MANTHAN SYSTEM INC,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, (INTL.TAXN),CIRCLE-1(2), BANGALORE

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ITITA 397/BANG/2024Status: DisposedITAT Bangalore20 May 2024AY 2016-1713 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the reassessment proceedings (Ground No. 2) were not pressed by the Assessee and were therefore dismissed as not pressed. Regarding Ground No. 3, concerning the taxability of sales commission, the Tribunal respectfully followed its own prior decisions in the Assessee's own case for AY 2012-13 (IT(IT)A No.723/Bang/2022) and in the case of ASPL (payer) for AY 2012-13 to AY 2015-16 (ITA Nos.943 to 946/Bang/2023). In these earlier decisions, the Tribunal had held that the sales and marketing services rendered by the Assessee did not fall within the ambit of FTS as defined under Section 9(1)(vii) of the Act or Article 12 of the India-USA DTAA. The Tribunal emphasized that the services did not satisfy the 'make available' test, as they did not impart technical knowledge, experience, or skill to the recipient for their enduring benefit or independent future use. The Tribunal also noted that since the payer (ASPL) was held not liable for TDS on these commission payments, the same finding applied to the recipient (Assessee). Consequently, the Tribunal allowed Ground No. 3 in favour of the Assessee, holding that sales commission is not taxable in India. The Tribunal did not decide on the issue of interest under Sections 234A, 234B, and 234C (Ground No. 6) as the primary issue of taxability of sales commission was decided in favour of the Assessee.

What were the facts?

The appeals by Manthan System Inc. (Assessee) are against orders of the DCIT (International Taxation) for assessment years 2013-14 to 2016-17. The Assessee, a wholly-owned subsidiary of Algonomy Software Pvt. Ltd. (ASPL), provides sales and marketing services to ASPL in North and South American, Caribbean, and Singapore markets. The Assessing Officer (AO) initiated reassessment proceedings under Section 147 of the Income Tax Act, 1961. The AO alleged that sales commissions received by the Assessee from ASPL constituted Fees for Technical Services (FTS) under the Act and the India-USA Double Taxation Avoidance Agreement (DTAA). The AO taxed these commissions accordingly. The Dispute Resolution Panel (DRP) rejected the Assessee's objections. The Assessee appealed to the ITAT.

What were the issues?

1. Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, are valid, specifically concerning the AO's 'reason to believe' that income has escaped assessment, and whether the notice under Section 148 and the subsequent order are liable to be quashed due to lack of a 'live link' between the material and the belief of escapement, or if the reassessment was merely based on the assessment of ASPL. Assessee's Contention: The reassessment proceedings are invalid due to the absence of 'reason to believe' and a 'live link', and were based on mere suspicion or the assessment of ASPL without establishing escapement of income. 2. Whether sales commission received by the Assessee is taxable in India as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act and Article 12 of the India-USA DTAA. Assessee's Contention: Sales commission is not taxable as FTS because the services are not technical or consultancy in nature, do not qualify as 'Fees for Included Services' under the DTAA, and do not satisfy the 'make available' test. The Assessee relies on its own case for AY 2012-13 (IT(IT)A No.723/Bang/2022) and the case of ASPL (payer) for AY 2012-13 to AY 2015-16 (ITA Nos. 943 to 946/Bang/2023). Revenue's Contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 147,Section 144(C),Section 148,Section 9(1)(vii),Section 115A,Section 90(2),Section 201,Section 234A,Section 234B,Section 234C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE

Before: SHRI CHANDRA POOJARI & SHRI SOUNDARARAJAN K.

