The Asstt. Commissioner of Income Tax, Circle-2(1)(1), Ahmedabad V. Indo Colchem Ltd., Ahmedabad

ITA 840/AHD/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6375 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN M MEHTA
• Assessee Lawyers: RANJAN KUMAR SINGH
• Keywords: Capital asset; Business income; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Advance ruling; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 143(3); 142(1); 40(a)(ia); 195; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.840/AHD/2017 (ASSESSMENT YEAR : 2012-13) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), AHMEDABAD. VS. INDO COLCHEM LTD., 36/2, GIDC, PHASE 2, VATVA, AHMEDABAD 380 045. [PAN NO. AAACI 4393 K] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI KISHAN M. MEHTA, A.R. RESPONDENT BY : SHRI RANJAN KUMAR SINGH, SR. D.R. DATE OF HEARING 12.02.2019 DATE OF PRONOUNCEMENT 08.05.2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 02.01.2017 PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS)-2, AHMEDABAD UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ARISING OUT OF THE ORDER DATED 28.02.2015 PAS SED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), AHMED ABAD FOR THE ASSESSMENT YEAR 2012-13 WITH THE FOLLOWING GROUNDS: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF FOREIGN COMMISSION EXPENSES AMOUNTI NG TO RS.1,13,88,363/- MADE BY THE AO WITHOUT PROPERLY AP PRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECOR D. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE U/S.40(A)(IA) AMOUNTING TO RS.1,91,712 /- ON ACCOUNT OF ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 2 - PROFESSIONAL CONSULTANCY FEES WITHOUT PROPERLY APPR ECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE REST ORED TO THE ABOVE EXTENT. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 2. THE ASSESSEE, FILED ITS RETURN OF INCOME ON 29.0 9.2012 DECLARING TOTAL INCOME OF RS.3,67,80,960/-. UPON SCRUTINY NOTICE U/ S 143(2) OF THE ACT WAS ISSUED ON 06.08.2013 FOLLOWED BY A FURTHER NOTICE U /S 142(1) OF THE ACT DATED 06.08.2013 AND 21.08.2014. 3. GROUND NO.1 : THIS GROUND OF APPEAL RELATES TO DELETING THE DISALLOWANCE OF FOREIGN COMMISSION EXPENSES AMOUNTI NG TO RS.1,13,88,363/-. 4. DURING THE COURSE OF ASSESSMENT PRECEDING, THE A SSESSEE WAS ASKED TO FURNISH DETAILS WITH REGARD TO EXPENDITURE IN FOREI GN CURRENCY AS TO WHETHER IT WAS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE WITH COPY OF LEDGER. THE NAME OF THE PARTY WITH ADDRESS, NATURE OF EXPENSES, AMOU NT INCURRED, TDS MADE ETC INCLUDING CA CERTIFICATE FOR FOREIGN REMITTANCES SE PARATELY WERE ALSO CALLED FOR. SUBSEQUENTLY, THE DETAILS OF COMMISSION PAYMEN T, DETAILS OF SERVICES RENDERED BY THOSE PARTIES TO WHOM THE COMMISSION WA S PAID AND PROOF OF SERVICES RENDERED BY THEM WERE ASKED FOR AND UPON P ERUSAL OF THE REPLY SUBMITTED BY THE ASSESSEE, IT WAS FOUND THAT COMPAN Y HAD DEBITED FOREIGN COMMISSION EXPENSE TO THE TUNE OF RS.1,13,88,363/-. THE IDENTITY OF THOSE FOREIGN EXCHANGE AGENT, EVIDENCES OF SERVICES RENDE RED BY THE FOREIGN EXCHANGE AGENT, COPY OF AGREEMENT IN RESPECT OF FOR EIGN COMMISSION PAYMENT ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 3 - AND ALSO THE NEXUS OF FOREIGN COMMISSION PAYMENT WI TH THE BUSINESS OF THE ASSESSEE WERE ASKED FOR BY THE LEARNED AO. ULTIMATE LY, THE EXPLANATION RENDERED BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE B Y THE LEARNED AO. HE, THEREFORE, CONCLUDED THE PROCEEDING WITH AN OBSERVA TION THAT THE ASSESSEE IS UNDER THE OBLIGATION TO DEDUCT TAX AT SOURCE AS ENV ISAGED U/S 195 OF THE ACT FROM THE PAYMENT OF COMMISSION MADE TO NON-RESIDENT AGENTS TOWARDS THE SERVICES RENDERED BY THEM WHICH THE ASSESSEE FAILED TO DISCHARGE. THE EXPENDITURE ON ACCOUNT OF FOREIGN COMMISSION EXPENS E PAID TO NON-RESIDENTS AMOUNTING TO RS.1,13,88,363/- WAS, THUS, NOT FOUND GENUINE NEITHER ALLOWABLE U/S 40(A)(I) OF THE ACT AND WAS DISALLOWED. IN APPE AL, THE LEARNED CIT(A) DELETED THE ADDITION FOLLOWING THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN THE MATTER CIT-VS-TOSHOKU LTD. REPORTED IN 125 ITR 525. 5. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION PAID TO FOREIGN AGENTS . THE SERVICES RENDERED WERE OUTSIDE INDIA AND THOSE AGENTS ARE NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA FOR BUSINESS CONNECTION. THE COMMISSION DOES NOT ACCRUE OR ARISE IN INDIA AND THUS NEITHER TAXABLE I N INDIA. THE JUDGMENT RELIED UPON BY THE LEARNED CIT(A) IN THE MATTER OF CIT-VS- TOSHOKU LTD. REPORTED IN 125 ITR 525 PASSED BY HONBLE APEX COURT IS APPLICA BLE TO THE CASE OF THE ASSESSEE AND IN THAT VIEW OF THE MATTER HE RELIES O N THE ORDER PASSED BY THE LEARNED CIT(A) AS ALSO CONTENDED BY THE LEARNED AR. HOWEVER, THE LEARNED DR RELIED UPON THE ORDER PASSED BY THE LEARNED AO. 6. WE HAVE HEARD THE RIVAL CONTENTIONS APPEARING FO R THE RESPECTIVE PARTIES, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE CO- ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 4 - ORDINATE BENCH IN ITA NO.1825/AHD/2017 IN ASSESSEE S OWN CASE IN THE MATTER OF ACIT-VS-INDO COLCHEM PVT. LTD. IN THE APPEAL PRE FERRED BY THE REVENUE DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESS EE BY UPHOLDING THE ORDER PASSED BY THE FIRST APPELLATE AUTHORITY FOR A.Y. 20 14-15. THE RELEVANT PORTION OF THE SAID ORDER IS AS FOLLOWS: 3. THE VERY FOUNDATION OF THIS DISALLOWANCE IS THA T, IN THE CONSIDERED VIEW OF THE AUTHORITIES BELOW, COMMISSION PAID FOR THE SERVICES RENDERED BY THE NON-RESIDENT AGENTS IS TAXABLE IN INDIA. IT IS FOR THIS REASON THAT THE ASSESSEE IS HELD TO BE RESPONSIBLE FOR DEDUCTION FO R TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON-RESIDENTS, AND THE A SSESSEE IS ALSO VISITED WITH DISALLOWANCE UNDER SECTION 40(A)(IA) FOR ANY P AYMENTS MADE TO SUCH NON-RESIDENT AGENTS WITHOUT DEDUCTION OF TAX AT SOU RCE. LEARNED REPRESENTATIVES, HOWEVER, FAIRLY AGREE, EVEN AS LEA RNED DEPARTMENTAL REPRESENTATIVE DUTIFULLY RELIES UPON THE STAND OF T HE AUTHORITIES BELOW, THAT THIS ISSUE IS NOW COVERED BY A COORDINATE BENCH DEC ISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS. WELSPUN CORPORATION LIMITED [( 2017) 55 ITR (T) 405 (AHD)]. IN THE SAID DECISION, THE COORDINATE BENCH , SPEAKING THROUGH ONE OF US (I.E. THE ACCOUNTANT MEMBER), HAS, INTER ALIA, O BSERVED AS FOLLOWS: 22. SO FAR AS THE FIRST CATEGORY OF CASES ARE CON CERNED, I.E. PAYMENTS TO THE RESIDENTS OF THE TAX JURISDICTIONS WITH WHICH INDIAN HAS TAX TREATIES BUT THESE TREATIES HAVE NO SPECIFI C ARTICLE DEALING WITH THE TAXABILITY OF 'FEES FOR TECHNICAL SERVICES', AR E CONCERNED, IT IS IMPORTANT TO NOTE THAT INDIA DOES NOT HAVE A COMPRE HENSIVE DOUBLE TAXATION AGREEMENT WITH IRAN. THE INDIA IRAN DOUBLE TAXATION AVOIDANCE AGREEMENT [INDO IRANIAN TAX TREATY, IN SH ORT; (1973) 91 ITR (STAT) 31] IS A LIMITED AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION OF INCOME OF ENTERPRISE OPERATING AIRCRAFT, AND ITS BE NEFIT, THEREFORE, IS RESTRICTED TO THIS CATEGORY OF ENTERPRISE. GIVEN TH IS FACT, NOTHING REALLY TURNS ON INDO IRANIAN TAX TREATY NOT HAVING A SPECI FIC PROVISION FOR TAXATION OF INCOME BY WAY OF FEES FOR TECHNICAL SER VICES. ALL OTHER INCOMES, EXCEPT FOR THE INCOME OF ENTERPRISE OPERAT ING AIRCRAFT, CONTINUE TO BE COVERED BY THE DOMESTIC TAXATION LAW S IN ENTIRETY. IN THIS VIEW OF THE MATTER, SO FAR AS PAYMENT OF RS 12 ,05,96,574 TO NJ- IRAN IS CONCERNED, WE WILL TAKE IT UP ALONGWITH THE CASES IN RESPECT OF WHICH ARE COVERED ONLY BY THE DOMESTIC LAW. THAT LE AVES US WITH THE CASES OF PAYMENT OF RS 1,06,251 TO A THAILAND BASED ENTITY GMS- THAILAND AND OF RS 35,73,878 TO AFRAS-UAE IN THIS C ATEGORY. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 5 - 23. THERE IS NO DISPUTE THAT THERE IS NO SPECIFIC P ROVISION FOR TAXATION OF FEES FOR TECHNICAL SERVICES IN INDIA THAILAND TA X TREATY AND INDIA UAE TAX TREATY. THERE IS ALSO NO DISPUTE THAT GMS-T HAILAND AND AFRAS-UAE DID NOT HAVE ANY PERMANENT ESTABLISHMENTS IN INDIA. CLEARLY, THEREFORE, INCOME IN THE HANDS OF THE RECI PIENTS OF THIS INCOME COULD NEITHER BE TAXED IN AS BUSINESS INCOME OR UND ER THE HEAD FEES FOR TECHNICAL SERVICES. 24. THE STAND OF THE REVENUE, HOWEVER, IS THAT THE INCOME EMBEDDED IN THE AMOUNTS RECEIVED BY THE ASSESSEE COULD ANYWAY B E TAXED AS 'OTHER INCOME' UNDER THE RESPECTIVE TAX TREATIES. THERE IS A DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF D Y. CIT V. TVS ELECTRONICS LTD. [2012] 57 SOT 287/22 TAXMANN.COM 2 15 (CHENNAI), WHICH SUPPORT THIS SCHOOL OF THOUGHT AND HOLDS THAT 'ADMITTEDLY, CHAPTER III OF DTAA BETWEEN INDIA AND MAURITIUS DID NOT PROVIDE FOR TAXING ANY FEES PAID FOR TECHNICAL SERVICES. ONLY F OR A REASON THAT DTAA IS SILENT ON A PARTICULAR TYPE OF INCOME, WE C ANNOT SAY THAT SUCH INCOME WILL AUTOMATICALLY BECOME BUSINESS INCOME OF THE RECIPIENT. IN OUR OPINION, WHEN DTAA IS SILENT ON AN ASPECT, THE PROVISIONS OF THE ACT HAS TO BE CONSIDERED AND APPLIED. THIS SCHOOL O F THOUGHT DID NOT FIND FAVOUR WITH THE VERY JURISDICTIONAL HIGH COURT OF THIS COORDINATE BENCH. IN THE CASE OF BANGKOK GLASS INDUSTRIES (P.) LTD. V. ASSTT. CIT [2013] 215 TAXMAN 116 (MAG.)