The DCIT, Circle-1(2), Baroda V. M/s. Astral Pharmaceuticals Industries, Baroda

ITA 634/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8546 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 13-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 20-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Advance ruling; Non-deduction of tax
• Section: 143(3); 5(2); 139

Judgement Text

ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 1 OF 29 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND RAJPAL YADAV JM] ITA NO.634/AHD/2015 & CO NO.103/AHD/2015 ASSESSMENT YEAR: 2011-12 THE DEPUTY COMMISSIONER OF INCOME-TAX ........ ..........APPELLANT CIRCLE-1(2), BARODA VS. M/S. ASTRAL PHARMACEUTICAL INDUSTRIES ........................RESPONDENT & 911, GIDC, CROSS-OBJECTOR MAKARPURA, BARODA-390010 [PAN : AADFA 9845 N] APPEARANCES BY: VK SINGH FOR THE APPELLANT MILIN MEHTA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 19.09.2017 DATE OF PRONOUNCING THE ORDER : 21.09.2017 O R D E R PER PRAMOD KUMAR AM: 1. THIS APPEAL AND THE CROSS-OBJECTION ARE DIRECTED AGAINST THE ORDER DATED 14.11.2014 PASSED BY THE CIT(A)-II, BARODA IN THE M ATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 FO R THE ASSESSMENT YEAR 2011-12. 2. THE CROSS-OBJECTION FILED BY THE ASSESSEE IS NOT PRESSED AND ACCORDINGLY DISMISSED SUMMARILY. 3. SO FAR AS THE APPEAL FILED BY THE REVENUE IS CON CERNED, THE GRIEVANCES OF THE ASSESSING OFFICER ARE AS FOLLOWS:- 1 ON THE FACTS AND CIRCUMSTANCES OF THE OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) ERRED IN LAW IN DELETING THE DISALLOWA NCE OF RS.77,44,774/- MADE U/S 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THE F INDINGS OF ASSESSING OFFICER IN THE ASSESSMENT ORDER. 2. THE LD. CIT(APPEALS) HAS FAILED IN APPRECIATING THAT THE ASSESSEE DID NOT APPLY BEFORE THE AO U/S 195(2) OF THE ACT, THOUGH I T WAS OBLIGATION OF THE ASSESSEE. 3. THE LD. CIT(APPEALS) ERRED IN LAW IN ALLOWING T HE CLAIM OF THE ASSESSEE WITHOUT APPRECIATING THE FACT THAT ASSESSEE ITSELF HAS DEDUCTED SERVICE TAX FROM THE PAYMENTS MADE TO M/S. URJA INTERNATIONAL, USA WHICH PROVES THAT THE ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 2 OF 29 ASSESSEE ITSELF HAS ADMITTED THAT THEIR AGENT IS PR OVIDING SERVICES IN INDIA AND HENCE THE AMOUNT PAID TO THE PARTY IS LIABLE TO BE TAXED IN INDIA. 4. LEARNED REPRESENTATIVES FAIRLY AGREE THAT WHATEV ER WE DECIDE IN ITA NO.633/AHD/2015 IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 2008-09, WHICH WE HAD HEARD ALONG WITH THIS APPEAL, WILL APPLY MUTATIS MUTANDIS FOR THIS APPEAL AS WELL, AS THE ISSUE RAISED IN THIS APPEAL IS IDENTIC AL TO THAT OF ITA NO.633/AHD/2015 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 . VIDE OUR ORDER OF EVEN DATE IN ITA NO.633/AHD/2015, WE HAVE DISMISSED THE APPEA L OF THE REVENUE FOR AY 2008- 09, BY OBSERVING AS FOLLOWS:- 4. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US IS A MANUFACTURER OF PHARMACEUTICAL PRODU CTS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS PAID COMMISSION OF RS.35,69,928/- TO M/S. URJA INTE RNATIONAL, USA, WITHOUT WITHHOLDING ANY TAX FROM THE RELATED PAYMENTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED T AX AT SOURCE FROM THE COMMISSION PAYMENTS SINCE THE COMMISSION SO PAID IS EXIGIBLE TO TAX UNDER THE HANDS OF THE RECIPIENT IN INDIA. THE STAND OF THE ASSESSEE THAT THE SERVICES HAVE BEEN RENDERED ABROAD AND AS SUCH NO P ART OF THE INCOME EMBEDDED IN THE COMMISSION PAID TO THE USA BASED EN TITY CAN BE BROUGHT TO TAX WAS SIMPLY BRUSHED ASIDE. THE ASSESSING OFFICER OBSERVED THAT ON VERIFICATION OF THE BILLS OF M/S. URJA INTERNATIONA L, USA, THERE IS NO MENTION OF SERVICE TAX COMPONENT IN THE BILLS, BUT ASSESSEE HA S SEPARATELY DEBITED THE SERVICE TAX LIABILITY ON THE COMMISSION EXPENSES AN D PAID TO THE DEPARTMENT. IT PROVES THAT THE ASSESSEE ITSELF HAD ADMITTED THA T THEIR AGENT IS PROVIDING SERVICES IN INDIA. IT WAS BASED ON THIS REASONING THAT THE ASSESSING OFFICER DECIDED THAT COMMISSION IS TAXABLE IN INDIA. HE AL SO OBSERVED THAT THE ASSESSEE CANNOT TAKE ONE STAND FOR SERVICE TAX AND A DIFFERENT STAND FOR THE PURPOSE OF INCOME-TAX ACT. IT WAS IN THIS BACKDR OP THAT THE ASSESSING OFFICER PROCEEDED TO DISALLOW RS.24,28,001/-, WHICH PERTAINED TO COMMISSION PAID DURING THE RELEVANT PREVIOUS YEAR, UNDER SECTI ON 40(A)(IA) OF THE ACT. AGGRIEVED, INTER ALIA, BY THE DISALLOWANCE SO MADE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). LEARNED CI T(A), FOLLOWING DECISIONS OF VARIOUS BENCHES OF THIS TRIBUNAL ON THIS ISSUE, HEL D THAT SALES COMMISSION IN THE HANDS OF NON-RESIDENT CANNOT BE BROUGHT TO TAX IN INDIA AS THE RELATED SERVICES WERE NOT PERFORMED IN INDIA. WHILE DOING SO, HE, INTER ALIA, OBSERVED AS FOLLOWS:- 3.3.1. I HAVE CONSIDERED THE SUBMISSIONS OF THE LE ARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. SINCE THE NON- RESIDENT AGENTS DO NOT HAVE A PE IN INDIA, NO PART OF THE COMMISSION INCOME OF THE AGENTS CAN BE SAID TO ACCRUE OR ARISE IN INDIA. THERE IS NO DISPUTE THAT THE FOREIGN PARTIES TO WHOM THE COM MISSION WAS PAID DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THE SERVICES RENDERED BY THE COMMISSION AGENTS WERE OUTSIDE INDI A. THE ASSESSEE HAS PAID TOTAL SALES COMMISSION OF RS.1,32,96,193/- TO URJA INTERNATIONAL, USA ON ITS EXPORT SALES. I FIND THAT THERE IS A CONSIDERABLE FORCE IN THE APPELLANT'S ARGUMENT IN AS MUCH AS COM MISSION PAID BY ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 3 OF 29 APPELLANT TO THE NON RESIDENT COMMISSION AGENTS IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF INCOME-TAX ACT, SINCE T HE AGENT IS A NON RESIDENT & IS OPERATING HIS BUSINESS ACTIVITIES OUT SIDE INDIA, THE COMMISSION IS PAID RELATED TO SERVICES PROVIDED OUT SIDE INDIA, THE AGENT DOES NOT HAVE ANY PERMANENT ESTABLISHMENT OR BUSINESS PLACE IN INDIA AND THE COMMISSION WAS REMITTED TO THE AGENT DIRECTLY OUTSIDE INDIA, THE COMMISSION PAID TO NON RESIDENT AGENT IS NOT TAXABLE IN INDIA AND CONSEQUENTLY SECTION 9 & 195 OF THE INCOME-TAX ACT DOES NOT APPLY TO THE PAYMENT OF THE COMMISSION. THE EXPLANATION T O SECTION 9(2) INSERTED BY FINANCE ACT, 2010 WITH RETROSPECTIVE EF FECT I.E. 01.06.1976 IS APPLICABLE TO INCOME BY WAY OF INTEREST, ROYALTY AND FEES FOR TECHNICAL SERVICES AND NOT TO BUSINESS INCOME. 3.3.2. ON ANALYZING THE GROUND OF APPEAL AS WELL AS THE ASSESSMENT ORDER AS WELL AS CASE LAWS CITED BY THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT IN SUPPORT OF THE APPELLANT'S CASE, T HE ONLY ISSUE PERTAINS TO THE DISALLOWANCE OF COMMISSION PAYMENTS MADE TO FOREIGN AGENTS CLAIMED BY THE RS.77,44,774/-WHICH PERTAIN TO AY. 2 011-12. THE SALES COMMISSION OF RS. 55,51,419/- IS PAID BETWEEN 18.11 .2009 TO 15.03.2010, AND PERTAINS TO A.Y. 2010-11 AND THE DI SALLOWANCE OF THIS AMOUNT HAS BEEN CONFIRMED BY ME IN SUBSEQUENT PARA. THE ASSESSING OFFICER HAS NOT DOUBTED THE GENUINENESS OF THE PAYM ENTS MADE TO THE COMMISSION, AGENTS LOCATED IN FOREIGN COUNTRIES BAS ED ON THE CONFIRMATION LETTER AS WELL AS LETTER RECEIVED FROM THE FOREIGN AGENTS WHO HAD NO PE OR PLACE OF BUSINESS IN INDIA. THE AP PELLANT HAD FILED TAX-RESIDENCY CERTIFICATES ALONG WITH CERTIFICATES OF INCORPORATION OF URJA INTERNATIONAL, USA WHICH IS NOT DOUBTED BY THE ASSE SSING OFFICER. THE FOREIGN AGENT HAD DONE THE SERVICES IN FOREIGN COUN TRY AND RECEIVED COMMISSION PAYMENTS FOR THE SERVICES RENDERED BY IT THAT-COUNTRY FOR GETTING ORDERS TO THE APPELLANT. THE OPERATION OF T HE SECTION 195 OF THE INCOME-TAX ACT COMES INTO FORCE FOR DEDUCTING TDS O N FOREIGN PAYMENTS PAID BY THE RESIDENT ASSESSEE TO NON-RESID ENT AGENTS ONLY WHEN THEIR INCOME IS CHARGEABLE UNDER INDIAN INCOME TAX LAW. IN THE INSTANT CASE, THE TDS LIABILITY DOES NOT ARISE ON S UCH COMMISSION PAYMENTS WHICH IS AN OFFSHOOT FROM ITS CHARGEABILIT Y TO INCOME TAX U/S. 5(2) OF THE INCOME-TAX ACT. VARIOUS COURT DECISIONS HAVE HELD THAT IN SUCH TYPE OF SITUATIONS, THE PROVISIONS OF DEDUCTIN G TAX WILL NOT ARISE AS THE OVERSEAS COMMISSION INCOME OF A FOREIGN AGENT I S NOT TAXABLE IN INDIA IN THE ABSENCE OF 'BUSINESS CONNECTION'. A C OMMISSION AGENT WORKING OUTSIDE INDIA FOR OBTAINING EXPORT ORDERS D OES NOT CARRY OUT ANY BUSINESS OPERATION IN INDIA AND, THEREFORE, NO INCO ME IS STATED TO ACCRUE OR ARISE IN INDIA. THE CBDT CIRCULARS CLARIF YING THIS PROVISION HAVE BEEN WITHDRAWN BUT IT HAS NOT CHANGED THE FUND AMENTAL PRINCIPLES. IF THE COMMISSION AGENT ACTING AS A SEL LING AGENT OUTSIDE INDIA WHO IS NOT CHARGEABLE TO TAX IN INDIA AND THE RECEIPT IN INDIA OF THE SALE PROCEEDS REMITTED BY THE PURCHASERS FROM ABROA D DID NOT AMOUNT TO AN OPERATION CARRIED OUT BY THE NON-RESIDENT COM MISSION AGENT IN INDIA AS CONTEMPLATED BY CLAUSE (A) OF THE EXPLANAT ION TO 9(1) OF THE ACT, THEN THERE IS NO QUESTION OF DEDUCTING TAX ON SUCH PAYMENTS. THE ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 4 OF 29 APEX COURT IN THE CASE OF CIT VS TOSHOKU LTD [1980] 125 ITR 525(SC) HAS CATEGORICALLY HELD THAT THE COMMISSION AMOUNTS WHICH WERE EARNED BY THE NON-RESIDENT FOR SERVICES RENDERED OUTSIDE I NDIA COULD NOT BE DEEMED TO BE INCOME WHICH HAD EITHER ACCRUED OR ARI SEN IN INDIA. 