For Respondent: Ms. Neera Malhotra, D.R
Hearing: 20.05.2024Pronounced: 20.05.2024

PER SOUNDARARAJAN K., JUDICIAL MEMBER:

These appeals filed by the assessee are directed against orders of DCIT (International Taxation) passed u/s 147 r w.s. 144(C) of the Income Tax Act, 1961 (in short “The Act”) dated 16.1.2024 for IT(TP)A Nos.394, 395, 397 & 398/Bag/2024 and dated 30.1.2024 for IT(TP)A No.396/Bang/2024 for the assessment years 2013-14 to 2016-17 & 2016-17 respectively. Since grounds raised in all these appeals are common, we reproduce herewith grounds raised by the assessee in IT(TP)A No.394/Bang/2024 which are as under:

GENERAL GROUND

l . The Orders passed by learned Deputy Commissioner of Income Tax (Intl Tax), Circle I (2), Bangalore (hereinafter referred as "AO" for brevity) and the Honourable DRP-2, Bengaluru (hereinafter referred as "DRP" for brevity) ("AO" and DRP collectively referred as “lower authorities" for brevity) are bad in law and liable to be quashed.

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 2 of 13 GROUNDS RELATING TO REASSESSMENT

2.

The lower authorities have erred in: i. Issuing notice under section 148 and passing the order in the absence of 'reason to believe' as contemplated u/s 147. The Notice u/s 148 issued and the order so passed on mere suspicion, conjecture or surmise without any 'reason to believe' that income has escaped assessment and solely with a view to make further investigation is invalid, bad in law and liable to be quashed; ii. Without there being no 'live link' between the material relied on and the formation of belief that income has escaped assessment, the requirements of 'reason to believe' are not satisfied and consequently the assessment order passed is bad in law and liable to be quashed. ii. Issuing notice under section 148 and making reassessment merely on the basis of assessment conducted in the case of Algonomy Software Pvt Ltd ['ASPL'] without any 'reason to believe' as to how •the said information has resulted in income escaping assessment, the impugned order passed by the leamed assessing officer is thus bad in law and liable to be quashed. TAXABILITY OF SALES COMMISSION 3. The lower authorities have erred in taxing sales commission without appreciating that: (i) Sales commission is not chargeable to tax in India as per the provisions of the Income Tax Act, 1961 ('Act') as it does not qualify as FTS. (ii) Sales Commission does not qualify as 'Fees for Included Services' as per India USA D TAA as the services are not in the nature of Technical or Consultancy services;

(iii) Services provided by the Appellant do not satisfy the test of 'Make Available' as envisaged in India-USA DTAA and therefore does not qualify as fees for Included services under DTAA. 4. Without prejudice to the above grounds and assuming without admitting that sales commission is liable to tax in India, the learned AO has erred by applying the rate of 15% as provided under India USA DTAA without appreciating the fact that as per section 90(2) of the Act the beneficial rate of 10% as provided u/s 115A of the Act should be applied. 5. Without prejudice to the above, the lower authorities have erred in not granting credit for TDS remitted by ASPL in response to order u/s 201 of the Act. Recovery from both ASPL and the Appellant would lead to double recovery of same tax.

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 3 of 13 OTHER GROUND

6.

The lower authorities have erred in levying a sum of Rs. 84,28,342/- as interest u/s 234A, Rs.1,20,40,490/- as interest u/s 234B and Rs.4,67,725/- as interest u/s 234C. interest u/s 234C should not be levied as the retuned income is Nil. On the facts and circumstances of the case, interest under section 234A, 234B and 234C of the Act is not leviable. Further, interest charged under section 234A, 234B and 2B4C is excessive and Appellant denies its liability to pay the same.

2.

Facts of the case are that M/s Manthan Systems Inc, USA (hereinafter collectively referred as 'MSI' or "Assessee" for short) and M/s Manthan System Pte Ltd, Singapore (hereinafter collectively referred as 'MSPL' or "Assessee" for short) (hereinafter collectively referred as 'Assessee'), the Assessee is wholly owned subsidiaries of M/s Algonomy Software Private Limited erstwhile known as M/s. Manthan Software Services Private Limited (herein after referred as 'ASPL' for brevity). The Assessee provides sales and marketing services to ASPL for product/services in the territory of North American, South American, the Caribbean markets and Singapore. For the years under consideration, the learned AO initiated reassessment proceedings u/s 147 of the Act. The AO passed draft assessment orders u/s 144C wherein it is alleged that the sales commission received by the Assessee from ASPL partakes the character of FTS both as per the Act and DTAA. Accordingly, the ld. AO taxed sales commission received as FTS and levied tax as per section 115A r/w DTAA (Article 12). The year wise details of additions made in the draft assessment order has been tabulated below: Assessee Assessment Sales year commission in Rs. 2013-14 6,17,46,103 2014-15 10,37,07,948 MSI 2015-16 9,67,65,647 2016-17 35,79,87,595 MSPL 2016-17 1,10,39,572

