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Facts
The assessee, Steer America Inc. (USA), is a subsidiary of Steer Engineering Private Limited (India). The appeals involve the taxability of commission received by the assessee from its Indian parent company for sales and marketing services. The Assessing Officer treated this commission as 'Fees for Technical Services' (FTS) under Section 9(1)(vii) of the Income Tax Act and the India-USA DTAA.
Held
The Tribunal held that the payment received by the assessee from Steer Engineering SCL, Bangalore, was commission on sales and marketing services and could not be treated as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Act. Therefore, all grounds raised by the assessee were allowed on similar lines.
Key Issues
Whether the commission received by the assessee for sales and marketing services from its Indian parent company constitutes 'Fees for Technical Services' (FTS) taxable in India, or if it is business income not taxable in India.
Sections Cited
Section 147, Section 144C, Section 148, Section 9(1)(vii), Section 148A, Section 201, Section 201(1A), Section 234A, Section 234B, Section 40(a)(i), Section 195
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI PRAKASH CHAND YADAV
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These appeals filed by the assessee are directed against different order of Assessing Officer passed u/s 147 r.w.s. 144C of the Income Tax Act, 1961 for the assessment years 2013-14 & 2014-15 both are dated 16.3.2024. 2. The issue in these appeals is common in nature and the grounds of appeal are common except change in figures. Hence, we reproduce the grounds in IT(IT)A No.832/Bang/2024 for the assessment year 2013-14 as follows:
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 2 of 37 1. “The order passed by learned Deputy Commissioner of Income-tax, Circle 1(2), Bangalore (hereinafter referred as "AO" brevity) and the Honourable DRP-2, Bengal • ("AO" and DRP Collectively referred as "lower authorities" for brevity) are bad in law and liable to be quashed.
Issuing notice under section 148 and passing the assessment order in the absence of 'reason to believe' as contemplated u/s 147. The notice u/s 148 issued and 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.
3. Without prejudice, 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.
4. The lower authorities have erred in passing the assessment order under section 147 read with section 144C without disposing off the appellant's objections to reasons stated for reopening recorded by passing a speaking order as contemplated by the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 1TR 19. The final assessment order passed in violation of the decision of the Supreme Court is bad in law and liable to be quashed.
i) The Lower authorities have erred in Not appreciating that sales commission received from Steer Engineering Private Limited (SEPL) is not taxable in India as per the provisions of Income Tax Act, 1961 ('Act').
ii) The Lower authorities have erred in Not appreciating that services provided by appellant does not qualify as Fees for Technical Services (FTS) as per Act and does 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.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 3 of 37
Services Provided by the Appellant does not qualify as FTS as per the Act and does not satisfy the test of "Make Available" as envisaged in INDIA- USA DTAA and transfer does not qualify as fees for included services or fees for technical services under DTAA.
7. The lower authorities have erred in placing reliance on the judicial decisions which are distinguishable both on facts of the case and provisions of law.
8. The Learned assessing Officer/ Dispute resolution panel erred in making- incorrect conclusions by drawing the references to clauses in the agreement in the order passed under section 147 r.w.s 144(C) of the income tax act.
9. On the Aspect of 'Make Available' the Appellant relies on the MOU dated 15th May, 1989 notified along with the INDIA-USA DTAA. "Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience, skill, know-how, or processes, or consist at the development and transfer of a technical plan or technical design to such person, (For this purpose, the person acquiring the service shall be deemed to include an agent nominee, or transferee of such person.) This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, 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 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, within the meaning of paragraph 4(b).
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 4 of 37 Similarly, theme of a product which embodies technology shall not per se be considered to make the technology available."
That making available service does not make available knowledge, experience, skill, etc. The Appellant has to approach the subsidiary company 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.
The lower authorities have erred in levying interest of Rs. 2,15,11,688/- u/s 234A and Rs. 2,96,63,485/- u/s 234B. On facts and circumstances of the case, interest under section 234A and 234B of the Act is not leviable. The appellant denies its liability to pay interest under section 234A and 234B of the Act. The appellant submits that each of the above grounds / sub grounds are independent and without prejudice to one another.
Ground No.1 is general in nature, which does not require any adjudication.
Ground Nos.2 to 4 are with regard to reopening of assessment, which were not pressed before us. Accordingly, these grounds are dismissed as not pressed. 5. Ground Nos.5 to 10 are with regard to taxability of overseas sales commission i.e. the receipt from Associated Enterprises (AEs) towards commission on sales though it will not take up the nature of fee for technical services u/s 9(1)(vii) of the Act as it is neither managerial nor consultancy services. 6. Facts of the issue are that the Assessee is subsidiary of STEER Engineering Private Limited (hereinafter referred as "AE" or "Steer India") incorporated in USA and a foreign company. The Assessee Company is engaged in the business of Marketing, Trading of Extruders and related peripherals. The Assessee Company procures focal sales orders in United States of America for STEER Engineering Private Limited (AE) for products to be manufactured, executed by IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 5 of 37 the AE in India, and receives payments thereto from the customers which are further transmitted fully to AE. In these two assessment years, the assessee received a sum of Rs.1,83,77,380/- and a sum of Rs.3,17,93,020/- as commission on sales and marketing services in assessment year 2013-14 and 2014-15 respectively. Steer Engineering Equipment Ltd., Bengaluru is engaged in manufacturing of energy equipment solutions and advanced platform technology. Order u/s 201 & 201(1A) of the Act by the Indian entity was passed, wherein the payment to foreign entity was held to be FTS as per section 9(1)(vii) of the Act as well as India-US DTAA and the Indian entity was treated as assessee in default for non-deduction of TDS. Since present assessee being foreign company, it has not availed any entity for these two assessment years. The assessment was reopened vide notice dated 30.6.2021 for both assessment years after following the due procedure of section 148A of the Act and an amount of Rs.15,09,59,210/- and Rs.19,70,24,738/-, which has been received from Steer Engineering Ltd., Bangalore by present non-resident assessee for the assessment years 2013-14 & 2014-15 respectively said to be received as “fees for technical services” u/s 9(1)(vii) of the Act and brought to tax by ld. AO in his draft assessment order in the hands of present assessee. Against this assessee sought direction from the ld. DRP.