3,3.3. HON'BLE APEX COURT, IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P.) LTD. [2010] 327 ITR 456(SC) HAS HELD THAT THE EXPRESSION 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT IN SEC. 195(1)' SHOWS THAT THE REMITTANCE HAS TO BE OF TRADING RECEIPT, THE WH OLE OR PART OF WHICH, IS LIABLE TO TAX IN INDIA. IF TAX IS NOT SO ASSESSA BLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. SIMILAR VIEW HAS B EEN TAKEN BY HON'BLE MADRAS HIGH COURT IN A RECENT DECISION IN T HE CASE OF CIT VS FAIZAN SHOES (P.) LTD. [2014] 367 ITR 155 (MADRAS). LD. AUTHORIZED REPRESENTATIVE HAS ALSO RELIED ON SOME RECENT DECIS IONS WHICH ARE DIRECTLY ON THIS ISSUE AND SUPPORT THE CLAIM OF THE APPELLANT. THESE ARE: (I) GUJARAT RECLAIM AND RUBBER PRODUCTS LTD. ITA NO. 8868/MUM/2010 (MUMTRIB.) (II) DCIT VS DIVI'S LABORATORIES LTD. - (2011-TII- 182-ITAT-HYD-INTL) (III) EXOTIC FRUITS (P) LTD VS ITO [2013] 40 TAXMAN N.COM 348 (BANG. TRIB.) (IV) CIT VS EON TECHNOLOGY (P) LTD. (2012) 246 CTR 40 (DELHI) (HIGH COURT) (V) SOUTHERN BOREWELLS VS CIT [2014] 43 TAXMANN.CO M 378 (HC-KERALA) (VI) ITO VS TRIDENT EXPORTS [2014] 44 TAXMANN.COM 297 (CHENNAI - TRIB.) (VII) CIT VS MODEL EXIMS (2014) 42 TAXMANN.COM 446 (ALLAHABAD) 33.4. CONSIDERING THE VARIOUS JUDICIAL PRECEDENTS A S MENTIONED ABOVE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWI NG THE COMMISSION PAYMENTS MADE ABROAD ON THE GROUND THAT NO TDS WAS DEDUCTED. IN VIEW OF THE VARIOUS CASE LAWS MENTIONED SUPRA AND R ESPECTFULLY FOLLOWING THEM, I AM OF THE CONSIDERED VIEW THAT TH E CLAIM OF THE APPELLANT IS IN ACCORDANCE WITH LAW. SOME OTHER REC ENT DECISIONS WHICH ARE DIRECTLY ON THE ISSUE OF SALES COMMISSION TO NO N-RESIDENTS AND WHERE FACTS ARE ALSO SIMILAR TO THE PRESENT CASE NE EDS TO BE MENTIONED HERE WITH A NOTE THAT CONTROVERSY, IF ANY, IS IN RE SPECT OF (I) FEES FOR TECHNICAL SERVICES, (II) INTEREST AND (III) ROYALTY . THESE IS, HOWEVER NO CONTROVERSY IN RESPECT OF PAYMENT OF SALES COMMISSI ON TO NON- RESIDENTS AS CAN BE SEEN FROM THE FOLLOWING DIRECT DECISIONS: ACIT VS RAPID PACK ENGG.(P) LTD. [2014] 46 TAXMA NN.CO 330 (MUMBAI TRIB.) PRITHVI INFORMATION SOLUTIONS LTD. VS (TO (TDS) [ 2014]G5 SOT 89 (HYDERBAD TRIB) (URO) RICH GRAVIS PRODUCTS (P.) LTD. VS ADDL.CIT [2014] 49 TAXMANN.COM 531(MUMBAI-TRIB.) PANKAJ A SHAH VS ITO, W-1, BARODA [2014] 65 SOT 39 (AHD.-TRIB.) WHICH IS BASED ON THE DECISION OF THE AHMEDABAD TRIBUNAL IN THE CASE OF DY. CIT V. PANCHMAHAL STEEL LTD. IN ITA NO.8/AHD/2010 AND ITA NO. 1443 & 1444/AHD/2010 . ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 5 OF 29 LAST REFERRED DECISIONS OF PANKAJ A SHAH AND PANCHM AHAL STEEL LTD. ARE BINDING BEING DECISIONS OF JURISDICTIONAL TRIBU NAL. RESPECTFULLY FOLLOWING THESE DECISIONS AND OTHER DECISIONS CITED SUPRA, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITIO N OF RS.77,44,774/- IN RESPECT OF A.Y. 2011-12 AND RS.24,28,001/- IN RESPE CT OF A.Y. 2008-09 MADE BY HIM DUE TO NON DEDUCTION OF TAX AT SOURCE O N SALES COMMISSION PAID TO NON-RESIDENTS WHOSE INCOME IS NO T TAXABLE IN INDIA. THIS GROUND OF APPEAL IS ALLOWED. 5. THE ASSESSING OFFICER IS AGGRIEVED WITH THE RELI EF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLICABLE LEGAL POSITION. 7. WE FIND THAT, AS LEARNED REPRESENTATIVES FAIRLY AGREE, THE ISSUE IN QUESTION IS COVERED, IN FAVOUR OF THE ASSESSEE, BY THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF DCIT VS. WELSPUN CORP LTD [(2017) 55 ITR (TRIB) 405 (AHD)] WHEREIN THE TRIBUNAL HAS OBSERVED 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 THA T 'THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF S UCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE T O HIM IN INDIA DURING SUCH YEAR'. THERE IS NO DISPUTE THAT SINCE NO PART OF THE OPERATIONS OF THE RECIPIENT NON-RESIDENTS IS CARRIED OUT IN INDIA, NO INCOME ACCRUES TO THESE NON-RESIDENTS IN INDIA. THE CASE OF THE REVENUE HIN GES ON INCOME WHICH IS 'DEEMED TO ACCRUE OR ARISE IN INDIA'. COMING TO THE DEEMING PROVISIONS, WHICH ARE SET OUT IN SECTION 9, WE FIND THAT THE FOLLOWING STATUTORY PROVISIONS ARE 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 DIRECTL Y OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, O R THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, 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 DE EMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SU CH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATI ONS CARRIED OUT IN INDIA; ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 6 OF 29 (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 PROFE SSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C)** ** **' EXPLANATION 1-.* EXPLANATION 2.- FOR THE PURPOSES OF THIS CLAUSE, 'F EES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME 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 CARR IED OUT IN INDIA. EVEN THOUGH DEEMING FICTION UNDER SECTION 9(1)(I) IS TRI GGERED ON THE FACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT'S BUSINES S CONNECTION IN INDIA, IT HAS NO IMPACT ON TAXABILITY IN THE HANDS OF COMM ISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPERATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE, EXPLANATION 1 TO SECTION 9(1)(I) COMES I NTO PLAY. 33. THERE ARE A COUPLE OF RULINGS BY THE AUTHORITY FOR ADVANCE RULING, WHICH SUPPORT TAXABILITY OF COMMISSION PAID TO NON- RESIDENTS UNDER SECTION 9(1)(I), BUT, NEITHER THESE RULINGS ARE BIN DING PRECEDENTS FOR US NOR ARE WE PERSUADED BY THE LINE OF REASONING ADOPTED I N THESE RULINGS. AS FOR THE AAR 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 THIS 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 CASE IN WHICH THE NON-RESIDENT COMMISSION AGENT 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 C OMMISSION AGENT WAS NOT CHARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, T HE ASSESSEE HAD NO OBLIGATION TO DEDUCT TAX AT SOURCE FROM SUCH COMMIS SION PAYMENTS TO THE NON-RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY F OR ADVANCE RULING, ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 7 OF 29 INTER ALIA, OPINED THAT 'NO DOUBT THE AGENT RENDERS SERVICES ABROAD AND PURSUES AND SOLICITS EXHIBITORS THERE IN THE TERRIT ORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONL Y WHEN EXHIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES FULL AND FINAL PAYMENT TO THE APP LICANT 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 FACT THAT THE AGENT REND ERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTICIPANTS AN D THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRRELEVANT FOR TH E PURPOSE OF DETERMINING SITUS OF HIS INCOME'. WE DO NOT CONSIDE R THIS APPROACH TO BE CORRECT. WHEN NO OPERATIONS OF THE BUSINESS OF COMM ISSION AGENT IS CARRIED ON IN INDIA, THE EXPLANATION 1 TO SECTION 9 (1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUTSIDE THE 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 PURPOSE OF SECTIO N 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 TH AT WE ARE IN SEISIN OF. THE REVENUE'S CASE BEFORE US HINGES ON THE APPLICABILIT Y 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 I NEVITABLE CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSI NESS OF THE COMMISSION AGENT IS CARRIED OUT IN INDIA, NO PART OF THE INCOM E 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 O UR INDEPENDENT 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, HOWEVER, IS THAT THESE RULING S, BEING FROM SUCH A HIGH QUASI-JUDICIAL FORUM, EVEN IF NOT BINDING, CAN NOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEAST HAVE PERSUASIVE VALUE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WIT H UTMOST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE AUTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT , BUT WITHOUT SLIGHTEST HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT W E ARE NOT PERSUADED BY THESE RULINGS. 34. COMING TO SECTION 9(1)(VII)(B), THIS DEEMING FI CTION- WHICH IS FOUNDATIONAL BASIS FOR THE ACTION OF THE ASSESSING OFFICER, INTER ALIA, PROVIDES THAT THE INCOME BY WAY OF TECHNICAL SERVIC ES PAYABLE BY A PERSON RESIDENT IN INDIA, EXCEPT IN CERTAIN SITUATI ONS- 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 CONSULTANCY SERVICES (INCLUDING THE PROVISIONS OF S ERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 8 OF 29 CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD 'SALARIES' [RELEVANT PORTION HIGHLIGHTED B Y UNDERLINING]'. 