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TMI Blog2024 (7) TMI 1478X X X X Extracts X X X X X X X X Extracts X X X X ..... ca by performing pre sales activity of introducing SEPL India to potential customers rest of the activity is predominantly taken care by SEPL India as evident from the services and functions listed. AO in the impugned order under surmise and conjectures have made out list of reasons to treat overseas sales commission as Fee for Technical Services, without appreciating the fact that Assessee Steer America Inc, does not render services resulting in provision 'Fee for Technical Services' (FTS) or Make available Technical Knowledge to Steer India. In the case of DCIT v. Welspun Corporation Ltd [ 2017 (1) TMI 1084 - ITAT AHMEDABAD] wherein it was observed and held that Assessee paid commission to non-resident export commission agents for highly technical products. As held that just because a product is highly technical does not change the character of activity of the sale agent. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical skills, is only towards the end of selling. Payment to non-resident commission agents was for securing orders and not for rendering any managerial, technical or consultancy services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut disposing off the appellant's objections to reasons stated for reopening recorded by passing a speaking order as contemplated by the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 1TR 19. The final assessment order passed in violation of the decision of the Supreme Court is bad in law and liable to be quashed. 5. i) The Lower authorities have erred in Not appreciating that sales commission received from Steer Engineering Private Limited (SEPL) is not taxable in India as per the provisions of Income Tax Act, 1961 ('Act'). ii) The Lower authorities have erred in Not appreciating that services provided by appellant does not qualify as Fees for Technical Services (FTS) as per Act and does not satisfy the test of 'Make Available' as envisaged in India-USA DTAA and therefore does not qualify as fees for included services under DTAA. 6. Services Provided by the Appellant does not qualify as FTS as per the Act and does not satisfy the test of Make Available as envisaged in INDIA USA DTAA and transfer does not qualify as fees for included services or fees for technical services under DTAA. 7. The lower authorities have erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which does not require any adjudication. 4. Ground Nos.2 to 4 are with regard to reopening of assessment, which were not pressed before us. Accordingly, these grounds are dismissed as not pressed. 5. Ground Nos.5 to 10 are with regard to taxability of overseas sales commission i.e. the receipt from Associated Enterprises (AEs) towards commission on sales though it will not take up the nature of fee for technical services u/s 9(1)(vii) of the Act as it is neither managerial nor consultancy services. 6. Facts of the issue are that the Assessee is subsidiary of STEER Engineering Private Limited (hereinafter referred as AE or Steer India ) incorporated in USA and a foreign company. The Assessee Company is engaged in the business of Marketing, Trading of Extruders and related peripherals. The Assessee Company procures focal sales orders in United States of America for STEER Engineering Private Limited (AE) for products to be manufactured, executed by the AE in India, and receives payments thereto from the customers which are further transmitted fully to AE. In these two assessment years, the assessee received a sum of Rs. 1,83,77,380/- and a sum of Rs. 3,17,93,020/- as commission on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Up of 10% on total costs. Steer USA does not have any personnel except one or two individuals who were employed to demonstrate and explain the products / services to the potential customers. According to assessee, the payment made for sales and marketing services were not liable to tax as per the Income Tax Act as well as under India-USA DTAA, therefore there was no liability to deduct TDS. 7. Ld. A.R. for the assessee submitted that M/s. Steer Engineering Private Limited (SEPL India), Parent Company of M/s. Steer America is a true Indian Global Company, meaning an Indian Company providing cutting edge technology products to the Global Multinational Customers, right from product conceptualization, design, manufacture, quality initiatives, Research and Development, Application development, Testing, commercialization, dispatch happens from India. 