Adidas Sourcing Ltd., Hong Kong V. ADIT, New Delhi

ITA 5300/DEL/2010

• Counselvise Citation: 530020114 RSA 2010
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SUNIL GAUTAM
• Assessee Lawyers: VIJAY IYER
• Keywords: Transfer pricing; Bonafide belief; Revised return
• Section: 244A; 92E; 234B; 27

Judgement Text

ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR ITA NO. 5300/DEL/2010 A.YR. 2007-08 ADIDAS SOURCING LIMITED VS. ASSTT. DIRECTOR OF IN COME-TAX, 10F, CITY PLAZA FOUR, CIRCLE 1(1), INTERNATIONA L 12, TAIKOO WAN ROAD, TAXATION, NEW DELHI. TAIKOO SHING, ISLAND EAST, HONG KONG. PAN: AADCA7661D ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI RAJAN VORA ADV.& SHRI VIJAY IYER ADV. RESPONDENT BY : DR. SUNIL GAUTAM CIT ( DR) O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST THE ASSESSMENT OR DER PASSED BY THE ASSTT. DIRECTOR OF INCOME-TAX CIR. 1(1), INTERNATIONAL TAX ATION, NEW DELHI, PURSUANT TO ORDER OF THE DISPUTE RESOLUTION PANEL, NEW DELHI, U/S 144C OF THE INCOME-TAX ACT, 1961RELATING TO ASSTT. YEAR 2007-08. FOLLOWING GROUNDS ARE RAISED: 1. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN HOLDING THAT FEE RECEIVED FOR BUYING AGENC Y SERVICES BY THE ASSESSEE, IN RELATION TO PROCUREMENT SERVICES R ENDERED OUTSIDE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 2 INDIA, IS IN THE NATURE OF FEE FOR TECHNICAL SERVIC ES (FTS) AND IS TAXABLE IN INDIA UNDER THE INCOME-TAX ACT, 1961 (THE ACT). 2. WITHOUT PREJUDICE TO GROUND NO 1, THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND IN FACT, IN HOLDING THAT THE AGREEMENT FOR BUYING AGENCY SERVICES WAS ENTERED IN TO PRIOR TO MAY 1997 AND ACCORDINGLY A RATE OF 30% WOULD APPLY IN THE CASE OF THE ASSESSEE. 3. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN PROPOSING TO INITIATE PENALTY PROCEEDING U NDER SECTION 271AA OF THE ACT, WITHOUT APPRECIATING THE FACT THA T THE RELEVANT TRANSFER PRICING DOCUMENTS I.E. TRANSFER PRICING RE PORT OF THE ASSESSEE WAS SUBMITTED IN THE COURSE OF ASSESSMENT PROCEEDINGS. 4. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN PROPOSING TO LEVY PENALTY UNDER SECTION 27 1BA OF THE ACT, WITHOUT APPRECIATING THE FACT THAT THE ASSESSE E HAD ALREADY FURNISHED THE REPORT OF THE ACCOUNTANT UNDER SECTIO N 92E OF THE ACT, BEFORE THE DUE DATE PRESCRIBED UNDER SECTION 1 39(1) OF THE ACT. 5. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN PROPOSING TO LEVY INTEREST UNDER SECTIONS 234B AND 234D OF THE ACT. 6. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN PROPOSING TO WITHDRAW INTEREST GRANTED UND ER SECTION 244A OF THE ACT. 7. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AN D IN FACT, IN NOT ALLOWING CREDIT FOR THE WHOLE OF THE A MOUNT OF TAX DEDUCTED AT SOURCE. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 3 8. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW A ND IN FACT, IN INITIATING THE PENALTY PROCEEDINGS UNDER S ECTIONS 271(1) OF THE ACT. 2. BRIEF FACTS ARE ASSESSEE, ADIDAS SOURCING LIMI TED (ASL) IS A TAX RESIDENT OF HONG KONG. ITS SOURCING DIVISION PROVID ES BUYING AGENCY SERVICES TO VARIOUS CUSTOMERS INCLUDING ADIDAS IN DIA MARKETING PRIVATE LIMITED (AIMPL) AN AE. FOR SUCH SERVICES ASL ENTE RED INTO A BUYING AGENCY SERVICES AGREEMENT WITH AIMPL FOR SOURCING OF MERCHANDISE IN RESPECT TO WHICH ASL RECEIVES BUYING COMMISSION @ 8 .25% OF THE VALUE OF MERCHANDISE. THE AGREEMENT WAS ENTERED INTO ON 18 J UNE, 1999 AND FURTHER AMENDMENTS TO THE AGREEMENT WERE MADE VIDE AMENDMEN T 1 TO THE AGREEMENT DATED 5 APRIL, 2000 AND AMENDMENT 2 TO TH E AGREEMENT DATED 21 AUGUST, 2011. ASL PROVIDES SERVICES WHICH INCLUDE C ENTRALIZED MEDIA AND ADVERTISEMENT PLANNING, MARKET RESEARCH, PUBLIC REL ATIONS, SPORTS MARKETING AND OTHER MARKETING SERVICES SUCH AS CATALOGUE PROD UCTION, DEVELOPMENT OF RETAIL SHOP SYSTEMS, ETC. 2.1. A DIFFERENT ASL DIVISION, I.E. THE REGIONAL HE AD OFFICE ASIA/PACIFIC, PROVIDES CERTAIN REGIONAL MARKETING AND ADMINISTRAT IVE SUPPORT SERVICES TO THE GROUPS ASIA-PACIFIC DISTRIBUTION ENTITIES (INC LUDING AIMPL). 