ITO WARD 3(1)(4), RAJKOT-STATION- AMRELI, AMRELI, GUJARAT vs. AVADH AGRI EXPORTS, AMRELI, GUJARAT

In response to the above show cause notice u/s.142(1) of the Act, dated 17.03.2015, the assessee-firm has furnished its written submission on 23.03.2015, before the assessing officer, which are reproduced below:

Further, the assessee in its written submission dated 23.03.2015, relied on various decisions of Hon'ble I.T.A.T. and High Courts for no TDS to be deducted/ is required while making the payment and therefore, no disallowances to be made on these issues. The assessee further stated that the Page 3 of 20 2012-13 ITO vs. Avadh Agri Exports non-resident companies were not having their permanent establishment. Hence, even if the commission had been received by the non-residents on account of the business connections mentioned in section 9(1)(i) of the Act, the same was not chargeable in India because such non-resident companies were not having any permanent establishment. The Section 40(a) is applicable in respect of payments to non-residents and the payment should be in the nature of interest, royalty, fees for technical services or other sum chargeable under this Act. It is undisputed fact that the sum is commission and the word commission is not specifically mentioned in section 40(a) of the Act. The sum paid is not chargeable in India under the Act. Hence, section 40(a) of the Act is not applicable. The assessee further stated that, for the purpose of charging TDS on foreign commission, the non- resident assessee should either be covered under section 9 or under provisions of section 195 of the Act. Thus, in the present case accordingly TDS on foreign commission is not required to be deducted. Further by Finance Act 2012, following was inserted in section 195(1) with retrospective effect for the purpose of deducting TDS on payment made to foreign non-resident:

However, the assessing officer rejected the above contention of the assessee and observed that to verify genuineness of the foreign commission of Rs.2,23,96,972/-, the assessee needs to submit copies of contracts with SAFCO (Non-resident Agent) to whom the said commission was paid and other relevant detail. Further, the assessee has paid ocean freight of Rs.43,84,038/- paid to various parties and assessee has not submitted evidences. Therefore, assessing officer observed that failure to deduct tax from payment outside India, the said payment is not allowable under the I.T. Act. Since, the assessee has failed to deduct tax at source under section 195 of the I.T. Act from payment of foreign commission of Rs.2,23,96,972/- and also the assessee has paid ocean freight charges of Rs.43,84,038/- to various parties, out of which, the TDS is made on Rs. 1,13,922/-, and no TDS is made on the remaining balance amount of Rs. Rs.42,70,116/- (Rs.43,84,038- Rs. 1,13,922), which requires to be disallowed u/s.40a(ia) of the I.T. Act, accordingly, the amount of Rs.2,23,96,972/-, being Foreign Commission and Rs.42,70,116/- being ocean freight charges were disallowed and added to the total income of the assessee, u/s 40(a)(i) of the I.T. Act.

Aggrieved by the order of the assessing officer, the assessee carried the matter, in appeal before the Ld. CIT(A), who has allowed the assessee’s appeal and deleted the addition made by the assessing officer. The ld.CIT(A) followed the decision of Jurisdictional ITAT, Rajkot, in M/s Sonpal Export Private Ltd, in order dated 21.08.2025, wherein it was held that the appellant was not liable to deduct TDS on payment of Rs.2,23,96,972/- to SAFCO, a foreign resident having no Permanent Establishment in India, as the income to SAFCO did not accrue or arise in India. Therefore, ld.CIT(A) directed the assessing officer to delete the addition of Rs. 2,23,96,972/-. About ocean freight charges, the ld.CIT(A) held that out of Rs.42,70,116/-, TDS has been deducted on an amount of Rs.6,00,699/-, being payment made to residents. It was held that the balance amount of Rs. 37,83,339/- (Rs.42,70,116- Rs.6,00,699 +Rs.1,13,922) was not liable for TDS in accordance with the CBDT Circular number 723 of 1995. In this regard, ld.CIT(A) relied on the decision of ITAT, Ahmedabad, in in the case of ITO vs. Shri Sainani Vivek Gope in ITA no.2278/Ahd/2009. Hence, ld.CIT(A) directed the assessing officer to delete the addition of Rs. 42,70,116/-.