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 RE NDERING OF ANY MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES'. AS WE DO SO, IT IS USEFUL TO BEAR IN MIND THE FACT THAT EVEN GOING BY THE STA ND OF THE ASSESSING OFFICER, AT BEST SERVICES RENDERED BY THE NON-RESID ENT TO THE AGENT INCLUDED TECHNICAL SERVICES BUT IT IS FOR THIS REAS ON THAT THE AMOUNTS PAID TO THESE AGENTS, ON ACCOUNT OF COMMISSION ON EXPORT S, SHOULD BE TREATED AS FEES FOR TECHNICAL SERVICES. EVEN PROCEEDING ON THE ASSUMPTION THAT THESE NON-RESIDENT AGENTS DID RENDER THE TECHNICAL SERVICES, WHICH, AS WE WILL SEE A LITTLE LATER, AN INCORRECT ASSUMPTION AN YWAY, WHAT IS IMPORTANT TO APPRECIATE IS THAT THE AMOUNTS PAID BY THE ASSESSEE TO THESE AGENTS CONSTITUTED CONSIDERATION FOR THE ORDERS SECURED BY THE AGENTS AND NOT THE SERVICES ALLEGED RENDERED BY THE AGENTS. THE EVENT TRIGGERING CRYSTALLIZATION OF LIABILITY OF THE ASSESSEE, 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 NOT RENDER ANY OF THE SERVICES BUT SECURES THE BUSINESS ANYWAY, THE AGENT IS ENTITLED TO HIS COMMISSION WHICH IS COMPUTED IN TER MS OF A PERCENTAGE OF THE VALUE OF THE ORDER. IN A REVERSE SITUATION, IN WHICH AN AGENT RENDERS ALL THE ALLEGED TECHNICAL SERVICES BUT DOES NOT SECURE ANY ORDER FOR THE PRINCIPAL I.E. THE ASSESSEE, THE AGENT IS NOT ENTIT LED TO ANY COMMISSION. CLEARLY, THEREFORE, THE EVENT TRIGGERING THE EARNIN GS BY THE AGENT IS SECURING THE BUSINESS AND NOT RENDITION OF ANY SERV ICES. IN THIS VIEW OF THE MATTER, IN OUR CONSIDERED VIEW, THE AMOUNTS PAID BY THE ASSESSEE TO ITS NON-RESIDENT AGENTS, EVEN IN THE EVENT OF HOLDING T HAT THE AGENTS DID INDEED RENDER TECHNICAL SERVICES, CANNOT BE SAID TO BE CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (EMPHASIS BY UNDERLINING SUPPLIED BY US)'. THE SERVICES RENDE RED BY THE AGENTS, EVEN IF THESE SERVICES ARE HELD TO BE IN THE 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 T HE QUANTIFICATION OF THESE AMOUNTS HAVE ANY RELATION WITH THE QUANTUM OF THESE TECHNICAL SERVICES. THE KEY TO TAXABILITY OF AN AMOUNT UNDER SECTION 9( 1)(VII) IS THAT IT SHOULD CONSTITUTE 'CONSIDERATION' FOR RENDITION OF TECHNIC AL SERVICES. THE CASE OF THE REVENUE FAILS ON THIS SHORT TEST, AS IN THE PRE SENT CASE THE AMOUNTS PAID BY THE ASSESSEE ARE 'CONSIDERATION' 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 CARRIED OUT BY NON-RESIDENTS FOR INDIAN PRINCIPALS IS CONCERNED . IT DOES NOT NEED MUCH 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 IND IRECTLY ACCRUING THROUGH OR ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 9 OF 29 FROM ANY BUSINESS CONNECTION IN INDIA, IS REQUIRED TO BE TAXED UNDER SECTION 9(1)(I) OR UNDER SECTION 9(1)(VII), OF THE INCOME TAX ACT, 1961. 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 OP ERATIONS OF SUCH A BUSINESS IS CARRIED OUT IN INDIA, THE INCOME FROM S UCH A BUSINESS IS TAXABLE IN INDIA. WHEN NO OPERATIONS OF THE BUSINES S ARE CARRIED ON INDIA, THERE IS NO TAXABILITY OF THE PROFITS OF SUCH A BUS INESS 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 NECE SSARILY RENDER CERTAIN SERVICES, WHICH ARE OF SUCH A NATURE AS COV ERED 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 PROF ITS OF THE ASSESSEE CAN BE TREATED AS 'FEES FOR TECHNICAL SERVICES' AND TAX ED AS SUCH UNDER SECTION 9(1)(VII). THIS QUESTION DOES NOT POSE MUCH DIFFICU LTY EITHER. 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. THE REFORE, IRRESPECTIVE OF WHETHER ANY TECHNICAL SERVICES ARE RENDERED DURING THE COURSE OF CARRYING ON SUCH AGENCY COMMISSION BUSINESS ON BEHALF OF IND IAN PRINCIPAL, THE CONSIDERATION FOR SECURING BUSINESS CANNOT BE TAXED UNDER SECTION 9(1)(VII) AT ALL. THIS PROFITS OF SUCH A BUSINESS C AN HAVE TAXABILITY IN INDIA ONLY TO THE EXTENT SUCH PROFITS RELATE TO THE BUSIN ESS OPERATIONS IN INDIA, BUT THEN, AS ARE THE ADMITTED FACTS OF THIS CASE, N O PART OF OPERATIONS OF BUSINESS WERE CARRIED OUT IN INDIA. THE COMMISSION AGENTS EMPLOYED BY THE ASSESSEE, THEREFORE, DID NOT HAVE ANY TAX LIABI LITY 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 REN DERED BY THESE COMMISSION AGENTS CANNOT ANYWAY BE TREATED AS FEES FOR TECHNICAL SERVICES ANYWAY. VIEWED THUS, EVEN THE DISCUSSION O N WHETHER THE AMOUNTS IN QUESTION COULD BE TREATED AS 'CONSIDERAT ION' FOR TECHNICAL SERVICES, MAY BE RENDERED ACADEMIC IN EFFECT. LEARN ED CIT(A) HAS VERY WELL SUMMARIZED THE JUDICIAL PRECEDENTS IN SUPPORT OF THIS LINE OF REASONING, AND, IN AN ERUDITE AND EXTENDED DISCUSSI ON, DEALT WITH EACH LIMB OF THE DEFINITION OF TECHNICAL SERVICES. THESE FINDINGS ARE REPRODUCED BY US EARLIER IN THIS ORDER. WHILE, FOR THE SAKE OF BREVITY, WE NEED TO REPEAT EACH OF THESE REASONS ANALYSED BY THE LEARNED CIT(A ), SUFFICE TO SAY THAT WE APPROVE HIS WELL-REASONED FINDINGS AND LINE OF R EASONING, 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 C OMMISSION AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS COMMISSION AG ENTS. THE KEY PROVISIONS IN THIS AGREEMENT, A COPY OF WHICH IS PL ACED BEFORE US AT PAGES 103 TO 109 OF THE PAPER-BOOK, ARE AS FOLLOWS: ARTICLE 5 - AGENT'S OBLIGATION ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 10 OF 29 THE AGENT SHALL CARRY OUT ALL THE DUTIES NORMALLY R ENDERED BY AN AGENT INCLUDING BUT NOT LIMITED TO THE FOLLOWING: 5.1 TO ACT EXCLUSIVELY ON BEHALF OF THE PRINCIPAL A ND NOT SOURCE, PROCURE OR MARKET PRODUCTS OF SIMILAR TYPE MANUFACT URED BY COMPETITIVE 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 PRODUCTS. THE AGENT WILL BE RESPONSIBLE OF MAKING THE NECESSARY M ARKET 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, ACTIVITIES OF COMPETITORS, INTENTIONS AND PLANS OF CLIENTS TO THE MAXIMUM OF HIS KNOWLEDGE. 5.4 ENDEAVOR TO PROVIDE THE PRINCIPAL PROMPT ADVANC E INFORMATION REGARDING TENDERS. TO FORWARD TO THE PRINCIPAL TEND ER DOCUMENTS, INQUIRIES ETC, WITH FULL TECHNICAL SPECIFICATIONS W ELL 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 WEL L AHEAD - AS MUCH AS HE CAN - OF TENDER CLOSING. THE COST OF PUR CHASE OF SUCH TENDER DOCUMENTS SHALL BE REIMBURSED BY THE PRINCIP AL TO THE AGENT. 5.6 TO ASSIST FOR CLAIMS AND COMPLAINTS (IF SAY) TH AT MAY ARISE FROM THIRD PARTIES AND HELP TO REACH APPROPRIATE SETTLEM ENT 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 PRINCIPAL, WITHOUT THE PRINCIPAL'S PRIOR WRITTEN CO NSENT. 5.8 THE AGENT HEREBY NOMINATES MR. HOSSAM KAWASH AS THEIR CONTACT POINT WHO WILL BE TOTALLY RESPONSIBLE FOR T HE PRINCIPAL'S BUSINESS 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 I TS OBLIGATIONS, IN CASE OF A CONTRACT WITHIN THE TERRITORY. IT INCLUDE S ASSISTING THE PRINCIPAL IN IDENTIFYING SUBCONTRACTORS LIKE LOGIST ICS, SHIPPERS, CARGO HANDLING AGENCIES FOR SMOOTH EXECUTION OF SUC H CONTRACTS. 5.9A TO SEND THE PRINCIPAL PERIODIC REPORTS ON BUSI NESS ACTIVITY. 5.9B TO KEEP THE PRINCIPAL CONTINUOUSLY APPRISES OF ALL RELEVANT POLITICAL/ ECONOMIC CHANGES WHICH WOULD AFFECT TIE BUSINESS, 5.9C TO UNDERTAKE NOT TO DIVULGE SALES DOCUMENTS, C ATALOGUES, PRICES ETC. TO COMPETITORS AND THEIR AGENTS AND ASSOCIATES . ARTICLE 7 PRINCIPAL'S OBLIGATIONS ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 11 OF 29 DURING THE CONTINUANCE OF THIS AGREEMENT THE PRINCI PAL AGREES : 7.1 TO GIVE THE AGENT FULL SUPPORT FOR PROMOTING AN D CREATING MARKET FOR THE PRODUCTS OF THE PRINCIPAL IN 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. 7.4 TO TAKE INTO CONSIDERATION 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 PRINCIP AL'S PRODUCTS AND ACTIVITIES AND KEEP THE AGENT INFORMED ABOUT AL L RELEVANT CHARGES. 7.6 TO OFFER COMPETITIVE PRICES AS FAR AS POSSIBLE TO ENABLE THE SALE OF THE PRODUCTS AS THE AGENT IS ONLY ENTITLED FOR COMM ISSIONS 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 COMMUNIC ATIONS. 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 PAR TY OF AT LEAST 90 DAYS IN ADVANCE BY FAX AND FOLLOWED BY REGISTERED L ETTER STATING REASONS FOR THE TERMINATION. THE AGREEMENT CAN BE R EINSTATED FOR A FURTHER PERIOD OF TWO YEARS BASED ON MUTUAL AGREEME NT 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 R ESPONSIBLE FOR REALIZATION OF PAYMENTS OUTSTANDING TILL DATE WITHI N THE TERRITORY. ALSO THE AGENT SHALL RETURN ALL THE CUSTOMERS RECOR DS AND OTHER DATA RELATING TO THE COMPANY'S BUSINESS OR SERVICES WHIC H 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 PR IOR TO THE TERMINATION DATE, THE AGENT IS ENTITLED FOR THE APP LICABLE COMMISSIONS. SALES COMMISSION FOR THE SONATRACH GK3 PROJECT WELSPUN WILL PAY GLOBAL SYNERGY INTERNATIONAL LTD. IN ITS CAPACITY AS AGENT FOR WELSPUN A SALES COMMISSIO N, 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 THE OR DERED QUANTITY. ALL SALES COMMISSIONS SHALL BE PAID IN U.S. DOLLARS TO THE BANK ACCOUNT TO BE ADVISED BY GLOBAL SYNERGY, DETAILS OF WHICH WILL BE PROVIDED BY THE AGENT. THE SALES COMMISSION SHAL L BE PAYABLE BY ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 12 OF 29 WELSPUN TO GLOBAL SYNERGY INTERNATIONAL LTD. AS INTERIM PAYMENTS ON PRORATE BASIS AFTER REALIZATION OF THE PAYMENTS RECEIVED BY THE PRINCIPAL WITHIN A REASONABLE TIME BUT NOT EXCEEDING 30 DAYS FROM RECEIPT OF PAYMENT BY THE PR INCIPAL. SALES COMMISSION FOR THE SONATRACH GK3 PROJECT BY THE VIRTUE OF THIS ADDENDUM, WELSPUN AGREE TO PA Y GLOBAL SYNERGY INTERNATIONAL LTD., IN ITS CAPACITY AS AGEN T 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 (18') SHIPMENT. (A) GLOBAL SYNERGY INTERNATIONAL LTD AGREES TO UNCONDITIO NALLY TO FULFILL THE SCOPE SET THEREIN BY THE VIRTU E OF THIS ADDENDUM. (B) THIS COMMISSION IS OVER THE ABOVE THE COMMISSION PA YABLE BY WELSPUN TO GLOBAL SYNERGY AS SPECIFIED IN ANNEXURE- 1 OF AGENCY AGREEMENT 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 WITH WELSPUN. UNLESS OTHERWISE AGREED, TH E SALES COMMISSION SHALL BE PAYABLE BY WELSPUN TO GLOBAL