Services of non-resident agent facilitating fulfillment of export obligations are not in nature of technical services

Brief of the case:

• The Hon’ble Madras High Court in the case of CIT vs. M/s Orient Express held that services of non-resident agent facilitating the completion of export obligations cannot be termed as technical services provided in India because such services are not provided for the purposes of running of the business of the assessee in India.
• Thus, no income can be deemed to accrue or arise in India within the meaning of sec 9(1)(vii) of the Act.

Facts of the case:

• The assessee was engaged in manufacturing and exporting of leather garments. In its ROI claimed expenditure of commission paid to non-resident agent. The AO disallowed the same on the ground that assessee has failed to deduct the tax at source u/s 195 as it was liable to be deducted because the commission income in the hands of agent is an income deemed to accrue or arise in India.
• The tribunal rejected the contention of revenue and held in the favour of assessee by holding that the revenue failed to prove that the agent provides technical services and has also not brought any material to prove to prove that the income can be attributable to the operations of foreign agent in India.
  

Contention of the Revenue:

• The services provided by the non-resident agent was not limited to referring the foreign country’s customer to assessee but even includes the services provided to complete the export obligations which in turn facilitates the smooth export operations to assessee.
• On this ground revenue supported the order of Assessing Officer.
  

Contention of the Assessee:

• The services provided by non-resident agent are not in nature of technical services mere by the fact that the services facilitates the smooth operation of assessee’s export operations.
• It is because the non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India, therefore, in no case the income can be deemed to accrue or arise in India.
• Further, since the agent has no Permanent Establishment in India no income can accrue to agent on account of business connection as per Sec 9(1)(i).
  

Held by Hon’ble Madras High Court:

• The court did not accept the plea of the revenue that the services provided by the non-resident agent are technical in nature. The non-resident agent does not provide technical services for the purposes of running of the business of the assessee in India. The services rendered by the non-resident agent are in nature are of completing export obligations of the assessee company which cannot be termed as technical services for the assessee’s business in India. Thus, the question of income deemed to accrue or arise in India u/s 9(1)(vii) does not arise at all.
• Further, the argument of revenue that the commission paid to non-resident agent is income deemed to accrue or arise in India on account of business connection in India, in the hands of non-resident agents is also not acceptable.
• As per Explanation to Sec 9(1)(i) , only such part of income as is reasonably attributable to the operations carried out in India can be taxed as income from business connection in India.

• This implies that if no operations of business are carried out in the India then it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India.
• In the present case, the non-resident is not having any business operations in India. It only acting as selling agents of Indian company. Mere receipt of sale proceeds in India remitted or caused to be remitted in India by the non-resident agent cannot be termed as an operation carried out by the non-resident agent in India as provided in Explanation to section 9(1)(i) of the Act.
• It is, therefore, the commission income of neon-resident cannot be taxed as income deemed to accrue or arise in India.
• In result the appeal of revenue is dismissed.