6.1 The assessee before ld. DRP submitted that the sales and marketing services the contention raised was that the payment for those Services as per the margin share Agreement between the Assessee and Steer India would not fall in the category of "Fees For Technical Services". 6.2 The ld. DRP confirmed the draft orders for these assessment years and thereafter the ld. AO passed the final assessment order. Against this assessee is in appeal before us. 6.3 The ld. A.R. submitted that the Assessee procures local sales orders for STEER products to be executed by the AE, and receives
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 6 of 37 payments thereto from the customers which are further transmitted fully to AE. With respect to overseas sales commission, i.e., the receipts from Steer India towards Commission on Sales according to assessee it will not partake the nature of Fees for Services (FTS) under the act as it is neither managerial, consultancy nor services. Steer USA has not made available any knowledge, experience, know-how to its holding company Steer India. Steer USA is remunerated for rendering marketing and support services in the form of sales commission.
6.4 Further, the sales commission was computed based on the cost incurred by Steer USA along with Mark Up of 10% on total costs. Steer USA does not have any personnel except one or two individuals who were employed to demonstrate and explain the products / services to the potential customers. According to assessee, the payment made for sales and marketing services were not liable to tax as per the Income Tax Act as well as under India-USA DTAA, therefore there was no liability to deduct TDS.
Ld. A.R. for the assessee submitted that M/s. Steer Engineering Private Limited (SEPL India), Parent Company of M/s. Steer America is a true Indian Global Company, meaning an Indian Company providing cutting edge technology products to the Global Multinational Customers, right from product conceptualization, design, manufacture, quality initiatives, Research and Development, Application development, Testing, commercialization, dispatch happens from India. 7.1 It’s a True Indian company with make in India initiatives creating countless opportunity for Indian Engineers, Entrepreneurs, Industry, with more than 60 Global Patents to its account. He submitted that SEPL India has got the manufacturing facilities in India located at Bangalore and Coimbatore and an application development center is set up at Bangalore.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 7 of 37 7.2 He submitted that SEPL has employed more than 750 employees in Bangalore and Coimbatore majority of the employees being Engineers, PHD Holders, Diploma Holders, Trained Technicians, MBAs, Finance Professionals, other technical personnel and consulting engineering team.
Some of the major customers of the Steer are as under: S.N o Customer Name Country Products Sold Manufactured at Extruder Experts Bangalore, Gmbh & Co. Kg 1 Germany Machinery Parts Coimbatore _India Extruder Bangalore, Alok Masterbatches India 2 Machinery Coimbatore _India Extruder Bangalore, Polyone Shanghai 3 China Machinery Coimbatore _India Prayag Polytech (P) Extruder Bangalore, 4 Ltd. India Machinery Coimbatore _India Extrusion Technik Extruder Bangalore, 5 Usa Inc, USA Machinery Coimbatore _India Extruder Bangalore, Jotun India Pvt.Ltd 6 India Machinery Coimbatore _India Sisan Plastik San Machinery and its Bangalore, Ve Tec Ltd_ 7 Europe Parts Coimbatore _India Siam Okaya Extruder Bangalore, 8 Chemical Japan Machinery Coimbatore _India Zylog Plastalloys Machinery and its Bangalore, 9 Pvt Ltd India Parts Coimbatore _India Berger Paints Banglade Extruder Bangalore, Bangladesh Ltd 10 sh Machinery Coimbatore _India Machinery and its Bangalore, Jai Corp Limited 11 India Parts Coimbatore _India Namco Corporation Extruder Bangalore, 12 Ltd. India Machinery Coimbatore _India Dr. Reddy'S Extruder Bangalore, Laboratories Ltd 13 India Machinery Coimbatore _India Polyone Polymers Machinery and its Bangalore, (I) Pvt. Ltd 14 India Parts Coimbatore _India Agroha Colourtec Machinery and its Bangalore, 15 Pvt Ltd India Parts Coimbatore _India
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 8 of 37 7.3 He submitted the list of few Patents Held by SEPL India, Bangalore are as stated below :
Patent S.No /Publication Patent Description Number Method For Producing Fused Unplasticised Polyvinyl 1 11752681 Chloride Articles 2 11312041 Extruder Mixing Element 3 10239233 Element For A Co-Rotating Twin Screw Processor Extruder Mixing Element For A Co-Rotating Twin Screw 4 10207423 Extruder 5 8827538 Barrel Cooling And Heating System For Screw Extruder 6 8690473 Stress Concentration Free Spline Profile Barrel Clamping System For Quick Assembling And 7 8113814 Dismantling Of Extruder Barrel Sections 8 9056292 Barrel Alignment In Extruder Systems 9 20230390965 An Element For A Co-Rotating Twin-Screw Processor Method For Producing Fused Unplasticised Polyvinyl 10 20210146590 Chloride Articles 11 20190105803 Extruder Mixing Element 12 20160279828 Element For A Co-Rotating Twin Screw Processor 13 20160244573 Blend Having A Styrene Resin And Polyphenylene Ether 14 20160082640 Hot Melt Fragmentation Extruder And Process 15 20110063939 Barrel Cooling And Heating System For Screw Extruder 16 20110063940 Method Of Extruder Operation Barrel Clamping System For Quick Assembling And 17 20110070324 Dismantling Of Extruder Barrel Sections 18 20110069576 Barrel Alignment In Extruder Systems Barrel Clamping System For Quick Assembling And 19 20110070324 Dismantling Of Extruder Barrel Sections 20 20110182659 Stress Concentration Free Spline Profile 7.4 He submitted that in the instant case, the Steer America Inc,. 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 SEPL India outside
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 9 of 37 India. 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 SEPL India. 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 SEPL India whether to sell the product or render services to identified customers. The Hon'ble Delhi High Court in case of Dui (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(1)(vii) of the I.T. Act. The High Court held that the skill, business acumen and knowledge acquired by the non-resident were for his own benefit and use. 7.5 In this regard, he relied on the following judgements: i. Judgement of Hon'ble Supreme Court in the case of CIT v Toshoku Ltd (1980) 125 ITR 525 (SC) ii. Judgement of Hon'ble Madras High Court in the case of CIT vs Faizan Shoes (P.) Ltd (2014) 48 taxmann.com 48 (Madras) iii. Decision of Bangalore Bench of Tribunal in the case of Exotic Fruits (P.) Ltd reported in (2013) 10 taxmann.com 348 (Bangalore- Trib.). iv. Decision of Bangalore Bench of Tribunal in the case of iRunway India (P) Ltd vs DCIT (2022) 138 taxmann.com 188 (Bangalore- Trib.) v. Decision of Bangalore Bench of Tribunal in the case of Deccan Creations (P.) Ltd vs DCIT (2022) 134 taxmann.com 144 (Bangalore-Trib.) vi. M/s. Ad2Pro Media Solutions P. Ltd. in to 503/Bang/2019 dated 20.3.2020.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 10 of 37 7.6 He submitted that the following judicial pronouncements have also taken an identical view:- • PCIT vs Puma Sports India (P.) Ltd (2021) 127 taxmann.com 169 (Karnataka} 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.); • CIT vs. Model Exims, (2014) 42 taxmann.com 446 (ALL) • 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 111(Delhi-Trib.); • CIT v Orient Express (2015) 56 taxmann.com 331 (Madras); • Divya Creation v ACIT (2017) 86 taxmann.com 276 (Delhi- Trib.); • Khimji Visram & Sons v ACIT (2014) 52 taxinann.com 485 (Mumbai- Trib,) 7.7 In light of the above judicial pronouncements, he submitted that 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.
