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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 ..... lers since inception. During the relevant years the assessee had debited in P & L account certain amounts on account of foreign commission although the assessee has treated the aforesaid payments as foreign commission / export commission, however Ld. AO found that services rendered by these parties are not merely for the sale of products of the assessee company but for prospecting, marketing & providing comprehensive and integrated services. Thus, soliciting of business is only a part of it. As the aforesaid would fall within the purview of section 9(l)(vii). "fee for technical services which would be liable to be taxable in India as income deemed to have accrued/arisen in India. Accordingly Ld. AO had made the disallowance considering services to be a FTS and that assessee was liable to deduct tax u/s 195 which it has failed to do so therefore, disallowance u/s 40(a)(i) of the Act was made. 2.1 During A.Y. 2015-16, Ld. AO also made an addition of interest of section u/s 234A. 3. Ld. CIT(A) had sustained the additions for which the assessee is in appeal challenging the additions u/s 40(a)(i)(B) of the Act in both the AYs and the levy of interest u/s 234 A in A.Y. 2014-15. 4. Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The aforesaid is discernible from the following points of the agreement: Salient point of agreement with M/s. Asian Manufacturing LLC * As per the agreement, Asian Manufacturing LLC (AM) has knowledge and understanding of the automotive component manufacturing industry and marketing for such industry in the United States and North America. * As per para 1.6 of this agreement, AM agrees to use its best efforts to promote and market the products and solicit purchase orders from customers located in the territory for delivery of products in the Territory. * Further as per para 3 - AM shall be responsible to do the following with respect to the customers listed (a) Study the market for the Products in the Territory. (b) Appraise the potential of the market for the Product; (c) Procure RFQ's from the prospective customers; and (d) assist SBA in i) making presentations to the potential customers; ii) establishing pricing and other commercial negotiations for finalization of the order; iii) providing sales and after sales service to the customer on behalf of SBA; and iv) any other commercial or non commercial communication, negotiation or any such matter to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rendering of any technical or consultancy services. It is apparent that M/s. Asian Manufacturing LLC (AM) is providing the assessee comprehensive consultancy services related to business development and marketing and not merely soliciting of sales orders. The only objection of the assessee is, therefore, that the technical or consultancy service provided by M/s. Asian Manufacturing LLC (AM) does not satisfy the "Make Available" Clause of Article 12(4) of the DTAA between India and USA. It may be seen that as per the agreement M/s. AM is assisting and advising on commercial sales and contract development as well as in preparation of business proposals and bid documents to be submitted to the customers. Therefore, it is but natural that while receiving the above stated well paid for business services, the recipient of such service which is the assessee is automatically put on a learning curve. As can be seen that as per the agreement, M/s. AM is mandated to assist and advise on commercial sales and contract development, make presentations for key, preparation of business proposals and documents to be submitted to the customers. The imparting of such important business services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have 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 manufacturing and sales practices of the Principal, its operation and procedures shall be deemed to be proprietary and confidence to the Principle and Marketing Representative agrees to retain in confidence unless otherwise publicly available. The aforesaid points clearly show that the ambit of agreement is wider than mere soliciting of business. The objective of the work assigned to M/s ETCS is that of providing the services of marketing as well as development of business of the assessee concerned in USA. The assessee is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has vast technical knowledge and experience. Further, he is also one of the directors of the taxpayer. He is able to secure orders only because of his vast technical knowledge and experience. As per the clause of the agreement, the commission agent is responsible in securing orders and for that purpose he has to assist the taxpayer in all respects including identifying markets, making introductory contacts, arranging meeting with prospective clients, assisting in preparation of presentations for target clients. The commission agent's duty does not end on securing the orders, but he has to monitor the status and progress of the project, meaning thereby, the commission agent is responsible for ensuring supply of the software and also for receiving the payments. All these activities could be carried on only by a person who has vast technical knowledge and experience. Accordingly, the payment made to a commission agent constitutes towards technical services." 10.2 Aggrieved the assessee is in appeal before the Tribunal. 11. At the very outset, it is submitted by the Ld. AR that the assessee has been paying commission to these two agents under the same agreement since AY 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012) 346 ITR 504 (Delhi). The Ld. AR also placed reliance on the decision of Hon'ble Madras High Court in CIT vs. Orient Express (2015) 56 Taxmann. Com 331(Mad) and DCIT vs. McFills Enterprise (P) Ltd. (2019) 101 taxmann.Com 212 (Ahmedabad-Trib) 11.6 According to the Ld. AR services rendered outside India are not taxable under the India-USA DTAA. He pointed out that there is no dispute that the non-resident sales agents rendered service outside India. He submitted that in Ishikawajma- Harima Heavy Industries Ltd. vs. DIT (2007) 288 ITR 408 (SC), the Hon'ble Supreme Court held that whatever was payable by a resident to a non-resident by way of technical fees would not always come within the purview of section 9(1)(vii). It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax as envisaged in Article 12 of DTAA with Japan. In order to overcome the judgment (supra) an explanation below section 9(2) was introduced by the Finance Act, 2010 retrospectively. Referring to the decision of Hon'ble Delhi High Court in DIT vs. Nokia Networks OY (2013) 358 ITR 259 (Del), the Ld. AR submitted that the amendment cannot be read into the DTAA. He also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission giving complete details of sale invoice, the amount received and its commission. 