We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record.Before us, Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. However, on the other hand, Ld. Counsel for the assessee, Page 7 of 20 2012-13 ITO vs. Avadh Agri Exports defended, the order passed by the learned CIT(A). We note that as on date, this issue is no more res-integra because the dispute on subject matter is covered by multiple orders of judicial authorities, including that of ITAT Rajkot, the jurisdictional Tribunal, in the case of DCIT vs. M/s. Sonpal Exports Pvt. Ltd. in wherein the Tribunal held as follows:

Coming to the merits of the case, we note that generally, commission is paid to foreign agents (located outside India) for procuring export orders or facilitating sales.

The ld. CIT(A) similarly, noticed in respect of other commission agents, and observed that payments have been made through banking channel, outward remittance Page 9 of 20 2012-13 ITO vs. Avadh Agri Exports certificates are on record, debit notes raised by them on are on record, foreign exchange remittance certificates are on record, Form 15 CA/CB in respect of such parties are on record. It is also very natural to envisage payment of foreign sales commission (paid to foreign parties) in respect of export sales to the foreign customers. The evidences submitted in respect of these foreign commission agents are real and they could not be rebutted by the assessing officer. The assessing officer has simply raised doubts in respect of certain fact like deficiencies in the agreement (in respect of inadequate safe guard of the interest of the foreign commission party and presumed high rate of commission vis- a -vis the exports and unusual/unlikely name of one of the foreign agent. Doubts and surmises cannot substitute evidences. And in present case the doubts itself are on very weak footings when we notice the fact that payment of Rs. 21.6 crores to M/s. Jaya INC Korea, has been stopped by the assessee and has been reported to the department and to the assessing officer, and doubts and surmises even if strong are no substitute to the real hard evidences. Therefore, ld. CIT(A) did not find any force in the assessing officer's action of treating the said export commission to foreign export commission, as bogus. 19.About the second issue, which is regarding applicability of section 40(a)(ia) of the Act, in respect of these commission payments, the ld. CIT(A) noted that there is no doubt that all these foreign agents are not residents and are not having business connection in India. There is also no doubt that they have rendered services to the assessee, outside India in respect of export of the assessee. It was stated by the assessee that the agent did not have any business connection or PE in India and they have been paid for their service rendered in their countries, that is, outside India and hence their income had not arisen in India and hence no sum chargeable to tax in India was payable to them and accordingly provision of Section 195 of the Act will not be applicable to payments to them. It was also argued that as per Article 7 of the DTAA between India and Korea, the business income is taxable in Korea only. Further, it was also argued that the services rendered by the agent was merely of enabling sales as per the agreement and agent had no role beyond that and hence the services provided by them cannot be termed as managerial services. Case laws were also cited by the assessee to emphasize that the commission paid to foreign agents cannot be regarded as "Managerial", technical or consultancy. It has also been informed by the assessee that only partial addition on this count (only in respect of one foreign agent) was made in earlier year and that also only because there was no DTAA between India and relevant country, that is, Hongkong, Payment to other foreign agents including M/s Jaya INC Korean, were not disallowed u/s 40(a)(ia) of the Act, in that assessment year( AY) that is, AY 11-12. The Ld. CIT (Appeal) has deleted even that partial disallowance by assessing officer in that year with following ruling: "I have duly considered the assessment order and written submission filed by the AR of the assessee. The fact as enumerated from the assessment order and also from the written submission is that the assessee has paid commission to foreign agent residing at Hongkong. The foreign agent has provided services for sales carried out at Hongkong and such agent is also liable to recover sales proceeds from the buyer, the services are provided outside India. In this connection the relevant provision is section 9(1)(i) of the I.T. Act. As per section 9(1)(i) of the Act, all income accruing or arising, whether directly or indirectly, through or from any business connection in India or through or any capital asset situate, in India or though the transfer of capital asset situate in India. The provision of section 9(1)(i) has been duly considered by the Hon'ble Supreme court in the case of CIT vs. TOSHOKU Ltd. 125 ITR 0525 (SC), the apex court has held that " clause (a) of the explanation to Cl.(1) of sub-s. (1) of s. 9 provides that in the case of a business of which Page 10 of 20 2012-13 ITO vs. Avadh Agri Exports all the operations are not carried out in India, the Income of the business deemed under that clause to accrue or arise in India shall be only such part of the Income as is reasonably attributable to the operations carried out in India. If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. The apex court has further held that the non-resident assessee did not carry on any business operations in the taxable territories; they acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to the operation carried out by the assessee. In India as contemplated by cl.