Ld. D.R. submitted that the Indian company making use of the advice, input, experience, experimentation and assistance rendered by the assessee in the process of marketing of manufactured machinery and identifying prospective buyers, carrying technical and commercial negotiations, customizing the needs of the geographical
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 11 of 37 customers, etc. On the basis of the input, assistance and consultancy service provided by the US company about the customer order, the manufacturing process would start by the Indian company. Therefore, she submitted that in the context of manufacturing process, the input provided by the assessee with regards to the need, requirements' and taste of the USA customers which was made use by the Indian company in manufacturing process, is in the nature of services which facilitate the AE to achieve their business goal. The technological input acquired by the assessee through experience and experiment was made available to the Indian company so as to enable the Indian entity to use the same in widening their market base worldwide. 8.1 Therefore, she submitted that the marketing is a specialized activity. The Steer India manufactures a highly technical machinery for polymers, pharma, food industry etc. In our opinion the assessee has to handle enquiries from the customers, correspond with the customers regarding prices, terms and conditions, troubleshooting etc with regards to the machinery manufactured by the AE in India, which requires a technical knowledge. 8.2 She submitted that the consultancy is generally understood to mean an advisory services. For any consultancy to be treated as technical service, it would be necessary that a technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. 8.3 She submitted that the assessee provides marketing services for highly engineered machinery from Inquiry to sales of the manufactured goods. To describe the parts and functionality of the machinery technical knowledge is required. Therefore, she submitted that the assessee is rendering consultancy services with the special expertise prospective buyers of the Indian company. Further in the preceding paragraphs we dealt with how the marketing services
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 12 of 37 provided by the assessee to its AE is managerial and consultancy in nature and therefore falls within the ambit of fees for technical services.
8.4 She further submitted that, it is a clear case of using the market research and expertise of the foreign com any in India for expanding their products reach in global market through the assessee. The market, analysis, knowledge supplied by the assessee remains with the assessee forever and it could be even used in future for the business of the assessee in the form of a database of the prospective customers. Therefore, she submitted that she finds no infirmity in the action of the AO treating the payment as FTS. In view of the above discussion, she requested that all the objections of the Assessee are, therefore, to be rejected.
We have heard the rival submissions and perused the materials available on record. In this case, assessee is a foreign company incorporated in USA. It had not filed return of income for the assessment year 2013-14 and the case was reopened by issuing notice u/s 148 of the Act on 30.6.2021 after duly following provisions of section 148A of the Act. The case was reopened for following reasons: 9.1 The assessee had received from Indian entity, Steel Engineering Limited Bangalore a sum of Rs.1,83,77,380/- as commission on sales and marketing services during FY 2012-13 relevant to AY 2013-14. Steer Engineering Equipment Limited, Bangalore is engaged in manufacturing of energy equipment solutions and advanced platform technology. Order u/s 201 & 201(1A) of the Act for the Indian entity was passed, wherein the payments to foreign entity was held to be FTS as per section 9(1)(vii) of the Act as well as India-US DTAA and the Indian entity was treated as assessee in default for non-deduction of TDS. Since, Steer America Inc., USA had not filed ITR in India, there was an IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 13 of 37 escapement of income to the tune of Rs.15,09,59,210/- & Rs.19,70,24,738/- for the assessment years 2013-14 & 2014-15 respectively. 9.2 The case of department was that payment made to this assessee from Indian entity i.e. Steer Engineering Limited, Bangalore in these assessment years towards marketing services take the character of “fees for technical services and charge to tax in India under Article 12 of DTAA with Indo-USA”, which reads as under:
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 14 of 37
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 15 of 37 9.3 Thus, according to the revenue authorities, payment made to marketing services received from Indian entity Steel Engineering Ltd., to be taxes as FTS. The contention of the ld. A.R. is that Steer America was incorporated in January 2008 as a hundred per cent subsidiary of Steer India. Steer America distributes Steer India’s products and also performs certain pre-sales and post-sales activities. The functions performed by Steer America are summarized in the table below: Steer Steer S.No Nature of Functions India America 1 Inquiry No Yes 2 Evaluation Yes Yes 3 Quotation Support Yes 4 Negotiation Yes Yes 5 Customer Order No Yes Manufacture and 6 Yes No Inspection Documentation and 7 Limited Yes Collection 8 Post Contract Review Yes No Technical Service after 9 Yes No Sales 9.4 The contention of the ld. A.R. is that assessee rendered services through marketing officer at United States of America as follows:
“(a) Inquiry:
Inquiry involves identifying the potential customer and generating leads for Steer India's products. It also involves replying to preliminary inquiry from customers. Steer America perform this function. (b) Evaluation Steer America and SEPL discuss and understand the specific requirements of the customer and do the evaluation. The evaluation would include kind of material to be used, quality standards etc. Steer America perform this fimction with support of Steer India.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 16 of 37 (c) Quotation Based on the study of customer's requirement, Steer America tender the quotation to the customer. Steer America evaluate the customer's requirement and determine the price to be charged based on the quality and grade of the raw material to be used. Steer America perform this function with the help of standard database provided by Steer India and with the prior consultation-and approval from Steer India. (d) Negotiation Negotiation is a process through which the buyer and seller agree for prices to be aid for the products and terms and conditions of supply. Steer America and SCG negotiate with the buyer on prices and other terms of supply. (e) Customer Order Based on the negotiation and approval from SEPL, the customer places order on Steer America. Steer America place back to back order on Steer India.