12.1 It was also submitted before the Ld. AO/CIT(A) that no information in the nature of technical, management or consultancy services had been provided by any of the agent. The assessee had no PE in USA. Both the agents are tax residents of USA and had no business connection in India nor they have any PE in India. None of 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. 12.2 We have perused the agreement dated 31.08.2004 between the assessee (SBA) and Asian Manufacturing LLC USA (AM) at page 152-162 of Paper Book as also the agreement dated 01.06.2004 between the assessee (Principals) and FTCS LLC (Marketing Representative) at pages 163-166 of Paper Book. The relevant portion of the agreement between SBA and AM is extracted below: "1. Appointment 1.1 SBA hereby appoints AM, and AM hereby accepts such appointment, as SBA's non-exclusive sales representative for the sale of Products to customers located in the Territory. However, AM will set as SBA's exclusive agent with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and quality problems. 3.0 AM shall be responsible to do the following with respect to the customers listed in Annexure C: a) study the market for the Products in the Territory; b) appraise the potential of the market for the Product, c) procure RFQ's from the prospective customers; and d) assist SBA in: i) making presentations to the potential customers; ii) establishing pricing and other commercial negotiations for finalization of the orders: iii) providing sales and after sales service to the customer on behalf of SBA; and iv) any other commercial or non commercial negotiation or any such matter to be dealt with the customers 4. Commission 4.1 AM shall be paid a commission of two percent (2%) on the orders which have been procured through AM's efforts for the Products in the Territory. In certain circumstances as listed in Annexure C, this rate may differ for specific customers^ or purchase orders as appropriate and mutually agreed upon. 4.2 SBA shall pay commission on the existing purchase orders of SBA as listed in Annexure B. Further, SBA may, at its option, pass to AM any purchase orders for which commission of 1% shall be payable by SBA to AM by mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se shall survive the termination of this Agreement. 10.2 AM, Solanki and SBA shall each undertake all necessary action to protect the Confidential Information against misuse, loss, destruction, alteration or deletion from their respective premises. This clause shall survive the termination of this Agreement" 12.3 The relevant portion of agreement between SBA (Principals) and ETCS LLC (Marketing Representative) are hereunder: "Appointment and Acceptance Principals hereby appoint and authorize Marketing Representative the right to sell the principal's products to customers as outlined in Schedule A. Representative hereby agrees to sell and promote the sale of the Principal's products and accepts such appointment The principal may from time to time, include such other customer as it mutually decides with Marketing Representative and include it in Schedule A. Compensation A commission rate of five percent will be paid by tire Principle to the Representative on the sale of products, to the customers as appearing in Schedule A, excluding height, credits and returns. Commission structure is outlined as follows. Retainer Fee $ 2500/- 6 Months w.e.f. 01.06.04 Commission Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment described in paragraph 3 is received; or (b) make available technical knowledge/experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. 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 IndiaUSA DTAA is found in the impugned payment of commission by the assessee to AM and ETCS. It has been submitted by the assessee before Ld. AO/CIT(A) that both the parties, namely AM and ETCS provide leads for prospective buyers of the assessee's products in USA. These are not in the nature of any consultancy or managerial services. 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 Outotec India P Ltd. Vs CIT (2015) 41 ITR (Trib) 449 (Delhi), Delhi Bench of the Tribunal pointed out that the express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(1)(vii) of the Act. The decision (supra) squarely applies to the facts of the assessee's case. 15. As to the reference by the Ld. AO to the Explanation to section 9(2) as substituted by the Finance Act, 2010 w.r.e from 01.06.1976, the Hon'ble Delhi High Court in Nokia Network OY (supra) has held that unilateral amendment of the domestic statute cannot be read into the Treaty with another sovereign state. Moreover it is now well settled that the provision of the Act or of the DTAA, whichever is more beneficial to the assessee shall apply. In this view of the matter, the amended law also cannot have adverse impact on the allowability of the claim of commission payment to the foreign agents. 16. Record shows that the assessee has been paying commission to these two agents under the same agreement since AY 2004-05 and the Ld. AO has consistently been allowing the payment of foreign commission in assessments framed under section 143(3) of the Act for AY 2005-06 to 2010- 11. It is only in the AY 2011-12 that a different stand on the same facts have been taken. We are conscious that the principle of estoppel and resjudicata do not have any application in income tax proceedings, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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