SY NERGY 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 RECE IPT OF PAYMENT BY 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 S TATED UNAMBIGUOUSLY IN THE AGREEMENT ITSELF, IS TO 'CARRY OUT ALL THE D UTIES NORMALLY RENDERED BY AN AGENT' INCLUDING BUT NOT LIMITED TO THE ACTIVITI ES SPECIFIED THEREIN. THE CONSIDERATION FOR WHICH THE PAYMENT MADE TO THE COM MISSION AGENT IS OBTAINING OF THE ORDERS AND NOT ANY SERVICES PER SE . THE CONSIDERATION IS COMPUTED ON THE BASIS OF BUSINESS PROCURED. OBVIOUS LY, IF THERE ARE NO BUSINESS GENERATED FOR THE PRINCIPAL, THE AGENT GET S NOTHING. QUITE CLEARLY, WHAT IS DONE BY THE AGENT IS NOT A RENDITION OF SER VICE BUT PURE ENTREPRENEURIAL ACTIVITY. THE WORK ACTUALLY UNDERTA KEN BY THE AGENT IS THE WORK OF ACTING AS AGENT AND SO PROCURING BUSINESS F OR THE ASSESSEE BUT AS THE CONTEMPORARY BUSINESS MODELS REQUIRE THE WOR K OF AGENT CANNOT SIMPLY AND ONLY BE TO OBTAIN THE ORDERS FOR THE PRO DUCT, AS THIS OBTAINING OF ORDERS IS INVARIABLY PRECEDED BY AND FOLLOWED BY SEVERAL PREPARATORY AND FOLLOW UP ACTIVITIES. THE DESCRIPTION OF AGENT' S OBLIGATION SETS OUT SUCH COMMON ANCILLARY ACTIVITIES AS WELL BUT THAT DOES N OT OVERRIDE, OR RELEGATE, THE CORE AGENCY WORK. THE CONSIDERATION PAID TO THE AGENT IS ALSO BASED ON THE BUSINESS PROCURED AND THE AGENCY AGREEMENTS DONOT PROVIDE FOR ANY INDEPENDENT, STANDALONE OR SPECIFIC CONSIDERATI ON FOR THESE SERVICES. THE SERVICES RENDERED UNDER THE AGREEMENT CANNOT, T HEREFORE, BE CONSIDERED TO BE TECHNICAL SERVICES IN NATURE OR CH ARACTER. THE SERVICES ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 13 OF 29 RENDERED IN THE COURSE OF RENDERING AGENCY SERVICES ARE ESSENTIALLY BUSINESS SERVICES AND TO OBTAIN THE BUSINESS. WE HA VE ALSO NOTED THAT, SO FAR AS RENDITION OF TECHNICAL SERVICES IS CONCER NED, ONE OF THE MAIN POINTS IN THE CASE OF THE REVENUE, AS EVIDENT FROM A PLAIN READING OF THE IMPUGNED ORDER UNDER SECTION 201, IS THAT 'MANUFACT URING OF SPECIALIZED PIPE WAS A HIGHLY TECHNICAL ACTIVITY INVOLVING VERY COMPLEX TECHNICAL EXERCISE OF TECHNOLOGY AND SKILLED LABOUR AND FINES T GRADE OF RAW MATERIAL' AND THAT 'OBVIOUSLY, TO PROCURE THE ORDERS, THE ASS ESSEE COMPANY WILL NEED SPECIALIST AGENTS WHO CAN UNDERSTAND THE NITTY GRITTY OF THE ASSESSEE'S BUSINESS AND CAN DEMONSTRATE THE ASSESSE E'S BUSINESS PROFILE AND QUALITY OF PRODUCTS OF THE ASSESSEE TO THE POTENTIAL CLIENTS TO CONVINCE THEM TO ENTER INTO A CONTRACT WITH THE ASS ESSEE COMPANY JUST BECAUSE A PRODUCT IS HIGHLY TECHNICAL DOES NOT CHAN GE THE CHARACTER OF ACTIVITY OF THE SALE AGENT. WHETHER A SALESMAN SELL S 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 SE LLING AND THE LATTER, HE WILL BE RENDERING TECHNICAL SERVICES. THE OBJECT OF THE SALESMAN IS TO SELL AND FAMILIARITY WITH THE TECHNICAL DETAILS, WHATEVE R 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 GADGETS THAT WE USE ARE FAIRLY TECHNICAL AND COMPLEX. UNDOUBTEDLY WHEN A TE CHNICAL PRODUCT IS BEING SOLD, THE PERSON SELLING THE PRODUCT SHOULD B E FAMILIAR WITH TECHNICAL SPECIFICATIONS OF THE PRODUCT BUT THEN THIS ASPECT OF THE MATTER DOES NOT ANYWAY CHANGE THE ECONOMIC ACTIVITY. NOTHING, THERE FORE, TURNS ON THE DETAILS OF THE PRODUCTS BEING TECHNICAL. IT WAS ALS O NOTED THAT BY THE ASSESSING OFFICER THAT 'IT IS A VERY TECHNICAL EXER CISE TO OBTAIN THE CONTRACTS SINCE IT INVOLVES COMPLEX PROCESS REQUIRI NG ELABORATE DISCUSSION, TECHNICAL EXPERTISE AND PRESENT OF COMP LEX TECHNICAL PRESENTATION, ON BEHALF OF THE ASSESSEE, WHICH CAN ONLY BE DONE BY A SPECIALIST IN THIS FIELD SO AS TO CONVINCE THE CLIE NTS ABOUT WELSPUN'S SUITABILITY TO THE CONTRACT'. THIS AT BEST SIGNIFIE S COMPLEXITY IN THE BUSINESSES AND THE NEED OF TECHNICAL INPUTS IN THE PROCESS OF BUSINESSES, PARTICULARLY WHEN THE PRODUCTS BEING DEALT WITH ARE TECHNICAL PRODUCTS, BUT THEN MERELY BECAUSE TECHNICAL INPUTS ARE NEEDED IN CARRYING OUT BUSINESS ACTIVITY, IT DOES NOT BECOME A TECHNICAL SERVICE RA THER THAN A BUSINESS ACTIVITY. AT THE COST OF REPETITION, WE MUST EMPHAS IZE THE IMPORTANT DISTINCTION BETWEEN A BUSINESS ACTIVITY, REQUIRING UNDERSTANDING OF RELATED TECHNOLOGY, AND RENDITION OF TECHNICAL SERVICES SIM PLICTOR. IN ANY CASE, WHAT HAS BEEN DESCRIBED AS A TECHNICAL SERVICE IS T HE SERVICE BEING RENDERED TO THE BUYER BUT THE PAYMENT RECEIVED BY T HE COMMISSION AGENTS IS NOT FOR THIS SERVICE PER SE BUT FOR GENER ATING BUSINESS ORDERS FOR THE ASSESSEE. GENERATING BUSINESS OR SECURING ORDER S IS AN ENTREPRENEURIAL ACTIVITY AND CANNOT, BY ANY STRETCH OF LOGIC, BE TREATED AS A TECHNICAL SERVICE PER SE. THE SAME IS THE POSITIO N WITH REGARD TO ASSISTANCE WITH RESPECT OF LOGISTICS, SUCH AS SHIPP ING AND HANDLING SERVICES, WITH RESPECT TO SALE FORECASTING, WITH RE SPECT TO GATHERING INFORMATION ON MARKETS, BUSINESS ENVIRONMENT AND ON SPECIFIC BUYERS AND WITH RESPECT TO DEVELOPMENT OF SALES NETWORK. ALL T HESE SERVICES ARE ESSENTIALLY INTEGRAL PART OF, AND ARE THUS AIMED AT , DEVELOPING BUSINESS FOR ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 14 OF 29 THE ASSESSEE AND SECURING ORDERS FOR THE ASSESSEE F ROM THE RIGHT PERSONS. NEITHER THESE SERVICES CAN BE VIEWED ON A STANDALONE BASIS DIVORCED FROM THE ECONOMIC ACTIVITY OF SECURING ORD ERS, NOR ANY PAYMENT CAN BE SAID TO BE FOR RENDITION OF THESE SERVICES I NASMUCH 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 AG ENTS OF THE ASSESSEE AND IT IS SECURING OF BUSINESS FOR THE ASSESSEE WHI CH IS THE PROXIMATE CAUSE OF THE INCOME ACCRUING TO THE ASSESSEE. THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A COORDINATE BENCH DE CISION IN THE CASE OF DY. CIT V. TROIKAA PHARMACEUTICALS LTD. [IT APPE AL NO. 2028/AHD/13 AND CO NO 13/AHD/14] AND VICE VERSA, WHEREIN 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 REPR ESENTATIVE, WE FIND 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 THE CASE OF CIT V. FARIDA LEATHER CO. [(2016) 66 TAXMANN.COM 321 (MADRAS) ], WHEREIN THEIR 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/S ALES COMMISSION PAID BY THE ASSESSEE TO NON-RESIDENT AGE NTS, FOR THE SERVICES RENDERED BY THEM, OUTSIDE INDIA, IN PROCUR ING EXPORT ORDERS FOR THE ASSESSEE, WOULD NOT ATTRACT OR PARTAKE THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF 9(1)(VII) OF THE ACT AND THEREFORE, THERE IS NO SCOPE FOR THE APPLIC ATION 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 PERMANEN T 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 CO MMISSION TO FOREIGN AGENTS FOR THE SERVICES RENDERED OUTSIDE IN DIA; (B) THE TAX DEDUCTION AT SOURCE (TDS) IS REQUIRED TO BE MADE ON ALL PAYMENTS TO NON-RESIDENTS, ONLY IF SUCH PAYMENTS ARE LIABLE TO BE TAXED IN INDIA. (C) FOLLOWING THE DECISION OF THIS COURT, CIT V. FA IZAN SHOES (P.) LTD. [2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.C OM 48 (MAD.) , THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE, WHEN THE NON- RESIDENT AGENT PROVIDES SERVICES OUTSIDE INDIA ON P AYMENT 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 AC T AND THEREFORE TDS CERTIFICATE IS ESSENTIAL. 6. WHETHER THIS CONTENTION IS CORRECT, IS THE ISSUE TO BE DECIDED. ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 15 OF 29 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 SECTION S 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST O N A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES F OR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYAB LE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY 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 SECTIO N 139: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED 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 DEDU CTION IN COMPUTING 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 EXPLANA TION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9: (B) 'FEES FOR TECHNICAL SERVICES' SHA LL HAVE THE SAME 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 RESIDE NT, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH T AX 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 DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 THIRTY PER CENT OF, SUCH SUM SHALL B E ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR 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 PROVISIO NS OF CHAPTER XVII- B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESS EE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTI ON 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 16 OF 29 DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F 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 RESPONSIB LE FOR PAYING TO A NON-RESIDENT NOT BEING A COMPANY, OR TO A FOREIGN C OMPANY, ANY INTEREST (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 BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH IN COME 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 I S EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY TH E GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE (23 D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANIN G OF THAT CLAUSE, DEDUCTION 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. [EXPLANATION 1] :...................... [EXPLANATION 2.