ACIT, CIR-2, TDS, KOLKATA, Kolkata V. Lux Industries Ltd., Kolkata

ITA 1145/KOL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6639 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 201(1); 139

Judgement Text

ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C KOL KATA [BEFORE HONBLE SHRI S.S.GODARA, JM & SHRI M.BALA GANESH, AM ] ITA NOS.1144 & 1145/KOL/2015 ASSESSMENT YEARS : 2012-13 & 2013-14 A.C.I.T., CIRCLE-2, -VERSUS- LUX INDUSTRIES LTD. KOLKATA KOLKATA (PAN: AAACL 5023 B) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI NICHOLAS MURMU, ADDL. C IT, SR.DR FOR THE RESPONDENT: SHRI AMIT AGARWAL, AR DATE OF HEARING : 14.06.2018. DATE OF PRONOUNCEMENT : 27.06.2018. ORDER PER S.S.GODARA, JM: THESE REVENUES APPEALS FOR A.Y.2012-13 & 2013-14 ARISE AGAINST THE CIT(A)-1, KOLKATAS SEPARATE ORDERS BOTH DATED 09.0 6.2015 PASSED IN APPEAL NOS.1359 & 1408/CIT(A)-24/(12-13)& (13-14)/15-16 RE SPECTIVELY; REVERSING THE ASSESSING OFFICERS ACTION RAISING PRINCIPAL AND IN TEREST DEMANDS OF RS.72,05,567/- AND RS.23,05,781/- IN FORMER AND RS.63,44,293/- AND RS.14,59,187/- IN LATTER ASSESSMENT YEAR; RESPECTIVELY, ON ACCOUNT OF TAX PA YERS FAILURE IN DEDUCTING TDS ON EXPORT COMMISSION PAID TO VARIOUS UAE BASED PAYEES, INVOLVING PROCEEDINGS U/S 201(1)/201(1A) OF THE INCOME TAX ACT, 1961 (ACT). BOTH LEARNED REPRESENTATIVES STATE AT THE OUTSET T HAT THE RELEVANT FACTS GIVING RISE TO THE IMPUGNED IDENTICAL FOREIGN EXPORT COMMI SSION PAYMENTS INVOLVE A COMMON ISSUE. WE THUS TAKE UP FORMER ASSESSMENT YEA R 2012-13 IN APPEAL NO.1144/KOL/2015 AS THE LEAD CASE. 2. THIS ASSESSEE IS A COMPANY ENGAGED IN HOSIERY BU SINESS. IT ADMITTEDLY INCURRED THE IMPUGNED EXPORT COMMISSION IN CASE OF FOUR DUBA I BASED PAYEES M/S PROFILE TRADING COMPANY, DUBAI, M/S PIERRE DONNA CLOTHS TRA DING, M/S ALI RASHED AL ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 2 ABDOOLI TRADING AND M/S YELLOW FLOWER TRADING COMPA NY INVOLVING SUMS OF RS.47,12,450/-, RS.1,84,303/-, RS.41,493/- AND RS.1 ,22,08,069 RESPECTIVELY TOTALLING TO RS.1,71,46,315/- IN THE RELEVANT PREVIOUS YEAR. THE RE IS NO QUARREL THAT IT HAD NOT DEDUCED ANY TDS THEREUPON. ITS CASE BEFORE THE ASSE SSING OFFICER WAS THAT NEITHER THE SAID PAYEES HAS RENDERED ANY SERVICES IN INDIA NOR HAD THEY SET UP THEIR PERMANENT ESTABLISHMENT IN INDIA SO AS TO ATTRACT SECTION 91 (VII) OF THE ACT. IT SOUGHT TO EXPLAIN THE SAID PAYEES TO HAVE RENDERED MERELY SECURED OVE RSEAS EXPORT ORDERS IN LIEU OF CHARGING COMMISSION. ALL THESE FAILED TO EVOKE THE ASSESSING OFFICERS CONCURRENCE. HE HELD IN ASSESSMENT ORDER DATED 23.05.2014 THAT THE ASSESSEE HAD ALLOTTED ITS UAE AND MIDDLE EAST SALES AREA TERRITORIES TO ITS PAYEE S FOR GOODS MANUFACTURED IN INDIA ONLY, THE SAID PAYEES SECURED ORDERS, THE PAYER HAD TO ADVERTISE ITS PRODUCTS IN THE SAID TARGETED TERRITORIES, THE AGREEMENTS IN QUESTION HA D BEEN EXECUTED IN KOLKATA PROVIDING ARBITRATION, IF ANY TO TAKE PLACE IN LOCA L JURISDICTION AND THE PAYEES HAD TO BE PAID @5% ON SALE ORDERS AFTER COMPLETION FOLLOWED B Y REALISATION OF SALE PROCEEDINGS; RESPECTIVELY. THE ASSESSING OFFICER THEREFORE OBSER VED THAT THE PAYEES RIGHT TO RECEIVE THE COMMISSION INCOME HAD RECEIVED IN INDIA SINCE T HE SALE PRICE HAD BEEN RECEIVED IN INDIAN TERRITORY ONLY. HE QUOTED AARS DECISIONS IN M/S SKF BOILERS & DRIERS (P) LTD. [2012] 18 TAXMAN.COM 325 AND IN RAJIV MALHOTRA IN RE[2006] 284 ITR 564 TO HOLD THAT MERE SERVICES HAVE BEEN RENDERED AND COM MISSION PAID ABROAD WOULD NOT ABSOLVE THE PAYER ASSESSEE FROM DEDUCTING TDS IN SI MILAR FACTS AND CIRCUMSTANCES. HE ALSO APPEARS TO HAVE TAKEN INTO CONSIDERATION VARIO US LEGISLATIVE AMENDMENTS IN SECTION 9(1) AS WELL AS SECTION 9(2) OF THE ACT TO RAISE THE IMPUGNED DEMAND OF PRINCIPAL AND INTEREST U/S 201(1) AND SECTION 201(1 A) OF RS.72,05,567/ AND RS.23,05,781/-; RESPECTIVELY. 3. THE ASSESSEE PREFERRED APPEAL THE CIT(A) ACCEPT ED ITS GRIEVANCE AS UNDER :- 8.4 OBSERVATION AND CONCLUSION: I HAVE GONE THROUGH THE FACTS OF THE CASE PLACED ON RECORD BY BOTH THE A.O. AND THE APPELLANT. THE FOLLOWING. FACTS OF THE CASE ARE NOT DISPUTED: ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 3 1) THE AGENTS IN THIS CASE ARE NON-RESIDENTS HAVING NO PERMANENT ESTABLISHMENT IN INDIA. 2) THE AGENTS ARE ENGAGED IN PROVIDING SERVICES IN RELATION TO SALE OF GOODS OUTSIDE THE COUNTRY. 3) ALL THE GOODS IN QUESTION WERE SOLD IN THE FOREI GN COUNTRIES ALTHOUGH THESE GOODS WERE MANUFACTURED IN INDIA. 4) THE AGENTS RECEIVED THE ENTIRE COMMISSION THROUG H REMITTANCES MADE BY THE APPELLANT TO THE FOREIGN TERRITORY AND NO PART OF T HE COMMISSION WAS PAID TO THEM IN INDIA. 5) THE PAYMENT OF COMMISSION WAS MADE TO THE FOREIG N AGENTS ONLY AFTER THE RECEIPTS OF THE SALE PROCEEDS BY THE INDIAN MANUFAC TURER. IN THE ABOVE FACTS OF THE CASE, THE LEARNED A.O. HA S HELD THAT SINCE THE GOODS ARE MANUFACTURED AND / OR SUPPLIED FROM INDIA .AND THE PAYMENT IS RECEIVED BY THE AGENT ONLY AFTER THE RECEIPTS OF THE SALE PROCEEDS BY THE INDIAN EXPORTER, THE INCOME EARNED BY THE AGENT ACCRUES OR ARISES IN IND IA AND IS THEREFORE TAXABLE IN INDIA AND THE APPELLANT OUGHT TO HAVE DEDUCTED TDS ON SAME UNDER SECTION 195 OF THE INCOME TAX ACT, 1961. ON THE CONTRARY, THE A . R. OF THE APPELLANT HAS IN HIS WRITTEN SUBMISSION STATED THAT AS THE FOREIGN AGENT IS A NON RESIDENT AND HAS NO PERMANENT ESTABLISHMENT IN INDIA AS WE1I AS THE FAC T THAT NONE OF THE SERVICES IS RENDERED BY THE FOREIGN AGENT IN INDIA AND NO PART OF THE PAYMENT IS MADE TO HIM IN INDIA THE INCOME ACCRUING TO THE FOREIGN AGENT C ANNOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE LEARNED A. R. FOR THE APPELLANT HAS ALSO REFERRED TO VARIOUS BOARD CIRCULARS AND CASE LAWS IN THIS REGARD. HE HA S ALSO DISTINGUISHED THE FACTS OF THE CASE OF THE APPELLANT FROM THE CASE LA W CITED BY THE A.O. HE HAS ALTERNATIVELY ARGUED THAT EVEN IF THE INCOME IS DEE MED TO ACCRUE OR ARISE IN INDIA, IN VIEW OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND UAE, THE SAME INCOME IS LIABLE TO BE TAXED IN UAE AND NO PART OF THE SAME IS TO BE TAXED IN INDIA. THE TAXABILITY OF THE INCOME IN INDIA IS TO BE DETE RMINED WITH REFERENCE TO SEC 5 AND SEC 9 OF THE INCOME TAX ACT' 1961. ON GOING THR OUGH THE FACTS OF THE CASE IT IS CLEAR THAT ENTIRE SERVICES WERE RENDERED IN RELA TION TO SALES AND THE SALES WERE EFFECTED IN FOREIGN TERRITORY AND THESE. PERSONS DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. BASED ON THESE FACTS, LAW ON THE SUBJECT AND THE JU DICIAL DECISIONS