Adidas sourcing Ltd.
ITA No. 5300/Del/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR
ITA No. 5300/Del/2010
A.Yr. 2007-08
Adidas Sourcing Limited Vs. Asstt. Director of Income-tax,
10F, city Plaza Four, Circle 1(1), International
12, Taikoo Wan Road, Taxation, New Delhi.
Taikoo Shing, Island East,
Hong Kong.
PAN: AADCA7661D
( Appellant ) ( Respondent )
Appellant by : Shri Rajan Vora Adv.&
Shri Vijay Iyer Adv.
Respondent by : Dr. Sunil Gautam CIT ( DR)
ORDER
PER R.P. TOLANI, J.M::
This is assessee's appeal against the assessment order passed by the Asstt.
Director of Income-tax Cir. 1(1), International Taxation, New Delhi, pursuant to
order of the Dispute Resolution Panel, New Delhi, u/s 144C of the Income-tax
Act, 1961relating to asstt. Year 2007-08. Following grounds are raised:
1. The learned assessing officer has erred in law and in
fact, in holding that fee received for buying agency services by
the assessee, in relation to procurement services rendered outside
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India, is in the nature of Fee for Technical Services (`FTS') and
is taxable in India under the Income-tax Act, 1961 (`the Act').
2. Without prejudice to Ground No 1, the learned
assessing officer has erred in law and in fact, in holding that the
agreement for buying agency services was entered into prior to
May 1997 and accordingly a rate of 30% would apply in the case
of the assessee.
3. The Learned assessing officer has erred in law and in
fact, in proposing to initiate penalty proceeding under section
271AA of the Act, without appreciating the fact that the relevant
transfer pricing documents i.e. transfer pricing report of the
assessee was submitted in the course of assessment proceedings.
4. The Learned assessing officer has erred in law and in
fact, in proposing to levy penalty under section 271BA of the
Act, without appreciating the fact that the assessee had already
furnished the report of the accountant under section 92E of the
Act, before the due date prescribed under section 139(1) of the
Act.
5. The Learned assessing officer has erred in law and in
fact, in proposing to levy interest under sections 234B and 234D
of the Act.
6. The Learned assessing officer has erred in law and in
fact, in proposing to withdraw interest granted under section
244A of the Act.
7. The Learned assessing officer has erred in law and in
fact, in not allowing credit for the whole of the amount of tax
deducted at source.
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8. The Learned assessing officer has erred in law and in
fact, in initiating the penalty proceedings under sections 271(1)
of the Act.
2. Brief facts are assessee, Adidas Sourcing Limited (`ASL') is a tax
resident of Hong Kong. Its Sourcing Division provides buying agency
services to various customers including Adidas India Marketing Private
Limited (`AIMPL') an AE. For such services ASL entered into a `Buying
Agency Services Agreement' with AIMPL for sourcing of merchandise in
respect to which ASL receives buying commission @ 8.25% of the value of
merchandise. The agreement was entered into on 18 June, 1999 and further
amendments to the agreement were made vide Amendment 1 to the
agreement dated 5 April, 2000 and Amendment 2 to the agreement dated 21
August, 2011. ASL provides services which include centralized media and
advertisement planning, market research, Public relations, sports marketing
and other marketing services such as catalogue production, development of
retail shop systems, etc.
2.1. A different ASL Division, i.e. the Regional Head Office Asia/Pacific,
provides certain regional marketing and administrative support services to
the Group's Asia-Pacific distribution entities (including AIMPL).
2.2. For the year under consideration, the original return of income was
filed on 4 March 2008 wherein the total income was declared at Rs 3.9
crores. Subsequently, a revised return of income was filed by ASL on 5
March 2008 wherein a mistake in relation to claim of credit for tax deducted
at source was rectified by the assessee. Thereafter, a second revised return
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was filed by ASL on 18 March 2009 increasing the income to Rs 4.9 crores
which was on account of rectification of an inadvertent mistake at the time
of grossing up of tax paid on behalf of the appellant.