- FOR THE REMOVAL OF DOUBTS, IT IS H EREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND T O MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWA YS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT T HE NON-RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNEC TION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDI A.' EXPLANATION 4 TO SECTION 9 (1) (I) OF THE ACT: 'SECTION 9 - INCOME DEEMED TO ACCRUE OR ARISE IN IN DIA (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIREC TLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, O R THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR 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 HE REBY CLARIFIED THAT THE EXPRESSION 'THROUGH' SHALL MEAN AND INCLUDE AND SHALL BE DEEMED TO HAVE ALWAYS MEANT AND INCLUDED ''BY MEANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'.' ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 17 OF 29 7.1 SECTION 40 OF THE ACT SPELLS OUT WHAT AMOUNTS A RE NOT DEDUCTIBLE FROM THE INCOME CHARGED TO TAX UNDER THE PROFITS AN D GAINS OF BUSINESS OR PROFESSION. 7.2 SECTION 40(A)(I) OF THE ACT DEALS WITH INTEREST AND OTHER SUMS PAYABLE OUTSIDE INDIA. THE PROVISIONS OF THIS SUB-C LAUSE MADE APPLICABLE TO INTEREST HAVE BEEN EXTENDED TO PAYMEN T OF ROYALTY, TECHNICAL FEES AND ANY OTHER SUM CHARGEABLE UNDER T HIS ACT. THE SECTION PROVIDES THAT THE SUMS COVERED BY THE SUB-C LAUSE, WHICH ARE CHARGEABLE UNDER THE ACT AND ARE PAYABLE OUTSIDE IN DIA, SHALL NOT BE ALLOWED AS AN EXPENDITURE TO THE ASSESSEE, UNLESS T AX IS PAID THEREON OR IS DEDUCTED THEREFROM UNDER CHAPTER XVII-B OF TH E ACT. 7.3 SECTION 195(1) OF THE ACT DEALS WITH DEDUCTION OF TAX FROM PAYMENT TO NON-RESIDENTS AND FOREIGN COMPANIES. SEC TION 195(1) OF THE ACT COMES INTO PLAY AT A STAGE WHERE THE PAYER, WHO IS ENJOINED TO DEDUCT THE TAX, EITHER CREDIT SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR MAKE PAYMENT THEREOF, WHETHER IN CASH / CH EQUE / DRAFT OR ANY OTHER MODE. THE TAXABILITY OF SUCH AMOUNT IN TH E HANDS OF THE PAYEE OR OCCASIONING OF THE TAXABLE EVENT IS ALIEN FOR THE PURPOSE OF SECTION 195(1) OF THE ACT. 7.4 SECTION 195(2) IS AN ENABLING PROVISION, ENABLI NG AN ASSESSEE TO FILE AN APPLICATION BEFORE THE ASSESSING OFFICER TO DETERMINE THE APPROPRIATE PROPORTION OF THE SUM CHARGEABLE AND UP ON SUCH DETERMINATION, THE TAX HAS TO BE DEDUCTED UNDER SEC TION 195(1) OF THE ACT. THE PAYMENT IS MADE CREDITED TO THE ACCOUNT OF THE PAYEE. 8. THE QUESTION NOW IS, WHETHER THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AS CONTEMPLATED UNDER SECTIO N 195 OF THE ACT, WHEN THE ASSESSEE PAID COMMISSION TO FOREIGN A GENT. 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 WHICH, IT IS VERY CATEGORICALLY HELD THAT THE TAX D EDUCTED AT SOURCE OBLIGATIONS UNDER SECTION 195(1) OF THE ACT ARISES, ONLY IF THE PAYMENT IS CHARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDE NT RECIPIENT. 9.1 THEREFORE, MERELY BECAUSE A PERSON HAS NOT DEDU CTED TAX AT SOURCE OR A REMITTANCE ABROAD, IT CANNOT BE INFERRE D THAT THE PERSON MAKING THE REMITTANCE, NAMELY, THE ASSESSEE, IN THE INSTANT CASE, HAS COMMITTED A DEFAULT IN DISCHARGING HIS TAX WITH HOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY W HEN 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 RECIPIENT 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 LIABILITY OF THE PAYER TO DE DUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CAN NOT BE INVOKED, UNLESS PRIMARY TAX LIABILITY OF THE RECIPIENT / FOR EIGN AGENT IS ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 18 OF 29 ESTABLISHED. IN THIS CASE, THE PRIMARY TAX LIABILIT Y OF THE FOREIGN AGENT IS NOT ESTABLISHED. THEREFORE, THE VICARIOUS LIABIL ITY 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 EFFECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBEDDED IN THE PARTICULAR PAYMENT, THE ASSESSING O FFICER CANNOT PROCEED ON THE BASIS THAT THE PAYER HAS AN OBLIGATI ON TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE AND ESTABLISH T HAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED I N THE IMPUGNED PAYMENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THA T THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROAD AND FOLLOW ING UP PAYMENTS WITH BUYERS. NO OTHER SERVICES ARE RENDERED OTHER T HAN THE ABOVE. SOURCING ORDERS ABROAD, FOR WHICH PAYMENTS HAVE BEE N MADE DIRECTLY TO THE NON-RESIDENTS ABROAD, DOES NOT INVOLVE ANY T ECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOE S NOT REQUIRE ANY CONTRIBUTION OF TECHNICAL KNOWLEDGE, EXPERIENCE, EX PERTISE, SKILL OR TECHNICAL KNOW-HOW OF THE PROCESSES INVOLVED OR CON SIST IN THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DES IGN. THE PARTIES MERELY SOURCE THE PROSPECTIVE BUYERS FOR EFFECTING SALES BY THE ASSESSEE, AND IS ANALOGOUS TO A LAND OR A HOUSE / R EAL ESTATE AGENT / BROKER, WHO WILL BE INVOLVED IN MERELY IDENTIFYING THE RIGHT PROPERTY FOR THE PROSPECTIVE BUYER / SELLER AND ONCE HE COMPLETE S THE DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH OF IMAGINA TION, 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 COMM ISSIONER OF INCOME TAX (APPEALS), THE COMMISSION PAYMENT MADE T O THEM DOES NOT FALL INTO THE CATEGORY OF 'FEES OF TECHNICAL SE RVICES' AND THEREFORE, EXPLANATION (2) TO SECTION 9(1)(VII) OF THE ACT, AS INVOKED BY THE ASSESSING OFFICER, HAS NO APPLICATION 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 REMAINI NG OUTSIDE, SERVICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABRO AD. 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 TECHNOLOGY'S CASE, CITED SUPRA, IN VIEW OF INSERTIO N OF EXPLANATION 4 TO SECTION 9(1)(I) OF THE ACT WITH CORRESPONDING IN TRODUCTION OF EXPLANATION 2 TO SECTION 195(1) OF THE ACT, BOTH BY THE FINANCE ACT, 2012, WITH RETROSPECTIVE EFFECT FROM 01.04.1962. ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 19 OF 29 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 CONTENTION OF THE REVENUE HAS BEEN REJ ECTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEVANT OBSERVATI ON READS AS UNDER: '... THE SERVICES RENDERED BY THE NON-RESIDENT AGEN T COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE EXPORT CO MMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR T ECHNICAL SERVICES' AND, THEREFORE, SECTION 9 WAS NOT APPLICABLE AND, CONSEQ UENTLY, SECTION 195 DID NOT COME INTO PLAY. THEREFORE, THE DISALLOW ANCE 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 E XPLANATION 4 TO SECTION 9 OF THE ACT. THEREFORE, THE REVENUE HAS NO CASE AND THE TAX CASE APPEAL IS LIABLE TO BE DISMISSED. 6. CLEARLY, THEREFORE, THE PAYMENT OF COMMISSION IN THE HANDS OF THE NON-RESIDENT AGENT, AS LONG AS SUCH AN AGENT CARRIE S OUT ITS ACTIVITIES OUTSIDE INDIA, DOES NOT RESULT IN TAXABILITY IN THE HANDS OF THE AGENT IN INDIA.' 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 TAXMA NN.COM 302 (MUM.) , ABOUT THE SCOPE OF MANAGERIAL, CONSULTANCY AND TECH NICAL SERVICES WHICH THE SERVICES 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 CONSIDERATI ON FOR RENDERING OF ANY 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' BUT DOES NOT INCLUDE THE CONSIDERATION FOR ANY CONSTRUCTION, ASS EMBLY ETC. THE LEARNED CIT(A) HAS HELD THE SERVICES RENDERED BY TH E ASSESSEE AS FEES FOR TECHNICAL SERVICES' COMING WITH IN THE SWE EP OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. ON THE CONTRARY , THE CONTENTION OF THE ASSESSEE HAS REMAINED BEFORE THE AUTHORITIES BE LOW 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 THE ASSESSEE FALL WITHIN THE SCOPE OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERV ICES' 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 ENT ERED INTO BETWEEN THE ASSESSEE AND MENLO INDIA EXECUTED ON NOVEMBER 7 , 2006 WITH EFFECT FROM 1ST JUNE, 2005, A COPY OF WHICH IS AVAI LABLE ON PAGE 1 ONWARDS OF THE PAPER BOOK. THE SCOPE OF SERVICES HA S BEEN GIVEN IN ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 20 OF 29 CLAUSE 1.1. IN THE RECITAL CLAUSE IT HAS BEEN PROVI DED THAT THE ASSESSEE COMPANY MAY REQUIRE MENLO INDIA TO PERFOR M LOGISTICS SERVICES SUCH AS TRANSPORT, PROCUREMENT, CUSTOM CLE ARANCE, SORTING, DELIVERY, WAREHOUSING AND PICKING UP SERVICES (LOCA L SERVICES) WITHIN INDIA (LOCAL OPERATING AREA). IT HAS FURTHER BEEN P ROVIDED THAT MENLO INDIA MAY ALSO SEEK SIMILAR SERVICES FROM THE ASSES SEECOMPANY SUCH AS TRANSPORT, PROCUREMENT, CUSTOMS CLEARANCE, SORTING, DELIVERY, WAREHOUSING AND PICK UP SERVICES (INTERNATIONAL SER VICES) OUTSIDE INDIA. IN THE PRESENT APPEAL WE ARE CONCERNED WITH THE 'INTERNATIONAL SERVICES' PROVIDED BY THE ASSESSEE TO MENLO OUTSIDE INDIA. THESE SERVICES COMPRISE OF TRANSPORT, PROCUREMENT, CUSTOM S CLEARANCE, SORTING, WAREHOUSING AND PICK UP SERVICES ON THE CA RGO EXPORTED BY MENLO ON BEHALF OF ITS CUSTOMERS. HAVING NOTED THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE OUTSIDE INDIA, FOR WHICH M ENLO INDIA MADE THE PAYMENT, LET US CONSIDER IF THESE CAN BE DESCRI BED AS MANAGERIAL OR TECHNICAL OR CONSULTANCY SERVICES. 