7.1 It s a True Indian company with make in India initiatives creating countless opportunity for Indian Engineers, Entrepreneurs, Industry, with more than 60 Global Patents to its account. He submitted that SEPL India has got the manufacturing facilities in India located at Bangalore and Coimbatore and an application development center is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fused Unplasticised Polyvinyl Chloride Articles 11 20190105803 Extruder Mixing Element 12 20160279828 Element For A Co-Rotating Twin Screw Processor 13 20160244573 Blend Having A Styrene Resin And Polyphenylene Ether 14 20160082640 Hot Melt Fragmentation Extruder And Process 15 20110063939 Barrel Cooling And Heating System For Screw Extruder 16 20110063940 Method Of Extruder Operation 17 20110070324 Barrel Clamping System For Quick Assembling And Dismantling Of Extruder Barrel Sections 18 20110069576 Barrel Alignment In Extruder Systems 19 20110070324 Barrel Clamping System For Quick Assembling And Dismantling Of Extruder Barrel Sections 20 20110182659 Stress Concentration Free Spline Profile 7.4 He submitted that in the instant case, the Steer America Inc,. is not providing any technical, managerial or consultancy services rather has been engaged to act as authorized business partner to market and promote the products or services of SEPL India outside India. The decision regarding what are the products/services that are to be developed or provided, the price to be charged to the customer etc. are solely taken by SEPL India. The assessee does not play any role in the decision-makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncements, he submitted that the income received towards sales commission does not satisfy the definition of FTS under the Act as it is not in the nature of Managerial, Technical or Consultancy Services. 8. Ld. D.R. submitted that the Indian company making use of the advice, input, experience, experimentation and assistance rendered by the assessee in the process of marketing of manufactured machinery and identifying prospective buyers, carrying technical and commercial negotiations, customizing the needs of the geographical customers, etc. On the basis of the input, assistance and consultancy service provided by the US company about the customer order, the manufacturing process would start by the Indian company. Therefore, she submitted that in the context of manufacturing process, the input provided by the assessee with regards to the need, requirements' and taste of the USA customers which was made use by the Indian company in manufacturing process, is in the nature of services which facilitate the AE to achieve their business goal. The technological input acquired by the assessee through experience and experiment was made available to the Indian company so as to enable the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing provisions of section 148A of the Act. The case was reopened for following reasons: 9.1 The assessee had received from Indian entity, Steel Engineering Limited Bangalore a sum of Rs. 1,83,77,380/- as commission on sales and marketing services during FY 2012-13 relevant to AY 2013-14. Steer Engineering Equipment Limited, Bangalore is engaged in manufacturing of energy equipment solutions and advanced platform technology. Order u/s 201 201(1A) of the Act for the Indian entity was passed, wherein the payments to foreign entity was held to be FTS as per section 9(1)(vii) of the Act as well as India-US DTAA and the Indian entity was treated as assessee in default for non-deduction of TDS. Since, Steer America Inc., USA had not filed ITR in India, there was an escapement of income to the tune of Rs. 15,09,59,210/- Rs. 19,70,24,738/- for the assessment years 2013-14 2014-15 respectively. 9.2 The case of department was that payment made to this assessee from Indian entity i.e. Steer Engineering Limited, Bangalore in these assessment years towards marketing services take the character of fees for technical services and charge to tax in India under Article 12 of DTAA with Indo-USA , w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expenditure related to promotional literature, identification of customers, evaluation of customer needs, placing and inventorying of Steer Products, distribution etc., incurred furtherance of the objective of the agreement. The sales to Steer America are on back to back basis an full sale price received from the end customer is transfened back to Steer India. (f) Manufacture and Inspection Steer India checks the order and initiates the manufacturing process. Under the manufacturing process, the elements are CNC milled using the generation process on a 4Axis CNC vertical machining centre. The internal splines are CNC Wire-cut. The process is designed to ensure complete inter-changeability between elements. Since the elements are manufactured by generation, the surface finish and accuracy of the surface is very high. Steer India has put in place strict quality control measures. The standards are well defined. Inspection is carried out at every stage. The items are traceable from the raw material stage. Each item is checked individually on 14 parameters before final despatch. The elements are packed in thermocole boxes to avoid any damages during transportation. (g) Documentation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Since, the Steer America is engaged in mere procurement of sales orders across the Territory of United States of America and acting as an authorized business partner to market the products of Steer India. Its' Parent Company SEPL India has entire knowhow about the manufacturing process and technical skill. Steer America either does not possess or engage in transfer any technical knowledge during providing of marketing services, the services rendered by Steer America cannot be regarded as 'technical, managerial or consultancy or Fees for Technical Services'. 