(a) of the Explanation to s. 9(1)(i). The commission amounts which were earned by the non-resident assessee for services rendered outside India cannot, therefore, be deemed to be incomes which have either accrued or arisen in India," Similarly, the Delhi High Court in the case of CIT vs. EON Technology (P) (ltd) 343 ITR 366 (Delhi HC), has held that "when commission was paid to the non-resident on sales amounts and export contracts procured by the nonresident for the assessee. Income of the non-resident could not be said to have accrued, arisen to or received by Non- Resident in India merely because it was recorded in books of assessee in India or was paid by assessee situated in India. Since facts found did not make out a case of business connection of Non- resident as stipulated in section 9(1)(i), commission income could not be said to have accrued in India and therefore assessee was not liable to deduct tax at source from payment of commission." The assessee further relied on the decision of the Hon'ble Hyderabad ITAT in the case of DCIT Vs. Divi's Laboratories Ltd. (2011)131 ITD 271 (Hyderabad), Hon'ble ITAT "has duly considered the Circular No. 7 dated 22-10-2009, which had withdrawn its earlier Circular Nos. 23 dated 23-7-2009, 163 dated 29-5-1975 and 786 dated 7-2-2000. The Hon'ble ITAT has held that the main thrust is whether the commission made to overseas agents, who are non-resident entities, and who render services only at such particular place, is assessable to tax. Section 195 very clearly speaks that unless the income is liable to be taxed in India, there is no obligation to deduct tax. In order to determine whether the income can be deemed to be accrued or arisen in India, section 9 is the basis. This section does not provide scope for taxing such payment because the basic criteria provided in the section is about genesis or accruing or arising in India, by virtue of connection with the property in India, control and management vested in India, which were not satisfied in the instant cases. Under these circumstances, withdrawal of earlier circulars issued by the CBDT had no assistance to the department, in any way. In disallowing such expenditure, it appeared that an overseas agent of Indian exporter operated in his own country and no part of his income arises in India and his commission is usually remitted directly to him by way of posting of cheques /demand drafts in India and, therefore, the same is not received by him or on his behalf in India and such an overseas agent is not liable to Income-tax in India on those commission payments." Therefore, respectfully following the decisions of Hon'ble Supreme Court and other high courts, I am of the considered view that the provisions of section 9(1)(1) is not applicable to the commission payment outside India in the present case and such income is not liable to tax in India. The Ld. assessing officer has also relied on the decisions of Advance Ruling in the case of SKF Boilers And Driers Pvt. Ltd., 343 ITR 0385 and Rajiv Malhotra, In re (2006) 203 CTR (AAR) 607, both these decisions are authored by Advance Ruling Authority. The decisions of AAR do not have any binding precedents and it can be applicable to the concerned party and respective department officer as held in the case of Cyril Eugene Perelra, IN RE (239 ITR 0650). So far as merit of the decisions are concerned, the Advance Ruling Authority has not considered the decisions of Supreme Court and High Court on the vary subject. It is also further brought to the notice that the various courts have also distinguished these decisions in the said of (i) Rapid Pack Eng. P. Ltd. 151 ITD 0391 (Mumbai), (ii) Trident Exports 149 ITD 0361 (Chennai), (iii) V. DENADAYALAVEL 33 CCH 0322 (Chen Trib), (iv) Modem Insulator LTD. 30 CCH 0193 (Jaipur), (v) Transformers And Electricals Kerala Ltd. 66 SOT 0110 (Cochin), (vi) CLSA Limited 160 TTJ 0001 (Mumbai). Therefore, the decisions relied upon by the assessing Page 11 of 20 2012-13 ITO vs. Avadh Agri Exports officer are distinguishable to the facts of the present case. Therefore, if the income is not chargeable to tax in India, as per section 195 of the Income Tax, the assessee is not required to deduct TDS. In this regards, Hon'ble Supreme Court in the case of GE India Technology Centre (P).Ltd. vs. CIT 327 IRT 456 (SC) has been held that the moment a remittance is to a nonresident, obligation to deduct tax u/s 195 does not arise, it is only when such remittance is a sum chargeable under Act, i.e., chargeable under section 4, 5 and 9. The provisions of Section 195 get wanted when the payments made are composite payments and have an content of income chargeable to tax in India and payer seeks a determination of appropriate proportion of sum chargeable. Therefore, since the income is not chargeable. Therefore, since the income is not chargeable to tax in India and therefore the assessee is not required to deduct u/s 195 of the IT Act, and therefore there is no case of disallowance u/s 195 of the IT Act. " 20.The ld. CIT(A) observed that in assessee`s case the legal issue involved, is whether sale commission/brokerage paid to a non-resident agents without deducting TDS is to be treated as in violation of Section 195 of the Act, so as to activate provisions of section 40(a)(ia) to disallow the said expense. There is no dispute in the fact that the payees are non-resident agents having no business connections in India. The assessing officer has ruled that the obligation to deduct TDS is extended to all the payment made to all persons, resident not and having place of business and businesses connection in any manner whatsoever in India or not. The assessing officer has relied on the decision of the AAR in the case of SK boilers & Dryers Pvt. Ltd AAR No. 9832984 of 2010. Thus, assessing officer has not gone into the issues of nature of the income arisen to the foreign agent and whether that income is covered by section 9 of the Act, to be taxed in India in the hands of the agent. According to the assessing officer, all payments to nonresident, are covered u/s 195 of the Act and assessing officer had ruled that the facts that services are being rendered outside India and payment is being remitted out of India are wholly irrelevant because sources of income to the non-residents agent is situated in India. This approach of assessing officer is very simplistic and it has forgotten that section 195 of the Act, is concerned with interest and any other sum chargeable under the Income Tax Act. The provisions of section 195 stipulates the liability to deduct TDS arises only when the payment is chargeable to tax in India. The assessee has made payment in respect of its foreign agents, services in respect of its foreign sales to the foreign customers, the commission has been paid to the agent for procuring export orders; the question is whether the services rendered by the agent situated outside India can be considered as services rendered in India or services utilized for the business of the assessee conducted in India. Any income of a non- resident will become chargeable to tax only if it is received or deemed to be received, accrued or arisen or deemed to accrue or arise in India. The Section 9 (1) of the Act, can bring this income in the bracket of sum chargeable to tax in India only if the receipt fulfills the conditions as stipulated in different categories of income in that section like business income with business connection in India or fees for technical services which was utilized in India in any manner.