The consideration agreed for Steer America is cost plus mark up of 10%. Cost includes all expenditure, including but not limited to expenditure related to promotional literature, identification of customers, evaluation of customer needs, placing and inventorying of Steer Products, distribution etc., incurred • furtherance of the objective of the agreement. The sales to Steer America are on back to back basis an full sale price received from the end customer is transfened back to Steer India.
(f) Manufacture and Inspection Steer India checks the order and initiates the manufacturing process. Under the manufacturing process, the elements are CNC milled using the generation process on a 4Axis CNC vertical machining centre. The internal splines are CNC Wire-cut. The process is designed to ensure complete inter-changeability between elements. Since the elements are manufactured by generation, the surface finish and accuracy of the surface is very high. Steer India has put in place strict quality control measures. The standards are well defined. Inspection is carried out at every stage. The items are traceable from the raw material stage. Each item is checked individually on 14 parameters before final despatch. The elements are packed in thermocole boxes to avoid any damages during transportation.
(g) Documentation and Collection: Steer America customers receives the products shipped by Steer India. Then the products are delivered to the end customer directly by Steer India. Steer America
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 17 of 37 invoice the end customers and follow up for the payment. Steer India raises invoice on Steer America and gets the payment from them.
(h) Post Contract Review Steer India follows up with the customers to ascertain whether the equipment's md related parts have been delivered as per agreed terms and conditions.
(i) After Sales Technical Service This function involves providing after sales support, follow up with the customers to get feedback on the issues faced in operation of the machines and redressal of issues faced. SEPL India interacts with customers providing such Post Sales support.”
9.5 As seen from the above, from the above functionaries executed by Steer America one can notice that other than getting potential customers connect and generating sales orders no other activity is performed by Steer America. All the technical activity is carried out by SEPL India including post-sales support, trouble shooting, replacement, warranties, technical writeups and training of the users. Dedicated technical team from SEPL India travels to customers location to train resources, trouble shoot, make technical evaluation and feasibility, address customer requirements and concerns, understand requirement, to provide solution. As all the Tech team is based out of Bangalore and are in India including Dr Babu Padmanbahan who is the Chief Knowledge Officer of the Company. Steer India being located in India that is 12,000 Kms away and a developing country, customers from the Developed World like United States of America raised doubts regarding precision of machining meeting up the Global Standards, compete with Global Giants and ability to serve locally. In order to demonstrate its long term intend to serve the American Market. Establishing the local presence gave the comfort to American Clients that STEER is here to stay in USA for a long term confidently rely on STEER for not only their aftermarket components but also for their
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 18 of 37 Capital Goods. Sensing the need to have office place in USA to tell customers we are available locally is the precise reason for opening up office in United States so that Global customers feel at home with local office, marketing team, and local investment on such resources. Since, the Steer America is engaged in mere procurement of sales orders across the Territory of United States of America and acting as an authorized business partner to market the products of Steer India. Its' Parent Company SEPL India has entire knowhow about the manufacturing process and technical skill. Steer America either does not possess or engage in transfer any technical knowledge during providing of marketing services, the services rendered by Steer America cannot be regarded as 'technical, managerial or consultancy or Fees for Technical Services'. 9.6 Contrary to this, ld. AO relied on the ruling of Advance Ruling in the case of Intertek Services India Pvt. Ltd. [2008] 175 Taxman 375 (AAR) , where in it was held that services rendered are of towards Global Management Services (GMSA) and on a broad analysis, it is found that majority of services catalogued are in nature of technical or consultancy services, but most or many of them do not 'make available' to applicant technical knowledge, experience, skill, know- how, etc., possessed by provider of services and at same time, there are some services which can b brought within ambit of phrase 'make available' and therefore Whether on facts, it is not possible to hold that all services rendered do not fall under 'fee for technical service': and that entirety of service fee charged to applicant does not constitute income of ITM. UK under Treaty and, therefore. classification of services may have to be undertaken in appropriate proceedings. The above AAR is not applicable in the present case as the 9.7 activities carried out 'Intertek Group' vis-å-vis 'Steer America Inc' are completely different for as charted in the below and cannot be considered in nature of technical, managerial or consultancy in IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 19 of 37 nature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA. 9.8 Contrary to this, ld. AO relied on the ruling of Advance Ruling in the case of Intertek Testing Services India (P) Ltd. cited (supra) and the comparison statement between Intertek Vs. Steer America Inc is as follows:
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 20 of 37 9.9 Further, the Assessing Officer has relied on the ITAT MUMBAI BENCH 'L' Ashapura Minichem Ltd. [2010] 40 SOT 220 (MUM.) where in it was held that an Indian resident company, entered into
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 21 of 37 an agreement with a China based company - Under said agreement, assessee, which was in process of building alumina refinery, was to pay US Dollars one million in consideration of bauxite testing services by Chinese company and Test reports of bauxite samples were to cover complete chemical composition of bauxite, physical phase constitution of bauxite, abradability test of bauxite, digestion performance test and red mud settling performance test, which are of technical services as accepted the Assessee itself.
