Digi Drives Pvt. Ltd., Faridabad V. ACIT, Circle- 1, Faridabad

ITA 9056/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8079 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 21-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SARAS KUMAR; PROVIDED ITS ADVICE; SKILL; EXPERTISE
• Assessee Lawyers: DISALLOWING ENTIRE COMMISSION PAID OF RS.; US A I
• Keywords: Business income; Double taxation relief; Principle of natural justice; Permanent establishment; TDS; Set aside
• Section: 234B; 195; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) (THROUGH VIDEO CONFERENCE) SHRI R.K. PANDA, ACCOUNTANT MEMBER AND BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.9056/DEL./2019 (ASSESSMENT YEAR : 2016-17) M/S. DIGI DRIVES PT. LTD., VS. ACIT, CIRCLE 1, PLOT NO.148, SECTOR 58, FARIDABAD. FARIDABAD 121 004. (PAN : AAACD7387A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SOMIL AGARWAL, ADVOCATE REVENUE BY : SHRI SARAS KUMAR, SENIOR DR DATE OF HEARING : 18.08.2020 DATE OF ORDER : 24.08.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. DIGI DRIVES PVT. LTD. (HEREINAFTER REFERRED TO AS THE APPELLANT) BY FILING THE PRESENT APPEAL SO UGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.10.2019 PASSED BY THE C OMMISSIONER OF INCOME - TAX (APPEALS), FARIDABAD ON THE GROUND S INTER ALIA THAT:- 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT DELETING THE ITA NO.9056/DEL./2019 2 DISALLOWANCE MADE BY LD. AO AMOUNTING TO RS.39,70,2 24/- (I.E. 30% OF RS.1,32,34,080/-) ON ACCOUNT OF COMMISSION P AID TO M/S. TAIYO ENTERPRISES INC. (NRI) AND HAS ERRED IN ENHAN CING THE DISALLOWANCE BY RS.92,63,856/- BY WRONGLY OBSERVING THE COMMISSION RECEIPTS IN THE HANDS OF TEI AS FEE FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT READ WITH EXPLANA TION 2 AND FURTHER ERRED IN APPLYING THE PROVISIONS OF SECTION 195 AND THAT TOO WITHOUT ANY BASIS AND BY RECORDING INCORRECT FA CTS AND FINDINGS AND WITHOUT APPRECIATING THE FACTS AND CIR CUMSTANCES OF THE CASE AND IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT CONSIDERING THE SUBMISSION FILED BY THE ASS ESSEE. 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN NOT DELETING THE ADDITION MADE BY LD. AO AMOUNTING TO RS.39,70,224/- AND HAS ERRED IN ENHANC ING THE DISALLOWANCE BY RS.92,63,856/-, AGGREGATING TO RS.L ,32,34,080/- BY WRONGLY OBSERVING THE COMMISSION RECEIPTS IN THE HANDS OF TEI AS FEE FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT READ WITH EXPLANATION 2 AND FURTHER ERRED IN APPLYING THE PRO VISIONS OF SECTION 195, IN BAD IN LAW AND AGAINST THE FACTS AN D CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT REVERSING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B AND 234C OF INCOME TAX ACT, 1961. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : ASSESSEE COMPANY IS INTO THE BU SINESS OF MANUFACTURING AND TRADING OF PANELS, COLD ROLLING M ILLS AND INTO EXPORT BUSINESS AND FILED RETURN OF INCOME AT RS.3, 17,11,520/- FOR THE YEAR UNDER ASSESSMENT I.E. AY 2016-17, WHICH W AS SUBJECTED TO SCRUTINY AND ASSESSMENT WAS FRAMED UNDER SECTION 143 (3) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AT RS.5, 15,93,770/-. ASSESSING OFFICER (AO) MADE ADDITION OF RS.39,70,22 4/- BEING 30% OF THE AMOUNT CLAIMED TO HAVE BEEN PAID TO M/S. TAIYO ENTERPRISES INC. (FOR SHORT TEI) TO THE TUNE OF R S.1,32,34,080/- AS ITA NO.9056/DEL./2019 3 COMMISSION WITHOUT DEDUCTING THE TAX AT SOURCE (TDS ) ON THE GROUND THAT U/S 195 OF THE ACT, TDS WAS REQUIRED TO BE DEDUCTED ON PAYMENT MADE TO A NON-RESIDENT COMPANY I.E. TEI AND THEREBY FRAMED THE ASSESSMENT AT RS.5,15,93,770/-. 3. ASSESSEE CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE LD. CIT (A) WHO HAS ENHANCED THE INCOME OF THE ASSE SSEE BY DISALLOWING ENTIRE COMMISSION PAID OF RS.1,32,34,08 0/- U/S 40(A)(I) OF THE ACT AS AGAINST DISALLOWANCE OF 30% I.E. RS.3 9,70,224/- MADE BY THE AO. FEELING AGGRIEVED, THE ASSESSEE HAS CO ME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, ASSESSEE COMPANY BEING INTO EXPORT BUSINESS AVAILED OF SERVICES OF TEI, JAPAN FOR PROCURING ORD ER FOR SUPPLYING, INSTALLING AND SUCCESSFUL COMMISSIONING OF COLD ROL LING MILL (TURNKEY PROJECT) TO MABATI ROLLING MILLS, A KENYAN COMPANY AND PAID COMMISSION @ 6% TO THE TUNE OF $34,90,000. AS SESSEE COMPANY ENTERED INTO A MEMORANDUM OF UNDERSTANDING (MOU) WITH TEI, COPY OF MOU AVAILABLE AT PAGE 105 OF THE PAPER BOOK, TO ITA NO.9056/DEL./2019 4 CARRY OUT THEIR BUSINESS DEAL. THE RELEVANT CLAUSES THEREOF ARE EXTRACTED FOR READY PERUSAL AS UNDER:- 1. THE SECOND PARTY WILL INTRODUCE THE PROSPECTIVE BUYER WITH THE FIRST PARTY AND SHALL ALSO HELP TO FIRST P ARTY IN GETTING ORDER FROM THE PROSPECTIVE BUYER. 2. THE FIRST PARTY COMPLETES THE ORDER AS PER TERMS 7 CONDITIONS OF THE ORDER TO THE SATISFACTION OF THE PROSPECTIVE BUYER. 3. ALL THE TECHNICAL DISCUSSIONS SHALL BE HELD BY F IRST PARTY DIRECTLY WITH THE PROSPECTIVE BUYER. IN CASE OF AN Y PROBLEM RELATING TO GETTING OF THE ORDER, THE FIRST PARTY S HALL INFORM THE SAME IN WRITING TO THE SECOND PARTY. 4. IN LIEU OF ABOVE THE FIRST PARTY HAS AGREED TO P AY A REFERRAL COMMISSION @ 6% OF THE TOTAL BASE VALUE OF THE ORDER RECEIVED FROM THE ABOVE SAID PROSPECTIVE BUYER. 5. THE ABOVE COMMISSION SHALL BE ALL INCLUSIVE AND NO EXPENSES SHALL BE REIMBURSED BY THE FIRST PARTY TO THE SECOND PARTY. THE SECOND PARTY WILL RENDER ITS SERVICES E NTIRELY FROM OUT OF INDIA. 6. THAT THIS UNDERSTANDING IS LIMITED TO THE ORDER TO BE PROCURED FROM THIS CUSTOMER FORM KENYA. 