2.2. FOR THE YEAR UNDER CONSIDERATION, THE ORIGINAL RETURN OF INCOME WAS FILED ON 4 MARCH 2008 WHEREIN THE TOTAL INCOME WAS DECLARED AT RS 3.9 CRORES. SUBSEQUENTLY, A REVISED RETURN OF INCOME WA S FILED BY ASL ON 5 MARCH 2008 WHEREIN A MISTAKE IN RELATION TO CLAIM O F CREDIT FOR TAX DEDUCTED AT SOURCE WAS RECTIFIED BY THE ASSESSEE. THEREAFTER , A SECOND REVISED RETURN ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 4 WAS FILED BY ASL ON 18 MARCH 2009 INCREASING THE IN COME TO RS 4.9 CRORES WHICH WAS ON ACCOUNT OF RECTIFICATION OF AN INADVER TENT MISTAKE AT THE TIME OF GROSSING UP OF TAX PAID ON BEHALF OF THE APPELLA NT. 2.3. FOR THE YEAR UNDER CONSIDERATION, ASL RECEIVED BUYING COMMISSION FROM AIMPL FOR THE SERVICES PROVIDED BY ASL TO AIMP L. SUCH BUYING COMMISSION WAS NOT OFFERED TO TAX BY ASL IN THE RET URN OF INCOME. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER (AO) HELD THAT THE BUYING COMMISSION INCOME RECEIVED BY THE ASSESS EE IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES (FTS) AND THE SAME SH OULD BE TAXABLE IN INDIA IN THE HANDS OF ASL. ACCORDINGLY, THE SAME WAS CONSIDE RED TO BE TAXABLE ON GROSS BASIS @ 30% IN THE ASSESSMENT ORDER ON THE GR OUND THAT THE AGREEMENT FOR PROVIDING SUCH SERVICES WAS ENTERED ON 18 JUNE 1999. DRP CONFIRMED WITH THE VIEW OF THE AO. AGGRIEVED ASSESSEE IS BEFO RE US. 3. LD COUNSEL FOR THE ASSESSEE APROPOS RESPECTIVE G ROUNDS CONTENDS AS UNDER: 3.1. THE ASSESSEE HAS ENTERED INTO A BUYING AGENCY SERVICES AGREEMENT (BAS AGREEMENT), DATED 18 JUNE 1999, WITH AIMPL ( FORMALLY KNOWN AS ADIDAS INDIA TRADING PRIVATE LIMITED) FOR PROVIDI NG BUYING AGENCY SERVICES. THE SCOPE OF WORK WAS SUBSEQUENTLY EXTEN DED AND THE FEE WAS ENHANCED VIDE AMENDMENTS DATED 5 APRIL 2000 AND 21 AUGUST 2001. ALL THESE AGREEMENTS ARE PLACED ON THE PAPER BOOK. 3.2. AS PER THE BAS AGREEMENT, DURING THE RELEVANT AY, ASL WAS REQUIRED TO PROVIDE SERVICES TO AIMPL IN RELATION TO PURCHAS E OF GOODS FROM OUTSIDE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 5 INDIA, FOR AND ON BEHALF OF AIMPL IN ACCORDANCE WIT H THE TERMS OF THE AGREEMENT. FOR THE YEAR UNDER CONSIDERATION, ASL RE CEIVED REMUNERATION IN THE FORM OF BUYING COMMISSION @ 8.25% OF THE INVOIC E AMOUNT OF THE MERCHANDISE. THE TOTAL COMMISSION EARNED BY ASL DUR ING THE YEAR UNDER CONSIDERATION IS RS 1.13 CRORES. 3.3. AS PER THE AGREEMENT, THE ASSESSEE WAS BROADLY REQUIRED TO PROVIDE THE FOLLOWING SERVICES TO AIMPL IN RELATION TO THE SOURCING OF GOODS FROM OUTSIDE INDIA: - MAINTAIN RELATIONSHIP WITH THE MANUFACTURERS OUTS IDE INDIA AND SEARCH FOR NEW POTENTIAL MANUFACTURERS. - SUPPLY AIMPL WITH CREDIT REPORTS AND OTHER MARKET ING INFORMATION CONCERNING MANUFACTURERS. - CO-ORDINATE BETWEEN AIMPL AND MANUFACTURERS FOR T HE PURPOSE OF BUYING THE MERCHANDISE AND THE SAME INCLUDES PLACIN G THE PURCHASE ORDER, ASSISTING IN NEGOTIATIONS, ETC. - ASSIST IN PROCUREMENT OF SAMPLES AND SENDING THE SAME TO AIMPL WITH OTHER TERMS AND CONDITIONS FOR APPROVAL. - PROVIDE TRANSLATION SERVICES AS REQUIRED FOR COMM UNICATION BETWEEN AIMPL AND THE MANUFACTURERS. 3.4. THOUGH ASSESSEE WAS ACTING ON BEHALF OF AIMPL IT DID NOT HAD ANY AUTHORITY TO ENTER INTO ANY BINDING COMMITMENT ON B EHALF OF AIMPL. THE INVOICE WOULD BE RAISED BY THE MANUFACTURERS ON ASL FOR THE SAKE OF ADMINISTRATIVE CONVENIENCE AS SERVICES INCLUDED ASS ESSEE ACT AS AIMPLS PAYING AGENT. THE AGREEMENT SPECIFICALLY PROVIDED T HAT AIMPL SHALL RETAIN FOR ITSELF THE FINAL DECISION ON SELECTION OF MANUF ACTURERS, PRICING, DELIVERY AND OTHER SUCH RELATED MATTERS. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 6 3.5. AT THE TIME OF FILING THE RETURN OF INCOME, TH E APPELLANT DID NOT OFFER THE INCOME RECEIVED FROM AIMPL FOR PROVIDING SOURCI NG SERVICES TO TAX SINCE THE APPELLANT DOES NOT HAVE A PLACE OF BUSINE SS IN INDIA FROM WHERE SUCH SOURCING SERVICES ARE PROVIDED TO AIMPL. FURTH ER, NO EMPLOYEE OF THE APPELLANT VISITED INDIA DURING THE YEAR FOR PROVIDI NG SUCH SERVICES TO AIMPL I.E THE SERVICES WERE PROVIDED BY THE APPELLANT FRO M OUTSIDE INDIA. IN THESE CIRCUMSTANCES AND A CATENA OF JUDICIAL PRONOUNCEMEN TS, ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE PAYMENT RECEIVED BY IT FO R RENDERING SOURCING SERVICES IS NOT IN THE NATURE OF FTS AS IT IS NOT - MANAGERIAL, TECHNICAL OR CONSULTING IN NATURE, ON FOLLOWING CONSIDERATIONS. THE SERVICES PROVIDED BY ASL TO AIMPL ARE NOT IN THE NATURE OF MANAGERIAL, T ECHNICAL AND CONSULTANCY ON FOLLOWING SUBMISSIONS: I) MANAGERIAL