9.10 However, the matter addressed by the Tribunal is not whether the services are of technical services or anything else, whether it is no longer necessary that in order to attract taxability under section 9(l)(vii), services must also be rendered in India; utilization of these services in India is enough to attract its taxability in India - Held, yes. The above order of Tribunal is not applicable in the present case as the consideration paid by Ashapura Minichem Ltd is towards 'Testing Service and issue a report on technical composition of substance' where as activities carried out by rendered Steer America are of Marketing Services which are not in nature of technical, managerial or consultancy in nature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA. 9.11 Further, the Assessing Officer has relied on the AAR Guangzhou Usha International Ltd. where in it was held that service being rendered towards Material Procurement Development Management services which also includes certain services of technical in nature like quality system , research on product technology, inspection etc., whereas the activities being rendered by the Steer America is of mere generating sales orders which is clearly different from the list of the activities carried out Usha International limited as detailed below:
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 22 of 37 9.12 From the above explanation, it is clear that services rendered by 'Guangzhou Usha' are clearly different from activities of Steer
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 23 of 37 America and therefore, services of Steer America cannot be considered in nature of technical, managerial or consultancy in nature as referred under the Income Tax Act or 'Fees for technical services' as per India USA DTAA.
9.13 SEPL India is a Champion of technology developed indigenously in India and with strong manufacturing presence in India supplies to global customers, brings in made in India Flavor with locally developed and globally registered Patents.
9.14 Steer America Inc, performs pure sales function with connecting potential customers from United States of America by performing pre sales activity of introducing SEPL India to potential customers rest of the activity is predominantly taken care by SEPL India as evident from the services and functions listed supra.
9.15 The Learned Assessing Officer in the impugned order under surmise and conjectures have made out list of reasons to treat overseas sales commission as Fee for Technical Services, without appreciating the fact that Assessee Steer America Inc, does not render services resulting in provision 'Fee for Technical Services' (FTS) or Make available Technical Knowledge to Steer India.
9.16 Further, Hon’ble Karnataka High Court in the case of CIT Vs. Ad2Pro Media Solutions Pvt. Ltd. 455 ITR 648 (Karn) held as under:
“The assessee has made payments to the US Company which does not have any permanent establishment in India. [Para 8] The revenue's case is payments made to the US Company for marketing services take the character of FTS and chargeable to tax in India. [Para 9] Thus, according to the revenue the royalties and fees for included services may also be taxed in the Contracting State. [Para 10]
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 24 of 37 The Assessing Officer's view is that assessee utilizes the services of the US Company even in the negotiations with customers and in finalizing contracts, and the same cannot be done without sharing technical knowledge, knowhow, processes or experience. [Para 11]
The language employed in clause 4 of article 12 of DTAA between India and USA is unambiguous. The services rendered by the US Company do not make available its technical knowledge, skill, knowhow, process or transfer of technical plan or design. Therefore, the view taken by the Assessing Officer that negotiation with customers to finalise the contract without sharing the technical knowledge or knowhow is perverse. [Para 14] The Tribunal has noted in its order that the scope of the work is to generate customer leads using/subscribing customer data base, market research, analysis, and online research data and rightly held that the service provider has not made available any technical knowledge, experience, knowhow, process or develop and transfer technical plan or technical design. [Para 15] The Delhi High Court has recorded that in DIT v. Lufthansa Cargo India (2015) 60 taxmann.com 187/233 Taxman 218/375 ITR 5, operations were not in India and expenses towards maintenance and repairs payments were made for the purpose of earning outside India. [Para 18] In view of the admitted fact that the services were utilized in USA, the authority in Lufthansa Cargo Indie's (supra) is to be accepted. Therefore, the findings returned by the Tribunal do not call for any interference. [Para 20] Resultantly, these appeals are dismissed.”
9.17 Further, against the above ruling, SLP is dismissed by Hon'ble Supreme Court in the case of [2023] 157 taxmann.com 205 (SC), SUPREME COURT OF INDIA, Commissioner of Income-tax v. Ad2pro Media Solutions (P.) Ltd. (NOVEMBER 10, 2023).
9.18 Further, 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.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 25 of 37 9.19 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.
9.20 Further, in the case of Exotic Fruits (P.) Ltd reported in (2013) 10 taxmann.com 348 (Bangalore- Trib.), the Bangalore Bench of the Tribunal held that payment made to the nonresident agents does not fall within the meaning of managerial services as mentioned under section 9(1)(vii) 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.
9.21 Further, the Bangalore Bench of Tribunal 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.
9.22 Similarly, the Bangalore Bench of 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
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 26 of 37 paid to foreign agents on the value of sales affected through them cannot be treated as technical services and therefore, not taxable in India.