7. TERMS OF PAYMENT : THE TOTAL COMMISSION SHALL BE PAID IN TWO INSTALLMENTS, (I) 50% ON RECEIPT OF AT LEAST 30% (OF THE ORDER VA LUE) ADVANCE FROM THE CUSTOMER; (II) BALANCE 50% ON RECEIPT OF AT LEAST 90% (OF THE ORDER VALUE) PAYMENT FROM THE CUSTOMER. 8. THE PAYMENT SHALL BE MADE IN USD AFTER DEDUCTING WITHHOLDING TAX, IF ANY. 6. AO AS WELL AS LD. CIT (A) REJECTED THE CONTENTIO NS RAISED BY THE ASSESSEE THAT SUCH INCOME IS NOT TAXABLE IN IND IA IN TERMS OF ARTICLE 12 OF DOUBLE TAXATION AVOIDANCE AGREEMENT ( DTAA) ENTERED INTO BETWEEN INDIA AND JAPAN AS THE COMMISS ION INCOME IN ITA NO.9056/DEL./2019 5 THE HANDS OF TEI IN THIS CASE IS NOT CHARGEABLE TO TAX IN INDIA AS FEE FOR TECHNICAL SERVICES UNDER ARTICLE 12 AND N OT AS BUSINESS INCOME UNDER ARTICLE 7. 7. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, ORDER PASSED BY THE LD. LOWER REVENUE AUT HORITIES AND CONTENTIONS RAISED BY THE LD. AR AND LD. DR FOR THE PARTIES TO THE APPEAL, THE SOLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS :- AS TO WHETHER PAYMENT OF $2,09,400 BEING 6% OF $34 ,90,000 MADE BY THE ASSESSEE COMPANY TO TEI WITHOUT DEDUCTI NG ANY TDS IS TO BE TREATED AS A COMMISSION PAYMENT OR FEE FOR TECHNICAL SERVICES AS HAS BEEN HELD BY THE LD. CIT (A)? 8. LD. AR FOR THE ASSESSEE COMPANY CHALLENGING THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) CONTENDED THAT SERV ICES RENDERED BY A NON-RESIDENT COMPANY TO THE INDIAN ASSESSEE FO R PROCUREMENT OF EXPORT ORDER CANNOT BE TREATED AS MANAGERIAL/CON SULTANCY SERVICES AND RELIED UPON THE ORDER PASSED BY THE CO ORDINATE BENCH OF THE TRIBUNAL IN CASE OF DCIT VS. M/S. TEJ INTERNATIONAL PVT. LTD. IN ITA NO.6140/DEL ORDER DATED 20.07.2018 . HOWEVER, LD. DR FOR THE REVENUE RELIED UPON THE ORDER PASSED BY THE LD. CIT (A). 9. WE HAVE PERUSED THE ORDER PASSED BY THE COORDINA TE BENCH OF THE TRIBUNAL IN CASE OF DCIT VS. M/S. TEJ INTERNATIONAL PVT. LTD. (SUPRA) BEARING IDENTICAL FACTS AND THE TRIBUNAL BY RELYING ITA NO.9056/DEL./2019 6 UPON THE DECISION RENDERED BY HONBLE APEX COURT IN THE CASE OF GVK INDUSTRIES LTD. VS. CIT (SUPRA), DECISION RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ADIDAS SOURCING LTD. VS. ADIT (INTERNATIONAL TAXATION) 150 TTJ 801 (DELHI), DECISION RENDERED BY HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. MODEL EXIMS (2014) 363 ITR 66 (ALL) AND DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CASE OF DIT (INTERNATIO NAL TAXATION) VS. PANALFA AUTOLEKTRIK LTD. 49 TAXMANN.C OM 412 (DELHI) REACHED THE CONCLUSION THAT MERE RENDERING OF SERV ICE OF PROCUREMENT OF EXPORT ORDERS BY A NON-RESIDENT COMP ANY FOR THE INDIAN COMPANY DOES NOT FALL IN THE CATEGORY OF MANAGERIAL/CONSULTANCY SERVICES