/34 TAXMANN.COM 77 (MAD .), HON'BLE MADRAS HIGH COURT REJECTED THIS SCHOOL OF THOUGHT A ND DEALING WITH INDIA THAILAND TAX TREATY, WHICH DOES NOT HAVE FTS CLAUSE, REJECTED THE CLAIM OF THE REVENUE THAT EVEN THOUGH THE THAI ENTITY DID NOT HAVE ANY PE IN INDIA AND, FOR THAT REASON THIS AMOUNT CO ULD NOT HAVE TAXED IN INDIA UNDER ARTICLE 7, FTS COULD BE TAXED AS 'OT HER INCOME' UNDER ARTICLE 22. THEIR LORDSHIPS, IN THIS CONTEXT, ALSO OBSERVED THAT, 'SINCE THE SAID INCOME DOES NOT FALL AS MISCELLANEOUS INCO ME, THE SAME CANNOT BE BROUGHT UNDER ART. 22 AS WE DEAL WITH THI S ASPECT OF THE MATTER, AND TO EXPLAIN THE SAME PRINCIPLE IN LITTLE MORE DETAIL, LET US FIRST TAKE A LOOK AT THE RELEVANT TREATY PROVISIONS . THE RELEVANT TREATY PROVISIONS ARE AS FOLLOWS: INDIA THAILAND TAX TREATY ARTICLE 22- OTHER INCOME ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STAT E, WHEREVER ARISING, NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLES MAY BE TAXED IN THAT STATE. SUCH ITEMS OF INCOME MAY ALSO BE TAXED IN TH E CONTRACTING STATE WHERE THE INCOME ARISES. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 6 - INDIA UAE TAX TREATY ARTICLE 22- OTHER INCOME 1. SUBJECT TO THE PROVISIONS OF PARAGRAPH 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLES OF T HIS AGREEMENT, SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE. 2. THE PROVISIONS OF PARAGRAPH 1 SHALL NOT APPLY T O INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN P ARAGRAPH 2 OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT OR PROPERTY IN RESP ECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY CONNECTED WITH SUCH P ERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROV ISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY 25. TO UNDERSTAND THE SCOPE OF THESE TREATY PROVISI ONS, WHICH ARE BROADLY IN PARI MATERIA WITH THE PROVISIONS OF ARTI CLE 21 OF UN MODEL CONVENTION, WE FIND GUIDANCE FROM THE OECD MODEL CO NVENTION COMMENTARY WHICH STATES THAT 'THE ARTICLE COVERS IN COME OF A CLASS NOT EXPRESSLY DEALT WITH IN THE PRECEDING ARTICLES (E.G. AN ALIMONY OR A LOTTERY INCOME) AS WELL AS INCOME FROM SOURCES NOT EXPRESSLY REFERRED TO THEREIN (E.G. A RENT PAID BY A RESIDENT OF A CON TRACTING STATE FOR THE USE OF IMMOVABLE PROPERTY SITUATED IN A THIRD STATE ). THE ARTICLE COVERS INCOME ARISING IN THIRD STATES AS WELL AS IN COME FROM A CONTRACTING STATE' IN OTHER WORDS, AN INCOME IS OF SUCH A NATURE AS, ON SATISFACTION OF CONDITIONS SPECIFIED IN THE RELA TED PROVISION, COULD BE TAXED UNDER ANY OF THESE SPECIFIC TREATY PROVISI ONS, CANNOT BE COVERED BY THIS RESIDUARY CLAUSE. TAKE FOR EXAMPLE, INCOME EARNED BY A RESIDENT OF A CONTRACTING STATE BY CARRYING ON BU SINESS IN THE OTHER CONTRACTING STATE. WHEN, FOR EXAMPLE, ARTICLE 5 PRO VIDES THAT THE INCOME OF RESIDENT OF A CONTRACTING STATE, FROM CAR RYING ON BUSINESS IN THE OTHER CONTRACTING STATE, CANNOT BE TAXED IN THE SOURCE STATE UNLESS SUCH A RESIDENT HAS A PERMANENT ESTABLISHMENT IN TH E OTHER CONTRACTING STATE, I.E. SOURCE STATE, IT CANNOT BE OPEN TO THE TAX ADMINISTRATION OF SOURCE STATE TO CONTEND THAT EVEN IF IT CANNOT BE T AXED AS BUSINESS INCOME, IT CAN BE TAXED AS 'OTHER INCOME' NEVERTHEL ESS. IT IS IMPORTANT TO BEAR IN MIND THE IMPORT OF EXPRESSION 'NOT EXPRE SSLY DEALT WITH IN ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 7 - THE FOREGOING ARTICLES'. SIMILARLY, IF INDEPENDENT PERSONAL SERVICES CANNOT BE TAXED IN THE SOURCE STATE AS MINIMUM THRE SHOLD LIMIT OF FIXED BASE IS NOT SATISFIED, SUCH A TREATY CONCESSION CAN NOT BE NULLIFIED BY INVOKING ARTICLE 21. WHEN A PARTICULAR NATURE OF IN COME IS DEALT WITH IN THE TREATY PROVISIONS, AND ITS TAXABILITY FAILS BECAUSE OF THE CONDITIONS PRECEDENT TO SUCH TAXABILITY AND AS SPEC IFIED IN THAT PROVISION ARE NOT SATISFIED, THAT IS THE END OF THE ROAD FOR TAXABILITY IN THE SOURCE STATE. 26. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT ARTICLE 21 STATES THAT IT APPLIES TO THE 'ITEMS OF INCOME OF A RESIDE NT OF A CONTRACTING STATE, WHEREVER ARISING, WHICH ARE NOT EXPRESSLY DE ALT WITH IN THE FOREGOING ARTICLES OF THIS AGREEMENT'. THEREFORE, I T IS NOT THE FACT OF NON-TAXABILITY UNDER THE OPERATIVE ARTICLES (I.E. A RTICLES 6 TO 20) WHICH LEADS TO TAXABILITY UNDER RESIDUARY CLAUSE IN ARTIC LE 22, BUT THE FACT OF INCOME OF THAT NATURE BEING COVERED BY THOSE ARTICL ES WHICH CAN LEAD TO TAXABILITY UNDER ARTICLE 22. THERE COULD BE MANY SUCH ITEMS OF INCOME WHICH ARE NOT COVERED BY THESE SPECIFIC TREA TY PROVISIONS, SUCH AS ALIMONY, LOTTERY INCOME, GAMBLING INCOME, RENT P AID BY RESIDENT OF A CONTRACTING STATE FOR THE USE OF AN IMMOVEABLE PR OPERTY IN A THIRD STATE, AND DAMAGES (OTHER THAN FOR LOSS OF INCOME C OVERED BY SPECIFIC PROVISIONS OF THE TREATY) ETC. THIS IS HOW UN MODEL CONVENTION COMMENTARY, WHICH IS REFERRED TO EARLIER IN THIS OR DER, ALSO EXPLAINS THE SCOPE OF THIS ARTICLE. IN OUR HUMBLE UNDERSTAND ING, THEREFORE, ARTICLE 21 DOES NOT APPLY TO ITEMS OF INCOME WHICH CAN BE TAXED IN ANY SITUATIONS UNDER ARTICLES 6-20 WHETHER OR NOT SUCH AN INCOME IS ACTUALLY TAXABLE UNDER THESE ARTICLES. 27. THE QUESTION THEN ARISES WHETHER INCOME EARNED BY THE RECIPIENTS IN QUESTION, I.E. AFRAS UAE AND GMS THAILAND, CAN B E SAID TO IN THE NATURE OF AN INCOME WHICH IS NOT EXPRESSLY DEALT WI TH BY OTHER OPERATIVE ARTICLES (I.E. ARTICLE 6 TO 20) OF THE TR EATY. THE INCOME EARNED BY THESE ENTITIES WAS IN THE REGULAR COURSE OF THEI R BUSINESS, AND THERE IS NO DISPUTE ABOUT THIS FUNDAMENTAL ASPECT. THERE CANNOT ALSO BE DISPUTE ABOUT THE FACT THAT IN THE EVENT OF THESE E NTITIES SATISFYING THE CONDITIONS REGARDING EXISTENCE OF PERMANENT ESTABLI SHMENT IN INDIA, THE AMOUNTS SO RECEIVED BY THESE ENTITIES WOULD HAV E BEEN TAXABLE AS BUSINESS INCOME. THE INCOME IN QUESTION IS THUS CLE ARLY DEALT WITH BY ARTICLE 7 READ WITH ARTICLE 5 AND THE REASON WHY IT HAS NOT BEEN TAXED IS THAT THE ENTITIES CONCERNED DID NOT HAVE PERMANE NT ESTABLISHMENTS IN INDIA. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 8 - 28. AS WE HOLD SO, WE ARE ALIVE TO THE FACT THAT TH ERE IS NO SPECIFIC TAXABILITY PROVISION, UNDER INDIA THAILAND TAX TREA TY OR, FOR THAT PURPOSE, UNDER INDIA UAE TAX TREATY, WITH RESPECT T O TAXABILITY OF FEES FOR TECHNICAL SERVICES. PROFITS EARNED BY RENDERING FEES FOR TECHNICAL SERVICES ARE ONLY A SPECIES OF BUSINESS PROFITS JUS T AS THE PROFITS ANY OTHER ECONOMIC ACTIVITY. HOWEVER, WITHOUT THE CHARA CTER OF SUCH RECEIPTS IN THE NATURE OF BUSINESS RECEIPTS BEING A LTERED, THE FEE FOR TECHNICAL SERVICES IS DEALT WITH SEPARATELY IN SOME TREATIES FOR THE REASON BECAUSE, UNDER THOSE TREATIES THE RELATED CO NTRACTING STATES PROCEED ON THE BASIS THAT EVEN IN THE ABSENCE OF TH E PERMANENT ESTABLISHMENT OR FIXED BASE REQUIREMENTS, THE RECEI PTS OF THIS NATURE CAN BE TAXED, ON GROSS BASIS, AT THE AGREED TAX RAT E, AND, TO THAT EXTENT, SUCH RECEIPTS DOES NOT FALL IN LINE WITH THE SCHEME OF TAXATION OF BUSINESS PROFITS UNDER ART. 7 AND PROFESSIONAL INCO ME UNDER 14. IT IS INTERESTING TO NOTE THAT THE MOMENT THE THRESHOLD L IMITS FOR PERMANENT ESTABLISHMENT OR FIXED BASE, AS THE CASE MAY BE, IS SATISFIED, THE TAXABILITY SHIFTS ON NET BASIS AS BUSINESS PROFITS OR PROFESSIONAL (INDEPENDENT PERSONAL SERVICES) INCOME. THE BUSINES S RECEIPTS OR PROFESSIONAL RECEIPTS THUS CANNOT BE SEEN IN ISOLAT ION WITH THE FEES FOR TECHNICAL SERVICES. ITS ONLY THE FACT OF, AND MODE OF, TAXATION IN THE ABSENCE OF PE OR FIXED BASE, WHICH GETS AFFECTED AS A RESULT OF THE FEES FOR TECHNICAL SERVICES. WHEN THERE IS AN FTS CLAUSE , THE FTS GETS TAXED EVEN IN THE ABSENCE OF THE PE OR THE FIXED BASE, BU T THE CHARACTER OF FTS RECEIPT IS THE SAME, I.E. BUSINESS INCOME OR PR OFESSIONAL (INDEPENDENT PERSONAL) INCOME, IN THE HANDS OF THE SAME. WHEN THERE IS NO FTS CLAUSE, THIS SUB CATEGORIZATION OF INCOME BECOMES IRRELEVANT, BECAUSE FTS OR ANY OTHER BUSINESS RECEI PT, THE INCOME EMBEDDED IN SUCH RECEIPTS GETS TAXED ONLY IF THERE IS A PERMANENT ESTABLISHMENT OR FIXED BASE- AS THE CASE MAY BE. TH E SCOPE OF BUSINESS PROFIT AND INDEPENDENT PERSONAL SERVICE COMPLETELY COVERS THE FEES FOR TECHNICAL SERVICES AS WELL. WITH FTS ARTICLE OR WIT HOUT FTS ARTICLE, THE INCOME BY WAY OF FEES OF TECHNICAL SERVICES CONTINU ES TO BE DEALT WITH THE PROVISIONS OF ARTICLES RELATING TO BUSINESS PRO FITS, INDEPENDENT PERSONAL SERVICES, AND ADDITIONALLY, IN THE EVENT O F EXISTENCE OF AN FTS ARTICLE, WITH THE ARTICLE RELATING TO THE FEES FOR TECHNICAL SERVICES. 29. IN VIEW OF THE ABOVE DISCUSSIONS, IN OUR CONSID ERED VIEW, EVEN IF THE RECEIPTS IN QUESTION ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES IN THE HANDS OF AFRAS UAE AND GMS THAILAND, THESE R ECEIPTS ARE NOT TAXABLE IN THE HANDS OF THESE ENTITIES, IN TERMS OF THE RESPECTIVE TAX TREATIES, IN INDIA. IT IS ONLY ELEMENTARY THAT UNDE R ARTICLE 90(2) WHERE THE GOVERNMENT HAS ENTERED INTO A TAX TREATY WITH A NY TAX JURISDICTION, IN RELATION TO THE ASSESSEE TO WHOM SUCH TREATY APP LIES, 'THE PROVISIONS ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 9 - OF THIS (INCOME TAX) ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE'. QUITE CLEARLY, WHEN T HERE IS NO TAXABILITY UNDER THE RESPECTIVE TREATY PROVISIONS, THERE CANNO T BE ANY TAXABILITY UNDER THE PROVISIONS OF THE INCOME TAX ACT EITHER. 