As regards taxability of the amounts so paid to these three entities, the Assessing Officer took note of the contentions of the assessee (a) that Export Commission per se is not a services, (b) that if at all they are being construed as services the same being rendered outside India the same are not taxable in India a per section 5(2) of the Act (c) That, without prejudice to the above since the agents does not have any business connection in India the same are not taxable in India in light of the section of the Act (d) That without prejudice to the above the same is not FTS in light of the section 9(1)(vi) of the Act as the same neither qualifies as Managerial, technical or consultancy services (e) that further the same does not accrue or arise in India as the same are incurred for earning from a source outside India as per section (v) of the Act (f) That without prejudice to the above the same are even considered as FTS as per the Act the same cannot be treated as FTS in light of India-UAE DTAA and India Thailand DTAA, and (g) that in any case the remittance neither accrues nor arises in India and the same cannot be deemed to accrue or arise in India, the same cannot be taxed in India and accordingly tax was not withheld in the light of section 195 of the Act.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

So far as the first category of cases are concerned, i.e. payments to the residents of the tax jurisdictions with which Indian has tax treaties. 30. As regards the remaining cases, in category (b) and in category (c) as also in the case of JT-Iran, the provisions of the tax treaties do not come to the rescue of the recipients, and, therefore, the taxability in these cases is to be decided on the basis of the provisions in the domestic law. 31 The scheme of taxability in India, so far as the non- residents, are concerned, is like this. Section 5 (2), which deals with the taxability of income in the hands of a nonresident, provides that "the total income of any previous year of a person who is a nonresident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year". There is no dispute that since no part of the operations of the recipient non-residents is carried out in India, no income accrues to these non-residents in India. The case of the revenue 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 India (1) The following incomes will be deemed to accrue or arise in India: (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through on from any asset or source of income in India, Explanation: For the purpose of this clause [i.e. 9(1)(1)), (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) (c) (d)...... (vii) income by way of fees for technical services payable by- (a)…………….. (b) a person who is a resident, except where the 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 source outside India; or (c)………….. Explanation 1-... Explanation 2.- For the purposes of this clause," fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision 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 consideration which would be income of the recipient chargeable under the head" Salaries".