AS EXPLAINED IN EXP LANATION 2 TO SECTION 9(1)(VII) OF THE ACT. 10. HONBLE DELHI HIGH COURT IN THE CASE OF DIT (INTERNATIONAL TAXATION) VS. PANALFA AUTOLEKTRIK LTD. (SUPRA) HAS EXPLAINED THE CONSULTANCY SERVICES AND TECHNICAL SERVICES BY RETU RNING FOLLOWING FINDINGS :- 'THE EXPRESSION 'MANAGERIAL, TECHNICAL AND CONSULTA NCY SERVICES' HAVE NOT BEEN DEFINED EITHER UNDER THE AC T OR UNDER THE GENERAL CLAUSES ACT, 1897. THE SAID TERMS HAVE TO B E READ TOGETHER WITH THE WORD 'SERVICES' TO UNDERSTAND AND APPRECIATE THEIR PURPORT AND MEANING. ONE HAS TO EXAMINE THE G ENERAL OR COMMON USAGE OF THESE WORDS OR EXPRESSIONS, HOW THE Y ARE INTERPRETED AND UNDERSTOOD BY THE PERSONS ENGAGED I N BUSINESS AND BY THE COMMON MAN WHO IS AWARE AND UNDERSTANDS THE SAID TERMS. [PARA 14] ITA NO.9056/DEL./2019 7 THE SERVICES RENDERED, THE PROCUREMENT OF EXPORT OR DERS, ETC. CANNOT BE TREATED AS MANAGEMENT SERVICES PROVI DED BY THE NON-RESIDENT TO THE RESPONDENT-ASSESSEE. THE NON-RE SIDENT WAS NOT ACTING AS A MANAGER OR DEALING WITH ADMINISTRAT ION. IT WAS NOT CONTROLLING THE POLICIES OR SCRUTINIZING THE EF FECTIVENESS OF THE POLICIES. IT DID NOT PERFORM AS A PRIMARY EXECUTOR, ANY SUPERVISORY FUNCTION WHATSOEVER. THIS IS DEAR FROM THE FACTS AS RECORDED BY THE COMMISSIONER (APPEALS), WHICH HAVE BEEN AFFIRMED BY THE TRIBUNAL. [PARA 15] THE NON-RESIDENT, IT IS DEAR WAS APPOINTED AS A COMMISSION AGENT FOR SALE OF PRODUCTS WITHIN THE TE RRITORIES SPECIFIED AND SUBJECT TO AND IN ACCORDANCE WITH THE TERMS SET OUT, WHICH THE NON-RESIDENT ACCEPTED. THE NON-RESIDENT, THEREFORE, WAS ACTING AS AN AGENT FOR PROCURING ORDERS AND NOT RENDERING MANAGERIAL ADVICE OR MANAGEMENT SERVICES. FURTHER, THE RESPONDENT-ASSESSEE WAS LEGALLY BOUND WITH THE NONR ESIDENTS' REPRESENTATIONS AND ACTS, ONLY WHEN THERE WAS A WRI TTEN AND SIGNED AUTHORIZATION ISSUED BY THE RESPONDENT-ASSES SEE IN FAVOUR OF THE NON-RESIDENT. THUS, THE RESPONDENT- ASSESSEE DICTATED AND DIRECTED THE NON-RESIDENT. THE COMMISSIONER (APPEALS) HAS ALSO DEALT WITH QUANTIFICATION OF THE COMMISSION AND AS PER AGREEME NT, THE COMMISSION PAYABLE WAS THE DIFFERENCE BETWEEN THE P RICE STIPULATED IN THE AGREEMENT AND THE CONSIDERATION T HAT THE RESPONDENT-ASSESSEE RECEIVED IN ITEMS OF THE PURCHA SE CONTRACT OR ORDER, IN ADDITION TO A PREDETERMINED GUARANTEE CON SIDERATION. AGAIN, AN INDICATION CONTRA TO THE CONTENTION THAT THE NON- RESIDENT WAS PROVIDING MANAGEMENT SERVICE TO THE RE SPONDENT- ASSESSEE. [PARA 16] THE REVENUE HAS NOT PLACED COPY OF THE AGREEMENT TO CONTEND THAT THE AFORESAID CLAUSES DO NOT REPRESENT THE TRUE NATURE OF THE TRANSACTION. THE ASSESSING OFFICER IN HIS ORDER HAD NOT BOTHERED TO REFER AND TO EXAMINE THE RELEVANT C LAUSES, WHICH CERTAINLY WAS NOT THE