SERVICES - IN CASE OF MANAGERIAL SERVICES, THE SERVICE PROVIDER PROVIDES THE SERVICES INDEPENDENTL Y (WITHOUT ANY SUPERVISION OR INSTRUCTION), HOWEVER, IN CASE O F THE ASSESSEE, AIMPL HAS COMPLETE CONTROL ON THE WORK PERFORMED BY THE ASSESSEE. REFERENCE CAN BE MADE TO CLAUSES 2.3, 2.4 , 2.9 AND 9.1 OF THE BAS AGREEMENT WHICH MAKE IT CLEAR THAT THE APPELLANT WAS WORKING UNDER THE CONTROL AND SUPERVISION OF AIMPL AND THE APPELLANT DID NOT HAVE ANY AUTHORITY TO CONCLUDE CO NTRACTS ON BEHALF OF AIMPL. HENCE, THE SERVICES RENDERED BY AS L ARE NOT MANAGERIAL SERVICES IN NATURE. THE BUYING AGENCY SE RVICES PROVIDED BY THE ASSESSEE ARE NOT MANAGERIAL IN NATU RE AS THE SAID SERVICES ARE PROVIDED UNDER THE INSTRUCTION AND OVE RALL CONTROL AND SUPERVISION OF AIMPL. IN THIS REGARD, VARIOUS C LAUSES OF THE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 7 BAS AGREEMENT ARE REFERRED WHICH MAKE IT CLEAR THAT THE ASSESSEE WAS WORKING UNDER THE CONTROL AND SUPERVIS ION OF AIMPL AND HAD NEITHER DECISION MAKING AUTHORITY NOR CAPACITY TO BIND THE ASSESSEE. ITS ROLE WAS ONLY IN THE CON TEXT OF ROUTINE BUYING SUPPORT SERVICES AND HAVE NO INKLING TO BE T ERMED AS MANAGERIAL SERVICES. II) TECHNICAL SERVICES - THE SERVICES ARE NOT TECHNICAL IN NATURE AS NO TECHNICAL KNOWLEDGE BELONGING TO ART, SCIENCE OR PROFESSION WAS REQUIRED. THE ASSESSEE WAS MERELY FACILITATING AIMPL IN PROCURING THE MERCHANDISE FROM OUTSIDE INDIA AND EN SURING SMOOTH TRANSMISSION OF THE MERCHANDISE TO AIMPL. TH E SAID ACTIVITY WAS ONLY LIAISONING, COORDINATION, FACILIT ATOR OR SUPERVISION SERVICE TO ENSURE THAT THE MERCHANDISE WHICH AIMPL WANTS TO PURCHASE MEET THEIR SPECIFICATIONS. HENCE, THE SAME CANNOT BE EQUATED WITH TECHNICAL SERVICE. IN THE CASE OF SKYCELL COMMUNICATIONS LTD. VS. DCIT (251 ITR 53) (MADRAS) THE HONBLE HIGH COURT HAS HELD THAT THE POPULAR ME ANING ASSOCIATED WITH THE WORD TECHNICAL IS INVOLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE . CONSULTANCY SERVICES - ASSESSEE, ASL WAS MERELY FACILITATING THE PROCUREMENT OF THE MERCHANDISE AND ACTING IN A LIAI SON FUNCTION. IT WAS NOT PROVIDING ANY EXPERT SERVICE OR OPINION REGARDING A NY MATTER TO AIMPL AND HENCE CANNOT QUALIFY AS CONSULTING SERVICES UNDER T HE DEFINITION OF FTS UNDER THE ACT. THUS ANY KIND OF ADMINISTRATION WORK OR CO -ORDINATION SERVICES CANNOT BE INCLUDED WITHIN THE SCOPE OF CONSULTANCY SERVICES. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 8 FOLLOWING JUDICIAL PRONOUNCEMENTS ARE RELIED IN THI S REGARD (I) SPAHI PROJECTS PVT. LTD. (2009-214 TAXATION 56) (AAR) THE AAR HELD THAT THE SERVICES OF PROCURING ORDERS, NEGO T IATING PRICES AND OTHER TERMS AND CONDITIONS, FOLLO WING UP FOR PURCHASE ORDERS, ATTENDING QUERIES OF SHIPME NT DID NOT QUALIFY AS MANAGERIAL, TECHNICAL OR CONSULTANCY AND HENCE WERE NOT FTS AND ALSO DID NOT FORM ANY BUSINE SS CONNECTION OF NON-RESIDENT RECEIVING COMMISSION FOR THE SERVICES PROVIDED. (II) LINDE AG VS ITO (62 ITD 330) (MUMBAI ITAT) THE HONBLE ITAT HELD THAT PROCUREMENT SERVICES DID NOT INVOLVE IMPARTING OF ANY INFORMATION CONCERNING IND USTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE AND HENCE WERE NOT FTS OR ROYALTY. (III) DDIT VS SAMSUNG ENGINEERING CO LTD (2010 TII ITAT MUM INTL) - THE HONBLE ITAT HELD THAT THE SERVICES OF IDENTIFICATION, PROCUREMENT OF CRITICAL IMPORTED MA TERIAL, ARRANGING CO-ORDINATION BETWEEN FOREIGN VENDORS AND SECL, MONITORING ALL OTHER ACTIVITIES FOR THE PROJE CT DO NOT MEAN IMPARTING OF ANY INFORMATION CONCERNING INDUST RIAL, COMMERCIAL, OR SCIENTIFIC EXPERIENCE AND HENCE WOUL D NOT QUALIFY AS A PAYMENT TOWARDS FTS. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 9 III) INTENTION OF THE PARTIES AND THE OVERALL NATURE OF THE AGREEMENT IS TO BE CONSIDERED FOR ASCERTAINING THE NATURE OF CON TRACTUAL OBLIGATIONS. 3.6. IT IS EMPHASIZED THAT UNDER THE BAS AGREEMENT, ONLY BUYING AGENCY SERVICES WERE PROVIDED BY ASL TO AIMPL. THE ENTIRE SERVICES WERE PROVIDED BY ASL UNDER THE COMPLETE CONTROL AND SUPERVISION OF AIMPL. 