7. FIRST WE WILL CONSIDER THE AMBIT OF 'MANAGERIAL SERVICES' TO TEST WHETHER THE INSTANT SERVICES CAN QUALIFY TO BE SO C ALLED. ORDINARILY THE MANAGERIAL SERVICES MEAN MANAGING THE AFFAIRS BY LA YING DOWN CERTAIN POLICIES, STANDARDS AND PROCEDURES AND THEN EVALUATING THE ACTUAL PERFORMANCE IN THE LIGHT OF THE PROCEDURES S O LAID DOWN. THE MANAGERIAL SERVICES CONTEMPLATE NOT ONLY EXECUTION BUT ALSO THE PLANNING PART OF THE ACTIVITY TO BE DONE. IF THE OV ERALL PLANNING ASPECT IS MISSING AND ONE HAS TO FOLLOW A DIRECTION FROM T HE OTHER FOR EXECUTING PARTICULAR JOB IN A PARTICULAR MANNER, IT CANNOT BE SAID THAT THE FORMER IS MANAGING THAT AFFAIR. IT WOULD MEAN T HAT THE DIRECTIONS OF THE LATTER ARE EXECUTED SIMPLICITY WITHOUT THERE BE ING ANY PLANNING PART INVOLVED IN THE EXECUTION AND ALSO THE EVALUAT ION OF THE PERFORMANCE. IN THE ABSENCE OF ANY SPECIFIC DEFINIT ION OF THE PHRASE 'MANAGERIAL SERVICES' AS USED IN SECTION 9(1)(VII) DEFINING THE 'FEES FOR TECHNICAL SERVICES', IT NEEDS TO BE CONSIDERED IN A COMMERCIAL SENSE. IT CANNOT BE INTERPRETED IN A NARROW SENSE T O MEAN SIMPLY EXECUTING THE DIRECTIONS OF THE OTHER FOR DOING A S PECIFIC TASK. FOR INSTANCE, IF GOODS ARE TO BE LOADED AND SOME WORKER IS INSTRUCTED TO PLACE THE GOODS ON A CARRIER IN A PARTICULAR MANNER , THE ACT OF THE WORKER IN PLACING THE GOODS IN THE PRESCRIBED MANNE R, CANNOT BE DESCRIBED AS MANAGING THE GOODS. IT IS A SIMPLE DIR ECTION GIVEN TO THE WORKER WHO HAS TO EXECUTE IT IN THE WAY PRESCRIBED. IT IS QUITE NATURAL THAT SOME SORT OF APPLICATION OF MIND IS REQUIRED I N EACH AND EVERY ASPECT OF THE WORK DONE. AS IN THE ABOVE EXAMPLE WH EN THE WORKER WILL LIFT THE GOODS, HE IS EXPECTED TO BE VIGILANT IN PICKING UP THE GOODS MOVING TOWARDS THE CARRIER AND THEN PLACING THEM. T HIS ACT OF THE WORKER CANNOT BE DESCRIBED AS MANAGING THE GOODS BE CAUSE HE SIMPLY FOLLOWED THE DIRECTION GIVEN TO HIM. ON THE OTHER HAND, 'MANAGING' ENCOMPASSES NOT ONLY THE SIMPLE EXECUTIO N OF A WORK, BUT ALSO CERTAIN OTHER ASPECTS, SUCH AS PLANNING FOR TH E WAY IN WHICH THE EXECUTION IS TO BE DONE COUPLED WITH THE OVERALL RE SPONSIBILITY IN A LARGER SENSE. THUS IT IS MANIFEST THAT THE WORD 'MA NAGING' IS WIDER IN ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 21 OF 29 SCOPE THAN THE WORD 'EXECUTING'. RATHER THE LATER I S EMBEDDED IN THE FORMER AND NOT VICE VERSA. 8. ADVERTING TO THE FACTS OF THE INSTANT CASE IT IS OBSERVED THAT THE ASSESSEE PERFORMED FREIGHT AND LOGISTICS SERVICES O UTSIDE INDIA IN RESPECT OF CONSIGNMENTS ORIGINATING FROM INDIA UNDE RTAKEN TO BE DELIVERED BY MENLO INDIA. THE ROLE OF THE ASSESSEE IN THE ENTIRE TRANSACTION WAS TO PERFORM ONLY THE DESTINATION SER VICES OUTSIDE INDIA BY UNLOADING AND LOADING OF CONSIGNMENT, CUSTOM CLE ARANCE AND TRANSPORTATION TO THE ULTIMATE CUSTOMER. IN OUR CON SIDERED OPINION, IT IS TOO MUCH TO CATEGORIZE SUCH RESTRICTED SERVICES AS MANAGERIAL SERVICES. WE, THEREFORE, JETTISON THIS CONTENTION R AISED ON BEHALF OF THE REVENUE. 9. NOW WE TAKE UP THE NEXT COMPONENT OF THE DEFINIT ION OF 'FEES FOR TECHNICAL SERVICES', BEING 'CONSULTANCY SERVICES', WHICH HAS BEEN PRESSED INTO SERVICE BY THE LEARNED CIT(A) TO FORTI FY HIS VIEW THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS COVERED WITHIN S ECTION 9(1)(VII). THE WORD 'CONSULTANCY' MEANS GIVING SOME SORT OF CO NSULTATION DE HORS THE PERFORMANCE OR THE EXECUTION OF ANY WORK. IT IS ONLY WHEN SOME CONSIDERATION IS GIVEN FOR RENDERING SOME ADVI CE OR OPINION ETC., THAT THE SAME FALLS WITHIN THE SCOPE OF 'CONS ULTANCY SERVICES'. THE WORD 'CONSULTANCY' EXCLUDES ACTUAL 'EXECUTION'. THE NATURE OF SERVICES, BEING FREIGHT AND LOGISTICS SERVICES PROV IDED BY THE ASSESSEE TO MENLO INDIA HAS NOT BEEN DISPUTED BY TH E AUTHORITIES BELOW. THERE IS NOTHING LIKE GIVING ANY CONSULTATIO N WORTH THE NAME. RATHER SUCH PAYMENT IS WHOLLY AND EXCLUSIVELY FOR T HE EXECUTION IN THE SHAPE OF TRANSPORT, PROCUREMENT, CUSTOMS CLEARA NCE, DELIVERY, WAREHOUSING AND PICKING UP SERVICES. THAT BEING THE POSITION, WE OPINE THAT THE PAYMENT IN LIEU OF FREIGHT AND LOGIS TICS SERVICES CANNOT BE RANKED AS CONSULTANCY SERVICES. 10. THE ONLY LEFT OVER COMPONENT OF THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' TAKEN NOTE OF BY THE LD. CIT(A) IS 'TECHNICAL SERVICES'. HE OBSERVED THAT THE ASSESSEE'S BUSINESS STRUCTURE IS TIME BOUND SERVICE COUPLED WITH CONTINUOUS REAL TIME TRA NSMISSION OF INFORMATION BY USING AND ALSO MAKING AVAILABLE ITS TECHNOLOGY IN THE FORM OF SOPHISTICATED EQUIPMENTS AND SOFTWARE ETC. THE LEARNED CIT(A) HAS HELD THAT : 'IN ORDER TO ENSURE EFFICIEN T AND TIMELY DELIVERY AND TO PROVIDE CONTINUOUS REAL TIME INFORMATION, TH E APPELLANT IS REQUIRED TO USE SOPHISTICATED TECHNOLOGY FOR WHICH THE INDIAN ENTITY IS ALSO EQUALLY INVOLVED AND TO WHOM THE APPELLANT IS COMMITTED TO PROVIDING THE REQUISITE SOFTWARE AND EQUIPMENT'. TH E LEARNED CIT(A) HAS ALSO ACCENTUATED ON THE CLAUSE 2 OF THE AGREEME NT WHICH READS AS UNDER: '2. CONTRACTOR SHALL SEPARATELY EXECUTE A TECHNOLOG Y AND SOFTWARE LICENSE AGREEMENT FOR THE PROVISION OF COMPUTER EQU IPMENT AND SOFTWARE SUPPLIED BY SCS. CONTRACTOR SHALL SEPARATE LY EXECUTE A TRADEMARK LICENSE AGREEMENT FOR THE USE OF ANY MARK S OR BRANDS ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 22 OF 29 OWNED BY UNITED PARCEL SERVICE OF AMERICA, INC. THE FEE PAYABLE BY CONTRACTOR UNDER PARAGRAPH 3.1 WILL NOT INCLUDE ANY ROYALTY AMOUNT RELATING TO THE USE OF INTANGIBLE PROPERTY OR INFOR MATION.' 11. ON GOING THROUGH CLAUSE 2 OF THE AGREEMENT, IT IS OBVIOUS THAT MENLO INDIA SHALL 'SEPARATELY EXECUTE A TECHNOLOGY AND SOFTWARE LICENSE AGREEMENT' FOR THE PROVISION OF COMPUTER EQ UIPMENT AND SOFTWARE SUPPLIED BY THE ASSESSEE. IT IS NOBODY'S C ASE THAT THE CONSIDERATION IN QUESTION RELATES TO THE SUPPLY OF ANY COMPUTER EQUIPMENT AND SOFTWARE BY THE ASSESSEE TO MENLO IND IA. WE FAIL TO APPRECIATE AS TO HOW THIS CLAUSE 2 MAKES THE SERVIC ES PROVIDED BY THE ASSESSEE AS 'TECHNICAL'. RATHER CLAUSE 2 MANDAT ES TO EXECUTE A SEPARATE TECHNOLOGY AND SOFTWARE LICENSE AGREEMENT FOR THE PROVISION OF COMPUTER EQUIPMENT AND SOFTWARE. HOW I S IT THAT THE CONSIDERATION FOR THE SERVICES CAN BE ATTRIBUTED TO A PROPOSED AGREEMENT, WHICH HAS YET TO SEE THE LIGHT OF THE DA Y. 12. THE LEARNED CIT(A) HAS ALSO HARPED ON 'TRANSPOR TATION OF TIME SENSITIVE PACKAGES' WITH A VIEW TO BRING THE SERVIC ES PROVIDED BY THE ASSESSEE WITHIN THE FOLD OF 'TECHNICAL SERVICES'. I N REACHING THIS CONCLUSION THE LEARNED CIT(A) ALSO RELIED ON THE OR DER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN BLUE DART EXPRESS L IMITED V. JCIT. LET US EXAMINE THE FACTS OF THAT CASE. THE ASSESSEE THERE CLAIMED DEDUCTION U/S 80O IN RESPECT OF ITS FOREIGN EXCHAN GE EARNINGS FOR RENDERING TECHNICAL / PROFESSIONAL SERVICES TO A US MULTI INTERNATIONAL COMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE A.O. REQUIRED THE ASSESSEE TO FURNISH THE NATURE OF SERV ICES RENDERED AND ALSO THE CALCULATION OF DEDUCTION. THE ASSESSEE DID IT. ON BEING SATISFIED THE A.O. GRANTED DEDUCTION U/S 80O. BY E XERCISING THE POWER U/S 263, THE LEARNED CIT HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE TO THE EXTENT OF GRANTING DEDUCTION U/S 800. WHEN THE MATTER CAM E UP BEFORE THE TRIBUNAL, IT WAS OBSERVED THAT THE ISSUE IS DEBATAB LE AND HENCE OUTSIDE THE AMBIT OF SECTION 263. APART FROM THAT, IT WAS ALSO OBSERVED THAT THE ASSESSEE WAS ENGAGED IN INTEGRATE D AIR AND GROUND TRANSPORTATION OF TIME SENSITIVE PACKAGES TO VARIOUS DESTINATIONS RENDERING COMMERCIAL SERVICES. IT WAS IN THIS CONTEXT THAT THE ASSESSEE WAS HELD TO BE ELIGIBLE FOR DEDUCTION U/S 80O. AT THIS JUNCTURE IT WILL BE USEFUL TO NOTE THAT AT THE MATE RIAL TIME SECTION 80O PROVIDED FOR DEDUCTION ON ANY 'INCOME BY WAY OF ROY ALTY, COMMISSION, FEES OR ANY SIMILAR PAYMENT RECEIVED BY THE ASSESSE E FROM THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRI SE IN CONSIDERATION FOR THE USE OUTSIDE INDIA OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS, OR SIMILAR PROPERTY RIGH T, OR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE, EXPERIENCE OR SKILL MADE AVAILABLE OR PROVIDED OR AGREED TO BE MADE AVAILABLE OR PROVIDED TO SUCH GOVERNMENT OR ENTERPRISE BY THE AS SESSEE, OR IN CONSIDERATION OF TECHNICAL OR PROFESSIONAL SERVICES RENDERED OR AGREED TO BE RENDERED OUTSIDE INDIA TO SUCH GOVERNM ENT OR ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 23 OF 29 ENTERPRISE BY THE ASSESSEE'. FROM THE ABOVE QUOTED PART OF SEC. 80 O, IT CAN BE SEEN THAT THE DEDUCTION AT THAT TIME W AS AVAILABLE NOT ONLY IN RESPECT OF INCOME AS A CONSIDERATION FOR TH E USE OF 'TECHNICAL OR PROFESSIONAL SERVICES' BUT ALSO ANY 'COMMERCIAL. ...KNOWLEDGE EXPERIENCE OR SKILL'. THESES TWO SOURCES ARE DISTIN CT FROM EACH OTHER AS CAN BE SEEN FROM THE EMPLOYMENT OF WORD 'OR' BET WEEN THEM. IN ORDER TO QUALIFY FOR DEDUCTION UNDER THIS SECTION, THE INCOME COULD HAVE RESULTED FROM THE RENDERING OF 'TECHNICAL OR P ROFESSIONAL SERVICES' OR COMMERCIAL KNOWLEDGE, EXPERIENCE OR SK ILL ETC. WHEN THE TRIBUNAL IN BLUE DART EXPRESS LIMITED (SUPRA) HELD THE ASSESSEE TO BE ENTITLED TO DEDUCTION, IT WAS CONSIDERING ALL THE S PECIES OF THE SERVICES SET OUT IN SECTION 80O AND NOT ONLY 'TECHNICAL OR PROFESSIONAL SERVICES'. IT WAS IN THE LIGHT OF SUCH LANGUAGE OF THE PROVISION THAT THE TRIBUNAL HELD THE ASSESSEE TO BE ELIGIBLE FOR RELIE F U/S 80O. WE ARE CURRENTLY DEALING WITH SECTION 9(1)(VII), BEING THE 'FEES FOR TECHNICAL SERVICES' AND THE DEFINITION OF SUCH EXPRESSION IS RESTRICTED ONLY TO 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' AND DOES NOT HAVE ANY SUCH ELEMENTS AS ARE THERE IN SECTION 80O. THE DECISION IN THE CASE OF BLUE DART EXPRESS LIMITED (SUPRA) CAME UP F OR CONSIDERATION BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN DAMPSKIB SSELSKABET AF 1912 V. ADDL. DIT (INTERNATIONAL TAXATION) [(2011) 51 DTR 148] (TO WHICH ONE OF US, NAMELY, THE LD. JM IS PARTY) IN WH ICH IT HAS BEEN HELD THAT THE RATIO LAID DOWN IN THAT CASE CANNOT BE UNI VERSALLY APPLIED. DUE TO MATERIAL DIFFERENCE IN THE LANGUAGE OF SECTI ONS 9(1)(VII) AND 80O AS DISCUSSED ABOVE, WE HOLD THAT THE DECISION IN BLUE DART EXPRESS LIMITED (SUPRA), CAN NOT BE HELD TO BE SUPP ORTING THE CASE OF THE REVENUE. 