RIGHT WAY TO DEAL WITH THE IS SUE AND QUESTION. [PARA 17] FURTHER, WOULD BE INCONGRUOUS TO HOLD THAT THE NON- RESIDENT WAS PROVIDING TECHNICAL SERVICES. THE NON- RESIDENT HAD NOT UNDERTAKEN OR PERFORMED 'TECHNICAL SERVICES', W HERE SPECIAL SKILLS OR KNOWLEDGE RELATING TO A TECHNICAL FIELD W ERE REQUIRED. TECHNICAL FIELD WOULD MEAN APPLIED SCIENCES OR CRAF TSMANSHIP INVOLVING SPECIAL SKILLS OR KNOWLEDGE BUT NOT FIELD S SUCH AS ARTS OR HUMAN SCIENCES. [PARA 19] THE MOOT QUESTION AND ISSUE IS WHETHER THE NON-RESI DENT WAS PROVIDING CONSULTANCY SERVICES. [PARA 20] ITA NO.9056/DEL./2019 8 THE WORD 'CONSULTANT' REFERS TO A PERSON, WHO IS CO NSULTED AND WHO ADVISES OR FROM WHOM INFORMATION IS SOUGHT. IN BLACK'S LAW DICTIONARY, EIGHTH EDITION, THE WORD 'CONSULTAT ION' HAS BEEN DEFINED AS AN ACT OF ASKING THE ADVICE OR OPINION O F SOMEONE (SUCH AS A LAWYER). IT MAY MEAN A MEETING IN WHICH PARTIES CONSULT OR CONFER. FOR CONSULTATION SERVICE UNDER E XPLANATION 2, THERE SHOULD BE A PROVISION OF SERVICE BY THE NON-R ESIDENT, WHO UNDERTAKES TO PERFORM IT, WHICH THE ACQUIRER MAY US E. THE SERVICE MUST BE RENDERED IN THE FORM OF AN ADVICE O R CONSULTATION GIVEN BY THE NON-RESIDENT TO THE RESIDENT INDIAN PA YER. [PARA 21] IN THE PRESENT CASE COMMISSION PAID FOR ARRANGING OF EXPORT SALES AND RECOVERY OF PAYMENTS CANNOT BE REG ARDED AS CONSULTANCY SERVICE RENDERED BY THE NON-RESIDENT. T HE NON- RESIDENT HAD NOT RENDERED ANY CONSULTATION OR ADVIC E TO THE RESPONDENT-ASSESSEE. THE NONRESIDENT NO DOUBT HAD A CQUIRED SKILL AND EXPERTISE IN THE FIELD OF MARKETING AND S ALE OF AUTOMOBILE PRODUCTS, BUT IN THE FACTS, AS NOTICED B Y THE TRIBUNAL AND THE COMMISSIONER (APPEALS), THE NONRESIDENT DID NOT ACT AS A CONSULTANT, WHO ADVISED OR RENDERED ANY COUNSELING SERVICES. THE SKILL, BUSINESS ACUMEN AND KNOWLEDGE ACQUIRED B Y THE NONRESIDENT WERE FOR HIS OWN BENEFIT AND USE. T HE NON- RESIDENT PROCURED ORDERS ON THE BASIS OF THE SAID K NOWLEDGE, INFORMATION AND EXPERTISE TO SECURE THEIR COMMISSIO N. IT IS A CASE OF SELF-USE AND BENEFIT, AND NOT GIVING ADVICE OR C ONSULTATION TO THE ASSESSEE ON ANY FIELD, INCLUDING HOW TO PROCURE EXPORT ORDERS, HOW TO MARKET THEIR PRODUCTS, PROCURE PAYMENTS ETC. THE ASSESSEE UPON RECEIPT OF EXPORT ORDERS, MANUFACTURED THE REQ UIRED ARTICLES/GOODS AND THEN THE GOODS PRODUCED WERE EXP ORTED. THERE WAS NO ELEMENT OF CONSULTATION OR ADVICE RENDERED B Y THE NON- RESIDENT TO THE RESPONDENT-ASSESSEE. [PARA 22] THE TECHNICAL SERVICES CONSISTS OF SERVICES OF TECH NICAL NATURE, WHEN SPECIAL SKILLS OR KNOWLEDGE RELATING T O TECHNICAL FIELD ARE REQUIRED FOR THEIR PROVISION, MANAGERIAL SERVICES ARE RENDERED FOR PERFORMING MANAGEMENT FUNCTIONS AND CO NSULTANCY SERVICES RELATE TO PROVISION OF ADVICE