placing on record all the documentary evidences (i.e. commissionaire agreement and invoices). 2.6. Further, a perusal of services provided by the Appellant as a sales representative of SIPL (enlisted in Article 3 of the commissionaire agreement) clearly shows that the said services are not in the nature of F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant and Springer Group s affiliated publisher entity, the Appellant inter-alia provides subscription management services. The Appellant merely collects prepayment of subscription fee from third-party end customers on behalf of Springer Group s affiliated publisher entity for whom the Appellant is merely acting as a Commissionaire agent. Subsequently, the Appellant on a monthly basis allocates the entire subscription fee collected from the customers to the Springer Group s affiliated publisher entity (refer Art. 4 of commissionaire agreement on page nos. 85-86 of the paperbook). Therefore, such subscription fee collected by the Appellant from customers on behalf of Springer Group s affiliated group entity is not the income of the Appellant. 3.4 It is submitted that the subscription fees collected by the Appellant from third party end customer is with respect to ejournals which are copyrighted articles. There is no transfer of copyright or right to use by the Appellant. The Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021] 432 ITR 471 (SC) has upheld the principle that income from sale of copyrighted articles should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge Centre India (P.) Ltd.: [2018] 92 taxmann.com 226 (Del.) Welspun Corporation Ltd.: (2017) 77 taxmann.com 165 (Ahem.) Factiva Ltd v. DCIT (ITA No. 6455/ Mumbai/ 2018) 3.8 The Appellant hereby also places reliance on the following judicial decisions wherein it has been held that subscription fee does not qualify as imparting of any secret or confidential information concerning technical, industrial, commercial or scientific knowledge, experience or skill: Elsevier BV, In re [2021] 432 ITR 251 (AAR - Mumbai) HEG Ltd. (2003) 263 ITR 230 (MP) Dun and Bradstreet Information Services India P. Ltd. (2012) 338 ITR 95 (Bom.) GVK Oil Gas Ltd. (2016) 68 taxmann.com 134 (Hyd.) Factset Research Systems Inc. (2009) 317 ITR 169 (AAR) 3.9 Applying the same principle to the facts of the present case, it is submitted that the subscription fees collected by the Appellant is not taxable as royalty under the Act as well as under the Tax Treaty. 3.10 Without prejudice to the above, it is respectfully submitted the Appellant was collecting subscription fee from third-party end customers only on behalf of affiliated publisher entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g this portion (Rs.22,89,835/-) is confirmed. As far as service charges of Rs.1,94,279/- are concerned, it has been represented that these are service charges for sale of Indian Journals. Therefore, this amount is business income. It is not the case of the AO that the appellant has permanent establishment (PE), in India. Therefore, addition to this extent (Rs.1,94,279/-) is deleted. As a result, this Ground (No2.) of the appeal is partly allowed. 11. We find that the identical issue was raised before the Co-ordinate Bench of the Tribunal in the case of M/s. Springer Verlag GmbH vs DCIT in ITA Nos. 434 3826/Del/2019 [Assessment Years 2014-15 2015-16] vide order dated 23.08.2022 and considering the various case laws, the Co-ordinate Bench of the Tribunal has decided the issue by observing as under:- 10. In our considered view, to construe any payment as FTS, payment should be a consideration for rendering of any managerial services. The ld. CIT(A) was of the firm belief that the assessee was involved in rendition of managerial services to SIPL and, therefore, the commission received for such services is in the nature of FTS. 11. Interestingly, the concept of FTS is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... policies that are adopted, (d) initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organizations. Traditionally administration was distinguished from management, but it is now recognised that management has a role even in civil services. According to the Fontana Dictionary of Modern Thought, page 366, management was traditionally identified with the running of business. Therefore, management as a process is practiced throughout every organization from top management through middle management to operational management. Recently this Court in CIT versus Bharti Cellular Limited and Others, [2009] 319 ITR 139 had observed:- The word manager has been defined, inter alia, as: a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc. It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amount of commission payable to it shall be the difference between consideration which PAL receives in terms of the purchase contract/order form the purchaser(s) and the pre determined guaranteed consideration settled and agreed between the parties, as described in Annexure 1 annexed hereto; (b) The parties agree that all the taxes applicable and required to be deducted in India to the transaction contemplated herein at the date of execution of this agreement and at any time in future during the terms of this agreement shall be deducted from the commission (as described herein above) before the same is paid and transferred to the bank account of AGENTA (herein referred to as the commission payable) 16. The non-resident, it is clear was appointed as a commission agent for sale of products within the territories specified and subject to and in accordance with the terms set out, which the non-resident accepted. The non-resident, therefore, was acting as an agent for procuring orders and not rendering managerial advice or management services. Further, the respondent-assessee was legally bound with the non-residents‟ representations and acts, only when there was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical is involving or concerning applied and industrial science . 