I AM INCLINED TO AGREE WITH THE SUBMISSION OF THE A.R. FOR THE AP PELLANT. SINCE IT IS AN UNDISPUTED FACT THAT THE ENTIRE SERVICES ARE RENDER ED IN RELATION TO SALES AND THE SALES WERE EFFECTED IN FOREIGN TERRITORY, THE INCOM E ACCRUING TO THE AGENT HAS TO BE TAKEN AS ARISING. IN THE FOREIGN TERRITORY. FURT HER, THE FACT THAT THE SAID COMMISSION BECOMES PAYABLE TO THE AGENT ONLY AFTER THE RECEIPT OF THE SALES PROCEEDS BY THE APPELLANT IN INDIA ALSO DOES NOT AL TER THE CHARACTER OF THE INCOME BECAUSE TERMS OF PAYMENT HAS NO BEARING ON THE CHAR ACTER OF INCOME, IN THIS CASE., THE INCOME ACCRUES TO THE FOREIGN AGENT ON T HE SALES OF GOODS BUT THE SAME ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 4 IS PAYABLE ONLY AFTER THE RECEIPT OF SALES PROCEEDS BY THE EXPORTER. THIS HAS NO MATERIAL EFFECT ON THE NATURE OF INCOME OF THE AGEN T. I AM ALSO IN AGREEMENT WITH THE ALTERNATIVE ARGUMENT PUT FORWARD BY THE A.R. OF THE APPELLANT THAT EVEN IF IT IS ASSUMED THAT THE INCOME ACCRUING TO THE FOREIGN AGE NT ACCRUES OR ARISES IN INDIA, THE SAME IS NOT TAXABLE IN VIEW OF THE DOUBLE TAXAT ION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE U.A.E. I, THEREFORE, HOLD THA T NO TDS WAS TO BE DEDUCTED U/S 195 IN RESPECT OF COMMISSION PAID BY THE APPELL ANT TO THE FOREIGN AGENTS. BASED ON THESE FACTS, LAW ON THE SUBJECT AND THE JU DICIAL DECISIONS I AM INCLINED TO AGREE WITH THE SUBMISSION OF THE A.R. FOR THE AP PELLANT. SINCE IT IS AN UNDISPUTED FACT THAT THE ENTIRE SERVICES ARE RENDER ED IN RELATION TO SALES AND THE SALES WERE EFFECTED IN FOREIGN TERRITORY, THE INCOM E ACCRUING TO THE 'AGENT HAS TO BE TAKEN AS ARISING IN THE FOREIGN TERRITORY. FURTH ER, THE FACT THAT THE SAID COMMISSION BECOMES PAYABLE TO THE AGENT ONLY AFTER THE RECEIPT OF THE SALES PROCEEDS BY THE APPELLANT IN INDIA ALSO DOES NOT AL TER THE CHARACTER OF THE INCOME BECAUSE TERMS OF PAYMENT HAS NO BEARING ON THE CHAR ACTER OF INCOME, IN THIS CASE., THE INCOME ACCRUES TO THE FOREIGN AGENT ON T HE SALES OF GOODS BUT THE SAME IS PAYABLE ONLY AFTER THE RECEIPT OF SALES PROCEEDS BY THE EXPORTER. THIS HAS NO MATERIAL EFFECT ON THE NATURE OF INCOME OF THE AGEN T. I AM ALSO IN AGREEMENT WITH THE ALTERNATIVE ARGUMENT PUT FORWARD BY THE A.R. OF THE APPELLANT THAT EVEN IF IT IS ASSUMED THAT THE INCOME ACCRUING TO THE FOREIGN AGE NT ACCRUES OR ARISES IN INDIA, THE SAME IS NOT TAXABLE IN VIEW OF THE DOUBLE TAXAT ION AVOIDANCE AGREEMENT BETWEEN INDIA AND THE U.A.E. I, THEREFORE, HOLD THA T NO TDS WAS TO BE DEDUCTED U/S 195 IN RESPECT OF COMMISSION PAID BY THE APPELL ANT TO THE FOREIGN AGENTS. 4. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY C ONTENDS DURING THE COURSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN CONCLUDING THAT THE ASSESEES PAYMENTS ARE NOT LIABLE TO BE TAXED IN IN DIA QUA THE IMPUGNED TARGETED SALE EXPORT COMMISSION PAYMENTS. HE SEEKS TO TREAT THE S AID SUMS AS COMMISSION U/S 194H SETTING INTO MOTION TDS DEDUCTION UNDER CHAPTER XVI I IN THE STATUTE. WE FIND NO MERIT IN REVENUES ABOVE ARGUMENT. THIS TRIBUNALS COORDINATE BENCH IN DCIT VS WELSPUN CORPORATION LTD. ITA NO.48/AHD/2015 DECIDED ON 03.01.2017 HAS CONSIDERED ALL THESE ISSUES IN ASSESEES FAVOUR AS UNDER :- 4. WE FIND THAT, AS NOTED ABOVE, IN THE CASE OF WE LSPUN CORP LTD (SUPRA), THE CO- ORDINATE BENCH OF THIS TRIBUNAL HAS, INTER ALIA, OB SERVED AS FOLLOWS:- '31. THE SCHEME OF TAXABILITY IN INDIA, SO FAR AS T HE NON-RESIDENTS, ARE CONCERNED, IS LIKE THIS. SECTION 5 (2), WHICH DEALS WITH THE TAXABILITY OF INCOME IN THE HANDS OF A NON-RESIDENT, PROVIDES THAT 'THE TOTAL INCOME OF AN Y PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SO URCE DERIVED WHICH-- (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SU CH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO AC CRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR'. THERE IS NO DISPUTE THAT SINCE N O PART OF THE OPERATIONS OF THE ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 5 RECIPIENT NON-RESIDENTS IS CARRIED OUT IN INDIA, NO INCOME ACCRUES TO THESE NON- RESIDENTS IN INDIA. THE CASE OF THE REVENUE HINGES ON INCOME WHICH IS 'DEEMED TO ACCRUE OR ARISE IN INDIA'. COMING TO THE DEEMING PR OVISIONS, WHICH ARE SET OUT IN SECTION 9 , WE FIND THAT THE FOLLOWING STATUTORY PROVISIONS A RE RELEVANT IN THIS CONTEXT: 'SECTION 9- INCOMES DEEMED TO ACCRUE OR ARISE IN IN DIA (1) THE FOLLOWING INCOMES WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA: (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECT LY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FRO M ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN IN DIA, EXPLANATION: FOR THE PURPOSE OF THIS CLAUSE [I.E. 9(1)(I)], (A) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPER ATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY AT TRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA; (B) (C) (D)** ** **' (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY- (A)** ** **' (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFESSION CARRI ED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C)** ** **' EXPLANATION 1-.............* EXPLANATION 2.- FOR TH E PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR C ONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOM E OF THE RECIPIENT CHARGEABLE UNDER THE HEAD' SALARIES'.' * NOT RELEVANT FOR OUR PURPOSES 32. SO FAR AS DEEMING FICTION UNDER SECTION 9(1)(I) IS CONCERNED, IT CANNOT BE INVOKED IN THE PRESENT CASE SINCE NO PART OF THE OPERATIONS OF THE RECIPIENT'S BUSINESS, AS COMMISSION AGENT, WAS CARRIED OUT IN INDIA. EVEN TH OUGH DEEMING FICTION UNDER SECTION 9(1)(I) IS TRIGGERED ON THE FACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT'S BUSINESS CONNECTION IN INDIA, IT HAS NO IMP ACT ON TAXABILITY IN THE HANDS OF COMMISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPE RATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE, EXPLANATION 1 TO SECTION 9(1)(I) COMES INTO PLAY. 33. THERE ARE A COUPLE OF RULINGS BY THE AUTHORITY FOR ADVANCE RULING, WHICH SUPPORT TAXABILITY OF COMMISSION PAID TO NON-RESIDE NTS UNDER SECTION 9(1)(I) , BUT, NEITHER THESE RULINGS ARE BINDING PRECEDENTS FOR US NOR ARE WE PERSUADED BY THE LINE OF REASONING ADOPTED IN THESE RULINGS. AS FOR THE A AR RULING IN THE CASE OF SKF BOILERS & DRIERS (P.) LTD. IN RE [2012] 343 ITR 385 /206 TAXMAN 19/18 TAXMANN.COM 325 (AAR - NEW DELHI), WE FIND THAT THI S DECISION MERELY FOLLOWS THE EARLIER RULING IN THE CASE OF RAJIV MALHOTRA, IN RE [2006] 284 ITR 564/155 TAXMAN 101 (AAR - NEW DELHI) WHICH, IN OUR CONSIDERED VIEW , DOES NOT TAKE INTO ACCOUNT THE IMPACT OF EXPLANATION 1 TO SECTION 9(1)(I) PROPERLY. THAT WAS A ITA NO. ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 6 1534/AHD/2015 M/S. PANASONIC ENERGY INDDIA CO LTD V S. PRI. CIT ASSESSMENT YEAR: 2009-10 CASE IN WHICH THE NON-RESIDENT COMMISSION A GENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON-RESIDENT ENTITIES IN A F OOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE AGENT HAS NOT CARRIED OUT ANY BUSINESS OPERATIONS IN INDIA, THE COMMISSION AGENT WAS NOT C HARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBLIGATION TO DEDU CT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RESIDENT AGENT. ON T HESE FACTS, THE AUTHORITY FOR ADVANCE RULING, INTER ALIA, OPINED THAT 'NO DOUBT T HE AGENT RENDERS SERVICES ABROAD AND PURSUES AND SOLICITS EXHIBITORS THERE IN THE TE RRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EXHIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA' AND THAT ' THE COMMISSION INCOME WOULD, THEREFORE, BE TAXABLE UNDER SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE ACT'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT 'THE FA CT THAT THE AGENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTI CIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME'. WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHEN NO OPERATIONS OF THE BUSINESS OF COMMISSION AGENT IS CARRIED ON I N INDIA, THE EXPLANATION 1 TO SECTION 9(1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUTSIDE TH E AMBIT OF DEEMING FICTION UNDER SECTION 9(1)(I) , AND, IN EFFECT, OUTSIDE THE AMBIT OF INCOME 'DEEMED TO ACCRUE OR ARISE IN INDIA' FOR THE PURPOS E OF SECTION 5(2)(B) . THE POINT OF TIME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE C OMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE SCOPE OF EXPLANATION 1 TO SECTION 9 (1 )(I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEISIN OF. THE REVENUE'S CASE BEFORE US HINGES ON THE APPLICABILITY OF SECTION 9(1)(I) AND, IT IS, THEREFORE. IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAXED BY EXPLANATION 1 TO SECTION 9(1)(I) . WHEN WE EXAMINE THINGS FROM THIS PERSPECTIVE, THE INEVITABLE CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART O F THE INCOME OF THE COMMISSION AGENT CAN BE BROUGHT TO TAX IN INDIA. IN THIS VIEW OF THE MATTER, VIEWS EXPRESSED BY THE HON'BLE AAR, WHICH DO NOT FETTER OUR INDEPENDEN T OPINION ANYWAY IN VIEW OF ITS LIMITED BINDING FORCE UNDER S. 245S OF THE ACT, DO NOT IMPRESS US, AND WE DECLINE TO BE GUIDED BY THE SAME. THE STAND OF THE REVENUE, HO WEVER, IS THAT THESE RULINGS, BEING FROM SUCH A HIGH QUASI-JUDICIAL FORUM, EVEN I F NOT BINDING, CANNOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEA ST HAVE PERSUASIVE VALUE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WITH UTM OST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE A UTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT WITHOUT SLIGHTEST HESITA TION, WE HUMBLY COME TO THE CONCLUSION THAT WE ARE NOT PERSUADED BY THESE RULIN GS. 34. COMING TO SECTION 9(1)(VII)(B) , THIS DEEMING FICTION- WHICH IS FOUNDATIONAL BASIS FOR THE ACTION OF THE ASSESSING OFFICER, INTER ALIA , PROVIDES THAT THE INCOME BY WAY OF TECHNICAL SERVICES PAYABLE BY A PERSON RESIDENT IN INDIA, EXCEPT IN CERTAIN SITUATIONS- WHICH ARE NOT ATTRACTED IN THE PRESENT CASE ANYWAY, ARE DEEMED TO BE INCOME ACCRUING OR ARISING IN INDIA. EXPLANATION 2 TO SECTION 9(1)(VII) DEFINES 'FEES FOR TECHNICAL SERVICES' AS ANY CONSIDERATION (INCLUDING ANY LUMPSUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSU LTANCY SERVICES (INCLUDING THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER BUT DO ES NOT INCLUDE CONSIDERATION FOR ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 7 ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD 'SALARIES' [RELEVANT PORTION HIGHLIGHTED BY UNDERLI NING]'. 35. IN THE LIGHT OF THE ABOVE LEGAL POSITION, WHAT WE NEED TO DECIDE AT THE OUTSET IS WHETHER THE AMOUNTS PAID BY THE ASSESSEE TO THE NON -RESIDENT AGENTS COULD BE TERMED AS 'CONSIDERATION FOR THE RENDERING OF ANY MANAGERI AL, TECHNICAL AND CONSULTANCY SERVICES'. AS WE DO SO, IT IS USEFUL TO BEAR IN MIN D THE FACT THAT EVEN GOING BY THE STAND OF THE ASSESSING OFFICER, AT BEST SERVICES RE NDERED BY THE NON-RESIDENT TO THE AGENT INCLUDED TECHNICAL SERVICES BUT IT IS FOR THI S REASON THAT THE AMOUNTS PAID TO THESE AGENTS, ON ACCOUNT OF COMMISSION ON EXPORTS, SHOULD BE TREATED AS FEES FOR TECHNICAL SERVICES. EVEN PROCEEDING ON THE ASSUMPTI ON THAT THESE NON-RESIDENT AGENTS DID RENDER THE TECHNICAL SERVICES, WHICH, AS WE WILL SEE A LITTLE LATER, AN INCORRECT ASSUMPTION ANYWAY, WHAT IS IMPORTANT TO A PPRECIATE IS THAT THE AMOUNTS PAID BY THE ASSESSEE TO THESE AGENTS CONSTITUTED CO NSIDERATION FOR THE ORDERS SECURED BY THE AGENTS AND NOT THE SERVICES ALLEGED RENDERED BY THE AGENTS. THE EVENT TRIGGERING CRYSTALLIZATION OF LIABILITY OF THE ASSE SSEE, UNDER THE COMMISSION AGENCY AGREEMENT, IS THE EVENT OF SECURING ORDERS AND NOT THE RENDITION OF ALLEGED TECHNICAL SERVICES. IN A SITUATION IN WHICH THE AGENT DOES NO T RENDER ANY OF THE SERVICES BUT SECURES THE BUSINESS ANYWAY, THE AGENT IS ENTITLED TO HIS COMMISSION WHICH IS COMPUTED IN TERMS OF A PERCENTAGE OF THE VALUE OF T HE ORDER. IN A REVERSE SITUATION, IN WHICH AN AGENT RENDERS ALL THE ALLEGED TECHNICAL SE RVICES BUT DOES NOT SECURE ANY ORDER FOR THE PRINCIPAL I.E. THE ASSESSEE, THE AGEN T IS NOT ENTITLED TO ANY COMMISSION. CLEARLY, THEREFORE, THE EVENT TRIGGERING THE EARNIN GS BY THE AGENT IS SECURING THE BUSINESS AND NOT RENDITION OF ANY SERVICES. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED VIEW, THE AMOUNTS PAID BY THE ASSESSEE T O ITS NON-RESIDENT AGENTS, EVEN IN THE EVENT OF HOLDING THAT THE AGENTS DID INDEED REN DER TECHNICAL SERVICES, CANNOT BE SAID TO BE CONSIDERATION FOR RENDERING OF ANY MANAG ERIAL, TECHNICAL OR CONSULTANCY SERVICES (EMPHASIS BY UNDERLINING SUPPLIED BY US)'. THE SERVICES RENDERED BY THE AGENTS, EVEN IF THESE SERVICES ARE HELD TO BE IN TH E NATURE OF TECHNICAL SERVICES, MAY BE TECHNICAL SERVICES, BUT THE AMOUNTS PAID BY THE ASSESSEE ARE NOT FOR THE RENDITION OF THESE TECHNICAL SERVICES NOR THE QUANTIFICATION OF THESE AMOUNTS HAVE ANY RELATION WITH THE QUANTUM OF THESE TECHNICAL SERVICES. THE K EY TO TAXABILITY OF AN AMOUNT UNDER SECTION 9(1)(VII) IS THAT IT SHOULD CONSTITUTE 'CONSIDERATION' FOR R ENDITION OF TECHNICAL SERVICES. THE CASE OF THE REVENUE FAILS O N THIS SHORT TEST, AS IN THE PRESENT CASE THE AMOUNTS PAID BY THE ASSESSEE ARE 'CONSIDER ATION' FOR ORDERS SECURED BY THE ASSESSEE IRRESPECTIVE OF HOW AND WHETHER OR NOT THE AGENTS HAVE PERFORMED THE SO CALLED TECHNICAL SERVICES. 