9.23 Further, in the case of DIT v/s Sheraton International Inc. [2009] (313 ITR 267) (Delhi HC), the Hon’ble Delhi High Court held that the non-resident assessee had entered into a commercial service agreement with Indian hotels for advertising, publicity and promotion of their sales worldwide. Pursuant to the arrangement, it also allowed the use of its trade name, trademark and stylized “S”. In return, the assessee receives 3% of room sales turnover as its fee. The CIT(A) inter alia held that the consideration for the use of trademarks, trade name and the stylized “S” service mark should be characterized as “royalty” as per Article 12 of the India-US DTAA. Further, the ld. CIT(A) also held that the fee received for publicity, marketing and promotion activities constitutes commercial income and in the absence of a PE of the assesse in India, the said payments cannot be brought to tax in India. The ITAT held that the payments under consideration can neither be treated as “royalty” (under Section 9(1)(vi) of the Act or Article 12 of the India-US DTAA) nor as “FTS” (under Section 9(1)(vii) of the Act or Article 12 of the India-US DTAA). The Delhi HC affirmed the above view of the Delhi ITAT. 9.24 The above ruling was relied upon in the case of [2024] 159 taxmann.com 482 (Delhi - Trib.), ACIT, (International Taxation) v. Sheraton Overseas Management Corporation dated 13-02-2024, wherein it was held that payment received by assessee, US based company, for providing centralized services to various hotels in India, in nature of sales and marketing, reservation, loyalty programs and other centralized services was not FTS either under article 12(4)(a) or 12(4)(b) of India-US DTAA but it was business income and since assessee was not having any PE in India, same was not taxable in India.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 27 of 37 9.25 Further, the Kolkata Bench of Tribunal in the case of Batlivala & Karani Securities (India) (P.) Ltd.v. DCIT [2016] 159 ITD 924 (Kolkata ITAT) held that Simple marketing services rendered by foreign subsidiary in form of introducing foreign institutional investors to invest in capital markets in India and no technical service was being made available, payments made to subsidiaries would not fall within definition of 'fees for technical services'. 9.26 The Delhi Bench of Tribunal in the case of Bombardier Transportation Sweden AB v. Deputy Commissioner of Income Tax, Circle 1(1)(2), New Delhi, Assessment year 2011-12 reported in [2021] 125 taxmann.com 277 (Delhi - Trib.), held that - During year under consideration, assessee, a Swedish company, rendered intermediary services like marketing, sales, business development, project management, customer services, etc., to its Indian AE [BTIN] and received fees therefore Assessing Officer held that revenue earned by assessee from intermediary services rendered to BTIN was taxable in India as fee for technical services. Payment of consideration would be regarded as 'fee for technical/included services' only if twin test of rendering services and making technical knowledge available at same time is satisfied. Since intermediary services rendered by assessee did not make available any technical knowledge, skill, etc., to BTIN and BTIN was not equipped to apply technology contained in services rendered by assessee, intermediary services provided by assessee to BTIN did not tantamount to FTS and accordingly, would not be taxable in India. 9.27 Further, the Delhi Bench of Tribunal in the case of Apurva Goswami v. Deputy Director of Income-tax (International Taxation) reported in [2022] 140 taxmann.com 198 (Delhi - Trib.), dated 24-05- 2-2022 in Assessment years 2010-11 to 2012-13 held that Assessee- proprietor was a contract research organisation and specialized in area of pharmacovigilance (drug safety) services - During year, assessee entered into master service agreements with non-resident
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 28 of 37 Global Business Affiliates (GBAs)/Business Development Associates (BDAs) located in USA, UK and Switzerland for receiving several services such as procuring export orders from foreign buyers, providing confirmed export orders, providing information regarding respective customers and getting export sales executed and paid commission for same Assessing Officer was of view that payments made by assessee to these GBAs/BDAs were in nature of fees for technical services (FTS) chargeable to tax in India and, thus, assessee was liable to deduct TDS on same. It was noted that from agreement entered into by assessee with GBAs/BDAs that services rendered by GBAs/BDAs were solely for business promotion of assessee overseas and soliciting new clients to assessee. No managerial, specialised technical or consultancy services were rendered to assessee and that assessee did not have any personal interaction with these service providers. Consideration paid by assessee to these overseas service providers was not FTS but business income of payees under article 7 of respective DTAAs. In absence of permanent establishment of these non-resident GBAs/BDAs in India, payments made to them were not taxable in India and, thus, assessee was not liable to deduct TDS on such payments made to them. 9.28 In the case of Bharat Petroleum Corporation Ltd. v/s JDIT [2007] (14 SOT 307) (Mumbai ITAT), the Mumbai Bench of Tribunal held that Remuneration paid for market study updation (including inter alia supply demand analysis, product price forecasts, developing cash flow projections and presentation and reporting of the results of the analysis) cannot be regarded as “FTS” as defined in Article 12 of the India-Singapore DTAA, since no element of “technology” is contained in the said “consultancy” services. 9.29 The Bangalore Bench of Tribunal in the case of ABB Inc. v. Deputy Director of Income-tax-International Taxation, Circle-1(1), Bangalore reported in [2015] 59 taxmann.com 159 (Bangalore - Trib.), in Assessment year 2009-10 held that Assessee, an American
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 29 of 37 company, earned certain fees for providing business development and market support services to its AEs in India - Since services provided by assessee did not involve enabling recipient of services to utilize knowledge or know how on his own in future without aid of service provider, 'make available' clause was not satisfied and, accordingly, consideration for such services could not be taxed under article 12(4)(b) of India US tax Treaty 9.30 The Mumbai Bench of Tribunal in the case of ITO v. Skill Infrastructure Ltd. [2015] 62 taxmann.com 33 (Mumbai - Trib.) held that an Indian company had merely availed services of U.K. Company for global market survey to determine business prospects to carry out project in India were neither geared to nor did they 'make available' any technical knowledge, skill or experience to assessee or consisted of development and transfer of a technical man or technical design to assessee does not qualify as FTS under article 13 of DTAA between India and U.K. 9.31 Further, in the case of Rich Graviss Products (P.) Ltd. v. Additional Commissioner of Income-tax -7(2), Mumbai in Assessment year 2007-08 held that Assessee had paid consultancy services fee to a US company for exploring export market without making any TDS on payment. Assessing Officer held that since assessee did not deduct TDS, expenditure was not allowable under section 40(a)(i). Since payment was made in foreign currency and tax authorities had failed to show that payment received by non-resident was liable to tax in India either in terms of Indian Income tax Act or in terms of Indo-US DTAA, assessee was not liable to deduct TDS on such payments made to a foreign resident 9.32 In the case of AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI, Dr. Reddy Laboratories Ltd reported in [2016] 73 taxmann.com 114 (AAR - New Delhi), held that Applicant (DRL India) is a pharmaceutical company. In order to promote its sales in Russia