19. The said term was also interpreted by this Court in case of Bharti Cellular Limited and Others (supra) where emphasis was laid on the element of human intervention, but we are not concerned with the said aspect in the present case. The non-resident had not undertaken or performed technical services , where special skills or knowledge relating to a technical field were required. Technical field would mean applied sciences or craftsmanship involving special skills or knowledge but not fields such as arts or human sciences (see paragraph 24 below). 20. The moot question and issue is whether the non-resident was providing consultancy services. In other words, what do you mean by the term consultancy services ? This Court in Bharti Cellular Limited and Others (supra) had referred to the term consultancy services in the following words:- 14. Similarly, the word consultancy has been defined in the said Dictionary as the work or position of a consultant; a department of consultants. Consultant itself has been defined, inter alia, as a person who gives professional advice or services in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skill, business acumen and knowledge acquired by the non-resident were for his own benefit and use. The non-resident procured orders on the basis of the said knowledge, information and expertise to secure their commission. It is a case of self-use and benefit, and not giving advice or consultation to the respondent-assessee on any field, including how to procure export orders, how to market their products, procure payments etc. The respondent-assessee upon receipt of export orders, manufactured the required articles/goods and then the goods produced were exported. There was no element of consultation or advise rendered by the nonresident to the respondent-assessee. 23. Decision in the case of M/s Wallace Pharmaceuticals Private Limited (supra) is clearly distinguishable as in the said case the nonresident consultant had to perform several services in the nature of attending meetings on mutually agreeable dates and providing advice and counseling, which were in the nature of consultancy services as they entailed support from a product team, compliance with all legal and administrative formalities, including registration and marketing strategy, creation of entry into new marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troubleshooting database. 42. Many categories of e-commerce transactions similarly involve the provision of the use of, or access to, data and software (see, for example, categories 7, 8, 9, 11, 13, 15, 16, 20 and 21 in annex 2). The service of making such data and software, or functionality of that data or software, available for a fee is not, however, a service of a technical nature. The fact that the development of the necessary data and software might itself require substantial technical skills is irrelevant as the service provided to the client is not the development of that data and software (which may well be done by someone other than the supplier) but rather the service of making the data and software available to that client. For example, the mere provision of access to a troubleshooting database would not require more than having available such a database and the necessary software to access it. A payment relating to the provision of such access would not, therefore, relate to a service of a technical nature. Managerial services 43. The Group considers that services of a managerial nature are services rendered in performing management functions. The Group did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate case [However, see Commissioner of Income Tax vs. Estel Communication P. Ltd. (2009) 318 ITR 185 (Del) and Skycell Communications Ltd. (supra)]. 25. Thus, 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. In the present case, the aforesaid 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, but in the present case this issue or differentiation is again not relevant. 13. Similarly, the Authority for Advance Rulings in Intertek Testing Services India [P] Ltd 307 ITR 418 has observed as under: As pointed out by the Supreme Court in R. Dalmia vs. CIT 1977 CTR (SC) 130 : (1977) 106 ITR 895 (SC), management includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtful category. 16. A contention has been raised by the counsel for the Revenue that the recipient of FTS shall be the beneficial owner of fees and if the non-resident entity which ostensibly receives the fee is a mere conduit for the other related companies and the amount received by it is simply made over to those companies, then no benefit can be sought from art.13 of the Treaty. If the beneficial owner is someone other than the immediate recipient of fee, the legal position has to be examined in light of the relevant Treaties governing the country of residence of the real and beneficial owner. It is argued that the ITM, UK acts as a coordinating or central point agency to requisition the services from various other Intertek groups subsidiaries and, therefore, the ITM, UK presumably passes on the amount charged to various other entities, while retaining at the most, the mark-up charge of 7.5 per cent. In the absence of the applicant furnishing any details of services actually rendered by ITM, UK, it is submitted that a conclusion cannot be drawn that the UK company is the real beneficial owner. It appears that the omission on the part of the applicant in spelling out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetent authority to determine the issue of TDS by filing an application under s. 195 of IT Act. It is settled law that any order passed under s. 195 is tentative and the rights of the payee or recipient are not thereby adversely affected [vide Transmission Corporation of AP Ltd. vs. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC)]. To what extent and at what rate the tax deduction has to be made by the applicant will be determined by the appropriate authority expeditiously in the light of the principles laid down and observations made in this ruling. 