2.3. For the year under consideration, ASL received buying commission
from AIMPL for the services provided by ASL to AIMPL. Such buying
commission was not offered to tax by ASL in the return of income. During
the course of the assessment proceedings, Assessing Officer (AO) held that
the buying commission income received by the assessee is in the nature of
fees for technical services (`FTS') and the same should be taxable in India in
the hands of ASL. Accordingly, the same was considered to be taxable on
gross basis @ 30% in the assessment order on the ground that the agreement
for providing such services was entered on 18 June 1999. DRP confirmed
with the view of the AO. Aggrieved assessee is before us.
3. Ld counsel for the assessee apropos respective grounds contends as
under:
3.1. The assessee has entered into a buying agency services agreement
(`BAS Agreement'), dated 18 June 1999, with AIMPL (formally known as
`Adidas India Trading Private Limited') for providing `Buying Agency
Services'. The scope of work was subsequently extended and the fee was
enhanced vide Amendments dated 5 April 2000 and 21 August 2001. All
these agreements are placed on the paper book.
3.2. As per the BAS agreement, during the relevant AY, ASL was required
to provide services to AIMPL in relation to purchase of goods from outside
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India, for and on behalf of AIMPL in accordance with the terms of the
agreement. For the year under consideration, ASL received remuneration in
the form of buying commission @ 8.25% of the invoice amount of the
merchandise. The total commission earned by ASL during the year under
consideration is Rs 1.13 crores.
3.3. As per the agreement, the assessee was broadly required to provide
the following services to AIMPL in relation to the sourcing of goods from
outside India:
- Maintain relationship with the manufacturers outside India and
search for new potential manufacturers.
- Supply AIMPL with credit reports and other marketing
information concerning manufacturers.
- Co-ordinate between AIMPL and manufacturers for the purpose of
buying the merchandise and the same includes placing the purchase
order, assisting in negotiations, etc.
- Assist in procurement of samples and sending the same to AIMPL
with other terms and conditions for approval.
- Provide translation services as required for communication
between AIMPL and the manufacturers.
3.4. Though assessee was acting on behalf of AIMPL it did not had any
authority to enter into any binding commitment on behalf of AIMPL. The
invoice would be raised by the manufacturers on ASL for the sake of
administrative convenience as services included assessee act as AIMPL's
paying agent. The agreement specifically provided that AIMPL shall retain
for itself the final decision on selection of manufacturers, pricing, delivery
and other such related matters.
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3.5. At the time of filing the return of income, the appellant did not offer
the income received from AIMPL for providing sourcing services to tax
since the appellant does not have a place of business in India from where
such sourcing services are provided to AIMPL. Further, no employee of the
appellant visited India during the year for providing such services to AIMPL
i.e the services were provided by the appellant from outside India. In these
circumstances and a catena of judicial pronouncements, assessee was under
bonafide belief that the payment received by it for rendering sourcing
services is not in the nature of FTS as it is not - managerial, technical or
consulting in nature, on following considerations. The services provided by
ASL to AIMPL are not in the nature of managerial, technical and
consultancy on following submissions:
i) Managerial services - In case of managerial services, the
service provider provides the services independently (without
any supervision or instruction), however, in case of the assessee,
AIMPL has complete control on the work performed by the
assessee. Reference can be made to clauses 2.3, 2.4, 2.9 and 9.1
of the BAS agreement which make it clear that the appellant was
working under the control and supervision of AIMPL and the
appellant did not have any authority to conclude contracts on
behalf of AIMPL. Hence, the services rendered by ASL are not
managerial services in nature. The buying agency services
provided by the assessee are not managerial in nature as the said
services are provided under the instruction and overall control
and supervision of AIMPL. In this regard, various clauses of the
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BAS agreement are referred which make it clear that the
assessee was working under the control and supervision of
AIMPL and had neither decision making authority nor capacity
to bind the assessee. It's role was only in the context of routine
buying support services and have no inkling to be termed as
Managerial services.
ii) Technical services - The services are not technical in nature as
no technical knowledge belonging to art, science or profession
was required. The assessee was merely facilitating AIMPL in
procuring the merchandise from outside India and ensuring
smooth transmission of the merchandise to AIMPL. The said
activity was only liaisoning, coordination, facilitator or
supervision service to ensure that the merchandise which AIMPL
wants to purchase meet their specifications. Hence, the same
cannot be equated with technical service.