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 30 of 37 and develop a local brand plan for same, it proposes to enter into a service agreement with its subsidiary, i.e., DRL Russia, to avail of product promotion services. In terms of agreement, DRL Russia has to render marketing services related to promotion of goods from producers to end-customer by way of meeting with medical and pharmaceutical experts, participation in pharmaceutical circles and distribution of promotional materials to medical and pharmaceuticals experts. It is noted that applicant has not utilised services rendered by DRL Russia for brand promotion and, thus, agreement cannot be considered for providing consultancy services - Further, DRL Russia is not managing affairs of applicant in Russia and thus agreement in question cannot be classified as managerial services either. Service fee payable by applicant to DRL Russia under agreement for promotion of goods cannot be regarded as fees for technical services under section 9(1)(vii) or under article 12 of India- Russia DTAA 9.33 In the case of Shangri-La International Hotel Management Pte. Ltd. v. ACIT reported in [2023] 148 taxmann.com 3 (Delhi - Trib.), (FEBRUARY 28, 2023) for Assessment years 2018-19 and 2019-20 wherein held that Assessee, a tax resident of Singapore, was engaged in business of rendering management consultancy and other related services to hotels. It had entered into three separate agreements with third party Indian hotels and earned revenue towards management fee and license fee. During assessment proceedings, Assessing Officer noticed that assessee also had receipts from Indian hotels on account of marketing and reservation receipts and reimbursement receipts. He was of view that said receipts were for services ancillary and subsidiary to trade mark license agreement for use of trade mark and brand name, which was in nature of royalty and would fall within ambit of FTS under article 12(4)(a) of India-Singapore DTAA Therefore, he brought entire receipts to tax by treating it as FTS . However, it was found that marketing and reservation activities
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 31 of 37 performed by assessee were not only distinct and different from license fee but they were done under two distinct and separate agreements and could not be treated to be ancillary and subsidiary to license fee. Hence, such fee would not fall under article 12(4)(a) of treaty. Similarly, nature of services rendered did not demonstrate that they were in nature of managerial, technical or consultancy services. Even if, to some extent they might involve consultancy services, however, there was nothing on record to demonstrate that while rendering services, assessee had made available technical knowledge, experience, skill, know-how or processing etc. to bring it within ambit of FTS under article 12(4)(b) of treaty - Whether therefore, Assessing Officer was to be directed to delete additions. 9.34 In the case of Commissioner of Income-tax, (International Taxation) v. Starwood Hotel & Resorts Worldwide Inc reported in [2023] 148 taxmann.com 131 (Delhi HC), (NOVEMBER 16, 2022) for the Assessment year 2015-16 wherein held that Payments received by assessee, a foreign company from its Indian customers/hotels on account of Centralized Services, viz., sales and marketing, loyalty programs, reservation service, technological service, operational services and training programs/human resources did not constitute fee for technical services as defined under section 9(1)(vii) or fee for included services as defined under articles 12(4)(a) of DTAA. Similar observations provided in [2023] 152 taxmann.com 625 (Delhi HC), Commissioner of Income-tax (International Taxation) v. Radisson Hotel Interaction Incorporated (NOVEMBER 10, 2022). 9.35 In the case of Anand NVH Products Inc. v. ACIT, International Taxation reported in [2022] 145 taxmann.com 412 (Delhi - Trib. IN THE ITAT DELHI BENCH 'D' (SEPTEMBER 30, 2022) for Assessment year 2017-18 wherein held that assessee, a wholly owned subsidiary of an Indian entity, was tax resident of USA. It entered into an marketing support services agreement with its parent company for providing marketing and sales support services with all its operations
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 32 of 37 exclusively in USA and received certain amount of consideration. Assessing Officer held that aforesaid services were in nature of fee for included services (FIS) as per article 12 of DTAA and, accordingly, brought same to tax. It was noted that nothing had been brought on record by Assessing Officer to demonstrate that there was complete transfer of technical knowledge, know-how, skill etc. to Indian company of service so as to enable it to use such technical know- how, knowledge, experience, skill etc. independently without aid and assistance of service provider. In view of aforesaid, services provided by assessee were neither in nature of technical or consultancy services under article 12(4) and even make available condition provided under article 12(4)(b) was not satisfied. Thus, consideration received by assessee could not be treated as FIS under article 12(4)(b) and, consequently, impugned addition made by Assessing Officer was to be deleted. 9.36 In the case of “On process Technology India (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-2 (2), Kolkata reported in [2018] 96 taxmann.com 428 (Kolkata - Trib.)”, (MAY 24, 2018) for the Assessment year 2012-13 wherein held that assessee-company was engaged in business of providing of BPO services and real estate. To secure orders and solicit business from foreign customers, assessee engaged services of foreign marketing companies to whom market support fees was paid. Assessing Officer held that since orders were executed in India, income accrued to payees in India and in terms of sections 9(1)(i) and 5(2)(b), same was chargeable to tax in India. It was noted that nature of services performed by foreign companies did not involve rendering or providing or making available to assessee any technical service or technical knowledge so as to attract provisions of section 9(1)(vii) or article 12 of DTAA between India and USA. In view of aforesaid, impugned order passed by Assessing Officer was to be set aside.