30. AS REGARDS THE REMAINING CASES, IN CATEGORY (B) AND IN CATEGORY (C) AS ALSO IN THE CASE OF JT-IRAN, THE PROVISIONS OF T HE TAX TREATIES DONOT COME TO THE RESCUE OF THE RECIPIENTS, AND, THEREFOR E, THE TAXABILITY IN THESE CASES IS TO BE DECIDED ON THE BASIS OF THE PR OVISIONS IN THE DOMESTIC LAW. 31. THE SCHEME OF TAXABILITY IN INDIA, SO FAR AS TH E 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-RESID ENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS R ECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR O N BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO AC CRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR'. THERE IS NO DISPUTE THA T SINCE NO PART OF THE OPERATIONS OF THE RECIPIENT NON-RESIDENTS IS CA RRIED OUT IN INDIA, NO INCOME ACCRUES TO THESE NON-RESIDENTS IN INDIA. THE CASE OF THE REVENUE HINGES ON INCOME WHICH IS 'DEEMED TO ACCRUE OR ARISE IN INDIA'. COMING TO THE DEEMING 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 DEEMED UND ER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED O UT IN INDIA; (B) (C) (D)** ** **' ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 10 - (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, W AS CARRIED OUT IN INDIA. EVEN THOUGH DEEMING FICTION UNDER SECTION 9( 1)(I) IS TRIGGERED ON THE FACTS OF THIS CASE, ON ACCOUNT OF COMMISSION AGENT'S BUSINESS CONNECTION IN INDIA, IT HAS NO IMPACT ON TAXABILITY IN THE HANDS OF COMMISSION AGENT BECAUSE ADMITTEDLY NO BUSINESS OPE RATIONS WERE CARRIED OUT IN INDIA, AND, THEREFORE, EXPLANATION 1 TO SECTION 9(1)(I) COMES INTO PLAY. 33. THERE ARE A COUPLE OF RULINGS BY THE AUTHORITY FOR ADVANCE RULING, WHICH SUPPORT TAXABILITY OF COMMISSION PAID TO NON- 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 ADOPT ED IN THESE RULINGS. AS FOR THE AAR RULING IN THE CASE OF SKF B OILERS & DRIERS (P.) LTD. IN RE [2012] 343 ITR 385/206 TAXMAN 19/18 TAXM ANN.COM 325 (AAR - NEW DELHI), WE FIND THAT THIS DECISION MEREL Y 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 EXPL ANATION 1 TO SECTION 9(1)(I) PROPERLY. THAT WAS A CASE IN WHICH THE NON- RESIDENT ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 11 - COMMISSION AGENT WORKED FOR PROCURING PARTICIPATION BY OTHER NON- RESIDENT ENTITIES IN A FOOD AND WINE SHOW IN INDIA, AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE THE AGENT HAS NOT CARRIED O UT ANY BUSINESS OPERATIONS IN INDIA, THE COMMISSION AGENT WAS NOT C HARGEABLE TO TAX IN INDIA, AND, ACCORDINGLY, THE ASSESSEE HAD NO OBLIGA TION TO DEDUCT TAX AT SOURCE FROM SUCH COMMISSION PAYMENTS TO THE NON- RESIDENT AGENT. ON THESE FACTS, THE AUTHORITY FOR ADVANCE RULING, I NTER ALIA, OPINED THAT 'NO DOUBT THE AGENT RENDERS SERVICES ABROAD AN D PURSUES AND SOLICITS EXHIBITORS THERE IN THE TERRITORY ALLOTTED TO HIM, BUT THE RIGHT TO RECEIVE THE COMMISSION ARISES IN INDIA ONLY WHEN EX HIBITOR PARTICIPATES IN THE INDIA INTERNATIONAL FOOD & WINE SHOW (TO BE HELD IN INDIA), AND MAKES FULL AND FINAL PAYMENT TO THE APPLICANT IN INDIA' AND THAT 'THE COMMISSION INCOME WOULD, THEREFORE, B E TAXABLE UNDER SECTION 5(2)(B) READ WITH SECTION 9(1)(I) OF THE AC T'. THE AUTHORITY FOR ADVANCE RULING ALSO HELD THAT 'THE FACT THAT THE AG ENT RENDERS SERVICES ABROAD IN THE FORM OF PURSUING AND SOLICITING PARTI CIPANTS AND THAT THE COMMISSION IS REMITTED TO HIM ABROAD ARE WHOLLY IRR ELEVANT FOR THE PURPOSE OF DETERMINING SITUS OF HIS INCOME'. WE DO NOT CONSIDER THIS APPROACH TO BE CORRECT. WHEN NO OPERATIONS OF THE B USINESS OF COMMISSION AGENT IS CARRIED ON IN INDIA, THE EXPLAN ATION 1 TO SECTION 9(1)(I) TAKES THE ENTIRE COMMISSION INCOME FROM OUT SIDE THE AMBIT OF DEEMING FICTION UNDER SECTION 9(1)(I), AND, IN EFFE CT, OUTSIDE THE AMBIT OF INCOME 'DEEMED TO ACCRUE OR ARISE IN INDIA' FOR THE PURPOSE OF SECTION 5(2)(B). THE POINT OF TIME WHEN COMMISSION AGENT'S RIGHT TO RECEIVE THE COMMISSION FRUCTIFIES IS IRRELEVANT TO DECIDE THE SCOPE OF EXPLANATION 1 TO SECTION 9(1 )(I), WHICH IS WHAT IS MATERIAL IN THE CONTEXT OF THE SITUATION THAT WE ARE IN SEISIN OF. THE REVENUE'S CASE BEFORE US HINGES ON THE APPLICABILITY OF SECTION 9( 1)(I) AND, IT IS, THEREFORE. IMPORTANT TO ASCERTAIN AS TO WHAT EXTENT WOULD THE RIGOUR OF SECTION 9(1)(I) BE RELAXED BY EXPLANATION 1 TO SECT ION 9(1)(I). WHEN WE EXAMINE THINGS FROM THIS PERSPECTIVE, THE INEVIT ABLE CONCLUSION IS THAT SINCE NO PART OF THE OPERATIONS OF THE BUSINES S 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 GU IDED BY THE SAME. THE STAND OF THE REVENUE, HOWEVER, IS THAT THESE RU LINGS, BEING FROM SUCH A HIGH QUASI-JUDICIAL FORUM, EVEN IF NOT BINDI NG, CANNOT SIMPLY BE BRUSHED ASIDE EITHER, AND THAT THESE RULINGS AT LEA ST HAVE PERSUASIVE VALUE. WE HAVE NO QUARREL WITH THIS PROPOSITION. WE HAVE, WITH UTMOST CARE AND DEEPEST RESPECT, PERUSED THE ABOVE RULINGS RENDERED BY THE HON'BLE AUTHORITY FOR ADVANCE RULING. WITH GREATEST RESPECT, BUT ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 12 - WITHOUT SLIGHTEST HESITATION, WE HUMBLY COME TO THE CONCLUSION THAT WE 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 SECT ION 9(1)(VII) DEFINES 'FEES FOR TECHNICAL SERVICES' AS ANY CONSIDERATION (INCLUDING ANY LUMPSUM CONSIDERATION) FOR THE RENDERING OF ANY MAN AGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLU DE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES' [RELEVANT PORT ION HIGHLIGHTED BY 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 ASSES SEE TO THE NON- RESIDENT AGENTS COULD BE TERMED AS 'CONSIDERATION F OR THE RENDERING 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 STAND OF THE ASSESSING OFFICER, AT BEST SERVICES RENDERED BY THE NON-RESIDENT TO THE AGENT INCLUDED TECHNICAL SERVICES BUT IT IS FOR THI S REASON THAT THE AMOUNTS PAID TO THESE AGENTS, ON ACCOUNT OF COMMISS ION ON EXPORTS, SHOULD BE TREATED AS FEES FOR TECHNICAL SERVICES. E VEN PROCEEDING ON THE ASSUMPTION THAT THESE NON-RESIDENT AGENTS DID R ENDER THE TECHNICAL SERVICES, WHICH, AS WE WILL SEE A LITTLE LATER, AN INCORRECT ASSUMPTION ANYWAY, WHAT IS IMPORTANT TO APPRECIATE IS THAT THE AMOUNTS PAID BY THE ASSESSEE TO THESE AGENTS CONSTITUTED CONSIDERAT ION FOR THE ORDERS SECURED BY THE AGENTS AND NOT THE SERVICES ALLEGED RENDERED BY THE AGENTS. THE EVENT TRIGGERING CRYSTALLIZATION OF LIA BILITY OF THE ASSESSEE, UNDER THE COMMISSION AGENCY AGREEMENT, IS THE EVENT OF SECURING ORDERS AND NOT THE RENDITION OF ALLEGED TECHNICAL S ERVICES. 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 TERMS OF A PERCENTAGE OF THE V ALUE OF THE ORDER. IN A REVERSE SITUATION, IN WHICH AN AGENT RENDERS A LL THE ALLEGED TECHNICAL SERVICES BUT DOES NOT SECURE ANY ORDER FO R THE PRINCIPAL I.E. THE ASSESSEE, THE AGENT IS NOT ENTITLED TO ANY COMM ISSION. CLEARLY, THEREFORE, THE EVENT TRIGGERING THE EARNINGS BY THE AGENT IS SECURING THE BUSINESS AND NOT RENDITION OF ANY SERVICES. IN THIS VIEW OF THE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 13 - 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 CONSU LTANCY SERVICES (EMPHASIS BY UNDERLINING SUPPLIED BY US)'. THE SERV ICES RENDERED BY THE AGENTS, EVEN IF THESE SERVICES ARE HELD TO BE I N THE NATURE OF TECHNICAL SERVICES, MAY BE TECHNICAL SERVICES, BUT THE AMOUNTS PAID BY THE ASSESSEE ARE NOT FOR THE RENDITION OF THESE TEC HNICAL SERVICES NOR THE QUANTIFICATION OF THESE AMOUNTS HAVE ANY RELATI ON WITH THE QUANTUM OF THESE TECHNICAL SERVICES. THE KEY TO TAX ABILITY OF AN AMOUNT UNDER SECTION 9(1)(VII) IS THAT IT SHOULD CONSTITUT E 'CONSIDERATION' FOR RENDITION OF TECHNICAL SERVICES. THE CASE OF THE RE VENUE FAILS ON THIS SHORT TEST, AS IN THE PRESENT 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 CONCE RNED. IT DOES NOT NEED MUCH OF A CEREBRAL EXERCISE TO FIND OUT WHETHE R THE INCOME FROM THE BUSINESS CARRIED ON BY A NON-RESIDENT ASSESSEE, AS A COMMISSION AGENT AND TO THE EXTENT IT CAN BE SAID TO DIRECTLY OR INDIRECTLY ACCRUING THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, I S REQUIRED TO BE TAXED UNDER SECTION 9(1)(I) OR UNDER SECTION 9(1)(V II), OF THE INCOME TAX ACT, 1961. THE ANSWER IS OBVIOUS. DEEMING FICTI ON UNDER SECTION 9(1)(I) READ WITH PROVISO THERETO, AS WE HAVE SEEN IN THE EARLIER DISCUSSIONS, HOLDS THE KEY, AND LAYS DOWN THAT ONLY TO THE EXTENT THAT WHICH THE OPERATIONS OF SUCH A BUSINESS IS CARRIED OUT IN INDIA, THE INCOME FROM SUCH A BUSINESS IS TAXABLE IN INDIA. WH EN NO OPERATIONS OF THE BUSINESS ARE CARRIED ON INDIA, THERE IS NO T AXABILITY OF THE PROFITS OF SUCH A BUSINESS IN INDIA EITHER. THE QUESTION TH EN ARISES WHETHER IN A SITUATION IN WHICH, IN THE COURSE OF CARRYING ON SUCH BUSINESS, THE ASSESSEE HAS TO NECESSARILY RENDER CERTAIN SERVICES , WHICH ARE OF SUCH A NATURE AS COVERED BY EXPLANATION 2 TO SECTION 9(1 )(VII), AND EVEN THOUGH THE ASSESSEE IS NOT PAID ANY FEES FOR SUCH S ERVICES PER SE, ANY PART OF THE BUSINESS PROFITS OF THE ASSESSEE CAN BE TREATED AS 'FEES FOR TECHNICAL SERVICES' AND TAXED AS SUCH UNDER SECTION 9(1)(VII). THIS QUESTION DOES NOT POSE MUCH DIFFICULTY EITHER. IN T HE LIGHT OF THE DISCUSSIONS IN THE FOREGOING PARAGRAPH, UNLESS THER E IS A SPECIFIC AND IDENTIFIABLE CONSIDERATION FOR THE RENDITION OF TEC HNICAL SERVICES, TAXABILITY UNDER SECTION 9(1)(VII) DOES NOT GET TRI GGERED. THEREFORE, IRRESPECTIVE OF WHETHER ANY TECHNICAL SERVICES ARE RENDERED DURING THE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 14 - COURSE OF CARRYING ON SUCH AGENCY COMMISSION BUSINE SS ON BEHALF OF INDIAN PRINCIPAL, THE CONSIDERATION FOR SECURING BU SINESS CANNOT BE TAXED UNDER SECTION 9(1)(VII) AT ALL. THIS PROFITS OF SUCH A BUSINESS CAN HAVE TAXABILITY IN INDIA ONLY TO THE EXTENT SUCH PR OFITS RELATE TO THE BUSINESS OPERATIONS IN INDIA, BUT THEN, AS ARE THE ADMITTED FACTS OF THIS CASE, NO PART OF OPERATIONS OF BUSINESS WERE CARRIE D OUT IN INDIA. THE COMMISSION AGENTS EMPLOYED BY THE ASSESSEE, THEREFO RE, DID NOT HAVE ANY TAX LIABILITY IN INDIA IN RESPECT OF THE COMMIS SION 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 SUP PORT 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-REA SONED FINDINGS AND LINE OF REASONING, AND WE WILL ALSO BRIEFLY TOUCH U PON THIS ASPECT OF THE MATTER. BEFORE WE DO SO, WE MAY TAKE NOTE OF SOME O F THE CLAUSES IN A TYPICAL COMMISSION AGREEMENT ENTERED INTO BY THE AS SESSEE WITH ITS COMMISSION AGENTS. THE KEY PROVISIONS IN THIS AGREE MENT, A COPY OF WHICH IS PLACED BEFORE US AT PAGES 103 TO 109 OF TH E PAPER-BOOK, ARE AS FOLLOWS: ARTICLE 5 - AGENT'S OBLIGATION 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 MARKET PLANS AND ESTABLISH ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 15 - THE MARKETING NETWORK OF REPRESENTATIVES TO HELP PR OMOTE 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 . ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 16 - ARTICLE 7 PRINCIPAL'S OBLIGATIONS 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 LETTER STATING REASONS FOR THE TERMINATION. THE AGREEMENT CAN BE REINSTATED FO R A FURTHER PERIOD OF TWO YEARS BASED ON MUTUAL AGREEMENT AND THEN AFT ER 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 ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 17 - 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 SHALL B E PAYABLE BY WELSPUN TO GLOBAL SYNERGY INTERNATIONAL LTD. AS INT ERIM PAYMENTS ON PRORATE BASIS AFTER REALIZATION OF THE PAYMENTS RECEIVED BY THE PRINCIPAL WITHIN A REASONABLE TIME BUT NOT E XCEEDING 30 DAYS FROM RECEIPT OF PAYMENT BY THE PRINCIPAL. 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 UNCONDITIONALLY TO FULFIL THE SCOPE SET THEREIN BY THE VIRTUE OF THIS ADDENDUM. (B)THIS COMMISSION IS OVER THE ABOVE THE COMMISSION PAYABLE 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 A RE AVAILABLE WITH WELSPUN. UNLESS OTHERWISE AGREED, THE SALES CO MMISSION SHALL BE PAYABLE BY WELSPUN TO GLOBAL SYNERGY INTERNATION AL ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 18 - LTD., AS INTERIM PAYMENTS ON PRORATE BASIS AFTER RE ALIZATION OF THE PAYMENTS RECEIVED BY THE PRINCIPAL WITHIN A REASONA BLE TIME BUT NOT EXCEEDING 30 DAYS FROM RECEIPT OF PAYMENT BY WE LSPUN. 38. AS IS CLEAR FROM THE ABOVE PROVISIONS OF THE AG REEMENT, THE WORK THAT THE AGENT HAS TO DONE UNDER THIS AGREEMENT, AS IS STATED UNAMBIGUOUSLY IN THE AGREEMENT ITSELF, IS TO 'CARRY OUT ALL THE DUTIES NORMALLY RENDERED BY AN AGENT' INCLUDING BUT NOT LI MITED TO THE ACTIVITIES SPECIFIED THEREIN. THE CONSIDERATION FOR WHICH THE PAYMENT MADE TO THE COMMISSION AGENT IS OBTAINING OF THE OR DERS AND NOT ANY SERVICES PER SE. THE CONSIDERATION IS COMPUTED ON T HE BASIS OF BUSINESS PROCURED. OBVIOUSLY, IF THERE ARE NO BUSINESS GENER ATED FOR THE PRINCIPAL, THE AGENT GETS NOTHING. QUITE CLEARLY, W HAT IS DONE BY THE AGENT IS NOT A RENDITION OF SERVICE BUT PURE ENTREP RENEURIAL ACTIVITY. THE WORK ACTUALLY UNDERTAKEN BY THE AGENT IS THE WO RK OF ACTING AS AGENT AND SO PROCURING BUSINESS FOR THE ASSESSEE BU T AS THE CONTEMPORARY BUSINESS MODELS REQUIRE THE WORK OF AG ENT CANNOT SIMPLY AND ONLY BE TO OBTAIN THE ORDERS FOR THE PRO DUCT, AS THIS OBTAINING OF ORDERS IS INVARIABLY PRECEDED BY AND F OLLOWED BY SEVERAL PREPARATORY AND FOLLOW UP ACTIVITIES. THE DESCRIPTI ON OF AGENT'S OBLIGATION SETS OUT SUCH COMMON ANCILLARY ACTIVITIE S AS WELL BUT THAT DOES NOT OVERRIDE, OR RELEGATE, THE CORE AGENCY WOR K. THE CONSIDERATION PAID TO THE AGENT IS ALSO BASED ON TH E BUSINESS PROCURED AND THE AGENCY AGREEMENTS DONOT PROVIDE FOR ANY IND EPENDENT, STANDALONE OR SPECIFIC CONSIDERATION FOR THESE SERV ICES. THE SERVICES RENDERED UNDER THE AGREEMENT CANNOT, THEREFORE, BE CONSIDERED TO BE TECHNICAL SERVICES IN NATURE OR CHARACTER. THE SERV ICES RENDERED IN THE COURSE OF RENDERING AGENCY SERVICES ARE ESSENTIALLY BUSINESS SERVICES AND TO OBTAIN THE BUSINESS. WE HAVE ALSO NOTED THAT , SO FAR AS RENDITION OF TECHNICAL SERVICES IS CONCERNED, 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 'MANUFACTURING OF SPECIA LIZED PIPE WAS A HIGHLY TECHNICAL ACTIVITY INVOLVING VERY COMPLEX TE CHNICAL EXERCISE OF TECHNOLOGY AND SKILLED LABOUR AND FINEST GRADE OF R AW MATERIAL' AND THAT 'OBVIOUSLY, TO PROCURE THE ORDERS, THE ASSESSE E COMPANY WILL NEED SPECIALIST AGENTS WHO CAN UNDERSTAND THE NITTY GRIT TY OF THE ASSESSEE'S BUSINESS AND CAN DEMONSTRATE THE ASSESSEE'S BUSINES S PROFILE AND QUALITY OF PRODUCTS OF THE ASSESSEE TO THE POTENTIA L CLIENTS TO CONVINCE THEM TO ENTER INTO A CONTRACT WITH THE ASSESSEE COM PANY JUST BECAUSE A PRODUCT IS HIGHLY TECHNICAL DOES NOT CHANGE THE CHA RACTER OF ACTIVITY OF THE SALE AGENT. WHETHER A SALESMAN SELLS A HANDCRAF TED SOUVENIR OR A TOP OF THE LINE LAPTOP, HE IS SELLING NEVERTHELESS. IT WILL BE ABSURD TO SUGGEST THAT IN THE FORMER CASE, HE IS SELLING AND THE LATTER, HE WILL BE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 19 - RENDERING TECHNICAL SERVICES. THE OBJECT OF THE SAL ESMAN IS TO SELL AND FAMILIARITY WITH THE TECHNICAL DETAILS, WHATEVER 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. UNDOUBTEDL Y WHEN A TECHNICAL PRODUCT IS BEING SOLD, THE PERSON SELLING THE PRODUCT SHOULD BE FAMILIAR WITH TECHNICAL SPECIFICATIONS OF THE PR ODUCT BUT THEN THIS ASPECT OF THE MATTER DOES NOT ANYWAY CHANGE THE ECO NOMIC ACTIVITY. NOTHING, THEREFORE, TURNS ON THE DETAILS OF THE PRO DUCTS BEING TECHNICAL. IT WAS ALSO NOTED THAT BY THE ASSESSING OFFICER THAT 'IT IS A VERY TECHNICAL EXERCISE TO OBTAIN THE CONTRACTS SIN CE IT INVOLVES COMPLEX PROCESS REQUIRING ELABORATE DISCUSSION, TEC HNICAL EXPERTISE AND PRESENT OF COMPLEX TECHNICAL PRESENTATION, ON B EHALF OF THE ASSESSEE, WHICH CAN ONLY BE DONE BY A SPECIALIST IN THIS FIELD SO AS TO CONVINCE THE CLIENTS ABOUT WELSPUN'S SUITABILITY TO THE CONTRACT'. THIS AT BEST SIGNIFIES COMPLEXITY IN THE BUSINESSES AND THE NEED OF TECHNICAL INPUTS IN THE PROCESS OF BUSINESSES, PARTICULARLY W HEN THE PRODUCTS BEING DEALT WITH ARE TECHNICAL PRODUCTS, BUT THEN M ERELY BECAUSE TECHNICAL INPUTS ARE NEEDED IN CARRYING OUT BUSINES S ACTIVITY, IT DOES NOT BECOME A TECHNICAL SERVICE RATHER THAN A BUSINE SS ACTIVITY. AT THE COST OF REPETITION, WE MUST EMPHASIZE THE IMPORTANT DISTINCTION BETWEEN A BUSINESS ACTIVITY, REQUIRING UNDERSTANDIN G 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 O RDERS IS AN ENTREPRENEURIAL ACTIVITY AND CANNOT, BY ANY STRETCH OF LOGIC, BE TREATED AS A TECHNICAL SERVICE PER SE. THE SAME IS THE POSI TION 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. A LL THESE SERVICES ARE ESSENTIALLY INTEGRAL PART OF, AND ARE THUS AIME D AT, DEVELOPING BUSINESS FOR THE ASSESSEE AND SECURING ORDERS FOR T HE ASSESSEE FROM THE RIGHT PERSONS. NEITHER THESE SERVICES CAN BE VIEWED ON A STANDALONE BASIS DIVORCED FROM THE ECONOMIC ACTIVITY OF SECURI NG ORDERS, NOR ANY PAYMENT CAN BE SAID TO BE FOR RENDITION OF THESE SE RVICES INASMUCH AS IT IS NOT THE RENDITION OF THESE SERVICES BUT SECUR ING BUSINESS OF THE ASSESSEE WHICH TRIGGERS THE INCOME ACCRUING TO THE NON-RESIDENT AGENTS OF THE ASSESSEE AND IT IS SECURING OF BUSINE SS FOR THE ASSESSEE WHICH IS THE PROXIMATE CAUSE OF THE INCOME ACCRUING TO THE ASSESSEE. THIS ISSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESS EE, BY A COORDINATE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 20 - BENCH DECISION IN THE CASE OF DY. CIT V. TROIKAA PH ARMACEUTICALS LTD. [IT APPEAL NO. 2028/AHD/13 AND CO NO 13/AHD/14] AND VICE VERSA, WHEREIN IT HAS BEEN, INTER ALIA, OBSERVED AS FOLLOW S: '5. AS REGARDS THE REFERENCES TO SECTION 9(1)(VII), AS MADE BY THE ASSESSING OFFICER AND THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE FIND THAT ASPECT OF THE MATTER I S ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY A LARGE NUMB ER 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 PARTA KE THE CHARACTER OF 'FEES FOR TECHNICAL SERVICES' AS EXPLA INED IN THE CONTEXT OF 9(1)(VII) OF THE ACT AND THEREFORE, THER E IS NO SCOPE FOR THE APPLICATION OF THE PROVISIONS OF SECTION 19 5 OF THE ACT (TAX DEDUCTED AT SOURCE). IT IS ALSO CONTENDED THAT AS THE NON- RESIDENT AGENTS HAVE NEITHER BUSINESS CONNECTION IN INDIA NOR THEY HAVE PERMANENT ESTABLISHMENT IN INDIA, THEY AR E 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 COMMISSION TO FOREIGN AGENTS FOR THE SERVICES RENDE RED OUTSIDE INDIA; (B) THE TAX DEDUCTION AT SOURCE (TDS) IS REQ UIRED 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. FAIZAN SHOES (P.) LTD. [2014] 367 ITR 155/226 TAXMAN 115/48 TAXMANN.COM 48 (MAD.), THE ASSESSEE I S NOT LIABLE TO DEDUCT TAX AT SOURCE, WHEN THE NON-RESIDE NT AGENT PROVIDES SERVICES OUTSIDE INDIA ON PAYMENT OF COMMI SSION. 5.2 THE CONTENTION OF THE REVENUE IS THAT SUCH SERV ICES ARE ATTRACTED BY EXPLANATION (2) TO SECTION 9 (1) (VII) OF THE ACT AND THEREFORE TDS CERTIFICATE IS ESSENTIAL. 6. WHETHER THIS CONTENTION IS CORRECT, IS THE ISSUE TO BE DECIDED. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 21 - 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 COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', (A) IN THE CASE OF ANY ASSESSEE (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN IS SUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL , 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM C HARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPA NY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUC TED 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 SPECI FIED IN SUB- SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOW ED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION: FOR THE PURPOSES OF THIS SUB-CLAUSE, (A) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9: (B) 'FEES FOR TECHNICAL SERVICES' SHALL 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 TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 22 - THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECI FIED IN SUB- SECTION (1) OF SECTION 139 THIRTY PER CENT OF, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DE DUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAU SE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INC OME 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 COMPANY, ANY INTEREST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC) OR SECTION 194LD OR ANY OTH ER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE O R AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE : PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY TH E GOVERNMENT OR A PUBLIC SECTOR BANK WITHIN THE MEANI NG OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL IN STITUTION WITHIN THE MEANING 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-SE CTION (1) AND TO MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE D EEMED TO HAVE ALWAYS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 23 - ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RES IDENT, WHETHER OR NOT THE NON-RESIDENT PERSON HAS (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA.' 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, WHET HER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECT ION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, OR THR OUGH THE TRANSFER OF A CAPITAL 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 INCLUD ED ''BY MEANS OF', 'IN CONSEQUENCE OF' OR 'BY REASON OF'.' 7.1 SECTION 40 OF THE ACT SPELLS OUT WHAT AMOUNTS A RE NOT DEDUCTIBLE FROM THE INCOME CHARGED TO TAX UNDER THE PROFITS AND 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-CLAUSE MADE APPLICABLE TO INTEREST HAVE BEEN EXTENDED TO P AYMENT OF ROYALTY, TECHNICAL FEES AND ANY OTHER SUM CHARGEABL E UNDER THIS ACT. THE SECTION PROVIDES THAT THE SUMS COVERE D BY THE SUB- CLAUSE, WHICH ARE CHARGEABLE UNDER THE ACT AND ARE PAYABLE OUTSIDE INDIA, SHALL NOT BE ALLOWED AS AN EXPENDITU RE TO THE ASSESSEE, UNLESS TAX IS PAID THEREON OR IS DEDUCTED THEREFROM UNDER CHAPTER XVII-B OF THE ACT. 7.3 SECTION 195(1) OF THE ACT DEALS WITH DEDUCTION OF TAX FROM 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 SU CH INCOME TO THE ACCOUNT OF THE PAYEE OR MAKE PAYMENT THEREOF, W HETHER IN ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 24 - CASH / CHEQUE / DRAFT OR ANY OTHER MODE. THE TAXABI LITY OF SUCH AMOUNT IN THE 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 ASSESSIN G OFFICER TO DETERMINE THE APPROPRIATE PROPORTION OF THE SUM CHA RGEABLE AND UPON SUCH DETERMINATION, THE TAX HAS TO BE DEDU CTED UNDER SECTION 195(1) OF THE ACT. THE PAYMENT IS MADE CRED ITED 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 FOREI GN AGENT. 9. THIS QUESTION HAS BEEN ANSWERED BY THE HON 'BLE SUPREME COURT, IN THE CASE OF G.E.INDIA TECHNOLOGY CENTRE ( P.) LTD. (SUPRA), IN WHICH, IT IS VERY CATEGORICALLY HELD TH AT THE TAX DEDUCTED 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-RESIDENT 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 DISCHARGIN G HIS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS CO ME INTO EXISTENCE ONLY WHEN THE RECIPIENT HAS A TAX LIABILI TY IN INDIA. 9.2 THE UNDERLYING PRINCIPLE IS THAT, THE TAX WITHH OLDING LIABILITY OF THE PAYER IS INHERENTLY A VICARIOUS LI ABILITY ON BEHALF OF THE RECIPIENT AND THEREFORE, WHEN THE RECIPIENT / FOREIGN AGENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAX ED IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT, THE VICARIOUS LI ABILITY OF THE PAYER TO DEDUCT TAX DOES NOT ARISE. THIS VICARIOUS TAX WITHHOLDING LIABILITY CANNOT BE INVOKED, UNLESS PRI MARY TAX LIABILITY OF THE RECIPIENT / FOREIGN AGENT IS ESTAB LISHED. IN THIS CASE, THE PRIMARY TAX LIABILITY OF THE FOREIGN AGEN T IS NOT ESTABLISHED. THEREFORE, THE VICARIOUS LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT THE TAX AT SOURCE DOES NOT EXIST . 10. FURTHER, JUST BECAUSE, THE PAYER / ASSESSEE HAS NOT OBTAINED A SPECIFIED DECLARATION FROM THE REVENUE AUTHORITIE S TO THE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 25 - EFFECT THAT THE RECIPENT IS NOT LIABLE TO BE TAXED IN INDIA, IN RESPECT OF THE INCOME EMBEDDED IN THE PARTICULAR PA YMENT, THE ASSESSING OFFICER CANNOT PROCEED ON THE BASIS THAT THE PAYER HAS AN OBLIGATION TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE AND ESTABLISH THAT THE PAYEE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYM ENT. 11. IN THE INSTANT CASE, IT IS SEEN, ADMITTEDLY THA T THE NONRESIDENT AGENTS WERE ONLY PROCURING ORDERS ABROA D AND FOLLOWING UP PAYMENTS WITH BUYERS. NO OTHER SERVICE S ARE RENDERED OTHER THAN THE ABOVE. SOURCING ORDERS ABRO AD, FOR WHICH PAYMENTS HAVE BEEN MADE DIRECTLY TO THE NON-R ESIDENTS ABROAD, DOES NOT INVOLVE ANY TECHNICAL KNOWLEDGE OR ASSISTANCE IN TECHNICAL OPERATIONS OR OTHER SUPPORT IN RESPECT OF ANY OTHER TECHNICAL MATTERS. IT ALSO DOES NOT RE QUIRE ANY CONTRIBUTION OF TECHNICAL KNOWLEDGE, EXPERIENCE, EX PERTISE, SKILL OR TECHNICAL KNOW-HOW OF THE PROCESSES INVOLV ED OR CONSIST IN THE DEVELOPMENT AND TRANSFER OF A TECHNI CAL PLAN OR DESIGN. THE PARTIES MERELY SOURCE THE PROSPECTIVE B UYERS FOR EFFECTING SALES BY THE ASSESSEE, AND IS ANALOGOUS T O A LAND OR A HOUSE / REAL ESTATE AGENT / BROKER, WHO WILL BE INV OLVED IN MERELY IDENTIFYING THE RIGHT PROPERTY FOR THE PROSP ECTIVE BUYER / SELLER AND ONCE HE COMPLETES THE DEAL, HE GETS THE COMMISSION. THUS, BY NO STRETCH OF IMAGINATION, IT CANNOT BE SA ID THAT THE TRANSACTION PARTAKES THE CHARACTER OF 'FEES FOR TEC HNICAL SERVICES' AS EXPLAINED IN THE CONTEXT OF SECTION 9( 1)(VII) OF THE ACT. 12. AS THE NON-RESIDENTS WERE NOT PROVIDING ANY TEC HNICAL SERVICES TO THE ASSESSEE, AS HELD ABOVE AND AS HELD BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE COMMISSIO N PAYMENT MADE TO THEM DOES NOT FALL INTO THE CATEGOR Y OF 'FEES OF TECHNICAL SERVICES' AND THEREFORE, EXPLANATION ( 2) TO SECTION 9(1)(VII) OF THE ACT, AS INVOKED BY THE ASSESSING O FFICER, 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 REMAINING OUTSIDE, SERVICES ARE RENDERED ABROAD AND PAYMENTS ARE ALSO MADE ABROAD. 14. THE CONTENTION OF THE LEARNED COUNSEL FOR THE R EVENUE IS THAT THE TRIBUNAL OUGHT NOT TO HAVE RELIED UPON THE DECISION ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 26 - G.E.INDIA TECHNOLOGY'S CASE, CITED SUPRA, IN VIEW O F INSERTION OF EXPLANATION 4 TO SECTION 9(1)(I) OF THE ACT WITH CORRESPONDING INTRODUCTION OF EXPLANATION 2 TO SECT ION 195(1) OF THE ACT, BOTH BY THE FINANCE ACT, 2012, WITH RET ROSPECTIVE EFFECT FROM 01.04.1962. 15. THE ISSUE RAISED IN THIS CASE HAS BEEN THE SUBJ ECT MATTER OF THE DECISION, IN THE RECENT CASE, CIT V. KIKANI EXP ORTS (P.) LTD. [2014] 369 ITR 96/[2015] 232 TAXMAN 255/49 TAXMANN. COM 601 (MAD.) WHEREIN THE CONTENTION OF THE REVENUE HA S BEEN REJECTED AND ASSESSEE HAS BEEN UPHELD AND THE RELEV ANT OBSERVATION READS AS UNDER: '... THE SERVICES RENDERED BY THE NON-RESIDENT AGEN T COULD AT BEST BE CALLED AS A SERVICE FOR COMPLETION OF THE E XPORT COMMITMENT AND WOULD NOT FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' AND, THEREFORE, SECTION 9 WAS N OT APPLICABLE AND, CONSEQUENTLY, SECTION 195 DID NOT COME INTO PL AY. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING O FFICER TOWARDS EXPORT COMMISSION PAID BY THE ASSESSEE TO T HE NON- RESIDENT WAS RIGHTLY DELETED.' 16. WHEN THE TRANSACTION DOES NOT ATRACT THE PROVIS IONS OF SECTION 9 OF THE ACT, THEN THERE IS NO QUESTION OF APPLYING EXPLANATION 4 TO SECTION 9 OF THE ACT. THEREFORE, T HE 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 CARRIES OUT ITS ACTIVITIES OUTSIDE INDIA, DOES NOT RESULT IN TA XABILITY 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 TECHNICAL 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 CONSIDE RATION FOR RENDERING OF ANY 'MANAGERIAL, TECHNICAL OR CONSULTA NCY SERVICES' BUT DOES NOT INCLUDE THE CONSIDERATION FO R ANY ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 27 - CONSTRUCTION, ASSEMBLY ETC. THE LEARNED CIT(A) HAS HELD THE SERVICES RENDERED BY THE ASSESSEE AS FEES FOR TECHN ICAL SERVICES' COMING WITH IN THE SWEEP OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. ON THE CONTRARY, THE CONTENT ION OF THE ASSESSEE HAS REMAINED BEFORE THE AUTHORITIES BELOW AS WELL AS US THAT THE SUCH SERVICES DO NOT FALL WITHIN THE AM BIT OF ANY OF THE CATEGORIES TAKEN NOTE OF BY THE AUTHORITIES BEL OW. WE WILL EXAMINE AS TO WHETHER THE SERVICES SO PROVIDED BY T HE ASSESSEE FALL WITHIN THE SCOPE OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES' AS PER EXPLANATION 2 TO SECTION 9(1)(VII) . 