9.6 Contrary to this, ld. AO relied on the ruling of Advance Ruling in the case of Intertek Services India Pvt. Ltd. [2008] 175 Taxman 375 (AAR) , where in it was held that services rendered are of towards Global Management Services (GMSA) and on a broad analysis, it is found that majority of services catalogued are in nature of technical or consultancy services, but most or many of them do not 'make available' to applicant technical knowledge, experience, skill, knowhow, etc., possessed by provider of services and at same time, there are some services which can b brought within ambit of phrase 'make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA. 9.11 Further, the Assessing Officer has relied on the AAR Guangzhou Usha International Ltd. where in it was held that service being rendered towards Material Procurement Development Management services which also includes certain services of technical in nature like quality system , research on product technology, inspection etc., whereas the activities being rendered by the Steer America is of mere generating sales orders which is clearly different from the list of the activities carried out Usha International limited as detailed below: 9.12 From the above explanation, it is clear that services rendered by 'Guangzhou Usha' are clearly different from activities of Steer America and therefore, services of Steer America cannot be considered in nature of technical, managerial or consultancy in nature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA. 9.13 SEPL India is a Champion of technology developed indigenously in India and with strong manufacturing presence in India supplies to global customers, brings in made in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecorded that in DIT v. Lufthansa Cargo India (2015) 60 taxmann.com 187/233 Taxman 218/375 ITR 5, operations were not in India and expenses towards maintenance and repairs payments were made for the purpose of earning outside India. [Para 18] In view of the admitted fact that the services were utilized in USA, the authority in Lufthansa Cargo Indie's (supra) is to be accepted. Therefore, the findings returned by the Tribunal do not call for any interference. [Para 20] Resultantly, these appeals are dismissed. 9.17 Further, against the above ruling, SLP is dismissed by Hon'ble Supreme Court in the case of [2023] 157 taxmann.com 205 (SC), SUPREME COURT OF INDIA, Commissioner of Income-tax v. Ad2pro Media Solutions (P.) Ltd. (NOVEMBER 10, 2023). 9.18 Further, the Hon'ble Supreme Court in the case of CIT v Toshoku Ltd (1980) 125 ITR 525 (SC) held that the sales commission paid to the commission agents outside India was not taxable in India. The Apex Court observed that the sales commission earned by the non-resident agents cannot be deemed to accrue or arise in India. 9.19 The Hon'ble Madras High Court in the case of CIT vs Faizan Shoes (P.) Ltd (2014) 48 taxmann.com 48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tylized S service mark should be characterized as royalty as per Article 12 of the India-US DTAA. Further, the ld. CIT(A) also held that the fee received for publicity, marketing and promotion activities constitutes commercial income and in the absence of a PE of the assesse in India, the said payments cannot be brought to tax in India. The ITAT held that the payments under consideration can neither be treated as royalty (under Section 9(1)(vi) of the Act or Article 12 of the India-US DTAA) nor as FTS (under Section 9(1)(vii) of the Act or Article 12 of the India-US DTAA). The Delhi HC affirmed the above view of the Delhi ITAT. 9.24 The above ruling was relied upon in the case of [2024] 159 taxmann.com 482 (Delhi - Trib.), ACIT, (International Taxation) v. Sheraton Overseas Management Corporation dated 13-02-2024, wherein it was held that payment received by assessee, US based company, for providing centralized services to various hotels in India, in nature of sales and marketing, reservation, loyalty programs and other centralized services was not FTS either under article 12(4)(a) or 12(4)(b) of India-US DTAA but it was business income and since assessee was not having any PE in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and getting export sales executed and paid commission for same Assessing Officer was of view that payments made by assessee to these GBAs/BDAs were in nature of fees for technical services (FTS) chargeable to tax in India and, thus, assessee was liable to deduct TDS on same. It was noted that from agreement entered into by assessee with GBAs/BDAs that services rendered by GBAs/BDAs were solely for business promotion of assessee overseas and soliciting new clients to assessee. No managerial, specialised technical or consultancy services were rendered to assessee and that assessee did not have any personal interaction with these service providers. Consideration paid by assessee to these overseas service providers was not FTS but business income of payees under article 7 of respective DTAAs. In absence of permanent establishment of these non-resident GBAs/BDAs in India, payments made to them were not taxable in India and, thus, assessee was not liable to deduct TDS on such payments made to them. 9.28 In the case of Bharat Petroleum Corporation Ltd. v/s JDIT [2007] (14 SOT 307) (Mumbai ITAT), the Mumbai Bench of Tribunal held that Remuneration paid for market study updation (including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 taxmann.com 114 (AAR - New Delhi), held that Applicant (DRL India) is a pharmaceutical company. In order to promote its sales in Russia and develop a local brand plan for same, it proposes to enter into a service agreement with its subsidiary, i.e., DRL Russia, to avail of product promotion services. In terms of agreement, DRL Russia has to render marketing services related to promotion of goods from producers to end-customer by way of meeting with medical and pharmaceutical experts, participation in pharmaceutical circles and distribution of promotional materials to medical and pharmaceuticals experts. It is noted that applicant has not utilised services rendered by DRL Russia for brand promotion and, thus, agreement cannot be considered for providing consultancy services - Further, DRL Russia is not managing affairs of applicant in Russia and thus agreement in question cannot be classified as managerial services either. Service fee payable by applicant to DRL Russia under agreement for promotion of goods cannot be regarded as fees for technical services under section 9(1)(vii) or under article 12 of India- Russia DTAA 9.33 In the case of Shangri-La International Hotel Managemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services as defined under articles 12(4)(a) of DTAA. Similar observations provided in [2023] 152 taxmann.com 625 (Delhi HC), Commissioner of Income-tax (International Taxation) v. Radisson Hotel Interaction Incorporated (NOVEMBER 10, 2022). 9.35 In the case of Anand NVH Products Inc. v. ACIT, International Taxation reported in [2022] 145 taxmann.com 412 (Delhi - Trib. IN THE ITAT DELHI BENCH 'D' (SEPTEMBER 30, 2022) for Assessment year 2017-18 wherein held that assessee, a wholly owned subsidiary of an Indian entity, was tax resident of USA. It entered into an marketing support services agreement with its parent company for providing marketing and sales support services with all its operations exclusively in USA and received certain amount of consideration. Assessing Officer held that aforesaid services were in nature of fee for included services (FIS) as per article 12 of DTAA and, accordingly, brought same to tax. It was noted that nothing had been brought on record by Assessing Officer to demonstrate that there was complete transfer of technical knowledge, know-how, skill etc. to Indian company of service so as to enable it to use such technical knowhow, knowledge, expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing same, services rendered by assessee outside India could not be brought to tax in India. 9.38 In the case of Pr. Commissioner of Income-tax, Bangalore v. Puma Sports India (P.) Ltd. reported in [2021] 127 taxmann.com 169 (Karnataka), wherein held that Commission paid by assessee-company to its overseas Associated Enterprise (non-resident agent) for placing orders with manufacturers outside India would not be liable to TDS under section 195 as services were rendered or utilized outside India and commission was also paid outside India. Therefore, since no taxing event had taken place within territories of India, Tribunal was justified in holding that TDS was not deductible from commission payment to a foreign agency on foreign soil. Also, Hon'ble Supreme Court dismissed the SLP against above order of High Court in the case of [2022] 134 taxmann.com 60 (SC), Principal Commissioner of Income-tax v. Puma Sports India (P.) Ltd. 9.39 In the case of Laserwords US Inc. v. Deputy Commissioner of Income-tax reported in [2024] 162 taxmann.com 543 (Chennai - Trib.) ITAT CHENNAI for the Assessment year 2017-18 wherein held that Assessee, a non-resident company, was engaged in providing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 (Delhi - Trib.), (FEBRUARY 7, 2018) for the Assessment year 2009-10 wherein held that in view of Explanation inserted below section 9(2) by Finance Act, 2010, even if services are rendered outside India, same may fall under fee for technical services. Assessee-company had paid sales commission to two non-residents agent for booking export order from foreign buyers. Said agents did not have any P.E in India. Further in process of procuring export orders, they would display or demonstrate goods of assessee to foreign buyers and foreign buyers would place any order for purchase of those goods, and non-resident agents, forward those purchase orders to assessee. Process of procuring orders by non-resident could not be termed as managerial service, which could fall under 'fee for technical services' as defined in Explanation 2 below section 9(1)(vii). On facts, sales commission payment was not taxable in India. 9.43 In the case of Director of Income-tax (International Taxation)- II v. Panalfa Autoelektrik Ltd reported in [2014] 49 taxmann.com 412 (Delhi HC), (SEPTEMBER 18, 2014) for the Assessment year 2010- 11 wherein held that whether commission paid by assessee to its forei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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