3.7. EACH FUNCTION IN THE AGREEMENT CANNOT BE CHARA CTERIZED AND CATEGORIZED ON THE BASIS OF ITS INDIVIDUAL NATURE. THE OVERALL FUNCTIONS NEED TO BE CUMULATIVELY ASCERTAINED AS THE CONSIDER ATION IS PAID FOR ALL THE FUNCTIONS COLLECTIVELY. IT WILL NOT BE APPROPRI ATE TO PICK AND CHOOSE EACH OF THE FUNCTION AND CHARACTERIZE SOME OF THEM AS MANAGERIAL, TECHNICAL OR CONSULTANCY IN NATURE. RELIANCE IN TH IS REGARD IS PLACED ON THE RECENT DECISION OF CIT VS. NIIT LTD. 2009 (226 CTR 521) (DELHI HC) AND HORIZONTAL DRILLING INTERNATIONAL S.A. V CI T (237 ITR 142) (AAR). 3.8. FURTHER RELIANCE IS PLACED ON THE FOLLOWING JU DGMENTS FOR THE MEANING OF THE WORDS MANAGERIAL, TECHNICAL AND CONSULTANCY: (IV) UPS SCS (ASIA) LIMITED VS ADIT (50 SOT 268 2012) ( MUMBAI ITAT) - THE ASSESSEE A HONG KONG BASED COMPANY HAD ENTERED INTO A REGIONAL TRANSPORTATION SERVICES AGREEMENT W ITH MENLO WORLDWIDE FORWARDING (INDIA) PRIVATE LIMITED FOR PR OVIDING FREIGHT AND FORWARDING AND LOGISTIC SERVICES TO EAC H OTHER. THE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 10 MUMBAI ITAT IN CONNECTION WITH THE EXPORT CONSIGNME NT SERVICES (I.E. SERVICES IN RELATION TO CUSTOM CLEARANCE AND TRANSPORTATION OF GOODS TO THE ULTIMATE CUSTOMER OUTSIDE INDIA) HELD THAT SUCH SERVICES DID NOT QUALIFY AS MANAGERIAL, TECHNICAL A ND CONSULTANCY AND HENCE WERE OUTSIDE THE PURVIEW OF FTS AS DEFINE D UNDER THE ACT. THE ITAT HELD THAT SERVICES CAN QUALIFY AS MANAGERI AL SERVICES IF IT INVOLVES BOTH EXECUTION AND PLANNING OF THE ACTI VITIES TO BE PERFORMED. FURTHER SINCE THE TERM HAS NOT BEEN DEFI NED IN THE ACT IT WOULD BE REQUIRED TO INTERPRETED IN A COMMERCIAL SENSE. THE ITAT HELD THAT THE TERM CANNOT BE INTERPRETED IN A NARROW SENSE TO MEAN SIMPLY EXECUTING THE DIRECTIONS OF THE OTHERS FOR DOING A SPECIFIC TASK. THE ITAT HELD THAT THE WORD MANAGING IS WIDER IN SCOPE THAN THE WORD EXECUTING. ACCORDINGLY RESTRICT ED SERVICES CANNOT QUALIFY AS MANAGERIAL SERVICES. FURTHER THE ITAT AS GIVEN AN INSTANCE THAT IN CASE A WORKER IS INSTRUCTED TO PLACE GOODS ON A CARRIER IN A PARTICULAR MANNER, THEN THE ACTIVITIES CARRIED ON BY THE WORKER CANNOT BE HELD AS MANAGERIAL IN NATURE SINCE THE WORKER IS ONLY EXECUTING THE DIRECTIONS IN THE PRESCRIBED WAY . FURTHER THESE ACTIVITIES CANNOT BE CONSTRUED AS MANAGERIAL IN NAT URE ONLY IF THE WORKER IS APPLYING HIS MIND FOR CARRYING OUT THE AC TIVITIES AND IS EXPECTED TO BE VIGILANT IN CARRYING ON SUCH ACTIVIT IES. FURTHER THE ITAT HELD THAT CONSULTANCY SERVICES MEANS GIVING SOME SORT OF CONSULTATION DE HORS THE PERFORMANCE O R EXECUTION OF ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 11 ANY WORK. IT IS ONLY WHEN SOME CONSIDERATION IS GIV EN FOR RENDERING SOME ADVICE OR OPINION ETC THAT THE SAME FALLS WITHIN THE SCOPE OF CONSULTANCY SERVICES. THE WORD CONSULTATIO N EXCLUDES ACTUAL EXECUTION. HENCE THE ITAT HELD THAT FREIGHT AND LOGISTICS SERVICES CANNOT QUALIFY AS CONSULTANCY SERVICES. IN RELATION TO THE INTERPRETATION OF THE WORD TECHNICAL SERVICES , THE ITAT HELD THAT THE WORD TECHNICAL HAS BEEN SANDWICH ED BETWEEN THE WORDS MANAGERIAL AND CONSULTANCY AND HENCE THE MEANING NEEDS TO BE ASCERTAINED BY APPLYING THE PRINCIPLE O F NOSTICUR A SOCIIS . THE ITAT HELD THAT SINCE MANAGERIAL AND CONSULTAN CY PRE SUPPOSES SOME SORT OF DIRECT HUMAN INVOLVEMENT AND HENCE TECHNICAL SERVICES EVEN THOUGH RENDERED WITH OR WIT HOUT EQUIPMENT CANNOT BE CONCEIVED WITHOUT THE DIRECT IN VOLVEMENT OF HUMAN ELEMENT. THUS THE CONSIDERATION FOR PAYMENT I S RENDERING SERVICES AND NOT FOR USE OF COMPUTER. (V) DCIT VS EON TECHNOLOGY (P) LTD (203 TAXMAN 266) (D ELHI HC) (VI) ARMAYESH GLOBAL VS ACIT (ITA NO. 8822/2010) (MUMBA I ITAT) (VII) ACIT VS LEAAP INTERNATIONAL PVT LTD (ITA NO. 356/2009)(MADRAS ITAT). 3.9. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS TOSHOKU LTD (125 ITR 525) HELD THAT COMMISSION EARNED BY THE NON-RESIDENT FOR ACTING AS THE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 12 SELLING AGENT FOR THE INDIAN EXPORTER, WHEREIN SUCH NON-RESIDENT WAS RENDERING SERVICES FROM OUTSIDE INDIA DOES NOT ACCR UE IN INDIA. 3.10. CIRCULAR 23 OF 1969 AND 786 OF 2000 WERE ISSU ED IN THE CONTEXT OF SALES COMMISSION PAYABLE BY A RESIDENT EXPORTER TO THE AGENTS OUTSIDE INDIA AND REITERATED THAT THE INCOME PAID TO AN AGENT IS NOT TAXABLE IF THE OPERATIONS ARE CARRIED OUT BY THE AGENT OUTSIDE INDIA. 3.11. FURTHER, IT MAY BE NOTED THAT THE NATURE OF O PERATION UNDERTAKEN BY A SALES AGENT ARE SIMILAR TO A BUYING AGENT AND, THER EFORE, IF THE INCOME OF A SALES AGENT CANNOT BE TAXED IN INDIA THEN THE INCOM E OF BUYING AGENT ALSO CANNOT BE TAXED IN INDIA. 