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 binding precedents for us nor are we persuaded by the line of reasoning adopted in these rulings. As for the AAR ruling in the case of SKF Boilers & Driers Pvt. Ltd [(2012) 343 ITR 385 (AAR)], we find that this decision merely follows the earlier ruling in the case of Rajiv Malhotra ((2006) 284 ITR 564] which, in our considered view, does not take into account the impact of Explanation 1 to Section 9(1)(1) properly. That was a case in which the non-resident 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 out any business operations in India, the commission agent was not chargeable to tax in India, and, accordingly, the assessee had no obligation to deduct tax at source from such commission payments to the non-resident agent. On these facts, the Authority for Advance Ruling, inter alia, opined that "no doubt the agent renders services abroad and pursues and solicits exhibitors there in the territory allotted to him, but the right to receive the commission arises in India only when exhibitor 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, be taxable under section 5(2)(b) read with section 9(1)(i) of the Act". The Authority for Advance Ruling also held that "the fact that the agent renders services abroad in the form of pursuing and soliciting participants and that the commission is remitted to him abroad are wholly irrelevant for the purpose of determining situs of his income". We do not consider this approach to be correct. When no operations of the business of commission agent is carried on in India, the Explanation 1 to Section 9(1)(l) takes the entire commission income from outside the ambit of deeming fiction under section 9(1)(i) and, in effect, outside the ambit of income 'deemed to accrue or arise in India' for the purpose of 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 Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income 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 our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi- judicial forum, even if not binding, cannot simply be brushed aside either, and that these rulings at least 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 without slightest hesitation, we humbly come to the conclusion that we are not persuaded by these rulings.

Coming to Section 9(1)(vii)(b) this deeming fiction- which is foundational basis for the action of the Assessing Officer, inter alia, provides that the income by way of technical services payable by a person resident in India, except in certain situations-which are not attracted in the present case anyway, are deemed to be income accruing or arising in India. Explanation 2 to Section 9(1)(vii) defines 'fees for technical services' as 'any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provisions of services of technical or other personnel) but does not include 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 portion highlighted by underlining]".

In the light of the above legal position, what we need to decide at the outset is whether the amounts paid by the assessee to the non-resident agents could be termed as "consideration for the 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 this reason that the amounts paid to these agents, on account of commission on exports, should be treated as fees for technical services. Even proceeding on the assumption that these non-resident agents did render the technical services, which, as we will see a little later, an incorrect assumption anyway, what is important to appreciate is that the amounts paid by the assessee to these agents constituted consideration for the orders secured by the agents and not the services alleged rendered by the agents. The event triggering crystallization of liability of the assessee, under the commission agency agreement, is the event of securing orders and not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order. In a reverse situation, in which an agent renders all the alleged technical services but does not secure any order for the principal i.e. the assessee, the agent is not entitled to any commission. 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 matter, in our considered view, the amounts paid by the assessee to its non-resident agents, even in the event of holding that the agents did indeed render technical services, cannot be said to be "consideration for rendering of any managerial, technical or consultancy services (Emphasis by underlining supplied by us)". The services rendered by the agents, even if these services are held to be in the nature of technical services, may be technical services, but the amounts paid by the assessee are not for the rendition of these technical services nor the quantification of these amounts have any relation with the quantum of these technical services. The key to taxability of an amount under section 9(1)(vii) is that it should constitute "consideration" for rendition of technical services. The case of the revenue 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.

Let us sum up our discussions on this part of the scheme of Section 9, so far as tax implications on commission agency business carried out by non-residents for Indian principals are concerned. It does not need much of a cerebral exercise to find out whether the income from the business carried on by a non-resident assessee, as a commission agent and to the extent it can be said to directly or indirectly accruing through or from any business connection in India, is required to be taxed under section 9(1)(i) or under section 9(1) (vii) of the Income Tax Act, 1961. The answer is obvious. Deeming fiction under 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. When no operations of Page 16 of 20 2012-13 ITO vs. Avadh Agri Exports the business are carried on India, there is no taxability of the profits of such a business in India either. The question then 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 services 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 the light of the discussions in the foregoing paragraph, unless there is a specific and identifiable consideration for the rendition of technical services, taxability under section 9(1)(vii) does not get triggered. Therefore, irrespective of whether any technical services are rendered during the course of carrying on such agency commission business on behalf of Indian principal, the consideration for securing business 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 profits relate to the business operations in India, but then, as are the admitted facts of this case, no part of operations of business were carried out in India. The commission agents employed by the assessee, therefore, did not have any tax liability in India in respect of the commission agency business so carried out.

On a more fundamental note, however, it is also a settled legal position by now that the services of the nature rendered by these commission agents cannot anyway be treated as fees for technical services anyway. Viewed thus, even the discussion on whether the amounts in question could be treated as 'consideration' for technical services, may be rendered academic in effect. Learned CIT(A) has very well summarized the judicial precedents in support of this line of reasoning, and, in an erudite and extended discussion, dealt with each limb of the definition of technical services.