36. LET US SUM UP OUR DISCUSSIONS ON THIS PART OF T HE SCHEME OF SECTION 9 , SO FAR AS TAX IMPLICATIONS ON COMMISSION AGENCY BUSINESS CARR IED OUT BY NON-RESIDENTS FOR INDIAN PRINCIPALS IS CONCERNED. IT DOES NOT NEED MU CH OF A CEREBRAL EXERCISE TO FIND OUT WHETHER THE INCOME FROM THE BUSINESS CARRIED ON BY A NON-RESIDENT ASSESSEE, AS A COMMISSION AGENT AND TO THE EXTENT IT CAN BE SAID TO DIRECTLY OR INDIRECTLY ACCRUING THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, I S REQUIRED TO BE TAXED UNDER SECTION 9(1)(I) OR UNDER SECTION 9(1)(VII) , OF THE INCOME TAX. THE ANSWER IS OBVIOUS. DEEMING FICTION UNDER SECTION 9(1)(I) READ WITH PROVISO THERETO, AS WE HAVE SEEN IN THE EARLIER DISCUSSIONS, HOLDS THE KEY, AND LAYS DOWN THAT ONLY TO THE EXTENT THAT WHICH THE OPERATIONS OF SUCH A BUSINESS IS CAR RIED OUT IN INDIA, THE INCOME FROM ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 8 SUCH A BUSINESS IS TAXABLE IN INDIA. WHEN NO OPERAT IONS OF THE BUSINESS ARE CARRIED ON INDIA, THERE IS NO TAXABILITY OF THE PROFITS OF SUCH A BUSINESS IN INDIA EITHER. THE QUESTION THEN ARISES WHETHER IN A SITUATION IN WHIC H, IN THE COURSE OF CARRYING ON SUCH BUSINESS, THE ASSESSEE HAS TO NECESSARILY REND ER CERTAIN SERVICES, WHICH ARE OF SUCH A NATURE AS COVERED BY EXPLANATION 2 TO SECTION 9(1)(VII) , AND EVEN THOUGH THE ASSESSEE IS NOT PAID ANY FEES FOR SUCH SERVICES PER SE, ANY PART OF THE BUSINESS PROFITS OF THE ASSESSEE CAN BE TREATED AS 'FEES FOR TECHNIC AL SERVICES' AND TAXED AS SUCH UNDER SECTION 9(1)(VII) . THIS QUESTION DOES NOT POSE MUCH DIFFICULTY EITHE R. IN THE LIGHT OF THE DISCUSSIONS IN THE FOREGOING PARAGRAPH , UNLESS THERE IS A SPECIFIC AND IDENTIFIABLE CONSIDERATION FOR THE RENDITION OF TEC HNICAL SERVICES, TAXABILITY UNDER SECTION 9(1)(VII) DOES NOT GET TRIGGERED. THEREFORE, IRRESPECTIVE OF WHETHER ANY TECHNICAL SERVICES ARE RENDERED DURING THE COURSE O F CARRYING ON SUCH AGENCY COMMISSION BUSINESS ON BEHALF OF INDIAN PRINCIPAL, THE CONSIDERATION FOR SECURING BUSINESS CANNOT BE TAXED UNDER SECTION 9(1)(VII) AT ALL. THIS PROFITS OF SUCH A BUSINESS CAN HAVE TAXABILITY IN INDIA ONLY TO THE E XTENT SUCH PROFITS RELATE TO THE BUSINESS OPERATIONS IN INDIA, BUT THEN, AS ARE THE ADMITTED FACTS OF THIS CASE, NO PART OF OPERATIONS OF BUSINESS WERE CARRIED OUT IN INDIA . THE COMMISSION AGENTS EMPLOYED BY THE ASSESSEE, THEREFORE, DID NOT HAVE A NY TAX LIABILITY IN INDIA IN RESPECT OF THE COMMISSION AGENCY BUSINESS SO CARRIED OUT. 37. ON A MORE FUNDAMENTAL NOTE, HOWEVER, IT IS ALSO A SETTLED LEGAL POSITION BY NOW THAT THE SERVICES OF THE NATURE RENDERED BY THESE C OMMISSION AGENTS CANNOT ANYWAY BE TREATED AS FEES FOR TECHNICAL SERVICES ANYWAY. V IEWED THUS, EVEN THE DISCUSSION ON WHETHER THE AMOUNTS IN QUESTION COULD BE TREATED AS 'CONSIDERATION' FOR TECHNICAL SERVICES, MAY BE RENDERED ACADEMIC IN EFFECT. LEARN ED CIT(A) HAS VERY WELL SUMMARIZED THE JUDICIAL PRECEDENTS IN SUPPORT OF TH IS LINE OF REASONING, AND, IN AN ERUDITE AND EXTENDED DISCUSSION, DEALT WITH EACH LI MB OF THE DEFINITION OF TECHNICAL SERVICES. THESE FINDINGS ARE REPRODUCED BY US EARLI ER IN THIS ORDER. WHILE, FOR THE SAKE OF BREVITY, WE NEED TO REPEAT EACH OF THESE RE ASONS ANALYSED BY THE LEARNED CIT(A), SUFFICE TO SAY THAT WE APPROVE HIS WELL-REA SONED FINDINGS AND LINE OF REASONING, AND WE WILL ALSO BRIEFLY TOUCH UPON THIS ASPECT OF THE MATTER. BEFORE WE DO SO, WE MAY TAKE NOTE OF SOME OF THE CLAUSES IN A TYPICAL COMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS COMMISSION AG ENTS. THE KEY PROVISIONS IN THIS AGREEMENT, A COPY OF WHICH IS PLACED BEFORE US AT P AGES 103 TO 109 OF THE PAPER- BOOK, ARE AS FOLLOWS: ARTICLE 5 - AGENT'S OBLIGATION THE AGENT SHALL CARRY OUT ALL T HE DUTIES NORMALLY RENDERED BY AN AGENT INCLUDING BUT NOT LIM ITED TO THE FOLLOWING: 5.1 TO ACT EXCLUSIVELY ON BEHALF OF THE PRINCIPAL A ND NOT SOURCE, PROCURE OR MARKET PRODUCTS OF SIMILAR TYPE MANUFACTURED BY COM PETITIVE COMPANIES WITHOUT PRIOR WRITTEN CONSENT OF THE PRINCIPAL. 5.2 TO USE ITS BEST ENDEAVORS AND FACILITIES TO DEV ELOP, EXPAND AND PROMOTE DILIGENTLY, THE SALE AND THE MARKET FOR THE PRODUCT S. THE AGENT WILL BE RESPONSIBLE OF MAKING THE NECESSARY MARKET PLANS AND ESTABLISH THE MARKETING NETWORK OF REPRESENTATIVES TO HELP PROMOTE WELSPUN PRODUCTS . 5.3 TO PROVIDE THE PRINCIPAL WITH INFORMATION SUCH AS MARKER DEVELOPMENTS, ACTIV ITIES OF COMPETITORS, INTENTIONS AND PLANS OF CLIENTS TO THE MAXIMUM OF HIS KNOWLEDG E. ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 9 5.4 ENDEAVOR TO PROVIDE THE PRINCIPAL PROMPT ADVANC E INFORMATION REGARDING TENDERS. TO FORWARD TO THE PRINCIPAL TENDER DOCUMEN TS, INQUIRIES ETC, WITH FULL TECHNICAL SPECIFICATIONS WELL AHEAD - AS MUCH AS HE CAN - OF TENDER CLOSING. 5.5 THE AGENT ON BEHALF OF THE PRINCIPAL, WILL PURC HASE TENDER DOCUMENTS AND FORWARD THE SAME TO THE PRINCIPAL WELL AHEAD - AS M UCH AS HE CAN - OF TENDER CLOSING. THE COST OF PURCHASE OF SUCH TENDER DOCUME NTS SHALL BE REIMBURSED BY THE PRINCIPAL TO THE AGENT. 5.6 TO ASSIST FOR CLAIMS AN D COMPLAINTS (IF SAY) THAT MAY ARISE FROM THIRD PARTIES AND HELP TO REACH APPROPRI ATE SETTLEMENT IN CLOSE CO- ORDINATION WITH THE PRINCIPAL. 5.7 THE AGENT WILL NOT ENTER INTO AGREEMENTS OR CON TRACTUAL OBLIGATIONS &. CREATE ANY FINANCIAL LIABILITIES ON BEHALF OF THE PRINCIPA L, WITHOUT THE PRINCIPAL'S PRIOR WRITTEN CONSENT. 5.8 THE AGENT HEREBY NOMINATES MR. HOSSAM KAWASH AS THEIR CONTACT POINT WHO WILL BE TOTALLY RESPONSIBLE FOR THE PRINCIPAL'S BUS INESS FOR CLARITY OF COMMUNICATION & EXPEDITIOUS ACTION. 5.9 TO ASSIST THE PRINCIPAL IN ALL POSSIBLE WAY, AS AND WHEN REQUESTED BY THE PRINCIPAL FOR THE FULFILLMENT OF ITS OBLIGATIONS, I N CASE OF A CONTRACT WITHIN THE TERRITORY. IT INCLUDES ASSISTING THE PRINCIPAL IN I DENTIFYING SUBCONTRACTORS LIKE LOGISTICS, SHIPPERS, CARGO HANDLING AGENCIES FOR SM OOTH EXECUTION OF SUCH CONTRACTS. 5.9A TO SEND THE PRINCIPAL PERIODIC REPORTS ON BUSI NESS ACTIVITY. 5.9B TO KEEP THE PRINCIPAL CONTINUOUSLY APPRISES OF ALL RELEVANT POL ITICAL/ ECONOMIC CHANGES WHICH WOULD AFFECT TIE BUSINESS, 5.9C TO UNDERTAKE NOT TO DIVULGE SALES DOCUMENTS, CATALOGUES, PRICES ETC. TO COMPETITORS AND THEIR AG ENTS AND ASSOCIATES. ARTICLE 7 - PRINCIPAL'S OBLIGATIONS DURING THE CONTINUANCE OF THIS AGREEMENT THE PRINCIPAL AGREES : 7.1 TO GIVE THE AGENT FULL S UPPORT FOR PROMOTING AND CREATING MARKET FOR THE PRODUCTS OF THE PRINCIPAL I N THE TERRITORY. 