6. IN ORDER TO APPRECIATE THE NATURE OF SERVICES MO RE ELABORATELY, IT IS RELEVANT TO CONSIDER THE TERMS O F THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND MEN LO INDIA EXECUTED ON NOVEMBER 7, 2006 WITH EFFECT FROM 1ST J UNE, 2005, A COPY OF WHICH IS AVAILABLE ON PAGE 1 ONWARDS OF T HE PAPER BOOK. THE SCOPE OF SERVICES HAS BEEN GIVEN IN CLAUS E 1.1. IN THE RECITAL CLAUSE IT HAS BEEN PROVIDED THAT THE ASSESS EE COMPANY MAY REQUIRE MENLO INDIA TO PERFORM LOGISTICS SERVIC ES SUCH AS TRANSPORT, PROCUREMENT, CUSTOM CLEARANCE, SORTING, DELIVERY, WAREHOUSING AND PICKING UP SERVICES (LOCAL SERVICES ) WITHIN INDIA (LOCAL OPERATING AREA). IT HAS FURTHER BEEN P ROVIDED THAT MENLO INDIA MAY ALSO SEEK SIMILAR SERVICES FROM THE ASSESSEE COMPANY SUCH AS TRANSPORT, PROCUREMENT, CUSTOMS CLE ARANCE, SORTING, DELIVERY, WAREHOUSING AND PICK UP SERVICES (INTERNATIONAL SERVICES) OUTSIDE INDIA. IN THE PRES ENT APPEAL WE ARE CONCERNED WITH THE 'INTERNATIONAL SERVICES' PRO VIDED BY THE ASSESSEE TO MENLO OUTSIDE INDIA. THESE SERVICES COMPRISE OF TRANSPORT, PROCUREMENT, CUSTOMS CLEARANCE, SORTING, WAREHOUSING AND PICK UP SERVICES ON THE CARGO EXPOR TED BY MENLO ON BEHALF OF ITS CUSTOMERS. HAVING NOTED THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE OUTSIDE INDIA, FO R WHICH MENLO INDIA MADE THE PAYMENT, LET US CONSIDER IF TH ESE CAN BE DESCRIBED 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 CALLED. ORDINARILY THE MANAGERIAL SERVICES MEAN MANAGING TH E AFFAIRS BY LAYING DOWN CERTAIN POLICIES, STANDARDS AND PROC EDURES AND THEN EVALUATING THE ACTUAL PERFORMANCE IN THE LIGHT OF THE PROCEDURES SO LAID DOWN. THE MANAGERIAL SERVICES CO NTEMPLATE NOT ONLY EXECUTION BUT ALSO THE PLANNING PART OF TH E ACTIVITY TO BE DONE. IF THE OVERALL PLANNING ASPECT IS MISSING AND ONE HAS ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 28 - TO FOLLOW A DIRECTION FROM THE OTHER FOR EXECUTING PARTICULAR JOB IN A PARTICULAR MANNER, IT CANNOT BE SAID THAT THE FORMER IS MANAGING THAT AFFAIR. IT WOULD MEAN THAT THE DIRECT IONS OF THE LATTER ARE EXECUTED SIMPLICITY WITHOUT THERE BEING 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 NEED S TO BE CONSIDERED IN A COMMERCIAL SENSE. IT CANNOT BE INTE RPRETED IN A NARROW SENSE TO MEAN SIMPLY EXECUTING THE DIRECTION S OF THE OTHER FOR DOING A SPECIFIC TASK. FOR INSTANCE, IF G OODS ARE TO BE LOADED AND SOME WORKER IS INSTRUCTED TO PLACE THE G OODS ON A CARRIER IN A PARTICULAR MANNER, THE ACT OF THE WORK ER IN PLACING THE GOODS IN THE PRESCRIBED MANNER, CANNOT BE DESCR IBED AS MANAGING THE GOODS. IT IS A SIMPLE DIRECTION 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 RE QUIRED IN EACH AND EVERY ASPECT OF THE WORK DONE. AS IN THE A BOVE EXAMPLE WHEN 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. THIS ACT OF THE WORKER CANNO T BE DESCRIBED AS MANAGING THE GOODS BECAUSE HE SIMPLY F OLLOWED THE DIRECTION GIVEN TO HIM. ON THE OTHER HAND, 'MAN AGING' ENCOMPASSES NOT ONLY THE SIMPLE EXECUTION OF A WORK , BUT ALSO CERTAIN OTHER ASPECTS, SUCH AS PLANNING FOR THE WAY IN WHICH THE EXECUTION IS TO BE DONE COUPLED WITH THE OVERAL L RESPONSIBILITY IN A LARGER SENSE. THUS IT IS MANIFE ST THAT THE WORD 'MANAGING' IS WIDER IN SCOPE THAN THE WORD 'EX ECUTING'. RATHER THE LATER IS 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 SERVIC ES OUTSIDE INDIA IN RESPECT OF CONSIGNMENTS ORIGINATING FROM I NDIA UNDERTAKEN TO BE DELIVERED BY MENLO INDIA. THE ROLE OF THE ASSESSEE IN THE ENTIRE TRANSACTION WAS TO PERFORM O NLY THE DESTINATION SERVICES OUTSIDE INDIA BY UNLOADING AND LOADING OF CONSIGNMENT, CUSTOM CLEARANCE AND TRANSPORTATION TO THE ULTIMATE CUSTOMER. IN OUR CONSIDERED OPINION, IT IS TOO MUCH TO CATEGORIZE SUCH RESTRICTED SERVICES AS MANAGERIAL S ERVICES. WE, THEREFORE, JETTISON THIS CONTENTION RAISED ON BEHAL F OF THE REVENUE. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 29 - 9. NOW WE TAKE UP THE NEXT COMPONENT OF THE DEFINIT ION OF 'FEES FOR TECHNICAL SERVICES', BEING 'CONSULTANCY SERVICE S', WHICH HAS BEEN PRESSED INTO SERVICE BY THE LEARNED CIT(A) TO FORTIFY HIS VIEW THAT THE AMOUNT RECEIVED BY THE ASSESSEE IS CO VERED WITHIN SECTION 9(1)(VII). THE WORD 'CONSULTANCY' MEANS GIV ING SOME SORT OF CONSULTATION DE HORS THE PERFORMANCE OR THE EXECUTION OF ANY WORK. IT IS ONLY WHEN SOME CONSIDERATION IS GIVEN FOR RENDERING SOME ADVICE OR OPINION ETC., THAT THE SAM E FALLS WITHIN THE SCOPE OF 'CONSULTANCY SERVICES'. THE WOR D 'CONSULTANCY' EXCLUDES ACTUAL 'EXECUTION'. THE NATU RE 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 CONSULTATION WORTH THE NAME. RATHER SUCH PAYMENT IS WHOLLY AND E XCLUSIVELY FOR THE EXECUTION IN THE SHAPE OF TRANSPORT, PROCUR EMENT, CUSTOMS CLEARANCE, DELIVERY, WAREHOUSING AND PICKIN G UP SERVICES. THAT BEING THE POSITION, WE OPINE THAT TH E PAYMENT IN LIEU OF FREIGHT AND LOGISTICS SERVICES CANNOT BE RA NKED 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 TIM E TRANSMISSION OF INFORMATION BY USING AND ALSO MAKIN G AVAILABLE ITS TECHNOLOGY IN THE FORM OF SOPHISTICAT ED EQUIPMENTS AND SOFTWARE ETC. THE LEARNED CIT(A) HAS HELD THAT : 'IN ORDER TO ENSURE EFFICIENT AND TIMELY DELIVERY AND TO PROVIDE CONTINUOUS REAL TIME INFORMATION, THE APPEL LANT IS REQUIRED TO USE SOPHISTICATED TECHNOLOGY FOR WHICH THE INDIAN ENTITY IS ALSO EQUALLY INVOLVED AND TO WHOM THE APP ELLANT IS COMMITTED TO PROVIDING THE REQUISITE SOFTWARE AND E QUIPMENT'. THE LEARNED CIT(A) HAS ALSO ACCENTUATED ON THE CLAU SE 2 OF THE AGREEMENT WHICH READS AS UNDER: '2. CONTRACTOR SHALL SEPARATELY EXECUTE A TECHNOLOG Y AND SOFTWARE LICENSE AGREEMENT FOR THE PROVISION OF COM PUTER EQUIPMENT AND SOFTWARE SUPPLIED BY SCS. CONTRACTOR SHALL SEPARATELY EXECUTE A TRADEMARK LICENSE AGREEMENT FO R THE USE OF ANY MARKS OR BRANDS OWNED BY UNITED PARCEL SERVI CE OF AMERICA, INC. THE FEE PAYABLE BY CONTRACTOR UNDER P ARAGRAPH 3.1 WILL NOT INCLUDE ANY ROYALTY AMOUNT RELATING TO THE USE OF INTANGIBLE PROPERTY OR INFORMATION.' ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 30 - 11. ON GOING THROUGH CLAUSE 2 OF THE AGREEMENT, IT IS OBVIOUS THAT MENLO INDIA SHALL 'SEPARATELY EXECUTE A TECHNO LOGY AND SOFTWARE LICENSE AGREEMENT' FOR THE PROVISION OF CO MPUTER EQUIPMENT AND SOFTWARE SUPPLIED BY THE ASSESSEE. IT IS NOBODY'S CASE THAT THE CONSIDERATION IN QUESTION RELATES TO THE SUPPLY OF ANY COMPUTER EQUIPMENT AND SOFTWARE BY THE ASSESSEE TO MENLO INDIA. WE FAIL TO APPRECIATE AS TO HOW THIS C LAUSE 2 MAKES THE SERVICES PROVIDED BY THE ASSESSEE AS 'TEC HNICAL'. RATHER CLAUSE 2 MANDATES TO EXECUTE A SEPARATE TECH NOLOGY AND SOFTWARE LICENSE AGREEMENT FOR THE PROVISION OF COMPUTER EQUIPMENT AND SOFTWARE. HOW IS IT THAT THE CONSIDER ATION FOR THE SERVICES CAN BE ATTRIBUTED TO A PROPOSED AGREEM ENT, WHICH HAS YET TO SEE THE LIGHT OF THE DAY. 12. THE LEARNED CIT(A) HAS ALSO HARPED ON 'TRANSPOR TATION OF TIME SENSITIVE PACKAGES' WITH A VIEW TO BRING THE S ERVICES PROVIDED BY THE ASSESSEE WITHIN THE FOLD OF 'TECHNI CAL SERVICES'. IN REACHING THIS CONCLUSION THE LEARNED CIT(A) ALSO RELIED ON THE ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNA L IN BLUE DART EXPRESS LIMITED V. JCIT. LET US EXAMINE THE FA CTS OF THAT CASE. THE ASSESSEE THERE CLAIMED DEDUCTION U/S 80O IN RESPECT OF ITS FOREIGN EXCHANGE EARNINGS FOR RENDERING TECH NICAL / PROFESSIONAL SERVICES TO A US MULTI INTERNATIONAL C OMPANY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, 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 EXERCISING THE POWER U/S 263, THE LEARNED CIT HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE TO THE EXTENT OF GRANTING D EDUCTION U/S 800. WHEN THE MATTER CAME UP BEFORE THE TRIBUNAL, IT WAS OBSERVED THAT THE ISSUE IS DEBATABLE AND HENCE OUTS IDE THE AMBIT OF SECTION 263. APART FROM THAT, IT WAS ALSO OBSERVED THAT THE ASSESSEE WAS ENGAGED IN INTEGRATED AIR AND GROU ND TRANSPORTATION OF TIME SENSITIVE PACKAGES TO VARIOU S DESTINATIONS RENDERING COMMERCIAL SERVICES. IT WAS IN THIS CONTEXT THAT THE ASSESSEE WAS HELD TO BE ELIGIBLE F OR DEDUCTION U/S 80O. AT THIS JUNCTURE IT WILL BE USEFUL TO NOT E THAT AT THE MATERIAL TIME SECTION 80O PROVIDED FOR DEDUCTION O N ANY 'INCOME BY WAY OF ROYALTY, COMMISSION, FEES OR ANY SIMILAR PAYMENT RECEIVED BY THE ASSESSEE FROM THE GOVERNMEN T OF A FOREIGN STATE OR A FOREIGN ENTERPRISE IN CONSIDERAT ION FOR THE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 31 - USE OUTSIDE INDIA OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS, OR SIMILAR PROPERTY RIGH T, OR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL MADE AVAILABLE OR PR OVIDED OR AGREED TO BE MADE AVAILABLE OR PROVIDED TO SUCH GOV ERNMENT OR ENTERPRISE BY THE ASSESSEE, OR IN CONSIDERATION OF TECHNICAL OR PROFESSIONAL SERVICES RENDERED OR AGREED TO BE R ENDERED OUTSIDE INDIA TO SUCH GOVERNMENT OR ENTERPRISE BY T HE ASSESSEE'. FROM THE ABOVE QUOTED PART OF SEC. 80O, IT CAN BE SEEN THAT THE DEDUCTION AT THAT TIME WAS AVAILABLE NOT ONLY IN RESPECT OF INCOME AS A CONSIDERATION FOR THE 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 'O R' BETWEEN THEM. IN ORDER TO QUALIFY FOR DEDUCTION UNDER THIS SECTION, THE INCOME COULD HAVE RESULTED FROM THE RENDERING OF 'T ECHNICAL OR PROFESSIONAL SERVICES' OR COMMERCIAL KNOWLEDGE, EXP ERIENCE OR SKILL ETC. WHEN THE TRIBUNAL IN BLUE DART EXPRESS L IMITED (SUPRA) HELD THE ASSESSEE TO BE ENTITLED TO DEDUCTI ON, IT WAS CONSIDERING ALL THE SPECIES OF THE SERVICES SET OUT IN SECTION 80 O AND NOT ONLY 'TECHNICAL OR PROFESSIONAL SERVICES' . IT WAS IN THE LIGHT OF SUCH LANGUAGE OF THE PROVISION THAT TH E TRIBUNAL HELD THE ASSESSEE TO BE ELIGIBLE FOR RELIEF U/S 80 O. WE ARE CURRENTLY DEALING WITH SECTION 9(1)(VII), BEING THE 'FEES FOR TECHNICAL SERVICES' AND THE DEFINITION OF SUCH EXPR ESSION IS RESTRICTED ONLY TO 'MANAGERIAL, TECHNICAL OR CONSUL TANCY SERVICES' AND DOES NOT HAVE ANY SUCH ELEMENTS AS AR E THERE IN SECTION 80O. THE DECISION IN THE CASE OF BLUE DART EXPRESS LIMITED (SUPRA) CAME UP FOR CONSIDERATION BEFORE TH E MUMBAI BENCH OF THE TRIBUNAL IN DAMPSKIBSSELSKABET AF 1912 V. ADDL. DIT (INTERNATIONAL TAXATION) [(2011) 51 DTR 148] (T O WHICH ONE OF US, NAMELY, THE LD. JM IS PARTY) IN WHICH 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 SECTIONS 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 SUPPORTING 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 MAKING AVAILABLE ADVANCED TECHNOLOGY IN THE FORM OF SOPHIS TICATED ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 32 - EQUIPMENT AND SOFTWARE.' HE WAS SWAYED BY THE CONTE NTION OF THE ASSESSEE THAT THE MANLO INDIA OR THE ULTIMATE C USTOMER COULD TRACK THE MOVEMENT OF CARGO WITH THE HELP OF COMPUTERS. WE HAVE NOTED SUPRA THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE DID NOT INCLUDE ANY CONSIDERATION FOR THE SUPPLY OF ANY EQUIPMENT TO MANLO INDIA. NOW WE WILL EXAMINE A S TO WHETHER THE USE OF COMPUTER IN ANY MANNER FOR KNOWI NG THE LOCATION OF THE CARGO AT A PARTICULAR TIME, CAN BE HELD AS TECHNICAL SERVICE. 