In the case of Skycell Communications Ltd. vs. DCIT (251 ITR 53)
(Madras) the Hon'ble High Court has held that the popular meaning
associated with the word `technical' is `involving or concerning applied
and industrial science'.
Consultancy services - Assessee, ASL was merely facilitating the
procurement of the merchandise and acting in a liaison function. It was not
providing any expert service or opinion regarding any matter to AIMPL and
hence cannot qualify as consulting services under the definition of FTS under
the Act. Thus any kind of administration work or co-ordination services
cannot be included within the scope of consultancy services.
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Following Judicial pronouncements are relied in this regard
(i) Spahi Projects Pvt. Ltd. (2009-214 Taxation 56) (AAR)
The AAR held that the services of procuring orders,
negotiating prices and other terms and conditions, following
up for purchase orders, attending queries of shipment did
not qualify as managerial, technical or consultancy and
hence were not FTS and also did not form any business
connection of non-resident receiving commission for the
services provided.
(ii) Linde AG vs ITO (62 ITD 330) (Mumbai ITAT) The
Hon'ble ITAT held that procurement services did not
involve imparting of any information concerning industrial,
commercial or scientific experience and hence were not
FTS or royalty.
(iii) DDIT vs Samsung Engineering Co Ltd (2010 TII ITAT
Mum INTL) - The Hon'ble ITAT held that the services of
identification, procurement of critical imported material,
arranging co-ordination between foreign vendors and
SECL, monitoring all other activities for the project do not
mean imparting of any information concerning industrial,
commercial, or scientific experience and hence would not
qualify as a payment towards FTS.
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iii) Intention of the parties and the overall nature of the agreement is
to be considered for ascertaining the nature of contractual
obligations.
3.6. It is emphasized that under the BAS Agreement, only `buying
agency services' were provided by ASL to AIMPL. The entire services
were provided by ASL under the complete control and supervision of
AIMPL.
3.7. Each function in the agreement cannot be characterized and
categorized on the basis of its individual nature. The overall functions
need to be cumulatively ascertained as the consideration is paid for all
the functions collectively. It will not be appropriate to pick and choose
each of the function and characterize some of them as managerial,
technical or consultancy in nature. Reliance in this regard is placed on
the recent decision of CIT vs. NIIT Ltd. 2009 (226 CTR 521) (Delhi
HC) and Horizontal Drilling International S.A. v CIT (237 ITR 142)
(AAR).
3.8. Further reliance is placed on the following judgments for the
meaning of the words `managerial', `technical' and `consultancy':
(iv) UPS SCS (Asia) Limited vs ADIT (50 SOT 268 2012) (Mumbai
ITAT) - The assessee a Hong Kong based company had entered
into a Regional Transportation Services Agreement with Menlo
Worldwide Forwarding (India) Private Limited for providing
freight and forwarding and logistic services to each other. The
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Mumbai ITAT in connection with the export consignment services
(i.e. services in relation to custom clearance and transportation of
goods to the ultimate customer outside India) held that such
services did not qualify as managerial, technical and consultancy
and hence were outside the purview of FTS as defined under the
Act.
The ITAT held that services can qualify as managerial services if
it involves both execution and planning of the activities to be
performed. Further since the term has not been defined in the Act
it would be required to interpreted in a commercial sense. The
ITAT held that the term cannot be interpreted in a narrow sense to
mean simply executing the directions of the others for doing a
specific task. The ITAT held that the word managing is wider in
scope than the word executing. Accordingly restricted services
cannot qualify as managerial services. Further the ITAT as given
an instance that in case a worker is instructed to place goods on a
carrier in a particular manner, then the activities carried on by the
worker cannot be held as managerial in nature since the worker is
only executing the directions in the prescribed way. Further these
activities cannot be construed as managerial in nature only if the
worker is applying his mind for carrying out the activities and is
expected to be vigilant in carrying on such activities.