BY SOMEONE H AVING SPECIAL QUALIFICATION THAT ALLOWS HIM TO DO SO. IN THE PRES ENT CASE, THE AFORESAID REQUISITES AND REQUIRED NECESSITIES ARE N OT SATISFIED. INDEED, TECHNICAL, MANAGERIAL AND CONSULTANCY SERVI CES MAY OVERLAP AND IT WOULD NOT BE PROPER TO VIEW THEM IN WATERTIGHT COMPARTMENTS, BUT IN THE PRESENT CASE THIS ISSUE OR DIFFERENTIATION IS AGAIN NOT RELEVANT. [PARA 25]' 11. HONBLE ALLAHABAD HIGH COURT IN CASE OF CIT VS. MODEL EXIMS (SUPRA) HAS DEALT WITH THE IDENTICAL ISSUE BY HOLD ING THAT ITA NO.9056/DEL./2019 9 THE AGREEMENT WITH NON-RESIDENT COMMISSION AGENTS FOR PROCURING ORDERS DOES NOT INVOLVE RENDERING OF ANY MANAGERIAL OR TECHNICAL SERVICES AND CONSEQUENTLY, NO TAX WITHHOLDING REQUI RED ON PAYMENT OF SAID COMMISSION. 12. WHEN WE EXAMINE THE RELEVANT CLAUSES OF MOU ENT ERED INTO BETWEEN ASSESSEE COMPANY AND TEI VIDE WHICH PAYMENT HAS BEEN MADE TO TEI, IT LEADS TO THE CONCLUSION THAT TEI WA S TO PROCURE THE ORDER FOR SUPPLYING PRODUCT OF ASSESSEE COMPANY TO SOME KENYAN BUYER FOR WHICH COMMISSION @ 6% OF THE TOTAL ORDER WAS AGREED TO BE PAID IN TWO INSTALLMENTS. IN OTHER WORDS, COORD INATION AND LIASONING ROLE AS A CHANNEL OF COMMUNICATION HAS BE EN ASSIGNED TO TEI TO PROCURE THE ORDER FOR SALE OF PRODUCT OF ASS ESSEE COMPANY. 13. WHEN WE PERUSE PARA 13 OF THE IMPUGNED ORDER PA SSED BY THE LD. CIT (A), WE FIND THAT LD. CIT (A) PROCEEDED ON THE PREMISE THAT TEI WAS HAVING EXPERTISE, SKILL AND KNOWLEDGE ABOUT THE MARKET ACCESS IN KENYA ABOUT THE COLD ROLLING MILL TO UNDERSTAND THE TECHNICAL REQUIREMENT OF SUCH FIELD OF OPERATIO N. TEI PROCURED THE ORDER FOR ASSESSEE AND PROVIDED ITS ADVICE, SKI LL AND EXPERTISE. LD. CIT (A) ALSO RELIED UPON THE JUDGMENT RENDERED BY HONBLE APEX COURT IN THE CASE OF GVK INDUSTRIES LTD. VS. CIT (2015) 371 ITR 453 (SC) . ITA NO.9056/DEL./2019 10 14. LD. CIT (A) REACHED THE CONCLUSION THAT SERVICE S RENDERED BY TEI TO THE ASSESSEE COMPANY WERE IN THE NATURE OF CONSULTANCY SERVICES COVERED UNDER THE PROVISIONS OF SECTION 9 (1)(VII) OF THE ACT READ WITH EXPLANATION 2 AS FEE FOR TECHNICAL S ERVICES. FOR READY PERUSAL, EXPLANATION 2 TO SECTION 9(1)(VII) I S EXTRACTED AS UNDER:- EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'F EES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATIO N WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEA D 'SALARIES' 15. EXPLANATION 2 TO SECTION 9(1)(VII) IS CATEGORIC ENOUGH TO EXPLAIN THE FEE FOR TECHNICAL SERVICES WHICH IS, ANY CONSIDERATION FOR RENDERING ANY MANAGERIAL, TECHNICAL OR CONSULTA NCY SERVICES . FROM THE FACTS ON RECORD AND TERMS & CONDITIONS CON TAINED IN THE MOU, IT IS DIFFICULT TO DEDUCE IF THE TEI HAS RENDE RED ANY TYPE OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES FOR I NSTALLATION AND SUCCESSFUL IMPLEMENTATION OF COLD ROLLING MILL (TUR NKEY PROJECT) RATHER INTRODUCED M/S. MABATI ROLLING MILLS, A KENY AN COMPANY FOR SUPPLY OF COLD ROLLING MILLS AND THEREBY PROCUR ED ORDER OF $34,90,000. THERE IS NOT AN IOTA OF EVIDENCE ON FI LE AS TO WHAT TYPE OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES HA VE BEEN ITA NO.9056/DEL./2019 11 RENDERED BY TEI TO THE ASSESSEE COMPANY FOR INSTALL ATION OR SUCCESSFUL COMMISSIONING OF COLD ROLLING MILL. THE RE IS ALSO NOT AN IOTA OF EVIDENCE ON FILE IF TEI WAS HAVING ANY SUCH TECHNICAL EXPERTISE AND SKILLS, AS ITS FUNCTIONAL PROFILE IS NOT ON RECORD NOR CLAIMED TO HAVE PERUSED BY AO/CIT(A), FOR INSTALLAT ION AND SUCCESSFUL COMMISSIONING OF COLD ROLLING MILL (TURN KEY PROJECT). 16. FURTHERMORE, WHEN WE EXAMINE CLAUSE 3 OF THE MO U IT IS CATEGORIC ENOUGH TO EXPLAIN THAT ALL THE TECHNICAL DISCUSSION SHALL BE HELD BY THE FIRST PARTY (ASSESSEE COMPANY) DIREC TLY WITH THE PROSPECTIVE BUYER. IN CASE OF ANY PROBLEM RELATING TO GETTING OF THE ORDER, THE FIRST PARTY SHALL INFORM THE SAME IN WRI TING TO THE SECOND PARTY. SO, THE LIMITED ROLE HAS BEEN ASSIGNED TO T EI AS PER MOU TO INTRODUCE THE PROSPECTIVE BUYER FOR GETTING ORDER F OR SALE OF THE PRODUCT OF THE ASSESSEE COMPANY. 17. EVEN OTHERWISE, WHEN UNDISPUTEDLY TEI IS NOT HA VING ANY PERMANENT ESTABLISHMENT (PE) IN INDIA THE INCOME OF TEI RECEIVED AS COMMISSION FROM ASSESSEE COMPANY WAS NOT CHARGEA BLE TO TAX IN INDIA AS THE SAME WAS NEITHER ACCRUED IN INDIA NOR RECEIVED IN INDIA AND AS SUCH WAS NOT REQUIRED TO DEDUCT TAX AT SOURC E U/S 195 OF THE ACT. SO THE QUESTION FRAMED IS ANSWERED IN FAVOUR OF ASSESSEE AS THE PAYMENT MADE BY ASSESSEE COMPANY TO TEI IS COM MISSION PAYMENT AND NOT A FEE FOR TECHNICAL SERVICES. ITA NO.9056/DEL./2019 12 18. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT THE AO AS WELL AS LD. CIT (A) HAVE MERELY MADE ADDITION ON THE BASIS OF CONJECTURES AND SURMI SES BECAUSE NO EVIDENCE WHATSOEVER HAS BEEN BROUGHT ON RECORD IF T EI WAS HAVING ANY MANAGERIAL OR TECHNICAL EXPERTISE TO PROVIDE TE CHNICAL SERVICES TO THE ASSESSEE COMPANY APART FROM PROCURING ORDERS FOR THE ASSESSEE COMPANY ON COMMISSION BASIS AS PER MOU. S O, THE AO/LD. CIT (A) HAVE ERRED IN MAKING DISALLOWANCE / ENHANCING THE DISALLOWANCE U/S 40(A)(I) OF THE ACT OF ENTIRE COMM ISSION OF RS.1,32,34,080/- WHICH IS NOT SUSTAINABLE IN THE EY ES OF LAW, HENCE ORDERED TO BE DELETED. CONSEQUENTLY, THE APPEAL FI LED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 24 TH DAY OF AUGUST , 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 24 TH DAY OF AUGUST, 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), FARIDABAD. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.