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 4 of 13 2.1 The Assessee filed objections before DRP. The ld. DRP rejected the Objections of the Assessee. 3. The ld. A.R. submitted that ground No.1 raised by the assessee is general in nature. Regarding ground No.2, he submitted that it relates to reassessment proceedings and the assessee does not press the ground in all appeals. 3.1 Regarding ground No.3 i.e. Taxability of Sales Commission (All appeals), he submitted that the issue of taxability of commission is covered in its own case for AY 2012-13 No.723[Bang/2022], wherein this Tribunal held that MSI is not providing any technical, managerial or consultancy services rather has been engaged to act as business partner to market and promote the products of ASPL. He submitted that the Tribunal held that sales commission does not fall within the ambit of FTS both under the Act (Section 9(1)(vii) and DTAA. Therefore, sales commission is not taxable in India. 3.2 He submitted that for [AY 2012-13 to AY 2015-16], this Tribunal in the ease of ASPL (payer of commission)/[ITA Nos. 943 to 946/Bang/2023, dated 19.01.2024] has already decided that sales commission paid by ASPL to Assessee is not in the nature of FTS/Royalty both under the Act and DTAA following decision in IT(IT)A No 723/Bang/2022. 3.3 He further submitted that in light of the above judicial precedent, the income received towards sales commission does not satisfy the definition of "FTS" both under the Act and DTAA. Further, given that in the hands of Payer ('ASPL') it is already held that commission payment is not taxable, the same finding is applicable to recipient. 4. We have heard the rival submissions and perused the materials available on record. Ground No.1 is general in nature. 5. Ground No.2 is not pressed at the time of hearing. Hence, this ground is dismissed as not pressed.

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 5 of 13 6. With regard to ground No.3, admittedly, the same issue has been considered by this Tribunal in assessment year 2012-13 in assessee’s own case in IT(IT)A No.723/Bang/2022 dated 23.9.2022, wherein held as follows: 9. “We have heard rival submissions and perused the material on record. The AO has referred to the services rendered by the assessee at para 6.1 of his order. The AO has contended that services rendered by the assessee are project management services and thereby fall within the ambit of FTS as per Explanation 2 to section 9(1)(vii) of the Act. The AO has concluded that services are in the nature of technical or consultancy services (Para 6.7 of the order). Finally at Para 10.2, it is concluded that services are technical in nature. The DRP has confirmed the finding of AO (Page 4 of the DRP order). The DRP has also observed that services of assessee assist MSSPL in making managerial/business decision. In the instant case, the assessee acted as intermediary and facilitates sale of software products/services outside India. On perusal of copy of sale and marketing agreement dated 11.02.2009 entered between the assessee and MSSPL, it is seen that the assessee rendered the following services.

• Promoting the software product/services on behalf of the Appellant; • Co-Ordination between the customers in North American, South American and Caribbean market and MSSPL; • Following up with the customers in North American, South American and Caribbean market for collection of amount. 10. In the instant case, the assessee is not providing any technical, managerial or consultancy services rather has been engaged to act as authorized business partner to market and promote the products or services of MSSPL outside India In fact, the AO/DRP have not even concluded as to what is the nature of services rendered by the assessee. The decision regarding what are the products/services that are to be developed or provided, the price to be charged to the customer etc. are solely taken by MSSPL. The assessee does not play any role in the decision-making process. Further, once the assessee procures the orders, it is at the discretion of MSSPL whether to sell the product or render services to identified customers. The Hon’ble Delhi High Court in case of DIT (International Taxation) vs Panalfa Autoelectrik Ltd (2014) 49 taxmann.com 412 (Delhi) held that commission paid by the assessee to its foreign Agent for arranging export sales and recovery of payments could not be regarded as fee for technical services under section 9(l)(vii) of the I.T.Act. The High Court held that the skill, business acumen and

