ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) Vs. SUMIT GUPTA
INCOME TAX APPELLATE TRIBUNAL
Asstt. Director Of Income Tax (International Taxation)
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T.R.Meena, Member (A) -
(1.) THIS is an appeal filed by the Revenue against the order dated 21/10/2011 by the learned CIT(A) -II, Jaipur for A.Y. 2006 -07. The solitary ground of appeal is as under: -
1. On the facts and in the circumstances of the case, the learned CIT(Appeals) has erred in holding that no withholding of taxes are required under section 195 on the payments made by the assessee to non -resident for purchase of new designs of furniture clearly being transfer of special knowledge and in ignoring the fact that Circular No. dated 07/2/2000 has been withdrawn with retrospective effect by circular No. dated 22/10/2009.
(2.) IN this case, TDS verification was conducted in the case of M/s. TAB India Granites Pvt. Ltd. on 18/03/2010. The assessee had made payments to various non -residents in foreign currency on account of sales commission Rs. 85,21,582/ - and advertising Rs. 12,61,188/ - without withholding tax U/s. 195 of the Income Tax Act, 1961 (hereinafter referred as the Act) during the financial year 2005 -06. The Assessing Officer gave reasonable opportunity of being heard on both the issues, which was availed by the assessee. It was held that the assessee has not complied with the provisions U/s. 195 of the Act for withholding of tax on remittances to the non -residents on account of commission/managerial services and on advertisement relying on the circular No. 23 dated 23/7/1969 and circular No. 786 dated 07/2/2002 of the CBDT. Vide Finance Act, 1976, a source rule was provided in the said Section through insertion of Clauses (v),(vi) and (vii) relating to remittances on account of interest, royalty or fees for technical services. It was provided, inter alia, that in case of payments of fees for technical services received from a resident payer, income would be deemed to accrue or arise in India, except where the fees for technical service are relatable to a business or profession carried on by the resident payer outside India or for making or earning any income from any source outside India. The contention of the assessee was that the sales commission was paid to non -residents for the services provided outside India and the said amount was not chargeable to tax in India as the said companies were not having any permanent establishment in India and whatever service being rendered by them were outside India. The assessee relied before the learned Assessing Officer an order in the case of Rajiv Malhotra, Lotus Exhibition Marketing Services A.A.R. No. 971 of 2005, which was not applicable in case of the assessee. He further analysed Section 9 of the Act. The Assessing Officer relied upon the following case laws: -
i. Wallace Pharmaceuticals (P) Ltd. IN RE AAR No. 658 of : 2005 278 ITR 97 (AAR).
ii. South West Mining Ltd. IN RE AAR No. 660 of : 2005 278 ITR 233 (AAR).
iii. Maruti Udyog Ltd. Vs. Astt. Director of Income Tax : 2010 TIOL 22 ITAT DEL dated 31/08/2010.
iv. CIT Vs. Samsung Electronics (Karnataka) ITA No. 2808 of 2005 dated 24/09/2009, : 2009 TIOL 629 HC -Kar -IT.
The other contention of the assessee that the advertisement company's income does not fall under the provisions of Section 9 is not correct as according to the Section 9(1)(c) only in the case of non -resident, being a person engaged in the business of running a news agency or of publishing news papers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India. This clause does not pertain to the case of the assessee. The reliance of the assessee in the case of Morgan Stanley and Co. Inc (202 ITR 416) is out of context and does not pertain to the facts of the case of the assessee. The Assessing Officer further concluded that the remittances made by the assessee deductor on account of sales commission and advertisement are covered under the expression fee for technical services as defined in Section 9(1)(vii)(b) of the Act and the same are to be deemed income of the payee accrued or arising in India, consequently liable for withholding tax plus surcharge and education cess as per rates of tax prescribed. Thus, he is liable to deduct TDS U/s. 195 of the Act and his default U/s. 201(1) of the Act for Tax and interest U/s. 201(1A) of the Act. Thus, he calculated total payment of Rs. 15,61,919/ -.
Being aggrieved by the order of the learned Assessing Officer, the assessee carried the matter before the learned CIT(A), who has allowed the appeal by observing that the appellant company is engaged in the business of export of granite. The assessee paid commission of Rs. 85,21,582/ - to various non -residents in foreign currency. Advertisement charges of Rs. 12,61,188/ - to M/s. BNP Media, USA for advertisement of its product in the international monthly magazine "Stone World". The payment towards commission or advertisement charges did not fall under managerial, technical or consultation services and therefore, no income could be deemed to have accrued or arising to the non -resident so as to attract provision of withholding tax U/s. 195 of the Act. The learned Assessing Officer was not satisfied with the explanation given by the assessee and he totally relied on explanation introduced in Section 9 by Finance Act, 2010. The procuring of sales order did not involve any technical expertise, knowledge or skills. It is evident that managerial services are those services that involved the activity of managing or controlling. Foreign commission agents have neither any control over the export activity of the assessee nor they are the final authority in respect of the same. They only perform a subsidiary function outsourced to them for saving the cost and convenience. Hence, the activity of the foreign commission agents does not amount to managerial services and does not fall within the definition of "Fees for Technical Services". He relied upon the following case laws: -
i. Cushman & Wakefield (s) P. Ltd. ( : 305 ITR 208) (AAR).
ii. CIT Vs. Sara International Ltd. ( : 217 CTR 491) (Delhi).
iii. Siemens Aktiengesellchaft (2010 -TIOL -102 ITAT Mumbai).
iv. DCIT Vs. Divi's Laboratories Ltd. ( : 10 ITR Trib. 501).
v. JCIT Vs. George Williamson (Assam) Limited (305 ITR AT 422.)
vi. Spahi Projects Pvt. Ltd. ( : 315 ITR 374).
vii. Lufthansa Cargo India Pvt. Ltd. (274 ITR AT 20).
viii. G.E. India Technologies Center Pvt. Ltd. Vs. CIT ( : 327 ITR 456).
ix. CIT Vs. Tata Chemicals Ltd. ( : 94 ITR 85).
x. Carborandum Co. Vs. CIT ( : 108 ITR 335).
xi. CIT Vs. Toshuku Ltd. ( : 125 ITR 525).
xii. DIT Vs. Sharelten International Inc. ( : 313 ITR 267).
xiii. Modern Insulators Ltd. (ITA No. 281/JP/2010) Jpr. Trib).
It is well settled law that the provisions of double taxation avoidance agreement would prevail over the provisions of the Income Tax Act. Therefore, the proposition was not completely followed by the Karnataka High Court while rendering its decision in case of Samsung Electronics Co. Ltd. ( : 320 ITR 209). Accordingly, no demand U/s. 201(1) and interest U/s. 201(1A) of the Act can be charged in the present circumstances. Therefore, he allowed the appeal of the assessee.
Now the Revenue is in appeal before us.
(3.) THE learned D.R. supported the order of the Assistant Director of Income Tax (International taxation) and argued that the recipient has rendered services in the India and income earned in the India and also covered under the explanation "Fees for Technical Services" as defined in Section 9(1)(vii)(b) of the Act.;
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