14. EXPLANATION TO SECTION 9(1)(VII) DEFINES THE EX PRESSION 'FEES FOR TECHNICAL SERVICES' AS CONSIDERATION FOR RENDER ING 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. IT IS SEEN THAT THERE IS NO DEFINITION OF THE TERM 'TECHNICAL SERVI CES' 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 T HAN THE RULE OF EJUSDEM GENERIS. IN ORDER TO DISCOVER THE MEANIN G OF A WORD WHICH HAS NOT BEEN DEFINED IN THE ACT, THE HON'BLE SUPREME COURT HAS APPLIED THE PRINCIPLE OF NOSCITUR A SOCII S IN SEVERAL CASES INCLUDING ARAVINDAPARAMILA WORKS V. CIT [(199 9) 237 ITR 284 (SC)]. AS NOTED ABOVE THE WORD 'TECHNICAL' HAS BEEN SANDWICHED BETWEEN THE WORDS 'MANAGERIAL' AND 'CONS ULTANCY' IN EXPLANATION 2 TO SEC. 9(1)(VII) AND NO DEFINITIO N HAS BEEN ASSIGNED TO THE 'TECHNICAL' SERVICES IN THE RELEVAN T PROVISION, WE NEED TO ASCERTAIN THE MEANING OF THE 'TECHNICAL SERVICES' FROM THE OVERALL MEANING OF THE WORDS 'MANAGERIAL' AND 'CONSULTANCY' SERVICES BY APPLYING THE PRINCIPLE OF NOSTICUR A SOCIIS. IT HAS BEEN HELD ABOVE THAT THE 'MANAGERIAL SERVICES' AND 'CONSULTANCY SERVICES' PRESUPPOSE SOME SORT OF DIRECT HUMAN INVOLVEMENT. THESE SERVICES CANNOT BE CONCEIV ED WITHOUT THE DIRECT INVOLVEMENT OF MAN. THESE SERVIC ES CAN BE RENDERED WITH OR WITHOUT ANY EQUIPMENT, BUT THE HUM AN 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 H UMAN ENDEAVOR. WHERE SIMPLY AN EQUIPMENT OR A STANDARD F ACILITY ALBEIT DEVELOPED OR MANUFACTURED WITH THE USE OF TE CHNOLOGY IS USED, SUCH A USER CANNOT BE CHARACTERIZED AS USING 'TECHNICAL SERVICES'. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 33 - 16. COMING BACK TO THE FACTS OF THE PRESENT CASE, E VEN IF WE ACCEPT THE LEARNED FIRST APPELLATE AUTHORITY'S POIN T OF VIEW THAT THE COMPUTER COULD BE USED IN TRACING THE MOVEMENT OF THE GOODS, SUCH USE OF COMPUTER, THOUGH INDIRECT, REMOT E AND NOT NECESSARY, CAN NOT BRING THE PAYMENT FOR FREIGHT AN D LOGISTICS SERVICES WITHIN THE PURVIEW OF 'TECHNICAL SERVICES' . THE ESSENCE OF THE CONSIDERATION FOR THE PAYMENT IS REN DERING OF SERVICES AND NOT THE USE OF COMPUTER. IF INCIDENTAL LY COMPUTER IS USED AT ANY STAGE, WHICH IS OTHERWISE NOT NECESS ARY FOR RENDERING SUCH SERVICES, THE PAYMENT FOR FREIGHT AN D LOGISTICS WILL NOT PARTAKE OF THE CHARACTER OF FEES OF 'TECHN ICAL SERVICES'. WE, THEREFORE, REPEL THIS CONTENTION RAISED ON BEHA LF OF THE REVENUE. 17. THUS IT CAN BE NOTICED THAT THE PAYMENT MADE TO THE ASSESSEE IN QUESTION IS NOT A CONSIDERATION FOR MAN AGERIAL OR TECHNICAL OR CONSULTANCY SERVICES. THAT BEING THE P OSITION, IT CANNOT 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 AGEN TS, REPRESENTING 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 INVO KE THE DEFINITIONS OF TECHNICAL SERVICES ON THE COMMISSION PAID TO THE FOREIGN COMPANY. THE REASON BEING THAT COMMISSION P AYMENT TO NON-RESIDENT IS NOT COVERED BY THE PROVISIONS OF SECTION 40(A)(IA), AS IT HAS ONLY APPLICABLE TO ANY INTERES T ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDE R THIS ACT WHICH PAYABLE OUTSIDE INDIA ON WHICH TAX IS DEDUCTI BLE AT SOURCE BUT HAS NOT BEEN DEDUCTED. THE ASSESSING OFF ICER MADE OUT A CASE THAT THE COMMISSION PAID IS TEES FOR TEC HNICAL SERVICES' WITHOUT SPECIFYING WHAT ARE THE TECHNICAL /MANAGERIAL SERVICES RENDERED BY THE SAID COMPANY TO THE ASSESS EE. ASSESSEE INDEED ENTERED INTO AN AGREEMENT FOR PROPA GATION OF ITS HANDICRAFT PRODUCTS WITH THE NON-RESIDENT COMPA NY. THE COPIES OF THE AGREEMENT HAVE BEEN PLACED BEFORE THE ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 34 - 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 SERVI CES ON SALES SUCH AS RECOVERY ETC. FOR DOING EXPORT SALES. IT IS ALSO RESPONSIBILITY OF THE NON-RESIDENT COMPANY TO DISSE MINATE THE INFORMATION AND INQUIRE ABOUT VARIOUS IMPORTERS IN VARIOUS COUNTRIES SO THAT ASSESSEE EXPORTS CAN BE INCREASED . THE AGREEMENT CLEARLY SHOWS THAT NON-RESIDENT COMPANY W AS TO GET THE COMMISSION FOR PROMOTING THE PRODUCT OF ASSESSE E COMPANY AFTER SALES PROCEEDS ARE RECEIVED. THE DETAILED TER MS 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 IN DIJACK LIMITED, 99 BRECK NOCK ROAD, LONDON N19 5 AB, U.K. HEREINAFTER REFERRED TO AS 'AGENT' THE FOLLOWING I S AGREED UPON: - ARTICLE 1- OBJECT OF AGREEMENT 1.1. THE PRINCIPAL ENTRUSTS THE AGENT WITH THE NON EXCLUSIVE AGENCY FOR THE FOLLOWING CONTRACTUAL TERRITORY (ARE A): WORLDWIDE 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 HE REINAFTER ENUMERATED. THE AGENT SHALL NOT BE AUTHORIZED TO EN TER INTO A CONTRACT OR OTHERWISE TO BIND THE PRINCIPAL. THE PR INCIPAL SHALL ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 35 - BE FREE TO CONCLUDE, OR TO REFUSE THE CONCLUSION OF A CONTRACT NEGOTIATED BY THE AGENT. 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 THEIR TERRITORY (AREA) REGULARLY TO VISIT CUSTOMERS, AND IS BOUND TO KEEP CONCLUDED CONTRACTS SECRET. THE AGENT SHALL AL WAYS KEEP THE PRINCIPAL INFORMED ABOUT THEIR ACTIVITIES AND S HALL SUPPLY THE PRINCIPAL, AT LEAST ONCE EVERY QUARTER, WITH RE PORTS ON ECONOMIC DEVELOPMENTS AND MARKET CONDITIONS IN THE TERRITORY (AREA) AND AT THE SAME TIME, CONVEY TO THE PRINCIPA L, THE AGENT'S OBSERVATIONS WITH RESPECT TO ACTIVITIES OF COMPETITORS. THE AGENT SHALL REPORT IMMEDIATELY ON PARTICULAR PR OFITABLE 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 A CT FOR COMPETITIVE FIRMS AS A COMMERCIAL AGENT, COMMISSION MERCHANT OR DISTRIBUTOR, NOR SHALL THE AGENT ASSOCI ATE DIRECTLY OR INDIRECTLY WITH COMPETITIVE FIRMS. THE AGENT SHA LL NOT, FOR ALL TIME EXPLOIT OR DISCLOSE TO OTHER PERSONS ANY BUSIN ESS AND PRODUCTION SECRETS OF THE PRINCIPAL THAT HAVE BEEN COMMUNICATED TO THEM OR WHICH THEY HAVE OTHERWISE C OME TO KNOW, IRRESPECTIVE OF WHETHER OR NOT THE CONTRACT I S STILL 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 CO LLECTING OUTSTANDING PAYMENTS. THE AGENT IS ALSO AUTHORIZED TO ACCEPT NOTIFICATION OF DEFECTS BY A CUSTOMER, AS WELL AS T HE STATEMENT OF A CUSTOMER THAT HE WILL THE GOODS AT THE DISPOSA BLE OF THE PRINCIPAL OR ANY SIMILAR STATEMENT BY WHICH THE CUS TOMER EXERCISES HIS RIGHTS RESULTING FROM DEFECTIVE DELIV ERY. THE AGENT SHALL IMMEDIATELY II PRINCIPAL AND SHALL SEE TO IT THAT THE NECESSARY EVIDENCE IN FAVOUR OF THE PRINCIPAL IS OB TAINED. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 36 - 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 A N AGENT ON COMMISSION BASIS AND HAS NOT BEEN PROVIDING ANY MANAGERIAL/TECHNICAL SERVICES. FURTHER THERE IS NO EVIDENCE ON RECORD THAT THEY ARE PROVIDING ANY TECHNICAL/MAN AGERIAL SERVICES. THE SAID COMPANY WAS RESPONSIBLE FOR ARRA NGING TIMELY PAYMENT FROM THE CUSTOMERS AND COMMISSION WA S PAID ONLY AFTER THE SALES AMOUNT WAS RECEIVED. SINCE THE SERVICES WERE RENDERED OUTSIDE INDIA, THE PROVISIONS OF SECT ION 5 CANNOT BE APPLIED TO THE COMMISSION PAID SO AS TO MAKE IT TAXABLE IN INDIA. 18. THIS ASPECT CAN ALSO BE EXAMINED IN ANOTHER WAY AS ALREADY GIVEN A FINDING BY THE BENCH EARLIER AND WH ICH IS ALSO NOT IN DISPUTE, THAT THE FOREIGN COMPANY DOES NOT H AVE ANY PE IN INDIA. THEREFORE, THE COMMISSION PAID TO THE FOR EIGN COMPANY WHICH HAS TO BE CONSIDERED AS BUSINESS INCO ME AND CANNOT BE TAXED IN INDIA AS PER THE DTAA BETWEEN IN DIA AND UK. THE DEFINITION OF 'FEE FOR TECHNICAL SERVICES' BETWEEN UK AND INDIA DOES NOT INCLUDE MANAGERIAL SERVICES. HOW EVER, NEITHER THE ASSESSING OFFICER NOR THE CIT (A) CONSI DERED THE ISSUE OF DTAA, EVEN THOUGH ASSESSEE MENTIONED THE S AME 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 ARE 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 S OURCE OUTSIDE INDIA ; OR ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 37 - (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEE S ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BU SINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FO R THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY S OURCE 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 TH E 1ST DAY OF APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNM ENT.] [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 (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MA NAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD 'SALARIES'. 