3.12. FOR SAKE OF COMPLETENESS, IT IS SUBMITTED THA T THE SAID CIRCULARS HAVE BEEN WITHDRAWN BY THE RECENT CIRCULAR 7 OF 2009. NONETHE LESS THE SAID WITHDRAWAL IS PROSPECTIVE FROM 22 OCTOBER 2009 AND WOULD NOT ALTE R THE SITUATION FOR THE RELEVANT AY. THE SAID CIRCULAR 7 AT PARA 3 CLEARLY STATES TH AT CIRCULAR 23 IS WITHDRAWN WITH IMMEDIATE EFFECT I.E. 22 OCTOBER 2009. 3.13. RELIANCE IN THIS REGARD IS PLACED ON THE FOLL OWING DECISIONS: - SATELLITE TELEVISION ASIA REGION ADVERTISING SALE S BV (STAR) [2010-TII-58-ITAT-MUMBAI-INTL - DDIT VS SIEMENS AKTIENGESELLSCHAFT BY MUMBAI ITAT (ITA NO. 6133/MUM/2002) - SANJIV GUPTA V. DCIT (135 TTJ 641) (LUCKNOW ITAT) (PLEASE REFER PAGE 103 OF THE CASE LAWS PAPER BOOK) ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 13 - DIT VS ERICSSON AB (343 ITR 470) (DELHI HC) (PLEA SE REFER PAGE 112 OF THE CASE LAWS PAPER BOOK) - UTI VS P.K. UNNY (249 ITR 612) (BOMBAY HC) 3.14. IT IS SUBMITTED THAT IN VIEW OF THE ABOVE DEC ISION OF THE SUPREME COURT AND IN VIEW OF CIRCULAR IN THE RELEVANT PERIO D, COMMISSION PAID TO ASL FOR RENDERING SERVICES OUTSIDE INDIA IS NOT TAX ABLE IN INDIA. 3.15. APROPOS AOS OBSERVATIONS WHILE CATEGORIZING A SSESSES INCOME AS FTS, LD. COUNSEL CONTENDS THAT THEY ARE BASED ON AS SUMPTIONS WHICH ARE CONTRARY TO PLETHORA OF CASE LAWS. A. INFORMATION COLLECTED FROM WEBSITE IS NOT SUFFICIEN T TO DETERMINE TAXABILITY OF INCOME: AO HAS RELIED ON THE INFORMATION AVAILABLE ON THE W EBSITE OF THE ADIDAS GROUP, ( WWW.ADIDAS-GROUP.COM ) WHICH BELONGS TO UMBRELLA SERVICES AND NOT PURELY OF THE ASSESSEE UNIT. EXTRACTS FROM SOME OTHER ALLEGED WEBSITE WHOSE SOURCE IS NOT SPECIFIED. IT HAS BEEN ASSUMED THAT THE FUNCTION OF THE ASSESSEE MIGHT NOT BE RESTRICTED TO MERE COMMISSION AGENCY. THE WEBSITE IS FOR THE ENTIRE ADIDAS GROUP AND IS NOT SPECIFICALLY IN THE CONTEXT OF INDIAN OPERATIONS. B. ADVERTISEMENT FOR APPOINTMENT OF MANAGER FOR VIE TNAMESE OPERATIONS: ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 14 THE AO HAS REPRODUCED AN ADVERTISEMENT FROM THE INT ERNET IN RELATION THE HIRING OF A MANAGER. THIS IS AN ADVERTISEMENT FOR VIETNAM BUSINESS OPERATIONS AND NOT FOR INDIAN OPERATIONS WHICH ARE PRIMARILY IN THE NATURE OF SOURCING OPERATIONS. THUS THE OBSERVATION S HAVE BEEN MADE WITHOUT APPLICATION OF MIND. EVEN IF IT IS ASSUMED THE ASSESSEE HAS EMPLOYED PERSONNEL WHO ARE TECHNICALLY QUALIFIED, S TILL, IT CANNOT BE CONCLUDED THAT THE ASSESSEE HAS BEEN PROVIDING SUCH TECHNICAL SERVICES TO AIMPL. C. RELATIONSHIP BETWEEN ASL AND AIMPL HELD TO BE IN THE NATURE OF PRINCIPAL AGENT RELATIONSHIP: AO HAS HELD THAT ASL HAD A MAJOR ROLE IN IDENTIFYIN G, SELECTING AND DEVELOPI N G THE SUPPLIERS FOR AIMPL AND THAT ASL IS INVOLVED IN THE ROLE OF CONSULTING / GUIDING AIMPL ON THE PRODUCTS. HOWEVER THE AO HAS FAILED TO PROVIDE ANY EVIDENCE TO SUBSTANTIATE THIS ASSUMPTION AND MERELY PLACED RELIANCE ON THE WEBSITE OF THE WHOLE GROUP AND HELD THAT THE ASSESSEE IS PROVIDING CONSULTING AND MANAGERIAL SERVICES TO AIMPL. THE AO HAS IGNORED THE PRINCIPAL AGENT RELATIONSHIP BETWEEN ASL AND AIMPL AND HAS HELD THAT ASL IN ITS OWN CAPACITY REN DERED MANAGERIAL SERVICES TO AIMPL. AO FAILED TO APPRECIATE THAT EAC H MANUFACTURER INVOICE QUOTES AIMPL AS THE BUYER WITH ASSESSEE ACT ING AS BUYING AGENT OF AIMPL. THUS NOT ONLY THE CLAUSES OF AGR EEMENT BUT ALSO THE SUPPORTING DOCUMENTATIONS, ACTUAL CONDUCT OF THE PA RTIES DEMONSTRATES THAT ASSESSEE WORKED AS A BUYING AGENT . IT WAS AC CORDINGLY REMUNERATED FOR BUYING SERVICES COMMISSION AND NOT FTS. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 15 D. DEVELOPMENT OF SUPPLIERS DATA BASE IS OUT OF ASS ESSES OWN BUSINESS REQUIREMENTS AND NOT A TECHNICAL SERVICE TO AIMPL THE ASSESSEE BEING IN THE BUSINESS OF SOURCING SER VICES, MAINTAINS A DATABASE IN ORDINARY COURSE OF BUSINESS TO UPDATE T HE POTENTIAL SUPPLIERS AND GIVE OPTIONS TO BUYERS FOR SOURCING OF THE PROD UCTS. AO WITHOUT APPRECIATING THE CORRECT FACTS HAS ASSUMED THAT ASL WAS PROVIDING SERVICES TO AIMPL BY BUILDING A DATABASE OF SUPPLIE RS. THE AO HAS FAILED TO APPRECIATE THE FACT THAT AIMPL WAS ONLY I NTERESTED IN THE FINAL PRODUCTS AND THE NOT THE TECHNICAL RESOURCES REQUIR ED FOR PERFORMING THE SERVICES. VARIOUS COURTS HAVE HELD THAT WHILE DECID ING SUCH ISSUES, THE ACTUAL NATURE OF SERVICES NEEDS TO BE VERIFIED AND SERVICES WILL NOT QUALIFY AS TECHNICAL SERVICES MERELY BECAUSE SOME S ORT OF TECHNICAL EQUIPMENTS OR TECHNOLOGY IS USED BY THE SERVICE PRO VIDER. E. COMMISSION RECEIVED BY THE ASSESSEE DOES NOT INC LUDE PAYMENT FOR ANY TECHNOLOGY THE AO IN HIS ORDER HAS CONCLUDED THAT THE COMMISSI ON PAID BY AIMPL IS FOR THE INBUILT TECHNOLOGY IN THE SHOES MA NUFACTURED BY THE SUPPLIERS AND WHERE THIS TECHNOLOGY IS SUPPLIED BY ASL. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 16 HOWEVER, IT IS SUBMITTED THAT THE PRODUCTS, AS A WH OLE, ARE BEING SOLD TO AIMPL BY THE MANUFACTURERS AND NOT THE TECHNOLOGY U SED IN MANUFACTURING THE PRODUCT AND AIMPL IS ONLY BUYING THE PRODUCT AND IS NOT PAYING FOR THE USE OF THE TECHNOLOGY. FURTHE R REFERENCE IS MADE ON THE CASE LAWS CITED IN PARA D ABOVE WHEREIN THE COURTS HAVE DISTINGUISHED BETWEEN TECHNICAL SERVICES AND TECHNO LOGICAL DRIVEN SERVICES. F. INVOICES GENERATED FROM THE SAME COMPUTER THE AO HAS ALLEGED THAT THE INVOICES FROM THE MANUF ACTURER SEEM TO BE GENERATED FROM THE SAME COMPUTER. PLEASE REFER PAGE 19 OF THE ASSESSMENT ORDER . IN THIS REGARD IT IS SUBMITTED THAT IT IS A COMMO N PRACTICE IN THE INDUSTRY TO STANDARDIZE THE PROCESS ES AND DOCUMENTS. THUS, AS A PART OF THE STANDARD PROCESS THE FORMAT OF THE INVOICES HAS BEEN STANDARDIZED BY THE ASSESSEE AND ALL THE MANUF ACTURERS HAVE BEEN REQUIRED TO RAISE THE INVOICE IN THE STANDARD FORMA T. THIS STANDARDIZATION OF THE INVOICE FORMAT WAS DESIRABLE AS IT HELPS SPEED UP THE PREPARATION AND SUBMISSION OF THE INVOICES (IN DIGITAL FORMAT) A PROCESS THAT IS ABSOLUTELY CRITICAL IN THE PHASE OF EXPORT CLEARANCE IN THE ORIGIN COUNTRY AND IMPORT CLEARANCE IN THE RECIPIEN T COUNTRY. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 17 G. THE AO HAS FURTHER MENTIONED THAT THE MANAGEMENT S ERVICE AGREEMENT AND THE BAS AGREEMENT ARE CONNECTED WITH EACH OTHER AND ASL HAS ARTIFICIALLY SPLIT THE FUNCTIONS PERFORMED BY IT. IN THIS REGARD WE WOULD LIKE TO SUBMIT THAT BOTH TH E AGREEMENTS ARE DIFFERENT. HAVING SAID THIS, THE DIFFERENCES BETWEE N THE TWO AGREEMENTS CAN BE EXPLAINED AS: (I) TWO DIFFERENT AND DISTINCT DIVISIONS OF ASL WHI CH PROVIDE THE BUYING AGENCY SERVICES ON THE ONE HAND AND THE MANA GEMENT SERVICES ON THE OTHER HAND; (II) TWO DIFFERENT SETS OF AGREEMENTS ARE IN PLACE; AND (III) TWO DISTINCT AND DIFFERING METHODS FOR THE RE MUNERATION HAVE BEEN AGREED UPON, THERE IS AMPLE EVIDENCE THAT THE TWO ARRANGEMENTS ARE NOT CONNECTED WITH EACH OTHER. THI S IS ALSO OBVIOUS FROM THE FACT THAT MOST OF THE GROUP ENTITI ES (APPROX 80) UTILIZE THE BUYING AGENCY SERVICES OF ASL WHILE O NLY A SMALL NUMBER OF ENTITIES (APPROX 15 ASIA PACIFIC REGION D ISTRIBUTION ENTITIES) RECEIVE THE MANAGEMENT SERVICES FROM ASL. 3.16. FURTHER, IT MAY BE NOTED THAT BOTH OECD TP GU IDELINES AS WELL AS INDIAN REGULATIONS ADHERE TO THE PRINCIPLE THAT REV ENUE SHOULD ANALYSE TRANSACTIONS AND THE UNDERLYING CONTRACTS BASED ON THE TRANSACTION ACTUALLY UNDERTAKEN BY THE ASSOCIATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM AND SHOULD NOT RE-CHARACTERIZE SUCH TRANSACTIONS / CONTRACTS. ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 18 3.17. IT IS ARGUED THAT RENDERING PROCUREMENT SERVICES OU TSIDE INDIA DOES NOT CONSTITUTE A BUSINESS CONNECTION OF ASL IN INDIA AS SECTION 9(1)(I) OF THE ACT PROVIDES THAT, AN INCOME OF A NON-RESIDENT CAN BE T AXABLE IN INDIA IF IT IS ATTRIBUTABLE TO A BUSINESS CONNECTION IN INDIA. IT IS NOT IN DISPUTE THAT THE SOURCING SERVICES PROVIDED TO AIMPL BY THE ASSESSEE WERE RENDER IN INDIA NOR DOES IT CONSTITUTE BUSINESS CONNECTION IN INDIA . THEREFORE, COMMISSION RECEIVED BY THE APPELLANT FOR SERVICES ARE NOT TAXA BLE IN INDIA UNDER SECTION 9(1)(I) OF THE ACT FOR FOLLOWING REASONS:. - ALL THE ACTIVITIES PERFORMED BY ASL FOR AIMPL ARE RENDERED OUTSIDE INDIA. - THERE IS NO NEXUS OF THE SERVICES PERFORMED BY A SL WITH THE SALE OF GOODS BY AIMPL, WHICH PURCHASES THE GOODS ON ITS OW N ACCOUNT. FINAL AUTHORITY IN RELATION TO THE PURCHASE OF THE GOODS IS WITH AIMPL AND NOT WITH THE ASSESSEE IN ANY MANNER. 