As is clear from the above provisions of the agreement, 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 limited to the activities specified therein. The consideration for which the payment made to the commission agent is obtaining of the orders and not any services per se. The consideration is computed on the basis of business procured. Obviously, if there are no business generated for the principal, the agent gets nothing. Quite clearly, what is done by the agent is not a rendition of service but pure entrepreneurial activity. The work actually undertaken by the agent is the work of acting as agent and so procuring business for the assessee but as the contemporary business models require the work of agent cannot simply and only be to obtain the orders for the product, as this obtaining of orders is invariably preceded by and followed by several preparatory and follow up activities. The description of agent's obligation sets out such common ancillary activities as well but that does not override, or relegate, the core agency work. The consideration paid to the agent is also based on the business procured and the agency agreements do not provide for any independent, standalone or specific consideration for these services. The services rendered under the agreement cannot, therefore, be considered to be technical services in nature or character. The services 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 specialized pipe was a highly technical activity involving very complex technical exercise of technology and skilled labour and finest grade of raw material" and that "obviously, to procure the orders, the assessee company will need specialist agents who can understand the nitty gritty of the assessee's business and can demonstrate the assessee's business profile and quality of products of the assessee to the potential clients to convince them to enter into a contract with the assessee company". Just because a product is highly technical does not change the character of activity of the sale agent. Whether a salesman sells a handcrafted souvenir or a top of the line laptop, he is selling Page 17 of 20 2012-13 ITO vs. Avadh Agri Exports nevertheless. It will be absurd to suggest that in the former case, he is selling and the latter, he will be rendering technical services. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical details, is only towards the end of selling. In a technology driven world that we live in, even simplest of day to day gadgets that we use are fairly technical and complex. Undoubtedly, when a technical product is being sold, the person selling the product should be familiar with technical specifications of the product but then this aspect of the matter does not anyway change the economic activity. Nothing, therefore, turns on the details of the products being technical. It was also noted that by the Assessing Officer that "it is a very technical exercise to obtain the contracts since it involves complex process requiring elaborate discussion, technical expertise and present of complex technical presentation, on behalf 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 when the products being dealt with are technical products, but then merely because technical inputs are needed in carrying out business activity, it does not become a technical service rather than a business activity. At the cost of repetition, we must emphasize the important distinction between a business activity, requiring understanding of related technology, and rendition of technical services simpliciter. In any case, what has been described as a technical service is the service being rendered to the buyer but the payment received by the commission agents is not for this service per se but for generating business orders for the assessee. Generating business or securing orders is an entrepreneurial activity and cannot, by any stretch of logic, be treated as a technical service per se. The same is the position with regard to assistance with respect of logistics, such as shipping and handling services, with respect to sale forecasting, with respect to gathering information on markets, business environment and on specific buyers and with respect to development of sales network. All these services are essentially integral part of, and are thus aimed at, developing business for the assessee and securing orders for the assessee from the right persons. Neither these services can be viewed on a standalone basis divorced from the economic activity of securing orders, nor any payment can be said to be for rendition of these services inasmuch as it is not the rendition of these services but securing business of the assessee which triggers the income accruing to the nonresident agents of the assessee and it is securing of business for the assessee which is the proximate cause of the income accruing to the assessee.----------- 41. We are in considered agreement with the views so 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 India, even under the provisions of the domestic law i.e. Section 9. Once we come to the conclusion that the income embedded in these payments did not have any tax implications in India, no fault can be found in not deducting tax at source from these payments or, for that purpose, even not approaching the Assessing Officer for order under section 195. In our considered view, the assessee, for the detailed reasons set our above, did not have tax withholding liability from these payments. As held by Hon'ble Supreme Court in the case of GE India Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 456 (SC)], payer is bound to withhold tax from the foreign remittance only if the sum paid is assessable to tax in India. The assessee cannot, therefore, be faulted for not approaching the Assessing Officer under section 195 either. As regards the withdrawal of the CBDT circular holding that the commission payments to non resident agents are not taxable in India, nothing really turns on the circular, as dehors the aforesaid circular, we have adjudicated upon the taxability of the commission agent's income in India in terms of the provisions of the Income Tax Act as also the relevant tax treaty provisions.

In the result, appeal filed by the revenue is dismissed.”

In the result, appeal filed by the Revenue is dismissed.