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 33 of 37 9.37 In the case of WNS North America Inc vs ADIT [2012] 28 taxmann.com 173 (Mum ITAT) (JULY 31, 2013) for the Assessment year 2007-08 wherein held that Assessee, a US based company, entered into an agreement with WNS India for providing marketing and managerial services. Since assessee's employees visited India to provide managerial services, WNS India was treated as service PE under article 5 of DTAA. Assessing Officer held that assessee rendered expertise and technical knowledge to WNS India and taxed entire marketing and management fees received from WNS India as FTS under article 12 of DTAA. In assessee's own case for assessment year 2006-07, Tribunal held that since assessee had not made available any technical knowledge, skill, experience etc. to WNS India, services rendered by assessee would not be chargeable to tax as FTS under article 12 of Indo-US DTAA – Whether following same, services rendered by assessee outside India could not be brought to tax in India. 9.38 In the case of Pr. Commissioner of Income-tax, Bangalore v. Puma Sports India (P.) Ltd. reported in [2021] 127 taxmann.com 169 (Karnataka), wherein held that Commission paid by assessee- company to its overseas Associated Enterprise (non-resident agent) for placing orders with manufacturers outside India would not be liable to TDS under section 195 as services were rendered or utilized outside India and commission was also paid outside India.Therefore, since no taxing event had taken place within territories of India, Tribunal was justified in holding that TDS was not deductible from commission payment to a foreign agency on foreign soil. Also, Hon'ble Supreme Court dismissed the SLP against above order of High Court in the case of [2022] 134 taxmann.com 60 (SC), Principal Commissioner of Income-tax v. Puma Sports India (P.) Ltd. 9.39 In the case of Laserwords US Inc. v. Deputy Commissioner of Income-tax reported in [2024] 162 taxmann.com 543 (Chennai - Trib.) ITAT CHENNAI for the Assessment year 2017-18 wherein held
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 34 of 37 that Assessee, a non-resident company, was engaged in providing services of e-publishing which fell under information technology enabled services (ITES) involving software and digital technology. Assessee entered into a marketing agreement with its holding company. As per agreement, assessee was responsible for carrying out marketing functions like executing and implementing marketing strategy and providing support in identifying customers, understanding their requirements and liaise between customers and company. In consideration for marketing services provided, assessee received sales commission. Assessing Officer held that nature of services were 'fee for included services' instead of 'sales commission' as claimed by assessee. It was noted that role of assessee was not limited to identification of prospective / new customers in USA and once customer was onboard, assessee interacted with customer on a regular basis to understand customer requirements. Since nature of work executed on activities carried out could not be equated with 'fee for included services' as mentioned in article 12(4) of DTAA, hence, it could not be taxed in India. It was to be considered as sales commission only. 9.40 In the case of Manthan System Inc, Bangalore vs Assistant Commissioner of Income Tax, on 20 May, 2024, to 398/Bang/2024 (ruling in the case of the Foreign Company’s appeal), in the above ruling, Hon’ble Bengaluru Tribunal held that Sales & marketing services rendered to Indian-entity by US- subsidiary in American markets are not FTS/FIS. 9.41 In the case of Algonomy Software Private Limited ... vs Deputy Commissioner Of Income Tax, ... on 19 January, 2024, ITA Nos. 943 to 946/Bang/2023 (ruling in the case of the Indian Company’s appeal), the Bengaluru Tribunal held as follows: “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
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 35 of 37 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.”
9.42 In the case of Assistant Commissioner of Income Tax, Circle- 8(2), New Delhi v. Evergreen International Ltd reported in [2018] 91 taxmann.com 111 (Delhi - Trib.), (FEBRUARY 7, 2018) for the Assessment year 2009-10 wherein held that in view of Explanation inserted below section 9(2) by Finance Act, 2010, even if services are rendered outside India, same may fall under fee for technical services. Assessee-company had paid sales commission to two non- residents agent for booking export order from foreign buyers. Said agents did not have any P.E in India. Further in process of procuring export orders, they would display or demonstrate goods of assessee to foreign buyers and foreign buyers would place any order for purchase of those goods, and non-resident agents, forward those purchase orders to assessee. Process of procuring orders by non- resident could not be termed as managerial service, which could fall under 'fee for technical services' as defined in Explanation 2 below section 9(1)(vii). On facts, sales commission payment was not taxable in India. 9.43 In the case of Director of Income-tax (International Taxation)- II v. Panalfa Autoelektrik Ltd reported in [2014] 49 taxmann.com 412 (Delhi HC), (SEPTEMBER 18, 2014) for the Assessment year 2010- 11 wherein held that whether commission paid by assessee to its foreign agent for arranging of export sales and recovery of payments could not be regarded as fee for technical services under section 9(1)(vii) Circulars and Notifications : Circular No. 23, dated 23-7- 1969 and Circular No. 7, dated 22-10-2009 9.44 In the case of CIT v. Farida Leather Company [2016] 287 CTR 565 (Madras HC) wherein held that Agency commission/sales commission paid to nonresident agents, for services rendered outside India, in procuring export orders would not partake character of 'fees for technical services'
IT(IT)A Nos.832 & 833/Bang/2024 Steer America Inc., Bangalore Page 36 of 37 9.45 In the case of DCIT v. Welspun Corporation Ltd. [2017] 183 TTJ 697 (Ahd. ITAT) wherein it was observed and held that Assessee paid commission to non-resident export commission agents for highly technical products. It was held that just because a product is highly technical does not change the character of activity of the sale agent. The object of the salesman is to sell and familiarity with the technical details, whatever be the worth of those technical skills, is only towards the end of selling. Payment to nonresident commission agents was for securing orders and not for rendering any managerial, technical or consultancy services per se. The commission paid to non-resident export commission agents is not taxable in India whether or not the non-resident is tax resident of a jurisdiction having a tax treaty and whether or not the tax treaty has an FTS clause. 9.46. In view of the above discussion, we hold that the impugned payment received by present assessee from Steer Engineering SCL, Bangalore is commission on sales and marketing services and cannot be treated as FTS in the hands of present assessee in terms of section 9(1)(vii) of the Act and accordingly, we allow all the grounds raised by the assessee in both the assessment years on similar lines. Levy of interest u/s 234A & 234B are consequential and mandatory in nature to be computed accordingly.
10. In the result, both the appeals of the assessee are partly allowed. Order pronounced in the open court on 10th July, 2024