1 - THERE IS NO INCOME ATTRIBUTABLE TO INDIA AS NO AC TIVITIES ARE PERFORMED IN INDIA. - RELIANCE IS PLACED ON THE FOLLOWING CASE LAWS WHE REIN IT WAS HELD BY THE VARIOUS COURTS THAT SINCE THE BUSINESS OPERATIO NS WERE CARRIED OUT OUTSIDE INDIA, SUCH INCOME EARNED BY THE NON-RESIDE NTS IS NOT TAXABLE IN INDIA: - UPS SCS (ASIA) LIMITED VS ADIT (50 SOT) (MUMBAI I TAT) (PLEASE REFER PAGE 1 OF THE CASE LAWS PAPER BOOK) - CIT VS TOSHOKU LTD (125 ITR 525) (SUPREME COURT) (PLEASE REFER PAGE 25 OF THE CASE LAWS PAPER BOOK) - CIT VS. EON TECHNOLOGY P. LIMITED (343 ITR 366) ( DELHI HC) (PLEASE REFER PAGE 15 OF THE CASE LAWS PAPER BOOK) ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 19 - A.B. HOTEL LTD. (RADISON HOTEL) VS DCIT (2008 25 SOT 368) (DELHI ITAT) 3.18. APPLYING THE SAME PRINCIPLE TO THE FACTS THER E IS NO DISPUTE THAT ASSESSEE RENDERED SERVICES FROM OUTSIDE INDIA, I.E. HONG KONG AND HENCE ASL DOES NOT FORM A BUSINESS CONNECTION IN INDIA. 3.19. EXPLANATION 1(A) TO SECTION 9(1)(I) OF THE AC T WHICH PROVIDES THAT EVEN IN CASE A NON-RESIDENT HAS A BUSINESS CONNECTION IN INDIA, THEN ONLY SUCH INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATI ONS CARRIED OUT IN INDIA SHALL BE TAXABLE IN INDIA. THIS HAS BEEN UPHELD BY AAR IN THE CASE SPAHI PROJECTS PVT. LTD. (SUPRA). 4. LD DR RELIED ON THE ORDERS OF AO AND DRP A ND CONTENDS THAT THE EXPLANATION 1(A) TO SECTION 9(1)(I) OF THE ACT PROV IDES AND INCLUSIVE DEFINITION OF THE MEANING OF THE TERM FEES FOR TEC HNICAL SERVICES AND APPLYING THIS INCLUSIVE TEST THE PAYMENTS RECEIVED BY THE ASSESSEE ARE FEES FOR TECHNICAL SERVICES. THE LD DR FURTHER ARGUES TH AT THE COMPENSATION OF THE ASSESSEE FROM AIMPL IS MORE TOWARDS THE EFFORTS OF THE ASSESSEE IN RELATION TO THE MANUFACTURE RATHER THAN BUYING. TH E COST OF MANUFACTURING TECHNOLOGY IS ALSO BUILT IN THE COST OF PRODUCTS AN D THE COMMISSION PAID TO ASSESSEE THEREBY INFERRING THAT THE PAYMENT OF COMM ISSION ALSO INCLUDES PAYMENT FOR TECHNOLOGY GIVING IT COLOR OF FTS. THE LD DR ALSO RELIED ON THE GENERAL EXTRACTS OF ADIDAS WEBSITE AS POINTED O UT BY THE AO IN THE ASSESSMENT ORDER. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE SUBMISSIONS MADE BY THE PARTIES IN DETAIL. THE MAIN ISSUE FOR C ONSIDERATION IS WHETHER THE ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 20 CONSIDERATION RECEIVED BY THE ASSESSEE FROM AIMPL U NDER THE BUYING AGENCY SERVICES AGREEMENT (BAS) COULD BE CHARACTE RIZED AS FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT AND ACCORDINGLY BY TAXED UNDER THE PROVISIONS OF SECTION 115A OF THE A CT. EXPLANATION 2 TO SECTION 9(1)(VII) DEFINES FEES FOR TECHNICAL SERVI CES AS UNDER: EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'FE ES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD 'SALARIES'. 5.1. IT IS EVIDENT THAT FOR A PARTICULAR STREAM OF INCOME TO BE CHARACTERIZED AS FEES FOR TECHNICAL SERVICES, IT IS NECESSARY T HAT SOME SORT OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES SHOULD HAVE B EEN RENDERED IN CONSIDERATION. THE TERMS MANAGERIAL, TECHNICAL OR CONSULTANCY DO NOT FIND A DEFINITION IN THE INCOME-TAX ACT, 1961 AND I T IS A SETTLED LAW THAT THEY NEED TO BE INTERPRETED BASED ON THEIR UNDERSTANDING IN COMMON PARLANCE. LET US EXAMINE THE MEANING OF EACH OF THESE WORDS: MANAGERIAL : THE DELHI HIGH COURT IN THE CASE OF J.K. (BOMBAY ) LTD. VS. CBDT & ANR. (1979) 118 ITR 312 (DEL) REFERRED T O AN ARTICLE ON MANAGEMENT SCIENCES IN ENCYCLOPAEDIA 747, WHEREIN IT IS STATED THAT THE MANAGEMENT IN ORGANISATIONS INCLUDE AT LEAST TH E FOLLOWING: (A) DISCOVERING, DEVELOPING, DEFINING AND EVALUATING TH E GOALS OF THE ORGANISATION AND THE ALTERNATIVE POLICIES THAT WILL LEAD TOWARDS THE GOALS; (B) GETTING THE ORGANISATION TO ADOPT THE PO LICIES; (C) SCRUTINISING ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 21 THE EFFECTIVENESS OF THE POLICIES THAT ARE ADOPTED AND (D) INITIATING STEPS TO CHANGE POLICIES WHEN THEY ARE JUDGED TO BE LESS EFFECTIVE THAN THEY OUGHT TO BE. MANAGEMENT THUS PERVADES ALL ORGANIZAT IONS. TECHNICAL : IN THE CASE OF SKYCELL COMMUNICATIONS LTD. VS. D CIT (251 ITR 53) (MADRAS), THE HONBLE HIGH COURT HAS HELD T HAT THE POPULAR MEANING ASSOCIATED WITH THE WORD TECHNICAL IS IN VOLVING OR CONCERNING APPLIED AND INDUSTRIAL SCIENCE. CONSULTANCY : CONSULTANCY IS GENERALLY UNDERSTOOD TO MEAN AN A DVISORY SERVICES. FURTHER, IT MAY BE FAIR TO STATE THAT NOT ALL KIND OF ADVISORY COULD QUALIFY AS TECHNICAL SERVICES. FOR ANY CONSUL TANCY TO BE TREATED AS A TECHNICAL SERVICES, IT WOULD BE NECESSARY THAT AN TECHNICAL ELEMENT IS INVOLVED IN SUCH ADVISORY. THUS, THE CONSULTANCY SH OULD BE RENDERED BY SOMEONE WHO HAS SPECIAL SKILLS AND EXPERTISE IN REN DERING SUCH ADVISORY. 