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 6 of 13 knowledge acquired by the non-resident were for his own benefit and use. The relevant finding of the Hon’ble High Court reads as follows:-

“22. In the present, case commission paid for arranging of export sales and recovery of payments cannot be regarded as consultancy service rendered by the non-resident. The non-resident had not rendered any consultation or advice to the respondent-assessee. The non-resident no doubt had acquired skill and expertise in the field of marketing and sale of automobile products, but in the facts, as notice by the Tribunal and the Commissioner of Income Tax (Appeals), the non-resident did not act as a consultant, who advised or rendered any counselling services. The skill, business acumen and knowledge acquired by the non- resident were for his own benefit and use. The non-resident procured orders on the basis of the said knowledge, information and expertise to secure "their" commission. It is a case of self-use and benefit, and not giving advice or consultation to the respondent assessee on any field, including how to procure export orders, how to market their products, procure payments etc. The respondent-assessee upon receipt of export orders, manufactured the required articles/goods and then the goods produced were exported. There was no element of consultation or advise rendered by the non-resident to the respondent assessee. ………………..

25.

Thus, the technical services consists of services of technical nature, when special skills or knowledge relating to technical field are required for their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that allow him to do so. In the present case, the aforesaid requisites and required necessities are not satisfied. Indeed, technical, managerial and consultancy services 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.”

11.

The Hon'ble Supreme Court in the case of CIT v Toshoku Ltd (1980) 125 ITR 525 (SC) held that the sales commission paid to the commission agents outside India was not taxable in India. The Apex Court observed that the sales commission earned by the non-resident agents cannot be deemed to accrue or arise in India.

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 7 of 13 12. The Hon’ble Madras High Court in the case of CIT vs Faizan Shoes (P.) Ltd (2014) 48 taxmann.com 48 (Madras) had held that Assessee was not liable to deduct tax at source when non-resident agent provides services outside India on payment of commission.

13.

In the case of Exotic Fruits (P.) Ltd reported in (2013) 40 taxmann.com 348 (Bangalore- Trib.), the Bangalore Bench of the Tribunal held that payment made to the non-resident agents does not fall within the meaning of managerial services as mentioned under section 9(l)(vii) of the I.T.Act and not required to deduct TDS under section 195. Further, it has been held that in the absence of permanent establishment(s) of such agents in India, the export commission income of the agents was not liable to be taxed in India and thus, the assessee was not obliged to effect any deduction of tax on the commission payments made to the agents who were positioned overseas.

14.

The ITAT in the case of iRunway India (P) Ltd vs DCIT (2022) 138 taxmann.com 188 (Bangalore-Trib.) had held that where assessee has obtained certain sales consulting services from USA and commission is based on fixed percentage of sales, then merely because the service provider is technically qualified, sales commission paid for enabling sale could not become payment for rendering technical services and therefore, TDS is not applicable. 15. Similarly, the Bangalore tribunal in the case of Deccan Creations (P.) Ltd vs DCIT (2022) 134 taxmann.com 144 (Bangalore-Trib.) had held that services of foreign agents in the form of providing the data related to market trends and requirements of customers does not constitute as managerial services, as these services are usually provided by any agent. Thus, sales commission paid to foreign agents on the value of sales affected through them cannot be treated as technical services and therefore, not taxable in India The following judicial pronouncements have also taken an identical view:- * PCIT vs Puma Sports India (P.) Ltd (2021) 127 taxmann.com 169 (Kamataka}

SLP dismissed by Supreme Court - (2022) 134 taxmann.com 60 (SC); * Bengal Tea & Fabrics Ltd.. v DCIT (2018) 91 taxmann.com 38 (Kolkata - Trib.);

* DCIT v Divi's Laboratories Ltd (2011) 12 taxmann.com 103 (Hyd.); * CITvs. Model Exims, (2014) 42 taxmann.com 446 (ALL)

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 8 of 13 * Brakes India Ltd. v DCIT (2013) 33 taxmann.com 501 (Chennai - Trib.); * Sri Subbaraman Subramanian v Asst CIT (2013) 30 taxmann.com 236 (Bangalore - Trib.); * ACIT v India Shoes Exports (P.) Ltd (2015) 57 taxmann.com 303 (Cliennai-Trib.);

* ACIT v Evergreen International Ltd (2018) 91 taxmann.com l11(Delhi-Trib.);

* CIT v Orient Express (2015) 56 taxmann.com 331 (Madras); * Divya Creation v ACIT (2017) 86 taxmann.com 276 (DelhiTrib.); and * Khimji Visram & Sons v ACIT (2014) 52 taxmann.com 485 (Mumbai- Trib.).