13. THE LD. CIT(A) IN REACHING THE CONCLUSION THAT THE ASSESSEE RENDERED 'TECHNICAL SERVICES' ALSO OBSERVED THAT IT S 'BUSINESS STRUCTURE IS TIME BOUND SERVICE COUPLED WITH CONTIN UOUS REAL TIME TRANSMISSION OF INFORMATION BY USING AND ALSO MAKIN G AVAILABLE ADVANCED TECHNOLOGY IN THE FORM OF SOPHISTICATED EQ UIPMENT AND SOFTWARE.' HE WAS SWAYED BY THE CONTENTION OF THE A SSESSEE THAT THE MANLO INDIA OR THE ULTIMATE CUSTOMER COULD TRACK TH E MOVEMENT OF CARGO WITH THE HELP OF COMPUTERS. WE HAVE NOTED SUP RA THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE DID NOT INCL UDE ANY CONSIDERATION FOR THE SUPPLY OF ANY EQUIPMENT TO MA NLO INDIA. NOW WE WILL EXAMINE AS TO WHETHER THE USE OF COMPUTER I N ANY MANNER FOR KNOWING THE LOCATION OF THE CARGO AT A PARTICULAR T IME, CAN BE HELD AS TECHNICAL SERVICE. 14. EXPLANATION TO SECTION 9(1)(VII) DEFINES THE EX PRESSION 'FEES FOR TECHNICAL SERVICES' AS CONSIDERATION FOR RENDERING 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. IT IS SEEN THAT THERE IS NO DEFINITION OF THE TERM 'TECHNICAL SERVICES' IN THE ACT. 15. THE PRINCIPLE OF NOSCITUR A SOCIIS MANDATES THA T THE MEANING OF A WORD IS TO BE JUDGED BY THE COMPANY OF OTHER WORDS WHICH IT KEEPS. THIS RULE IS WIDER IN SCOPE THAN THE RULE OF EJUSDE M GENERIS. IN ORDER ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 24 OF 29 TO DISCOVER THE MEANING OF A WORD WHICH HAS NOT BEE N DEFINED IN THE ACT, THE HON'BLE SUPREME COURT HAS APPLIED THE PRIN CIPLE OF NOSCITUR A SOCIIS IN SEVERAL CASES INCLUDING ARAVINDAPARAMIL A WORKS V. CIT [(1999) 237 ITR 284 (SC) ]. AS NOTED ABOVE THE WORD 'TECHNICAL' HAS BEEN SANDWICHED BETWEEN THE WORDS ' MANAGERIAL' AND 'CONSULTANCY' IN EXPLANATION 2 TO SEC. 9(1)(VII) AN D NO DEFINITION HAS BEEN ASSIGNED TO THE 'TECHNICAL' SERVICES IN THE RE LEVANT PROVISION, WE NEED TO ASCERTAIN THE MEANING OF THE 'TECHNICAL SER VICES' FROM THE OVERALL MEANING OF THE WORDS 'MANAGERIAL' AND 'CONS ULTANCY' SERVICES BY APPLYING THE PRINCIPLE OF NOSTICUR A SOCIIS. IT HAS BEEN HELD ABOVE THAT THE 'MANAGERIAL SERVICES' AND 'CONSULTANCY SER VICES' PRESUPPOSE SOME SORT OF DIRECT HUMAN INVOLVEMENT. THESE SERVIC ES CANNOT BE CONCEIVED WITHOUT THE DIRECT INVOLVEMENT OF MAN. TH ESE SERVICES CAN BE RENDERED WITH OR WITHOUT ANY EQUIPMENT, BUT THE HUMAN INVOLVEMENT IS INEVITABLE. MOVING IN THE LIGHT OF T HIS RULE, THERE REMAINS NO DOUBT WHATSOEVER THAT THE TECHNICAL SERV ICES CANNOT BE CONTEMPLATED WITHOUT THE DIRECT INVOLVEMENT OF HUMA N ENDEAVOR. WHERE SIMPLY AN EQUIPMENT OR A STANDARD FACILITY AL BEIT DEVELOPED OR MANUFACTURED WITH THE USE OF TECHNOLOGY IS USED, SU CH A USER CANNOT BE CHARACTERIZED AS USING 'TECHNICAL SERVICES'. 16. COMING BACK TO THE FACTS OF THE PRESENT CASE, E VEN IF WE ACCEPT THE LEARNED FIRST APPELLATE AUTHORITY'S POINT OF VI EW THAT THE COMPUTER COULD BE USED IN TRACING THE MOVEMENT OF THE GOODS, SUCH USE OF COMPUTER, THOUGH INDIRECT, REMOTE AND NOT NECESSARY , CAN NOT BRING THE PAYMENT FOR FREIGHT AND LOGISTICS SERVICES WITH IN THE PURVIEW OF 'TECHNICAL SERVICES'. THE ESSENCE OF THE CONSIDERAT ION FOR THE PAYMENT IS RENDERING OF SERVICES AND NOT THE USE OF COMPUTER. IF INCIDENTALLY COMPUTER IS USED AT ANY STAGE, WHICH I S OTHERWISE NOT NECESSARY FOR RENDERING SUCH SERVICES, THE PAYMENT FOR FREIGHT AND LOGISTICS WILL NOT PARTAKE OF THE CHARACTER OF FEES OF 'TECHNICAL SERVICES'. WE, THEREFORE, REPEL THIS CONTENTION RAI SED ON BEHALF OF THE REVENUE. 17. THUS IT CAN BE NOTICED THAT THE PAYMENT MADE TO THE ASSESSEE IN QUESTION IS NOT A CONSIDERATION FOR MANAGERIAL OR T ECHNICAL OR CONSULTANCY SERVICES. THAT BEING THE POSITION, IT C ANNOT FALL WITHIN THE AMBIT OF SECTION 9(1)(VII).' 40. WE MAY ALSO TAKE NOTE OF ANOTHER DECISION OF A COORDINATE BENCH DEALING WITH MATERIALLY SIMILAR QUESTION DEALING WI TH TAXABILITY OF INCOME IN THE HANDS OF NON-RESIDENT COMMISSION AGENTS, REPRES ENTING INDIAN PRINCIPAL, IN WHICH SIMILAR ACTIVITIES WERE SAID TO HAVE BEEN PERFORMED. IN THE CASE OF ARMYESH GLOBAL V. ASSTT. CIT [2012] 51 SOT 564/21 TAXMANN.COM 130 (MUM.) , THE COORDINATE BENCH HAS, INTER ALIA, OBSERVED AS FOLLOWS: '16. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD. THE LEARNED ASSESSING OFFICER TRIED TO INVOKE THE D EFINITIONS OF TECHNICAL SERVICES ON THE COMMISSION PAID TO THE FO REIGN COMPANY. ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 25 OF 29 THE REASON BEING THAT COMMISSION PAYMENT TO NON-RES IDENT IS NOT COVERED BY THE PROVISIONS OF SECTION 40(A)(IA), AS IT HAS ONLY APPLICABLE TO ANY INTEREST ROYALTY, FEES FOR TECHNI CAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT WHICH PAYABLE OUTSIDE INDIA ON WHICH TAX IS DEDUCTIBLE AT SOURCE BUT HAS NOT BEEN DEDUCT ED. THE ASSESSING OFFICER MADE OUT A CASE THAT THE COMMISSION PAID IS TEES FOR TECHNICAL SERVICES' WITHOUT SPECIFYING WHAT ARE THE TECHNICAL/MANAGERIAL SERVICES RENDERED BY THE SAID COMPANY TO THE ASSESSEE. ASSESSEE INDEED ENTERED INTO AN AGREEMENT FOR PROPAGATION OF ITS HANDICRAFT PRODUCTS WITH THE NON -RESIDENT COMPANY. THE COPIES OF THE AGREEMENT HAVE BEEN PLACED BEFORE THE AUTHORITIES. THE AGREEMENT CLEARLY SHOWS THAT THE N ON-RESIDENT COMPANY WAS TO GET COMMISSION FOR PROMOTING THE PRO DUCTS OF THE ASSESSEE COMPANY AND RENDERING INCIDENTAL SERVICES ON SALES SUCH AS RECOVERY ETC. FOR DOING EXPORT SALES. IT IS ALSO RESPONSIBILITY OF THE NON-RESIDENT COMPANY TO DISSEMINATE THE INFORMATION AND INQUIRE ABOUT VARIOUS IMPORTERS IN VARIOUS COUNTRIES SO THA T ASSESSEE EXPORTS CAN BE INCREASED. THE AGREEMENT CLEARLY SHOWS THAT NON-RESIDENT COMPANY WAS TO GET THE COMMISSION FOR PROMOTING THE PRODUCT OF ASSESSEE COMPANY AFTER SALES PROCEEDS ARE RECEIVED. THE DETAILED TERMS OF THE AGREEMENT ARE AS UNDER: 'AGENCY AGREEMENT IN THIS AGREEMENT BETWEEN M/S ARMAYESH GLOBAL, KAMA NWALA CHAMBERS, 2ND FLOOR, SIR P.M. ROAD, FORT, MUMBAI 40 0 001, INDIA HEREINAFTER REFERRED TO AS 'PRINCIPAL' AND INDIJACK LIMITED, 99 BRECK NOCK ROAD, LONDON N19 5 AB, U.K. HEREINAFTER REFE RRED TO AS 'AGENT' THE FOLLOWING IS AGREED UPON: - ARTICLE 1- OBJECT OF AGREEMENT 1.1. THE PRINCIPAL ENTRUSTS THE AGENT WITH THE NON EXCLUSIVE AGENCY FOR THE FOLLOWING CONTRACTUAL TERRITORY (AREA): WOR LDWIDE 1.2. THE PRINCIPAL ALSO HAS THE RIGHT TO OPERATE AC TIVELY' IN HE AFOREMENTIONED TERRITORY (AREA). 1.3. THE AGENCY COVERS THE FOLLOWING PRODUCTS: HAND EMBROIDERED PRODUCTS OF ANY AND ALL KINDS. 1.4. THE AGENT COVENANTS AND AGREES TO REPRESENT TH E PRINCIPAL ON A COMMISSION BASIS. ARTICLE 2 DUTIES OF THE AGENT 2.1 IT SHALL BE THE AGENT'S DUTY TO NEGOTIATE CONTR ACTS WITH THE OVERSEAS PARTY. FURTHERMORE, THE AGENT SHALL ACT ON THE PRINCIPAL'S BEHALF IN CONFORMITY WITH PROVISIONS HEREINAFTER EN UMERATED. THE AGENT SHALL NOT BE AUTHORIZED TO ENTER INTO A CONTR ACT OR OTHERWISE TO BIND THE PRINCIPAL. THE PRINCIPAL SHALL BE FREE TO CONCLUDE, OR TO REFUSE THE CONCLUSION OF A CONTRACT NEGOTIATED BY THE AGEN T. ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 26 OF 29 2.2 WHILE NEGOTIATING CONTRACTS OF SALE THE AGENT S HALL ACT IN CONFORMITY WITH ALL THE CONDITIONS AND PARTICULARLY OF DELIVERY AND PAYMENT AS FIXED BY THE PRINCIPAL. 2.3 THE AGENT SHALL BE RESPONSIBLE FOR NEGOTIATING WITH ALL PARTIES IN THEIR TERRITORY (AREA). THE AGENT SHALL TRAVEL IN T HEIR TERRITORY (AREA) REGULARLY TO VISIT CUSTOMERS, AND IS BOUND TO KEEP CONCLUDED CONTRACTS SECRET. THE AGENT SHALL ALWAYS KEEP THE P RINCIPAL INFORMED ABOUT THEIR ACTIVITIES AND SHALL SUPPLY THE PRINCIP AL, AT LEAST ONCE EVERY QUARTER, WITH REPORTS ON ECONOMIC DEVELOPMENT S AND MARKET CONDITIONS IN THE TERRITORY (AREA) AND AT THE SAME TIME, CONVEY TO THE PRINCIPAL, THE AGENT'S OBSERVATIONS WITH RESPECT TO ACTIVITIES OF COMPETITORS. THE AGENT SHALL REPORT IMMEDIATELY ON PARTICULAR PROFITABLE BUSINESS POSSIBILITIES AND EXTRAORDINARY EVENTS. 2.4. THE AGENT SHALL ABSTAIN FROM ANY COMPETITION W HATSOEVER AGAINST THE PRINCIPAL AND SHALL NOT PROMOTE COMPETI TION BY THIRD PERSONS. IN PARTICULAR, THE AGENT SHALL NOT ACT FOR COMPETITIVE FIRMS AS A COMMERCIAL AGENT, COMMISSION MERCHANT OR DISTRIBU TOR, NOR SHALL THE AGENT ASSOCIATE DIRECTLY OR INDIRECTLY WITH COM PETITIVE FIRMS. THE AGENT SHALL NOT, FOR ALL TIME EXPLOIT OR DISCLOSE T O OTHER PERSONS ANY BUSINESS AND PRODUCTION SECRETS OF THE PRINCIPAL TH AT HAVE BEEN COMMUNICATED TO THEM OR WHICH THEY HAVE OTHERWISE C OME TO KNOW, IRRESPECTIVE OF WHETHER OR NOT THE CONTRACT IS STIL L IN FORCE. 