Further the ITAT held that consultancy services means giving
some sort of consultation de hors the performance or execution of
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any work. It is only when some consideration is given for
rendering some advice or opinion etc that the same falls within the
scope of consultancy services. The word consultation excludes
actual execution. Hence the ITAT held that freight and logistics
services cannot qualify as consultancy services.
In relation to the interpretation of the word technical services, the
ITAT held that the word technical has been sandwiched between
the words `managerial' and `consultancy' and hence the meaning
needs to be ascertained by applying the principle of nosticur a
sociis. The ITAT held that since managerial and consultancy pre
supposes some sort of direct human involvement and hence
technical services even though rendered with or without
equipment cannot be conceived without the direct involvement of
human element. Thus the consideration for payment is rendering
services and not for use of computer.
(v) DCIT vs Eon Technology (P) Ltd (203 Taxman 266) (Delhi
HC)
(vi) Armayesh Global vs ACIT (ITA No. 8822/2010) (Mumbai
ITAT)
(vii) ACIT vs Leaap International Pvt Ltd (ITA No.
356/2009)(Madras ITAT).
3.9. The Hon'ble Supreme Court in the case of CIT vs Toshoku Ltd (125
ITR 525) held that commission earned by the non-resident for acting as the
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selling agent for the Indian exporter, wherein such non-resident was
rendering services from outside India does not accrue in India.
3.10. Circular 23 of 1969 and 786 of 2000 were issued in the context of
sales commission payable by a resident exporter to the agents outside India
and reiterated that the income paid to an agent is not taxable if the operations
are carried out by the agent outside India.
3.11. Further, it may be noted that the nature of operation undertaken by a
sales agent are similar to a buying agent and, therefore, if the income of a
sales agent cannot be taxed in India then the income of buying agent also
cannot be taxed in India.
3.12. For sake of completeness, it is submitted that the said circulars have been
withdrawn by the recent Circular 7 of 2009. Nonetheless the said withdrawal is
prospective from 22 October 2009 and would not alter the situation for the relevant
AY. The said Circular 7 at para 3 clearly states that Circular 23 is withdrawn with
`immediate effect' i.e. 22 October 2009.
3.13. Reliance in this regard is placed on the following decisions:
- Satellite Television Asia Region Advertising Sales BV (`STAR')
[2010-TII-58-ITAT-Mumbai-Intl
- DDIT vs Siemens Aktiengesellschaft by Mumbai ITAT (ITA No.
6133/Mum/2002)
- Sanjiv Gupta v. DCIT (135 TTJ 641) (Lucknow ITAT) (please
refer page 103 of the case laws paper book)
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- DIT vs Ericsson AB (343 ITR 470) (Delhi HC) (please refer page
112 of the case laws paper book)
- UTI vs P.K. Unny (249 ITR 612) (Bombay HC)
3.14. It is submitted that in view of the above decision of the Supreme
Court and in view of Circular in the relevant period, commission paid to
ASL for rendering services outside India is not taxable in India.
3.15. Apropos AOs observations while categorizing assesses income as
FTS, ld. counsel contends that they are based on assumptions which are
contrary to plethora of case laws.
A. Information collected from website is not sufficient to determine
taxability of Income:
AO has relied on the information available on the website of the Adidas
Group, (www.adidas-group.com) which belongs to umbrella services
and not purely of the assessee unit. Extracts from some other alleged
website whose source is not specified. It has been assumed that the
function of the assessee might not be restricted to mere commission
agency. The website is for the entire Adidas group and is not
specifically in the context of Indian operations.