16.

In light of the above judicial pronouncements, the income received towards sales commission does not satisfy the definition of "FTS" under the Act as it is not in the nature of Managerial, Technical or Consultancy Services.

17.

The AO has relied on the judgment of Hon’ble Supreme Court in case of GVK Industries Ltd vs ITO (2015) 54 taxmann.com 347 (SC) where in it was held that services provided by Switzerland based company for raising required finance from international organisations on most competitive terms, payment made to swiss company for rendering such consultancy services amounted to 'fee for technical service' liable to tax in India. The above judgment of Hon'ble Apex Court is not applicable to facts of the present case. In the above judgment Hon'ble Supreme Court observed that the non-resident entity provided various services like advising the assessee on various aspects like financial structure, and security package to be offered to the lender, study of various lending alternatives for the local and foreign borrowings, making assessment of expert credit agencies worldwide and obtaining commercial bank support on the most competitive terms, assisting the assessee-company in loan negotiations and documentations with the lenders, structuring, negotiating and closing financing for the project in a coordinated and expeditious manner. The above services are clearly in the nature of consultancy services as they assist in decision making. However, in the instant case, the assessee has rendered sales and marketing services to MSSPL. No consultancy services are rendered and in fact even the AO has concluded that assessee has rendered technical services. Therefore, the above decision of Hon'ble

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 9 of 13 Supreme Court in GVK Industries is not applicable to the facts of the present case. Further, the decision does not deal with the taxability under the treaty. 18. The AO has also relied on the order of Chennai Tribunal in the case of Foster Wheeler France SA [TS-62-ITAT2016CHNY]. In this regard, we are of the view that the said case law is not applicable to the facts of the assessee. In the said case, the service provider was rendering engineering and IT services which are purely technical in nature whereas in the instant case the assessee has rendered only marketing services. 19. Now, we shall deal with taxability as per DTAA: The assessee is admittedly a tax resident of USA and hence it is eligible to claim benefits under India-USA DTAA. The payment received by the assessee will not qualify as "fees for Included services" under the India-USA DTAA. The definition "fees for Included services" under Article 12 to India-USA DTAA is as follows: "fee for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design." 20. The payments towards sales and marketing services provide by the assessee is not covered under sub clause (a) to Article 12(4) of India-USA DTAA as it is not ancillary to application or enjoyment of any right. Further, clause (b) to Article 12(4) of India-USA DTAA is only applicable if the services are in the nature of technical or consultancy services, which make available knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. The sales and marketing services rendered by assessee is not in the nature of technical or consultancy services. The AO has submitted that services are in the nature of project management of services and the same has been confirmed by the DRP. The project management services does not constitute technical or consultancy services and therefore are outside the ambit of "FIS" as defined in India-USA DTAA. Even if it is assumed without admitting that marketing services is technical or consultancy in nature, it did not make available any technical knowledge, experience, know-how, process to MSSPL. The term "make available" under the treaty law postulates a concept wherein the recipient of the services is not only benefited by the services but there is also

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 10 of 13 a transfer of the technology, processes, skill etc., to the recipient in a manner which will enable the latter to apply the technology, processes, skill etc., in future without recourse to the service provider. The term "make available" encompasses some sort of durability and stability with reference to the transfer of technology, processes and skill etc., so that the same is not regarded as transient or ephemeral.

21.