2.5 THE AGENT SHALL OBSERVE THE RULES OF FAIR COMPE TITION AND BE RESPONSIBLE FOR ANY VIOLATION OF THE SAME. 2.6 THE AGENT IS NOT AUTHORIZED TO ACCEPT PAYMENTS DIRECTLY IN THEIR OWN NAME BUT SHALL ASSIST THE PRINCIPAL IN COLLECTI NG OUTSTANDING PAYMENTS. THE AGENT IS ALSO AUTHORIZED TO ACCEPT NO TIFICATION OF DEFECTS BY A CUSTOMER, AS WELL AS THE STATEMENT OF A CUSTOMER THAT HE WILL THE GOODS AT THE DISPOSABLE OF THE PRINCIPAL O R ANY SIMILAR STATEMENT BY WHICH THE CUSTOMER EXERCISES HIS RIGHT S RESULTING FROM DEFECTIVE DELIVERY. THE AGENT SHALL IMMEDIATELY II PRINCIPAL AND SHALL SEE TO IT THAT THE NECESSARY EVIDENCE IN FAVOUR OF THE PRINCIPAL IS OBTAINED. 2.7 THE AGENT SHALL ESTABLISH BUSINESS RELATIONS ON LY WITH SUCH CUSTOMERS WHOSE SOLVENCY IS SATISFACTORY TO THE BES T OF THE KNOWLEDGE AND BELIEF OF THE AGENT. 17. THUS AS CAN BE SEEN FROM THE ABOVE, ALL THE TER MS DO INDICATE THAT THE SAID COMPANY WAS ONLY ACTING AS AN AGENT O N COMMISSION BASIS AND HAS NOT BEEN PROVIDING ANY MANAGERIAL/TEC HNICAL SERVICES. FURTHER THERE IS NO EVIDENCE ON RECORD THAT THEY AR E PROVIDING ANY TECHNICAL/MANAGERIAL SERVICES. THE SAID COMPANY WAS RESPONSIBLE FOR ARRANGING TIMELY PAYMENT FROM THE CUSTOMERS AND COM MISSION WAS PAID ONLY AFTER THE SALES AMOUNT WAS RECEIVED. SINC E THE SERVICES WERE RENDERED OUTSIDE INDIA, THE PROVISIONS OF SECT ION 5 CANNOT BE APPLIED TO THE COMMISSION PAID SO AS TO MAKE IT TAX ABLE IN INDIA. 18. THIS ASPECT CAN ALSO BE EXAMINED IN ANOTHER WAY AS ALREADY GIVEN A FINDING BY THE BENCH EARLIER AND WHICH IS A LSO NOT IN DISPUTE, ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 27 OF 29 THAT THE FOREIGN COMPANY DOES NOT HAVE ANY PE IN IN DIA. THEREFORE, THE COMMISSION PAID TO THE FOREIGN COMPANY WHICH HA S TO BE CONSIDERED AS BUSINESS INCOME AND CANNOT BE TAXED I N INDIA AS PER THE DTAA BETWEEN INDIA AND UK. THE DEFINITION OF 'F EE FOR TECHNICAL SERVICES' BETWEEN UK AND INDIA DOES NOT INCLUDE MAN AGERIAL SERVICES. HOWEVER, NEITHER THE ASSESSING OFFICER NO R THE CIT (A) CONSIDERED THE ISSUE OF DTAA, EVEN THOUGH ASSESSEE MENTIONED THE SAME IN ITS SUBMISSIONS BEFORE THE AUTHORITIES. THE DEFINITION OF TECHNICAL SERVICES AS PER THE INCOME TAX ACT IS AS UNDER: '9.(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACC RUE OR ARISE IN INDIA: (I) & (VI )** ** ** (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES A RE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSID E INDIA ; OR (C) A PERSON WHO IS A NON- RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF M AKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA : [PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHA LL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE 1ST DAY O F APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT.] [EXPLANATION 1.FOR THE PURPOSES OF THE FOREGOING P ROVISO, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 19 76, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AG REEMENT IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE C ENTRAL GOVERNMENT BEFORE THAT DATE.] EXPLANATION [2].FOR THE PURPOSES OF THIS CLAUSE, ' FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION ASSEMBLY, MINING OR LIKE PROJECT UNDER TAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. 19. AS CAN BE SEEN FROM THE ABOVE SECTION 9(1)(VII) (B), FEE PAYABLE FOR THE PURPOSES OF MAKING OR EARNING INCOME FROM A NY SOURCE OUTSIDE INDIA IS NOT INCLUDED IN THE DEFINITION. TH E AMOUNT HAS TO BE CONSIDERED AS BUSINESS INCOME. SINCE THE SERVICES A RE RENDERED OUTSIDE INDIA, THAT AMOUNT IS NOT TAXABLE AS IT DOE S NOT ACCRUE OR ARISE IN INDIA. THE SAME VIEW WAS CONSIDERED BY THE HON'B LE BOMBAY HIGH ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 28 OF 29 COURT IN THE CASE OF CEAT INTERNATIONAL S.A. V. CIT 237 ITR 859 , WHERE CERTAIN EXPORT COMMISSION WAS PAID TO A NON-R ESIDENT COMPANY AND IT WAS HELD THAT THE ASSESSEE DID NOT I MPART ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMME RCIAL OR SCIENTIFIC KNOWLEDGE EXPORTS OR SKILL, NOR RENDERED ANY MANAGE RIAL TECHNICAL OR CONSULTANCY SERVICES. THE COMMISSION ATTRIBUTABLE T O THE SERVICES RENDERED CANNOT BE REGARDED AS ROYALTY OR FEES FOR TECHNICAL SERVICES AND IT WAS HELD THAT THE SAME WAS NOT TAXABLE UNDER SECTION 9(1)(VII). SIMILAR ISSUE WAS ALSO CONSIDERED BY THE HON'BLE DE LHI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX V. SHERATON INTE RNATIONAL INC.313 ITR 267 WHERE CERTAIN PAYMENTS FOR ADVERTISING, PUBLICITY AND SALES PROMOTION SERVICES WERE CONSIDERED AND HELD THAT TH OSE PAYMENTS CANNOT BE CONSIDERED AS EITHER ROYALTY OR FOR TECHN ICAL SERVICES. SINCE THE NON-RESIDENT DOES NOT HAVE ANY PE IN INDIA, SUC H INCOME WHICH IS TO BE CONSIDERED AS BUSINESS INCOME WAS NOT TAXA BLE IN INDIA.' 41. WE ARE IN CONSIDERED AGREEMENT WITH THE VIEWS S O EXPRESSED BY THE COORDINATE BENCH. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD WELL REASONING FIND INGS OF THE LEARNED CIT(A) THAT THE COMMISSION PAYMENTS MADE TO THE NON -RESIDENT AGENTS DID NOT HAVE ANY TAXABILITY IN INDIA, EVEN UNDER TH E PROVISIONS OF THE DOMESTIC LAW I.E. SECTION 9. ONCE WE COME TO THE CO NCLUSION THAT THE INCOME EMBEDDED IN THESE PAYMENTS DID NOT HAVE ANY TAX IMPLICATIONS IN INDIA, NO FAULT CAN BE FOUND IN NOT DEDUCTING TAX A T SOURCE FROM THESE PAYMENTS OR, FOR THAT PURPOSE, EVEN NOT APPROACHING THE ASSESSING OFFICER FOR ORDER UNDER SECTION 195. IN OUR CONSIDE RED VIEW, THE ASSESSEE, FOR THE DETAILED REASONS SET OUR ABOVE, DID NOT HAV E TAX WITHHOLDING LIABILITY FROM THESE PAYMENTS. AS HELD BY HON'BLE S UPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P.) LTD. V. CIT [2010] 327 ITR 456/193 TAXMAN 234/7 TAXMANN.COM 18 , PAYER IS BOUND TO WITHHOLD TAX FROM THE FOREIGN REMITTANCE ONLY IF THE SUM PAID IS ASSESSABLE TO TAX IN INDIA. THE ASSESSEE CANNOT, THEREFORE, BE FAULTED F OR NOT APPROACHING THE ASSESSING OFFICER UNDER SECTION 195 EITHER. AS REGA RDS THE WITHDRAWAL OF THE CBDT CIRCULAR HOLDING THAT THE COMMISSION PAYME NTS TO NON-RESIDENT AGENTS ARE NOT TAXABLE IN INDIA, NOTHING REALLY TUR NS ON THE CIRCULAR, AS DE HORS THE AFORESAID CIRCULAR, WE HAVE ADJUDICATED UP ON THE TAXABILITY OF THE COMMISSION AGENT'S INCOME IN INDIA IN TERMS OF THE PROVISIONS OF THE INCOME TAX ACT AS ALSO THE RELEVANT TAX TREATY PROV ISIONS. 42. IN VIEW OF THESE DISCUSSIONS, WE UPHOLD THE REL IEF GRANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 8. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF TH E MATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. WE, THEREFORE, HOLD THAT, IN PRINCIPLE, THE COMMISSION PAID TO A NON-RESIDENT, WHO HAS NOT PERF ORMED ANY SERVICES IN INDIA, IS NOT EXIGIBLE TO TAX IN INDIA. ONCE WE HOL D SO, CLEARLY NO DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE CAN BE MADE IN RESPECT OF COMMISSION PAYMENTS. WE ALSO REFER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE (P.) LTD . (SUPRA). ITA NO.634 & CO NO.103/AHD/2015 DCIT VS. ASTRAL PHARMACEUTICAL IND. ASSESSMENT YEAR: 2011-12 PAGE 29 OF 29 9. AS REGARDS THE ASSESSING OFFICERS OBSERVATION T HAT THE PAYMENT OF SERVICE TAX IN RESPECT OF THESE SERVICES CONSTITUTE ASSESSEES ADMISSION TO THE FACT THAT SERVICES WERE RENDERED IN INDIA, WE MAY O NLY ADD THAT AS PER THE SERVICE TAX LAW, EVEN WHEN THE SERVICES ARE UTILIZE D IN INDIA, SERVICE TAX IS TO BE LEVIED IN RESPECT OF SUCH SERVICES RENDERED BY N ON-RESIDENT ON REVERSE CHARGE BASIS. MERE PAYMENT OF THE SERVICE CHARGES ON REVERSE CHARGE BASIS, IN RESPECT OF SERVICES RENDERED BY THE NON-RESIDENT AGENT, CANNOT BE CONSTRUED AS, ANY STRETCH OF LOGIC, TO BE AN ADMISS ION THAT SERVICES WERE RENDERED IN INDIA. NOTHING, THEREFORE, TURNS ON TH E PAYMENT OF SERVICE TAX IN RESPECT OF SERVICES RENDERED BY THE COMMISSION AGEN T, IN INDIA. IN VIEW OF THE THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE SEE NO REASONS TO INTERFERE IN THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A). WE CONFIRM THE SAME AND DECLINE TO INTERFERE IN THE MA TTER. 5. RESPECTFULLY FOLLOWING THE VIEWS SO TAKEN BY THE CO-ORDINATE BENCH (SUPRA) IN ASSESSEES OWN CASE FOR AY 2008-09 VIDE ITA NO.633/ AHD/2015, THE ISSUE RAISED BY THE ASSESSING OFFICER IN THIS APPEAL IS ALSO DISMIS SED. 6. IN THE RESULT, APPEAL, THE APPEAL AND CROSS-OBJE CTION, BOTH ARE DISMISSED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 21 ST DAY OF SEPTEMBER, 2017. SD/- SD/- RAJPAL YADAV PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 21 ST DAY OF SEPTEMBER, 2017 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: ........21.09.2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ... 21.09.2017........ 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: .21.09.2017...... . 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: ..21.09.2017....... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : ...25.09.2017... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: ..