7.2 TO INFORM THE AGENT ON RECEIPT OF AN INQUIRY FR OM THE TERRITORY REQUIRING DIRECT SUPPLY . 7.3 THE AGENT SHALL BE ENTITLED TO COMMISSION AS AG REED UPON IN THE CONTRACT. ITA NO. 1534/AHD/2015 M/S. PANASONIC ENERGY INDDIA CO LTD VS. PRI. CIT ASSESSMENT YEAR: 2009-107.4 TO TAKE INTO CONSIDERAT ION THE RECOMMENDATIONS MADE BY THE AGENT WHILE MAKING THE OFFER. 7.5 TO PROVIDE ALL INFORMATIVE DATA, CATALOGUES AND TECHNICAL MATERIAL (ALL IN THE ENGLISH LANGUAGE) REGARDING THE PRINCIPAL'S PRODUCT S AND ACTIVITIES AND KEEP THE AGENT INFORMED ABOUT ALL RELEVANT CHARGES. 7.6 TO O FFER COMPETITIVE PRICES AS FAR AS POSSIBLE TO ENABLE THE SALE OF THE PRODUCTS AS T HE AGENT IS ONLY ENTITLED FOR COMMISSIONS AND NOT FIXED SALARY ON HIS WORK. 7.7 THE PRINCIPAL NOMINATES MR. RANJIT LALA AS THE CONTACT PERSON WITH THE AGENT FOR ALL CORRESPONDENCES AND COMMUNICATIONS. ARTICLE 9 - TERMINATION. 9.1 THIS AGREEMENT SHALL REMAIN VALID FOR A PERIOD OF ONE YEAR FROM THE DATE OF SIGNING. THE SAID AGREEMENT CAN ALSO BE TERMINATED BY EITHER PARTY ANYTIME GIVING NOTICE TO THE OTHER PARTY OF AT LEAST 90 DAYS IN AD VANCE BY FAX AND FOLLOWED BY REGISTERED LETTER STATING REASONS FOR THE TERMINATI ON. THE AGREEMENT CAN BE REINSTATED FOR A FURTHER PERIOD OF TWO YEARS BASED ON MUTUAL AGREEMENT AND THEN AFTER ITS TERMINATION ANOTHER PERIOD OF FIVE YEARS. 9.2 IN THE EVENT OF THE TERMINATION, THE AGENT WILL FURNISH ALL THE RELEVANT INFORMATION TO THE PRINCIPAL AND WILL BE RESPONSIBLE FOR REALIZATION OF PAYMENTS OUTSTANDING TILL DATE WITHIN THE TERRITORY. ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 10 ALSO THE AGENT SHALL RETURN ALL THE CUSTOMERS RECOR DS AND OTHER DATA RELATING TO THE COMPANY'S BUSINESS OR SERVICES WHICH MAY BE IN HIS POSSESSION. 9.3 IN THE EVENT OF TERMINATION, IF ANY CONTRACT IS CONCLUDED AFTER THE TERMINATION DATE, BUT THE EXERCISE HAS COMMENCED PRIOR TO THE TERMINATION DATE, THE AG ENT IS ENTITLED FOR THE APPLICABLE COMMISSIONS. SALES COMMISSION FOR THE SONATRACH GK3 PROJECT WELSPUN WILL PAY GLOBAL SYNERGY INTERNATIONAL LTD. IN ITS CAPACITY AS AGENT FOR WELSPUN A SALES COMMISSION, BASED ON THE FOB MILL SALES PRICE FOR THE GK 3 PROJECT EQUAL TO: (I) 2% OF THE FOB MILL VALUE IN U.S. DOLLARS FOR TH E ORDERED QUANTITY. ALL SALES COMMISSIONS SHALL BE PAID IN U.S. DOLLARS TO THE BA NK ACCOUNT TO BE ADVISED BY GLOBAL SYNERGY, DETAILS OF WHICH WILL BE PROVIDED B Y THE AGENT. THE SALES COMMISSION SHALL BE PAYABLE BY WELSPUN TO GLOBAL SY NERGY INTERNATIONAL LTD. AS INTERIM PAYMENTS ON PRORATE B ASIS AFTER REALIZATION OF THE PAYMENTS RECEIVED BY THE PRINCIPAL WITHIN A REA SONABLE TIME BUT NOT EXCEEDING 30 DAYS FROM RECEIPT OF PAYMENT BY THE PR INCIPAL. SALES COMMISSION FOR THE SONATRACH GK3 PROJECT BY T HE VIRTUE OF THIS ADDENDUM, WELSPUN AGREE TO PAY GLOBAL SYNERGY INTERNATIONAL LTD., IN ITS CAPACITY AS AGENT FOR WELSPUN, A SALES COMMISSION, BASED ON THE FOB MILL SALES PRICE FOR THE GK 3 PROJECT EQUAL TO: (I) 4.10% OF THE FOB MILL VALUE IN U.S. DOLLAR FOR THE QUANTITY SHIPPED IS LAST ITA NO. 1534/AHD/2015 M/S. PANASONIC ENERGY INDDIA CO L TD VS. PRI. CIT ASSESSMENT YEAR: 2009-10 (18') SHIPMENT. (A) GLOBAL SYNERGY INTERNATIONAL LTD AGREES TO UNCO NDITIONALLY TO FULFILL THE SCOPE SET THEREIN BY THE VIRTUE OF THIS ADDENDU M. (B) THIS COMMISSION IS OVER THE ABOVE THE COMMISSIO N PAYABLE BY WELSPUN TO GLOBAL SYNERGY AS SPECIFIED IN ANNEXURE-1 OF AGENCY AGREEM ENT DATED 29TH DAY OF JUNE, 2008. ALL SALES COMMISSION SHALL BE PAID IN U.S. DOLLARS TO THE BANK ACCOUNT TO BE ADVISED BY GLOBAL SYNERGY, DETAILS OF WHICH ARE AVAILABLE W ITH WELSPUN. UNLESS OTHERWISE AGREED, THE SALES COMMISSION SHALL BE PAY ABLE BY WELSPUN TO GLOBAL SYNERGY INTERNATIONAL LTD., AS INTERIM PAYMENTS ON PRORATE BASIS AFTER REALIZATION OF THE PAYMENTS RECEIVED BY THE PRINCIP AL WITHIN A REASONABLE TIME BUT NOT EXCEEDING 30 DAYS FROM RECEIPT OF PAYMENT B Y WELSPUN. 38. AS IS CLEAR FROM THE ABOVE PROVISIONS OF THE AG REEMENT, THE WORK THAT THE AGENT HAS TO DONE UNDER THIS AGREEMENT, AS IS STATED UNAM BIGUOUSLY IN THE AGREEMENT ITSELF, IS TO 'CARRY OUT ALL THE DUTIES NORMALLY RE NDERED BY AN AGENT' INCLUDING BUT NOT LIMITED TO THE ACTIVITIES SPECIFIED THEREIN. THE CO NSIDERATION FOR WHICH THE PAYMENT MADE TO THE COMMISSION AGENT IS OBTAINING OF THE OR DERS AND NOT ANY SERVICES PER SE. THE CONSIDERATION IS COMPUTED ON THE BASIS OF BUSIN ESS PROCURED. OBVIOUSLY, IF THERE ARE NO BUSINESS GENERATED FOR THE PRINCIPAL, THE AG ENT GETS NOTHING. QUITE CLEARLY, WHAT IS DONE BY THE AGENT IS NOT A RENDITION OF SER VICE BUT PURE ENTREPRENEURIAL ACTIVITY. THE WORK ACTUALLY UNDERTAKEN BY THE AGENT IS THE WORK OF ACTING AS AGENT AND SO PROCURING BUSINESS FOR THE ASSESSEE BUT AS T HE CONTEMPORARY BUSINESS MODELS REQUIRE THE WORK OF AGENT CANNOT SIMPLY AND ONLY BE TO OBTAIN THE ORDERS FOR THE PRODUCT, AS THIS OBTAINING OF ORDERS IS INVARIABLY PRECEDED BY AND FOLLOWED BY SEVERAL PREPARATORY AND FOLLOW UP ACTIVITIES. THE D ESCRIPTION OF AGENT'S OBLIGATION SETS OUT SUCH COMMON ANCILLARY ACTIVITIES AS WELL B UT THAT DOES NOT OVERRIDE, OR ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 11 RELEGATE, THE CORE AGENCY WORK. THE CONSIDERATION P AID TO THE AGENT IS ALSO BASED ON THE BUSINESS PROCURED AND THE AGENCY AGREEMENTS DON OT PROVIDE FOR ANY INDEPENDENT, STANDALONE OR SPECIFIC CONSIDERATION F OR THESE SERVICES. THE SERVICES RENDERED UNDER THE AGREEMENT CANNOT, THEREFORE, BE CONSIDERED TO BE TECHNICAL SERVICES IN NATURE OR CHARACTER. THE SERVICES RENDE RED IN THE COURSE OF RENDERING AGENCY SERVICES ARE ESSENTIALLY BUSINESS SERVICES A ND TO OBTAIN THE BUSINESS. WE HAVE ALSO NOTED THAT, SO FAR AS RENDITION OF TECHNI CAL SERVICES IS CONCERNED, ONE OF THE MAIN POINTS IN THE CASE OF THE REVENUE, AS EVID ENT FROM A PLAIN READING OF THE IMPUGNED ORDER UNDER SECTION 201 , IS THAT 'MANUFACTURING OF SPECIALIZED PIPE WAS A HIGHLY TECHNICAL ACTIVITY INVOLVING VERY COMPLEX TE CHNICAL EXERCISE OF TECHNOLOGY AND SKILLED LABOUR AND FINEST GRADE OF RAW MATERIAL' AN D THAT 'OBVIOUSLY, TO PROCURE THE ORDERS, THE ASSESSEE COMPANY WILL NEED SPECIALIST A GENTS WHO CAN UNDERSTAND THE NITTY GRITTY OF THE ASSESSEE'S BUSINESS AND CAN DEM ONSTRATE THE ASSESSEE'S BUSINESS PROFILE AND QUALITY OF PRODUCTS OF THE ASSESSEE TO THE POTENTIAL CLIENTS TO CONVINCE THEM TO