19. AS CAN BE SEEN FROM THE ABOVE SECTION 9(1)(VII) (B), FEE PAYABLE FOR THE PURPOSES OF MAKING OR EARNING INCOM E FROM ANY SOURCE OUTSIDE INDIA IS NOT INCLUDED IN THE DEF INITION. THE AMOUNT HAS TO BE CONSIDERED AS BUSINESS INCOME. SIN CE THE SERVICES ARE RENDERED OUTSIDE INDIA, THAT AMOUNT IS NOT TAXABLE AS IT DOES NOT ACCRUE OR ARISE IN INDIA. THE SAME V IEW WAS CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CEAT INTERNATIONAL S.A. V. CIT237 ITR 859, WHERE CE RTAIN EXPORT COMMISSION WAS PAID TO A NON-RESIDENT COMPAN Y AND IT WAS HELD THAT THE ASSESSEE DID NOT IMPART ANY IN FORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCI ENTIFIC KNOWLEDGE EXPORTS OR SKILL, NOR RENDERED ANY MANAGE RIAL TECHNICAL OR CONSULTANCY SERVICES. THE COMMISSION A TTRIBUTABLE TO THE SERVICES RENDERED CANNOT BE REGARDED AS ROYA LTY OR FEES FOR TECHNICAL SERVICES AND IT WAS HELD THAT THE SAM E WAS NOT TAXABLE UNDER SECTION 9(1)(VII). SIMILAR ISSUE WAS ALSO CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE C ASE OF ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 38 - DIRECTOR OF INCOME TAX V. SHERATON INTERNATIONAL IN C.313 ITR 267 WHERE CERTAIN PAYMENTS FOR ADVERTISING, PUBLICI TY AND SALES PROMOTION SERVICES WERE CONSIDERED AND HELD T HAT THOSE PAYMENTS CANNOT BE CONSIDERED AS EITHER ROYALTY OR FOR TECHNICAL SERVICES. SINCE THE NON-RESIDENT DOES NOT HAVE ANY PE IN INDIA, SUCH INCOME WHICH IS TO BE CONSIDERED AS BUSINESS INCOME WAS NOT TAXABLE 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 FINDINGS OF THE LEARNED CIT(A) THAT THE COMMISSION PAYMENTS MADE TO THE NON- RESIDENT AGENTS DID NOT HAVE ANY TAXABILITY IN INDI A, EVEN UNDER THE PROVISIONS OF THE DOMESTIC LAW I.E. SECTION 9. ONCE WE COME TO THE CONCLUSION THAT THE INCOME EMBEDDED IN THESE PAYMEN TS DID NOT HAVE ANY TAX IMPLICATIONS IN INDIA, NO FAULT CAN BE FOUN D IN NOT DEDUCTING TAX AT SOURCE FROM THESE PAYMENTS OR, FOR THAT PURP OSE, EVEN NOT APPROACHING THE ASSESSING OFFICER FOR ORDER UNDER S ECTION 195. IN OUR CONSIDERED VIEW, THE ASSESSEE, FOR THE DETAILED REA SONS SET OUR ABOVE, DID NOT HAVE TAX WITHHOLDING LIABILITY FROM THESE P AYMENTS. AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF GE INDIA TECHN OLOGY 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 ASS ESSEE CANNOT, THEREFORE, BE FAULTED FOR NOT APPROACHING THE ASSES SING OFFICER UNDER SECTION 195 EITHER. AS REGARDS THE WITHDRAWAL OF TH E CBDT CIRCULAR HOLDING THAT THE COMMISSION PAYMENTS TO NON-RESIDEN T AGENTS ARE NOT TAXABLE IN INDIA, NOTHING REALLY TURNS ON THE CIRCU LAR, AS DE HORS THE AFORESAID CIRCULAR, WE HAVE ADJUDICATED UPON THE TA XABILITY 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. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. IN THIS VIEW OF T HE MATTER, AND, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF WELSPUN CORPORATION LIMITED (SUPRA), WE DECLINE TO INTERFER E IN THE MATTER. ACCORDINGLY, RELIEF GRANTED BY THE CIT(A) STANDS CO NFIRMED AND APPROVED. TAKING INTO CONSIDERATION THE ORDER PASSED BY THE C O-ORDINATE BENCH IN IDENTICAL ISSUE IN ASSESSEES OWN CASE AS DISCUSSED ABOVE, WE FIND NO REASON TO INTERFERE IN THE ORDER PASSED BY THE AUTHORITIES BE LOW. WE, THEREFORE, ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 39 - RESPECTFULLY RELYING ON THE SAID ORDER PASSED BY TH E CO-ORDINATE BENCH, CONFIRM THE RELIEF GRANTED BY THE LEARNED CIT(A) IN FAVOUR OF THE ASSESSEE. REVENUES APPEAL IS FOUND TO BE DEVOID OF MERIT AND THUS DISMISSED. 7. GROUND NO.2: THIS GROUND OF APPEAL RELATES TO DELETING THE DISALLOWANCE U/S 40(A)(IA) AMOUNTING TO RS.1,91,712 /- ON ACCOUNT OF PROFESSIONAL CONSULTANCY FEES. 8. DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHETHER TDS WAS DEDUCTED AND DEPOSITE D ON ALL PAYMENTS WHERE TDS IS DEDUCTABLE AND THE PROVISIONS OF TDS IS APPL ICABLE. UPON PERUSAL OF THE DETAILS FURNISHED BY THE ASSESSEE, IT WAS NOTIC ED THAT ON PAYMENT OF PROFESSIONAL CONSULTANCY CHARGES TO MOMAJA SRO AM OUNTING TO RS.191712/- NO TDS WAS DEDUCTED; NO TDS WAS DEDUCTED ON PAYMENT OF RS.91692/- MADE ON 05.10.2011 AND RS.1,00,020/- ON 05.01.2012. ULTI MATELY, THE PROCEEDING WAS FINALIZED UPON DISALLOWANCE OF SAID AMOUNT OF R S.191712/- U/S 40(A)(IA) AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY LE ARNED AO, WHICH WAS IN TURN DELETED BY THE LEARNED CIT(A). HENCE, THE INST ANT APPEAL BEFORE US. 9. AT THE TIME OF HEARING OF THE INSTANT APPEAL, TH E LEARNED COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE SERVICES RENDERED BY THE PROFESSIONAL WAS OUTSIDE INDIA, THE INCOME HAS NOT ACCRUED IN INDIA UNDER SECTION 195 OF THE ACT AND THEREFORE THERE IS NO OB LIGATION TO MAKE THE TDS U/S 195 OF THE ACT. HE THUS RELY UPON THE ORDER PASSED BY THE LEARNED CIT(A). ON THE CONTRARY, THE LEARNED DR RELIED UPON THE ORDER PASSED BY THE LEARNED AO. ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 40 - 10. HEARD THE RESPECTIVE PARTIES, PERUSED THE RELEV ANT MATERIALS AVAILABLE ON RECORD. IT APPEARS FROM RECORDS THAT DURING THE APP ELLATE PROCEEDING, THE APPELLANT SUBMITTED AS FOLLOWS BEFORE THE LEARNED C IT(A): I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DI SALLOWANCE OF THE PROFESSIONAL AND CONSULTANCY FEE OF RS.1,91,712/- I NVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, DUE TO NON DEDUCTION OF TDS UPON SUCH PAYMENTS. THE SAID CONSULTANCY FEE WAS PAID TO 'MOMAJA SRO' F OR THE PROFESSIONAL SERVICES HAVING RENDERED OUTSIDE INDIA. IT HAS BEEN NOTICED THAT IN EUROPEAN COUNTRIES THE IMPORT OF CHEMICALS FROM OUTSIDE COUN TRY IS SUBJECTED TO RESTRICTION ESTABLISHING OFFICE THERE OR BY FIRST R EGISTERING THE ASSESSEE COMPANY UNDER REACH (EU REGULATIONS, 1907/2006). TH EREFORE, TO EXPORT IN THESE COUNTRIES IS FOR MAKING INCOME FROM SOURCES O UTSIDE INDIA, OTHERWISE, IT WOULD NOT BE ABLE TO EARN ANY INCOME BY EXPORTS TO THESE EU COUNTRIES AND IN THIS REGARD, MOMAJA SRO HAS DONE THE NECESSARY FORM ALITIES FOR COMPLIANCE WITH REACH UNDER EU REGULATIONS TO MAKE APPELLANT E LIGIBLE TO EXPORT IN EU COUNTRIES AND THEREFORE SECTION 9(1)(VII) DO NOT APPLY. 4.4. IT HAS BEEN NOTICED THAT FOR THE AFORESAID SER VICES RENDERED BY THE PROFESSIONAL OUTSIDE INDIA THE INCOME HAS NOT ACCRU ED IN INDIA U/S. 195 OF THE I. T. ACT AND, THEREFORE, THERE WAS NO OBLIGATION T O MAKE THE TDS U/S. 195 OF THE ACT. THE AO HAS NOT POINTED OUT THAT IN WHAT MA NNER THE PROFESSIONAL INCOME HAS ARISEN OR ACCRUED IN INDIA OR THE SAID P ARTY HAD ANY PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN INDIA OR RE NDERED ANY SERVICES IN INDIA. IN ABSENCE OF SUCH DETAILS AND EVIDENCES, TH E CONTENTION OF THE APPELLANT IS ACCEPTED AND THE APPLICATION OF PROVIS IONS OF SECTION 195 R.W.S. 40(A)(IA) OF THE ACT IS REJECTED. IN OTHER WORDS, T HE DISALLOWANCE MADE BY THE AO IS DELETED. IT APPEARS THAT THE SAID CONSULTANCY FEE WAS PAID T O MOMAJA SRO FOR THE PROFESSIONAL SERVICES HAVING RENDERED OUTSIDE INDIA . IT FURTHER APPEARED THAT IN EUROPEAN COUNTRY THE IMPORT OF CHEMICALS FROM OUTSI DE COUNTRY IS SUBJECTED TO RESTRICTION ESTABLISHING OFFICE THERE OR BY FIRST R EGISTERING THE ASSESSEE COMPANY UNDER REACH (EU REGULATIONS, 1907/2006). THUS, TO E XPORT IN THESE COUNTRIES IS FOR MAKING INCOME FROM SOURCES OUTSIDE INDIA, OT HERWISE, IT WOULD NOT BE ABLE TO EARN ANY INCOME BY EXPORTS TO THESE EU COUN TRIES. THE SAID MOMAJA SRO ALREADY COMPLETED ALL NECESSARY FORMALITIES IN MAKING COMPLIANCE WITH ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 41 - REACH IN EU REGULATIONS TO MAKE THE APPELLANT ELIGI BLE TO EXPORT IN EU COUNTRIES AND THUS SECTION 9(1)(VII) DOES NOT APPLY . FURTHER THAT, THE LEARNED CIT(A) CAME TO A CONCLUSION THAT THE AFORESAID SERV ICE WAS RENDERED BY THE PROCESSIONAL OUTSIDE INDIA AND THEREFORE THE INCOME HAS NOT ACCRUED IN INDIA U/S 195 OF THE ACT AND THUS THE QUESTION OF OBLIGAT ION TO MAKE THE TDS U/S 195 OF THE ACT DOES NOT ARISE. APART FROM THAT, SINCE T HE AO HAS FAILED TO POINT OUT IN WHAT MANNER THE PROFESSIONAL INCOME HAS ARISEN O R ACCRUED IN INDIA OR THE SAID PARTY HAD ANY PERMANENT ESTABLISHMENT OR BUSIN ESS CONNECTION IN INDIA OR RENDERED ANY SERVICES IN INDIA, IN ABSENCE OF WHICH THE CASE MADE OUT BY THE ASSESSEE HAS BEEN ACCEPTED AND THE APPLICATION OF P ROVISIONS OF SECTION 195 R.W.S. 40(A)(IA) OF THE ACT AS MADE BY THE LEARNED AO HAS BEEN REJECTED BY THE FIRST APPELLATE AUTHORITY UPON DELETING THE ADDITIO N OF RS.1,91,712/- WE FIND NO INFIRMITY IN SUCH JUSTIFICATION RENDERE D BY THE LEARNED CIT(A) IN COMING TO A CONCLUSION WHILE DELETING THE ADDITION MADE BY THE LEARNED AO U/S 195 R.W.S. 40(A)(IA) OF THE ACT. WE THUS FOUND NO REASON TO INTERFERE WITH THE SAME. HENCE, THE SAME IS HEREBY UPHELD. REVENUES APPEAL IS THUS DISMISSED. 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 08 / 0 5 /201 9 SD/- SD /- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 08/05/2019 PRITI YADAV, SR.PS ITA NO.840/AHD/2017 THE ACIT VS. INDO COLCHEM LTD. ASST.YEAR 2012-13 - 42 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)- 2, AHMEDABAD. 5. , ! ', #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER , //TRUE COPY// / (DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 07.05.2019 (DICTATION PAGES 7) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 07/05/2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 08/05/2019 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER