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TMI Blog2023 (10) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agents is related to any of the Director of the company directly or indirectly. All the payments have been made in US$ through proper banking channels. None of the ingredient contained in the definition of Fees for technical services as per Explanation 2 to section 9(1)(vii) and/or in Article 12(4) of the India-USA DTAA is found in the impugned payment of commission by the assessee to AM and ETCS. No managerial services or technical services are involved since the non-resident parties (AM and ETCS) were merely commission agents appointed to procure purchase orders for assessee s products. Further, the impugned payment is not in relation to any services which make available any technical skill or know-how. Nothing of the sort was involved in the assessee s case. In Mahindra and Mahindra Ltd [ 2009 (4) TMI 207 - ITAT BOMBAY-H] it has been held that where the payer only obtained the benefit from the services, but did not get any technical knowledge experience or skill in its possession for future use, it cannot be said that technical know-how was made available. Thus the impugned disallowance u/s 40(a)(i) of the Act made by the Ld. AO and confirmed by the Ld. CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(i) of the Act is covered in favour of assessee. 5.1 Ld. DR however could not bring out anything contrary on facts. 6. It comes up that in para 10 to 17 the issue has been discussed in ITA no. 4378/Del/2016 and for convenience the same is reproduced below : 10. Ground No. 3 relates to disallowance of Rs. 2,31,97,600/- under section 40(a)(i) of the Act. The Ld. AO discussed this issue in para 9 of his order. He found from the P L Account that the assessee has debited the aforesaid sum as foreign commission . On being asked the assessee submitted two agreements with two parties, namely M/s. Asian Manufacturing LLC and M/s. ETCSLLC both of USA which were valid till 31.03.2012. The Ld. AO noted the salient point of these two agreements and rejecting the explanation of the assessee held that the services provided by the said parties fall within the purview of Fees for Technical Services ( FTS ) as per section 9(1)(vii) of the Act and Fees for Included Services ( FIS ) as per Article 12(4) of India-USA Double Taxation Avoidance Agreement ( India-USA DTAA ). Further, Explanation to section 9(2) clarified that the above shall be deemed to accrue or arise in India irrespect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l tangible and intangible information including all documents, data, papaers, statements, business/customer information, trade secrets and processes of SBA relating to its business provided to, obtained by or developed by AM for purposes of or pursuant to the performance of services under this Agreement or otherwise constitutes confidential and proprietary information of SBA ( Confidential Information ) AM and Solanki shall maintain due confidentiality at all times and shall not disclose any confidential Information to any person or entity or earlier discharge or termination thereof except that AM may disclose such information as it is required to disclose by law or judicial process or as may be required for enforcement of this agreement. 9.6 Thus from the above points its amply clear that the agent M/s. Asian Manufacturing LLC (AM) has specialized knowledge and understanding of automotive component, manufacturing industries and marketing of these products in USA and North America. It has to study the market for the product in the territory and appraise the potential for the product market. It has also to assist the assessee in; (a) making presentation to the potential custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip the recipient with such knowledge which may enable it to use on its own. Also, there is no bar in the agreement which prohibits the recipient (assessee) to use on its own such knowledge as it has acquired through its close business association with M/s. AM. Therefore, the importance of learning and absorbing for its own future use and benefit by the recipient cannot be over emphasized. 4. As regard the Make available clause, it is further stated as under;- Generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. It has been shown in detail above that business development and marketing services are being provided by M/s. AM to the assessee in a coordinated fashion and M/s. AM is assisting and advising the assessee in an array of business related services in a way which encourages learning, absorption and assimilation of such services and therefore, enables the recipient for its own future use and benefit. Therefore, it is beyond doubt that working in close association with M/s. AM, the assessee is bound to get work experience and domain knowledge. This in turn creates human resourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of M/s ETCS. The domain work of M/s ETCS would include not only securing order of the assessee but in its larger ambit it would have to identify markets, make introductory contacts, assist in preparation of presentations, targets clients etc. These all would require vast technical knowledge and experience of the product as well as the market. Further this would also entail transfer of technical information and knowledge between M./s ETCS and the assessee providing enduring benefits to the assessee. 