5.2. OUR ATTENTION WAS ALSO BROUGHT TO THE DECISION OF THE MUMBAI BENCH OF THE ITAT IN THE CASE OF LINDE AG VS ITO (62 ITD 330) WHEREIN IT IS OBSERVED THAT: IN THE DEFINITION FOR FEES FOR TECHNICAL SERVICES THE CONSIDERATION HAS TO BE FOR RENDERING TECHNICAL, MA NAGERIAL OR CONSULTANCY SERVICES. BY MAKING PURCHASE FOR THE IN DIAN CONCERN NO CONSULTANCY SERVICES IS PROVIDED AS NO ADVISE IS GIVEN TO THEM. IT IS A SIMPLE PROCUREMENT OF EQUIPMENTS BY THE ASS ESSEE FOR THEM. IT IS ALSO NOT A TECHNICAL SERVICE IN THE SEN SE OF TECHNICAL EDUCATION IS CONCERNED WITH TEACHING APPLIED SCIENC ES AND SPECIAL TRAINING IN APPLIED SCIENCES, TECHNICAL PRO CEDURES AND SKILLS REQUIRED FOR PRACTICE OF TRADE OR PROFESSION , ESPECIALLY ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 22 THOSE INVOLVING THE USE OF MACHINERY OR SCIENTIFIC EQUIPMENT. IF THE INFORMATION IS GIVEN FOR THE USE OF THE MACHINE RY OR SCIENTIFIC EQUIPMENT IT WOULD PARTAKE THE CHARACTER OF FEES FO R TECHNICAL SERVICES BUT WHEN IT IS ONLY FOR THE PROCUREMENT OF THE SCIENTIFIC EQUIPMENTS IT WOULD BE A SIMPLE SERVICE OF COMMERCI AL AND INDUSTRIAL NATURE. IT, THEREFORE, CANNOT BE TERMED AS A TECHNICAL SERVICE FOR WHICH THE PROCUREMENT FEES CHARGED BY T HE ASSESSEE CANNOT BE A CONSIDERATION FOR TECHNICAL SERVICES. T HE THIRD CATEGORY IS MANAGERIAL SERVICE. THE MANAGERIAL SERV ICE, AS AFORESAID, IS TOWARDS THE ADOPTION AND CARRYING OUT THE POLICIES OF A ORGANISATION. IT IS OF PERMANENT NATURE FOR TH E ORGANISATION AS A WHOLE. IN MAKING THE STRAY PURCHASES, IT CANNO T BE SAID THAT THE ASSESSEE HAS BEEN MANAGING THE AFFAIRS OF THE I NDIAN CONCERN OR WAS RENDERING MANAGERIAL SERVICES TO THE ASSESSE E. 5.3. THE COPIES OF THE BUYING AGENCY SERVICES AGREE MENT ARE PLACED ON RECORD, THE NATURE OF SERVICES HAVE NOT BEEN DISPUT ED. DEPARTMENT HAS ONLY INTERPRETED THEM TO BE AMOUNTING TO FEES FOR TECH NICAL SERVICES, IN OUR CONSIDERED OPINION THESE ARE NOT TECHNICAL SERVICE S BUT ROUTINE SERVICES OFFERED IN THE PROCUREMENT ASSISTANCE . THE AGREEME NTS DEMONSTRATE THAT THE ASSESSEE WAS TO RECEIVE COMMISSION FOR PROCURING TH E PRODUCTS OF AIMPL AND RENDERING INCIDENTAL SERVICES FOR PURCHASES. TH E PRIMARY SERVICES PROVIDED BY THE ASSESSEE TO AIMPL IN TERMS OF THE B UYING AGENCY SERVICES AGREEMENT ARE AS UNDER: (I) CO-ORDINATE BETWEEN AIMPL AND MANUFACTURERS FOR THE PURPOSE OF BUYING THE MERCHANDISE, (II) ASSISTING IN NEGOTIATIONS, ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 23 (III) ASSIST IN PROCUREMENT OF SAMPLES AND SENDING THEM TO AIMPL, 23(IV) MAINTAIN RELATIONSHIP WITH THE MANUFACTURERS AND SEARCH FOR NEW MANUFACTURERS, (V) SUPPLY CREDIT REPORTS AND OTHER MARKETING INFOR MATION CONCERNING MANUFACTURERS AND (VI) PROVIDE TRANSLATION SERVICES AS REQUIRED FOR C OMMUNICATION BETWEEN AIMPL AND THE MANUFACTURERS. 5.4. APPLYING THE PRINCIPLES AND CASE LAWS DISCUSSE D ABOVE TO THE FACTS OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE SERVI CES RENDERED BY THE ASSESSEE IN THIS CASE WERE PURELY IN THE NATURE OF PROCUREMENT SERVICES AND CANNOT BE CHARACTERIZED AS MANAGERIAL TECHNICAL OR CONSULTANCY SERVICES. ACCORDINGLY, THE CONSIDERATION RECEIVED B Y THE ASSESSEE WAS APPROPRIATELY CLASSIFIED AS COMMISSION AS AGAINST FEES FOR TECHNICAL SERVICES. 5.5. GROUND NUMBER 3 AND 4 ARE INCONSEQUENTIAL AS N O SEPARATE PENALTY PROCEEDINGS HAVE BEEN INITIATED SO FAR AND THE GROU NDS ABOUT LEVY OF INTEREST U/S 234 B, 234 D AND 244 A ARE CONSEQUENTIAL IN NAT URE. GROUND REGARDING TDS CREDIT WILL BE VERIFIED BY THE AO IN ACCORDANCE WITH LAW. 6. IN VIEW OF THE FOREGOINGS, ASSESSEES APPEAL IS ALLOWED ON ABOVE TERMS. ORDER PRONOUNCED IN OPEN COURT ON 18-09-2012. SD/- SD/- ( T.S. KAPOOR ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18-09-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR ADIDAS SOURCING LTD. ITA NO. 5300/DEL/2010 24