ENTER INTO A CONTRACT WITH THE ASSESSEE COM PANY JUST BECAUSE A PRODUCT IS HIGHLY TECHNICAL DOES NOT CHANGE THE CHARACTER OF A CTIVITY OF THE SALE AGENT. WHETHER A SALESMAN SELLS A HANDCRAFTED SOUVENIR OR A TOP OF THE LINE LAPTOP, HE IS SELLING NEVERTHELESS. IT WILL BE ABSURD TO SUGGEST THAT IN THE FORMER CASE, HE IS SELLING AND THE LATTER, HE WILL BE RENDERING TECHNICAL SERVICES . THE OBJECT OF THE SALESMAN IS TO SELL AND FAMILIARITY WITH THE TECHNICAL DETAILS, WH ATEVER BE THE WORTH OF THOSE TECHNICAL DETAILS, IS ONLY TOWARDS THE END OF SELLI NG. IN A TECHNOLOGY DRIVEN WORLD THAT WE LIVE IN, EVEN SIMPLEST OF DAY TO DAY GADGET S THAT WE USE ARE FAIRLY TECHNICAL AND COMPLEX. UNDOUBTEDLY WHEN A TECHNICAL PRODUCT I S BEING SOLD, THE PERSON SELLING THE PRODUCT SHOULD BE FAMILIAR WITH TECHNICAL SPECI FICATIONS OF THE PRODUCT BUT THEN THIS ASPECT OF THE MATTER DOES NOT ANYWAY CHANGE TH E ECONOMIC ACTIVITY. NOTHING, THEREFORE, TURNS ON THE DETAILS OF THE PRODUCTS BEI NG TECHNICAL. IT WAS ALSO NOTED THAT BY THE ASSESSING OFFICER THAT 'IT IS A VERY TECHNIC AL EXERCISE TO OBTAIN THE CONTRACTS SINCE IT INVOLVES COMPLEX PROCESS REQUIRING ELABORA TE DISCUSSION, TECHNICAL EXPERTISE AND PRESENT OF COMPLEX TECHNICAL PRESENTATION, ON B EHALF OF THE ASSESSEE, WHICH CAN ONLY BE DONE BY A SPECIALIST IN THIS FIELD SO AS TO CONVINCE THE CLIENTS ABOUT WELSPUN'S SUITABILITY TO THE CONTRACT'. THIS AT BES T SIGNIFIES COMPLEXITY IN THE BUSINESSES AND THE NEED OF TECHNICAL INPUTS IN THE PROCESS OF BUSINESSES, PARTICULARLY WHEN THE PRODUCTS BEING DEALT WITH ARE TECHNICAL PR ODUCTS, BUT THEN MERELY BECAUSE TECHNICAL INPUTS ARE NEEDED IN CARRYING OUT BUSINES S ACTIVITY, IT DOES NOT BECOME A TECHNICAL SERVICE RATHER THAN A BUSINESS ACTIVITY. AT THE COST OF REPETITION, WE MUST EMPHASIZE THE IMPORTANT DISTINCTION BETWEEN A BUSIN ESS ACTIVITY, REQUIRING UNDERSTANDING OF RELATED TECHNOLOGY, AND RENDITION OF TECHNICAL SERVICES SIMPLICTOR. IN ANY CASE, WHAT HAS BEEN DESCRIBED AS A TECHNICAL SERVICE IS THE SERVICE BEING RENDERED TO THE BUYER BUT THE PAYMENT RECEIVED BY T HE COMMISSION AGENTS IS NOT FOR THIS SERVICE PER SE BUT FOR GENERATING BUSINESS ORD ERS FOR THE ASSESSEE. GENERATING BUSINESS OR SECURING ORDERS IS AN ENTREPRENEURIAL A CTIVITY AND CANNOT, BY ANY STRETCH OF LOGIC, BE TREATED AS A TECHNICAL SERVICE PER SE. THE SAME IS THE POSITION WITH REGARD TO ASSISTANCE WITH RESPECT OF LOGISTICS, SUC H AS SHIPPING AND HANDLING SERVICES, WITH RESPECT TO SALE FORECASTING, WITH RE SPECT TO GATHERING INFORMATION ON MARKETS, BUSINESS ENVIRONMENT AND ON SPECIFIC BUYER S AND WITH RESPECT TO DEVELOPMENT OF SALES NETWORK. ALL THESE SERVICES AR E ESSENTIALLY INTEGRAL PART OF, AND ARE THUS AIMED AT, DEVELOPING BUSINESS FOR THE ASSE SSEE AND SECURING ORDERS FOR THE ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 12 ASSESSEE FROM THE RIGHT PERSONS. NEITHER THESE SERV ICES CAN BE VIEWED ON A STANDALONE BASIS DIVORCED FROM THE ECONOMIC ACTIVIT Y OF SECURING ORDERS, NOR ANY PAYMENT CAN BE SAID TO BE FOR RENDITION OF THESE SE RVICES INASMUCH AS IT IS NOT THE RENDITION OF THESE SERVICES BUT SECURING BUSINESS O F THE ASSESSEE WHICH TRIGGERS THE INCOME ACCRUING TO THE NON-RESIDENT AGENTS OF THE A SSESSEE AND IT IS SECURING OF BUSINESS FOR THE ASSESSEE WHICH IS THE PROXIMATE CA USE OF THE INCOME ACCRUING TO THE ASSESSEE. THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DECISION IN THE CASE OF DY. CIT V. TROIKAA PHARMACE UTICALS LTD. [IT APPEAL NO. 2028/AHD/13 AND CO NO 13/AHD/14] AND VICE VERSA, WH EREIN IT HAS BEEN, INTER ALIA, OBSERVED AS FOLLOWS: '5. AS REGARDS THE REFERENCES TO SECTION 9(1)(VII) , AS MADE BY THE ASSESSING OFFICER AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIN D THAT ASPECT OF THE MATTER IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A LARGE NUMBER OF JUDICIAL PRECEDENTS- INCLUDING HON'BLE MADRAS HIGH COURT'S JUDGMENT IN T HE CASE OF CIT V. FARIDA LEATHER CO . [(2016) 66 TAXMANN.COM 321 (MADRAS)], WHEREIN THE IR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLOWS: 5. THE MAIN CONTENTION OF THE LEARNED COUNSEL FOR T HE ASSESSEE/RESPONDENT IS THAT THE AGENCY COMMISSION/SALES COMMISSION PAID BY THE ASSE SSEE TO ITA NO. 1534/AHD/2015 M/S. PANASONIC ENERGY INDDIA CO LTD V S. PRI. CIT ASSESSMENT YEAR: 2009-10 NON-RESIDENT AGENTS, FOR THE SERVICES RENDE RED BY THEM, OUTSIDE INDIA, IN PROCURING EXPORT ORDERS FOR THE ASSESSEE, WOULD NOT ATTRACT OR PARTAKE THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN TH E CONTEXT OF 9(1)(VII) OF THE ACT AND THEREFORE, THERE IS NO SCOPE FOR THE APPLICATION OF THE PROVISIONS OF SECTION 195 OF THE ACT (TAX DEDUCTED AT SOURCE). IT IS ALSO CONTENDED THAT AS THE NON-RESIDENT AGENTS HAVE NEITHER BUSINESS CONNECTION IN INDIA NOR THEY HAVE PERMANENT ESTABLISHMENT IN INDIA, THEY ARE LIABLE TO BE TAXED IN INDIA. 5.1 YET ANOTHER CONTENTION OF THE LEARNED COUNSEL F OR THE ASSESSEE IS THAT: (A) THE ASSESSEE PAID THE AMOUNT BY WAY OF COMMISSI ON TO FOREIGN AGENTS FOR THE SERVICES RENDERED OUTSIDE INDIA; (B) THE TAX DEDUCT ION AT SOURCE (TDS) IS REQUIRED TO BE MADE ON ALL PAYMENTS TO NON-RESIDENTS, ONLY I F SUCH PAYMENTS ARE LIABLE TO BE TAXED IN INDIA. (C) FOLLOWING THE DECISION OF THIS COURT, CIT V. FAIZAN SHOES (P .) LTD. [2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.COM 48 (MAD.), THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, WHEN THE NON-RESIDE NT AGENT PROVIDES SERVICES OUTSIDE INDIA ON PAYMENT OF COMMISSION. 5.2 THE CONTENTION OF THE REVENUE IS THAT SUCH SERV ICES ARE ATTRACTED BY EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT AND THEREFORE TDS CERTIFICATE IS ESSENTIAL. 6. WHETHER THIS CONTENTION IS CORRECT, IS THE ISSUE TO BE DECIDED. 