Case Law Details
Case Name : ACIT, Kanpur Vs M/s Northern Tannery (ITAT Lucknow)
Appeal Number : IT Appeal No. 636/2013
Date of Judgement/Order : 18/06/2015
Related Assessment Year : 2010-11
Brief of the case:
ITAT Lucknow in the case of ACIT vs. M/s Northern Tannery held that The commission paid to the non- resident agent for procuring order and recovering payments on the behalf of assessee could not be treated as the payment made for availing technical services as the services rendered by the agent not required any specialized skill set or expertise to execute the tasks. Thus, the aforesaid services are not technical services as defined u/s 9(1)(vii) and consequently not liable for tax deduction u/s 195.
Facts of the case:
- The assessee firm made a payment of commission to non-resident agent procuring orders for the assessee from the foreign country. The AO made an addition of commission amount Rs 24,84,645/- by contending that the assessee failed to deduct tax at source which was required as the commission was nothing but fees for rendering technical services.
- The additions made by the assessee was deleted by the CIT(A) on the ground that commission paid for arranging of export sales and realization of sale proceeds cannot be regarded as consultancy service because in providing such service the service provider (non-resident agent) has not used any specialized skill or knowledge. Aggrieved by the same, revenue is now in appeal before the ITAT.
Contention of the Revenue:
- The learned counsel for the assessee submitted that the commission paid by the assessee to the foreign agent is fee for rendering technical services by virtue of Explanation added to Sec 9(1)(vii) by Finance Act,2010 with retrospective from June 1,1976.
- Because the assessee’s main business being export of its products necessitate it to take the services of foreign agents, who secure export orders and help in execution of such business.
Thus, such execution as such support the overall management of the assessee’s business and therefore the services are in the nature of managerial services on which TDS applicable as the same is incomes deemed to accrue or arise by virtue of Explanation added to Sec 9(1)(vii)
Contention of the Assessee:
- There is no evidence on record which show that the non-resident agent has provided consultancy, technical or managerial services to the assessee. The non-resident agent was appointed to procure order and collect payments on the behalf of assessee. Thus, mere procuring order and payment realization would not in itself can be treated as availing managerial or technical services.
- The learned counsel for the assesse placed reliance on the judgment of Hon’ble Allahabad High Court which was also the jurisdictional high court in the case of ACIT vs. Model Exims wherein the court concluded that in the absence of any finding by the revenue that non-resident agents were appointed as selling agents, designers or technical advisers the payment of commission to foreign agents did not entitle such foreign agents to pay tax in India and thus the TDS was not liable to be deducted under Section 195 of the Act.
Decision of the Tribunal:
- The agreement of procuring orders not involve any managerial services and cannot be treated at par with the function of selling agents. The agreement did not show the applicability or requirement of any technical expertise for the purpose of execution of entrusted task.
- The same issue has been examined by the Hon’ble Delhi HC in the case of Director of Income-tax (International Taxation) vs. Panalfa Autoelektrik Ltd. wherein the HC held that services rendered for procurement of export orders etc. cannot be treated as managerial services provided by the non-resident to the assessee. It is why because the non-resident agent was not acting as a policy maker or evaluator or supervisor or primary executor.
- The non-resident was appointed as a commission agent for sale of products within the territories specified and in accordance with the terms set out. The non-resident, therefore, was acting as an agent for procuring orders and not rendering managerial advice or management services.
- Further, it could not be held that the non-resident was providing technical services as the non-resident had not rendered ‘technical services’, where special skills or knowledge relating to a technical field were required.
- Thus, ITAT by relying on the findings of the Delhi HC in the aforesaid case held that the commission paid to non-resident agent cannot be said to have been paid as fee for technical services so as to attract TDS u/s 195.The appeal was decided in the favour of assessee