14. Similar view was taken by the co-ordinate bench at Mumbai in the case of Endemol South Africa [Proprietary] Ltd 67 ITR (T) 520. The relevant findings read as under: 16. We may herein observe, that a similar view had earlier been arrived at by the ITAT, Mumbai, in the case of Yashraj Film Pvt. Ltd. Vs. ITO (IT) (2012) 231 ITR (T) 125 (Mum.). On a perusal of the facts involved in the aforementioned case, it emerges that the Tribunal had observed that as the services rendered by the nonresident service providers for making logistic arrangements were in the nature of commercial services, thus, the same cannot be trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Pvt. Ltd. cannot be held as FTS . 17. Still further, we also find that the issue of taxability of amount received outside India for rendering Line production services to the assessee company viz. Endemol India Pvt. Ltd, had also been considered and decided by the Hon‟ble Authority for Advance Ruling (for short AAR‟), vide its rulings rendered in the case of Endemol Argentina (Non-resident) [AAR No. 1082 of 2011; dated 13.12.2013] and Utopia Films (Non-resident) [AAR No. 1081 and 1082 of 2011; dated 19.02.2014]. In the aforementioned rulings, it was observed, that the consideration received outside India by the concerned overseas service providers by providing line production services to the assessee, viz. providing line producer, local crew, stunt services, transport etc. would not qualify as FTS under the Act. We find that in the present case, the A.O/DRP had declined to rely on the aforesaid rulings of the AAR, for the reasons viz. (i) that as per Sec. 245S, the advance ruling is pronounced on the basis of facts of a particular case and hence, it is binding on only the applicant in respect of the transactions in relation to which advance ruling was sought; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of a managerial, technical or consultancy services, therefore, we refrain from further adverting to and adjudicating upon the observations arrived at by the A.O/DRP in context of the rulings of the Hon‟ble AAR. 15. In the aforementioned judgment, the co-ordinate bench has negated both, royalty and FTS. 16. Similarly, the co-ordinate bench at Mumbai in the case of UPS SCS [Asia] Limited ITA No. 2426/MUM/2010 order dated 22.02.2012 has held as under: 7. First we will consider the ambit of `managerial services to test whether the instant services can qualify to be so called. Ordinarily the managerial services mean managing the affairs by laying down certain policies, standards and procedures and then evaluating the actual performance in the light of the procedures so laid down. The managerial services contemplate not only execution but also the planning part of the activity to be done. If the overall planning aspect is missing and one has to follow a direction from the other for executing particular job in a particular manner, it cannot be said that the former is managing that affair. It would mean that the directions of the latter are executed simplicity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18. 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. 19. 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. 20. Similar quarrel was considered by the Hon'ble Jurisdictional High Court of Delhi in the case of Hero Motocorp Ltd 394 ITR 403. The relevant findings read as under: 20. In this context, the Court concurs with the following findings of the ITAT: Therefore, by export agreement, the assessee has not been transferred or permitted to use any patent, invention, model, design o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o made abroad. 14. The contention of the learned counsel for the Revenue is that the Tribunal ought not to have relied upon the decision reported in G.E.India Technology's case, cited supra, in view of insertion of Explanation 4 to Section 9 (1) (i) of the Act with corresponding introduction of Explanation 2 to Section 195 (1) of the Act, both by the Finance Act, 2012, with retrospective effect from 01.04.1962. 15. The issue raised in this case has been the subject matter of the decision, in the recent case, reported in (2014) 369 I.T.R. 96 (Mad) (Commissioner of Income Tax v. Kikani Exports Pvt. Ltd.) wherein the contention of the Revenue has been rejected and assessee has been upheld and the relevant observation reads as under:- ... the services rendered by the non-resident agent could at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services and, therefore, section 9 was not applicable and, consequently, section 195 did not come into play. Therefore, the disallowance made by the Assessing Officer towards export commission paid by the assessee to the non-resident was rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... platform which in turn allows access the database / scientific knowledge available at the server of SIPL), ii) this income has arisen because of services rendered outside India. (The sale has taken place in India and certainly the services have been utilized in India, and the payment has also been made in India) iii) It is a simple commission from selling the books. (The appellant has been providing multidisciplinary services). 7.12 Since, the basic transaction is like allowing excess to a software platform which in turn allows access the database / scientific knowledge available at the server of SIPL, therefore, what the subscriber is paying is in fact, for royalty . The appellant is getting is a part of it (Royalty) and therefore, the character does not change in the hands of the appellant. 7.13 It is noted that the subscription/renewal of subscription paid by the Indian customer was not for purchase of any copyrighted article, in classic sense. Therefore, what the author (or copyright holder) gets is for the knowledge shared by the author (or the copyright holder). Although the appellant has contested that it is not the owner of the journals (software). Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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