7. IN ORDER TO APPRECIATE THIS CONTENTION, IT IS NE CESSARY TO CONSIDER THE RELEVANT PROVISIONS OF THE ACT:-- (I) SECTION 40(A)(I) OF THE ACT :-- ' SECTION 40 - AMOUNTS NOT DEDUCTIBLE: NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 , THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', -- (A) IN THE CASE OF ANY ASSESSEE -- ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 13 (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICA L SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE,-- (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMP ANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HA S BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 , SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTI NG THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION: FOR THE PURPOSES OF THIS SUB-CLAUSE,-- (A) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EX PLANATION 2 TO CLAUSE (VI) OF SUB- SECTION (1) OF SECTION 9 : (B) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9 : (IA) THIRTY PER CENT OF ANY SUM PAYABLE TO A RESIDENT, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UN DER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 . PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PR EVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 THIRTY PER CENT OF, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DE DUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XV II-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 , THEN, FOR THE PURPOSE OF THIS SUB- CLAUSE, IT SHA LL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.' (II) EXPLANATION 2 TO SECTION 195(1) OF THE ACT :-- ' SECTION 195 - OTHER SUMS: (1) ANY PERSON RESPONSIBLE FOR PAYIN G TO A NON- RESIDENT NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY I NTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC ) OR SECTION 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SU CH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYAB LE BY THE GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CLAUSE, DEDU CTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE : PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MA DE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115-O . ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 14 [EXPLANATION 1] :...................... [EXPLANATION 2.- FOR THE REMOVAL OF DOUBTS, IT IS H EREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND TO MAKE DEDUCTIO N THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SH ALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON- RESIDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS-- (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA.' ' SECTION 9 - INCOME DEEMED TO ACCRUE OR ARISE IN INDIA -- (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : (I) A LL INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH O R FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF A CAPIT AL ASSET SITUATE IN INDIA. ** ** ** EXPLANATION 4.- FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT THE EXPRESSION 'THROUGH' SHALL MEAN AND INCLUDE AND SHA LL BE DEEMED TO HAVE ALWAYS MEANT AND INCLUDED ''BY MEANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'.' 7.1 SECTION 40 OF THE ACT SPELLS OUT WHAT AMOUNTS ARE NOT DEDUCTI BLE FROM THE INCOME CHARGED TO TAX UNDER THE PROFITS AND GAINS OF BUSIN ESS OR PROFESSION. 7.2 SECTION 40(A)(I) OF THE ACT DEALS WITH INTEREST AND OTHER SUMS PAYA BLE OUTSIDE INDIA. THE PROVISIONS OF THIS SUB-CLAUSE MADE APPLI CABLE TO INTEREST HAVE BEEN EXTENDED TO PAYMENT OF ROYALTY, TECHNICAL FEES AND ANY OTHER SUM CHARGEABLE UNDER THIS ACT. THE SECTION PROVIDES THAT THE SUMS COVERE D BY THE SUB-CLAUSE, WHICH ARE CHARGEABLE UNDER THE ACT AND ARE PAYABLE OUTSIDE IN DIA, SHALL NOT BE ALLOWED AS AN EXPENDITURE TO THE ASSESSEE, UNLESS TAX IS PAID THE REON OR IS DEDUCTED THEREFROM UNDER CHAPTER XVII-B OF THE ACT. 7.3 SECTION 195(1) OF THE ACT DEALS WITH DEDUCTION OF TAX FROM PAYMEN T TO NON- RESIDENTS AND FOREIGN COMPANIES. SECTION 195(1) OF THE ACT COMES INTO PLAY AT A STAGE WHERE THE PAYER, WHO IS ENJOINED TO DEDUCT TH E TAX, EITHER CREDIT SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR MAKE PAYMENT THEREOF , WHETHER IN CASH / CHEQUE / DRAFT OR ANY OTHER MODE. THE TAXABILITY OF SUCH AMO UNT IN THE HANDS OF THE PAYEE OR OCCASIONING OF THE TAXABLE EVENT IS ALIEN FOR THE P URPOSE OF SECTION 195(1) OF THE ACT. 7.4 SECTION 195(2) IS AN ENABLING PROVISION, ENABLING AN ASSESSEE TO FILE AN APPLICATION BEFORE THE ASSESSING OFFICER TO DETERMI NE THE APPROPRIATE PROPORTION OF THE SUM CHARGEABLE AND UPON SUCH DETERMINATION, THE TAX HAS TO BE DEDUCTED UNDER SECTION 195(1) OF THE ACT. THE PAYMENT IS MADE CREDITED TO THE AC COUNT OF THE PAYEE. 8. THE QUESTION NOW IS, WHETHER THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AS CONTEMPLATED UNDER SECTION 195 OF THE ACT, WHEN THE ASSESSEE PAID COMMISSION TO FOREIGN AGENT. 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON 'BLE SUPREME COURT, IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA), IN W HICH, IT IS VERY CATEGORICALLY HELD THAT THE TAX DEDUCTED AT SOURCE OBLIGATIONS UNDER SECTION 195(1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CHARGEABLE TO TAX IN THE HAN DS OF THE NON-RESIDENT RECIPIENT. 9.1 THEREFORE, MERELY BECAUSE A PERSON HAS NOT DEDU CTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRED THAT THE P ERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMM ITTED A DEFAULT IN DISCHARGING HIS ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 15 TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATION S COME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILITY IN INDIA. 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHH OLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE R ECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LIABI LITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIAB ILITY CANNOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPIENT / FOREIGN AG ENT IS ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGENT IS NOT E STABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST. 10. FURTHER, JUST BECAUSE, THE PAYER / ASSESSEE HAS NOT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIES TO THE EFF ECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBE DDED IN THE PARTICULAR PAYMENT, THE ASSESSING OFFICER CANNOT PROCEED ON THE BASIS T HAT THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE A ND ESTABLISH THAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYMENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THA T THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOWING UP PAYMENTS W ITH BUYERS. NO OTHER SERVICES ARE RENDERED OTHER THAN THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMENTS HAVE BEEN MADE DIRECTLY TO THE NON-RESIDENTS ABROAD , DOES NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOES NOT REQUIRE A NY CONTRIBUTION OF TECHNICAL KNOWLEDGE, EXPERIENCE, EXPERTISE, SKILL OR TECHNICA L KNOW-HOW OF THE PROCESSES INVOLVED OR CONSIST IN THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN. THE PARTIES MERELY SOURCE THE PROSPECTIVE BUYERS FO R EFFECTING SALES BY THE ASSESSEE, AND IS ANALOGOUS TO A LAND OR A HOUSE / REAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PROPERTY F OR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETES THE DEAL, HE GETS THE COMMISS ION. THUS, BY NO STRETCH OF IMAGINATION, IT CANNOT BE SAID THAT THE TRANSACTION PARTAKES THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF SECTION 9(1)(VII) OF THE ACT. 12. AS THE NON-RESIDENTS WERE NOT PROVIDING ANY TEC HNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS HELD BY THE COMMISSIONER OF IN COME TAX (APPEALS), THE COMMISSION PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNICAL SERVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HAS NO APPLICATIO N TO THE FACTS OF THE ASSESSEE'S CASE. 13. IN THIS CASE, THE COMMISSION PAYMENTS TO THE NO N-RESIDENT AGENTS ARE NOT TAXABLE IN INDIA, AS THE AGENTS ARE REMAINING OUTSIDE, SERV ICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABROAD. 