As per Memorandum of Understanding ("MOU") on Article 12 of the Treaty, entered into by the Government of India and the Government of USA on May 15, 1989, the technology is considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service. In this context, we rely on the judgment of the Hon’ble jurisdictional High Court in the case of CIT v De Beers India Minerals (P.) Ltd. 21 taxmann.com 214 (Kar.), wherein the Honourable High Court dealt with 'make available' clause. The High Court held that for attracting the liability to pay tax, not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The Hon’ble High Court, held that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. The relevant finding of the Hon’ble High Court reads as follows:-

“14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 11 of 13 technology. It has no bearing on the taxability aspect is concerned. When technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA. the liability, to tax is not attracted. ……………….. 22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other word, payment of consideration would be regarded as "fee for technical / included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.” 22. Reliance is also placed on the judgment of Delhi High Court in the case of DIT v. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Del.)

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 12 of 13 23. The Kolkata Tribunal decision in the case of On process Technology India (P.) Ltd v DCIT (2018) 96 taxmann.com 428 (Kolkata-Trib.) is squarely applicable to the facts of the present case. In the aforesaid case, the Tribunal rendered decision in the context of India-USA DTAA. The Tribunal held that the act of securing orders and soliciting business by the foreign marketing companies does not make available any technical knowledge or technical service and the same is not taxable either u/s 9(l)(vii) or under India-USA DTAA. Reliance is also placed on the decision of Delhi Tribunal in the case Rajinder Kumar Aggarwal (HUF) vs DCIT [2021] 131 taxmann.com 252 (Delhi-Trib.)

24.

The AO has stated that marketing services rendered by the assessee are technical in nature and which are used by MSSPL for development of business, which results in enduring benefit. Accordingly, the A.O. has concluded that make available is satisfied as there is transfer of skill and knowledge which falls within the ambit of technical services. The DRP has also confirmed the view of the A.O. The AO and DRP has erred in not appreciating that what should be made available is technical knowledge, experience, skill etc. Making available service does not make available knowledge, experience, skill etc. MSSPL has to approach the assessee every time to get new customers and maintain relationship with existing customers. The test of make available as envisaged in the DTAA is therefore not satisfied in the instant case. 25. In light of the aforesaid reasoning, we hold that the sales and marketing services rendered by the assessee to MSSPL would not fall within the ambit of FTS as defined under section 9(1)(vii) or under Article 12 of DTAA. It is ordered accordingly.”

6.1 Further, same view has been taken by this Tribunal in the case of m/S. Algonomy Software Pvt. Ltd. in ITA Nos.943 to 946/Bang/2023 dated 19.1.2024, wherein held as under: 11. “Taking into consideration the entire aspect of the matter, we find force in the submission made by the Ld. Counsel that since it has already been decided by the Coordinate Bench that the services rendered to the assessee by the said Manthan Systems Inc. is not falling within the ambit of FTS or under Article 12 of the treaty, the assessee is not liable to deduct TDS on the payment made to the MSI.

12.

Therefore, respectfully relying upon the same, we find no ambiguity in the order passed by the Ld. CIT(A) in holding that there is no liability to deduct TDS and accordingly, deletion of addition made to the assessee’s income in respect of sales commission under section 40(a)(i) is found to be just and proper so as to warrant interference. The same is, therefore, upheld. The revenue’s this ground of appeal, is, thus, found to be devoid of any merit and therefore, dismissed.”

ITA No.394 to 398/Bang/2024 Manthan System Inc., Bangalore Page 13 of 13

6.2. Respectfully following the above orders of the Tribunal, taking a consistent view, we hold that the income received towards the sale commission does not satisfy the definition “FTS” both under the Act and under DTAA. 6.3 Further, it was also noted that the payer (ASPL) it is already held that commission payment is not taxable, the same findings are applicable in the present assessee who is being a recipient. In view of the above, we allow the ground No.3 in favour of the assessee in all these appeals holding that sales commission is not taxable. we allow the above ground taken by the assessee in all these appeals. 7. In the result, all the appeals filed by the assessee are partly allowed. Order pronounced in the open court on 20th May, 2024

Sd/- Sd/- (Chandra Poojari) (Soundararajan K.) Accountant Member Judicial Member

Bangalore, Dated 20th May, 2024. VG/SPS

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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