6. It is vital to mention that in the case of Intertek Testing Services, in (2008) 307 ITR 418, the AAR held that the expression Technical Services cannot be construed in a narrow sense. It has been observed that the terms technical ought not to be confined in India only to technology relating to engineering, manufacturing or other applied sciences. In this regard, it is important to cite an important ruling by the AAR dated 17.01.2012 in the case of M/s Shell India Markets Pvt. Ltd. (AAR No. 833 of 2009). In the said ruling, business support services were held to be of consultancy nature and tantamount to be taxed as FTS under the India-UK DTAA. In its landmark ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 143(3) of the Act for AY 2005-06 to AY 2010-11. No new facts or law has been brought out by the Ld. AO/CIT(A) in AY 2011-12 under consideration. They have merely taken a different stand on the same facts which violates the principle of rule of consistency as held by the Hon ble Supreme Court in Excel Industries 358 ITR 295 (SC). 11.1 On merits, the Ld. AR submitted that commission to foreign sales agents is paid for procuring successful orders only after the agreed price is released by the foreign purchaser. The agent carries out market study etc. for boosting his commission income. The agents act at the dictates of the assessee. They were not authorized to make any binding representation without written authorization duly signed by the assessee. The foreign agents rendered such services which are typical of any commission agency business. Such services are not technical services and therefore, tax at source need not be deducted as held by the Hon ble Delhi High Court in DIT vs. Panalfa Autoelektrik Ltd. (2014) 49 taxmann. Com 412 (Del). 11.2 As to the reliance by the Ld. AO on the decision of Cochin Bench of ITAT in ITO vs. Device Driven India Pvt. Ltd. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai Bench of the Tribunal in IHI Corporation vs. Addl. DIT (Int. taxation) (2013) 32 taxmann.Com 132 (Mumbai Trib.) wherein the Tribunal held that in view of the amendment to the relevant provisions by means of the substitution of Explanation to section 9(2) governing the year made under consideration also, the income from offshore services rendered outside India would fall within the domain of section 9(1)(vii) of the Act. The Tribunal also observed that in assessee s own case for earlier years income on account of offshore services is not chargeable to tax as per Article 7 of the DTAA. The Tribunal held that the crux of the matter is that the provision of the Act or of the DTAA whichever is more beneficial shall apply and therefore, the income from offshore services though chargeable under section 9(1)(vii) but exempt under the DTAA cannot be charged to tax in the light of section 90(2) of the Act. 11.7 The Ld. AR concluded that since the sales agents rendered services outside India and that they had no business connection or PE and that they are tax residents of USA, the payments made and remitted directly to them in foreign exchange are not taxable under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customers set forth in Annexure C . 2. Products and Territory 1.2 The product covered by this agreement consist of the products manufactured or outsourced as outlined in Annexure-A and modified from time to time as agreed mutually by parties (the Product(s) ). 1.3 SBA shall have the sole right to determine its Product prices and terms of sale. All orders are subject to acceptance by SBA. 1.4 The appointment is for the region of North America (the Territory ). 1.5 AM shall communicate to SBA in the first instance any business relationship for a potential sale of the Products it wants to establish/follow/open with any prospective customer ( Lead ). Upon receiving consent from SBA with respect to a Lead, AM shall start the process of establishing the same Lead. In case AM receives no response from SBA with a request for consent to develop a Lead, AM shall send a reminder after 2 weeks ( Reminder ). If AM does not receive any response from SBA within one week after the Reminder, AM can choose, by written notice to SBA, to add the prospective customer corresponding to the same Lead to Annexure C. If no RFQ is generated within 3 months of it s addition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders for which commission of 1% shall be payable by SBA to AM by mutual consent of AM, in which case such commission shall be payable to AM provided that AM agrees to and does, in fact, assist SBA in all facets of the business relationship with the customer, including the providing of those services as described in Section.3(d)(iii) and 3(d)(iv). 4.3 The Commission shall be paid to AM on the gross invoice price charged to customer. The invoice price used in this Agreement means purchase prices paid to SBA by the customer. 4.4 Commission shall be considered due within five days after receipt of payment from the customer. All payments due will be paid once a month.. SBA shall provide to AM Purchase Orders and Invoice/Payment receipt summaries that apply to all orders that are commissionable. 4.5 SBA shall pay to AM commission of 5% of the gross invoice price on all tooling. The invoice price used in this agreement means purchase prices received by SBA from the prospective buyers when it is charged to the customer. 4.5.1 Any increase in prices that is negotiated with customers over the SBA prices submitted to AM will be shared between AM and SBA on a 50/50 basis. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission structure is outlined as follows. Retainer Fee $ 2500/- 6 Months w.e.f. 01.06.04 Commission Fee 5.0% - Paid Monthly (based on sales) (Retainer fee will accrue on signing the agreement but will not be payable to Manufacturer s Rep till first business is won for the Principle as a result of this relationship). Relationship of Parties It is intended that the Marketing Representative shall be an impendent contractor and not exclusively devoted to the sales of Principal s product (s) or an agent or employment of this Principal. The Marketing Representative would not be representing any other company manufacturing Aluminum Die Casted Components to the company s listed in schedule A without taking the consent of the principal. Marketing Representative shall 2iave no authority to act by or on behalf of the Principal nor shall the Marketing Representative be authorized to bind the Principal in any manner whatsoever. All knowledge and information that the Marketing Representative may acquire during the relationship between the Marketing Representative and the Principal concerning , manufacturing and sales practices of the Principal, its operation and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee s case. In Outotec India P Ltd. Vs CIT (2015) 41 ITR (Trib) 449 (Delhi), Delhi Bench of the Tribunal pointed out that the expression make available in the context of fees for technical services contemplates that the technical services should be of such a nature, that the payer comes to possess the technical knowledge so provided which enables it to utilize the same thenceforward. If the services are consumed without leaving anything tangible with the payer for use in future, it will not be make available of the technical services notwithstanding the fact that its benefit flowed directly to the payer. In Mahindra and Mahindra Ltd. vs. Dy CIT (2009) 313 ITR (AT) 263 (Mumbai) (SB) it has been held that where the payer only obtained the benefit from the services, but did not get any technical knowledge experience or skill in its possession for future use, it cannot be said that technical know-how was made available. 13.1 Before the Ld. AO/CIT(A) the assessee submitted that no information in the nature of technical, managerial or consultancy services had been provided by any of the two agents to the assessee. No such information has been brought on record by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame facts have been taken. We are conscious that the principle of estoppel and resjudicata do not have any application in income tax proceedings, since each assessment year is a separate unit. However, it is necessary that consistency should be maintained when the facts are not different. 7. We, therefore, hold that on the facts and in the circumstances of the assessee s case the impugned disallowance under section 40(a)(i) of the Act made by the Ld. AO and confirmed by the Ld. CIT(A) is not sustainable. Accordingly, the orders of the Ld. AO/CIT(A) are set aside. The ground No. 3 of the assessee is decided in favour of the assessee. 7. Therefore, following the findings of the Co-ordinate Bench in favour of the assessee, the issue with regard to disallowance u/s 40(a)(i) stands decided in favour of the assessee. 8. As with regard to ground no. 2 in A.Y. 2014-15, we are of the considered opinion that Ld. CIT(A) has duly appreciated the fact that the extended date for filing return expressly excluded any benefit of not paying interest u/s 234A. Accordingly, this ground has no substance. 9. Consequently, ITA no. 116/Del/2020 is allowed partly and the ITA no. 117/Del/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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