14. THE CONTENTION OF THE LEARNED COUNSEL FOR THE R EVENUE IS THAT THE TRIBUNAL OUGHT NOT TO HAVE RELIED UPON THE DECISION G.E.INDIA TECH NOLOGY'S CASE, CITED SUPRA, IN VIEW OF INSERTION OF EXPLANATION 4 TO SECTION 9(1)(I) OF THE ACT WITH CORRESPONDING INTRODUCTION OF EXPLANATION 2 TO SECTION 195(1) OF THE ACT, BOTH BY THE FINANCE ACT , 2012, WITH RETROSPECTIVE EFFECT FROM 01.04.1962. 15. THE ISSUE RAISED IN THIS CASE HAS BEEN THE SUBJ ECT MATTER OF THE DECISION, IN THE RECENT CASE, CIT V. KIKANI EXPORTS (P .) LTD. [2014] 369 ITR 96/[2015] 232 TAXMAN 255/49 TAXMANN.COM 601 (MAD.) WHEREIN THE CONTENTIO N OF THE REVENUE HAS BEEN ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 16 REJECTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEV ANT OBSERVATION READS AS UNDER:- - '... THE SERVICES RENDERED BY THE NON-RESIDENT AG ENT COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' AND, TH EREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQUENTLY, SECTION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO THE NON-RESIDENT WAS RIGHTLY DELETED.' 16. WHEN THE TRANSACTION DOES NOT ATRACT THE PROVIS IONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EXPLANATION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIAB LE TO BE DISMISSED. 6. CLEARLY, THEREFORE, THE PAYMENT OF COMMISSION IN THE HANDS OF THE NON- RESIDENT AGENT, AS LONG AS SUCH AN AGENT CARRIES OUT ITS ACT IVITIES OUTSIDE INDIA, DOES NOT RESULT IN TAXABILITY IN THE HANDS OF THE AGENT IN I NDIA.' 39. AS WE DEAL WITH THIS ASPECT OF THE MATTER, WE M AY ALSO TAKE NOTE OF THE FOLLOWING ANALYSIS, IN THE CASE OF UPS SCS ASIA LTD. V. ASSTT . DIT, (INTERNATIONAL TAXATION) [2012] 50 SOT 268/18 TAXMANN.COM 302 (MUM.), ABOUT THE SCOPE OF MANAGERIAL, CONSULTANCY AND TECHNICAL SERVICES WHICH THE SERVIC ES RENDERED MUST FULFIL SO AS TO LEAD TO TAXABILITY AS FEES FOR TECHNICAL SERVICES: '5. A BARE PERUSAL OF THE ABOVE QUOTED PROVISION IN DICATES THAT THE 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION FOR RENDERING OF ANY 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' BUT DOES NOT INCLUDE THE CONS IDERATION FOR ANY CONSTRUCTION, ASSEMBLY ETC. THE LEARNED CIT(A) HAS HELD THE SERVI CES RENDERED BY THE ASSESSEE AS FEES FOR TECHNICAL SERVICES' COMING WITH IN THE SWE EP OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. ON THE CONTRARY, THE CONTENT ION OF THE ASSESSEE HAS REMAINED BEFORE THE AUTHORITIES BELOW AS WELL AS US THAT THE SUCH SERVICES DO NOT FALL WITHIN THE AMBIT OF ANY OF THE CATEGORIES TAKEN NOTE OF BY THE AUTHORITIES BELOW. WE WILL EXAMINE AS TO WHETHER THE SERVICES SO PROVIDED BY T HE ASSESSEE FALL WITHIN THE SCOPE OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' AS PER EXPLANATION 2 TO SECTION 9(1)(VII) . 6. IN ORDER TO APPRECIATE THE NATURE OF SERVICES MO RE ELABORATELY, IT IS RELEVANT TO CONSIDER THE TERMS OF THE AGREEMENT ENTERED INTO BE TWEEN THE ASSESSEE AND MENLO INDIA EXECUTED ON NOVEMBER 7, 2006 WITH EFFECT FROM 1ST JUNE, 2005, A COPY OF WHICH IS AVAILABLE ON PAGE 1 ONWARDS OF THE PAPER B OOK. THE SCOPE OF SERVICES HAS BEEN GIVEN IN CLAUSE 1.1. IN THE RECITAL CLAUSE IT HAS BEEN PROVIDED THAT THE ASSESSEE- COMPANY MAY REQUIRE MENLO INDIA TO PERFORM LOGISTIC S SERVICES SUCH AS TRANSPORT, PROCUREMENT, CUSTOM CLEARANCE, SORTING, DELIVERY, W AREHOUSING AND PICKING UP SERVICES (LOCAL SERVICES) WITHIN INDIA (LOCAL OPERA TING AREA). IT HAS FURTHER BEEN PROVIDED THAT MENLO INDIA MAY ALSO SEEK SIMILAR SER VICES FROM THE ASSESSEE- COMPANY SUCH AS TRANSPORT, PROCUREMENT, CUSTOMS CLE ARANCE, SORTING, DELIVERY, WAREHOUSING AND PICK UP SERVICES (INTERNATIONAL SER VICES) OUTSIDE INDIA. IN THE PRESENT APPEAL WE ARE CONCERNED WITH THE 'INTERNATI ONAL SERVICES' PROVIDED BY THE ASSESSEE TO MENLO OUTSIDE INDIA. THESE SERVICES COM PRISE OF TRANSPORT, PROCUREMENT, CUSTOMS CLEARANCE, SORTING, WAREHOUSING AND PICK UP SERVICES ON THE CARGO EXPORTED BY MENLO ON BEHALF OF ITS CUSTOMERS. HAVING NOTED T HE NATURE OF SERVICES PROVIDED BY THE ASSESSEE OUTSIDE INDIA, FOR WHICH MENLO INDIA M ADE THE PAYMENT, LET US CONSIDER IF THESE CAN BE DESCRIBED AS MANAGERIAL OR TECHNICA L OR CONSULTANCY SERVICES. ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 17 5. WE FOLLOW THE ABOVE DETAIL DISCUSSION MUTATIS MU TANDIS TO CONCLUDE THAT THE ASSESSEES COMMISSION EXPENDITURE IN QUESTION IS NO T TAXABLE IN THE HANDS OF ITS PAYEES SO AS TO ATTRACT TDS LIABILITY IN ITS CASE AS HELD IN HONBLE APEX COURTS DECISION IN GE INDIA TECHNOLOGY CENTRES CASE 327 ITR 456 (SC) . T HE REVENUES SOLE SUBSTANTIVE GROUND AS WELL AS ITS APPEAL NO.1144/KOL/2015 FAILS ACCORDINGLY. 6. SAME ORDER TO FOLLOW IN REVENUES LATTER APPEAL NO.1145/KOL/2015 AS BOTH LEARNED REPRESENTATIVES HAVE ALREADY INDICATED IN T HE PRECEDING PARAGRAPHS THAT THE SOLE ISSUE HEREIN PERTAINS TO THE VERY KIND OF PAYM ENTS MADE TO DUBAI BASED ENTITIES AS INVOLVED IN PRECEDING ASSESSMENT YEAR 2012-13. WE APPRECIATE THIS FAIR STAND OF THE PARTIES TOWARDS THE BENCH TO AFFIRM THE CIT(A)S FI NDINGS IN THE IMPUGNED LATTER ASSESSMENT YEAR AS WELL. 7. THESE REVENUES APPEALS ARE DISMISSED. O RDER PRONOUNCED IN THE COURT ON 27.06.2018. SD/- SD/- [M.BALAGANESH] [ S.S.GODARA ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27.06.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.LUX INDUSTRIES LTD., SRIJAN TECH PARK, 10 TH FLOOR, DN-42, SECTOR-V, SALT LAKE, KOLKATA-700091. 2 .A.C.I.T., CIRCLE-2, TDS, KOLKATA 3. C.I.T.(A)- 1, KOLKATA 4. C.I.T-(TDS), KOLK ATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, ITAT KOLKATA BENCHES ITA NOS.1144 & 1145/KOL/2015 LUX INDUSTRIES LTD A.Y .2012-13 & 2013-14 18