B. Advertisement for appointment of manager for Vietnamese
operations:
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The AO has reproduced an advertisement from the internet in relation
the hiring of a manager. This is an advertisement for Vietnam business
operations and not for Indian operations which are primarily in the
nature of sourcing operations. Thus the observations have been made
without application of mind. Even if it is assumed the assessee has
employed personnel who are technically qualified, still, it cannot be
concluded that the assessee has been providing such technical services
to AIMPL.
C. Relationship between ASL and AIMPL held to be in the nature of
principal agent relationship:
AO has held that ASL had a major role in identifying, selecting and
developing the suppliers for AIMPL and that ASL is involved in the
role of consulting / guiding AIMPL on the products. However the AO
has failed to provide any evidence to substantiate this assumption and
merely placed reliance on the website of the whole Group and held that
the assessee is providing consulting and managerial services to AIMPL.
The AO has ignored the principal agent relationship between ASL and
AIMPL and has held that ASL in its own capacity rendered managerial
services to AIMPL. AO failed to appreciate that each manufacturer
invoice quotes AIMPL as the buyer with assessee acting `as buying
agent' of AIMPL. Thus not only the clauses of agreement but also the
supporting documentations, actual conduct of the parties demonstrates
that assessee worked as a buying agent . It was accordingly
remunerated for buying services commission and not FTS.
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D. Development of suppliers data base is out of assesses own business
requirements and not a technical service to AIMPL
The assessee being in the business of sourcing services, maintains a
database in ordinary course of business to update the potential suppliers
and give options to buyers for sourcing of the products. AO without
appreciating the correct facts has assumed that ASL was providing
services to AIMPL by building a database of suppliers. The AO has
failed to appreciate the fact that AIMPL was only interested in the final
products and the not the technical resources required for performing the
services. Various Courts have held that while deciding such issues, the
actual nature of services needs to be verified and services will not
qualify as technical services merely because some sort of technical
equipments or technology is used by the service provider.
E. Commission received by the assessee does not include payment for
any technology
The AO in his order has concluded that the commission paid by
AIMPL is for the inbuilt technology in the shoes manufactured by the
suppliers and where this technology is supplied by ASL.
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However, it is submitted that the products, as a whole, are being sold to
AIMPL by the manufacturers and not the technology used in
manufacturing the product and AIMPL is only buying the product and
is not paying for the use of the technology. Further reference is made
on the case laws cited in para D above wherein the Courts have
distinguished between technical services and technological driven
services.
F. Invoices generated from the same computer
The AO has alleged that the invoices from the manufacturer seem to be
generated from the same computer. Please refer page 19 of the
assessment order. In this regard it is submitted that it is a common
practice in the industry to standardize the processes and documents.
Thus, as a part of the standard process the format of the invoices has
been standardized by the assessee and all the manufacturers have been
required to raise the invoice in the standard format. This
standardization of the invoice format was desirable as it helps speed up
the preparation and submission of the invoices (in digital format) a
process that is absolutely critical in the phase of export clearance in the
origin country and import clearance in the recipient country.
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G. The AO has further mentioned that the `management service
agreement' and the BAS agreement are connected with each other and
ASL has artificially split the functions performed by it.
In this regard we would like to submit that both the agreements are
different. Having said this, the differences between the two agreements
can be explained as:
(i) two different and distinct Divisions of ASL which provide the
buying agency services on the one hand and the management
services on the other hand;
(ii) two different sets of agreements are in place; and
(iii) two distinct and differing methods for the remuneration have
been agreed upon, there is ample evidence that the two
arrangements are not connected with each other. This is also
obvious from the fact that most of the Group entities (approx 80)
utilize the `buying agency services' of ASL while only a small
number of entities (approx 15 Asia Pacific Region distribution
entities) receive the management services from ASL.
3.16.Further, it may be noted that both OECD TP Guidelines as well as
Indian regulations adhere to the principle that Revenue should analyse
transactions and the underlying contracts based on the transaction actually
undertaken by the associated enterprises as it has been structured by them
and should not re-characterize such transactions / contracts.
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3.17. It is argued that rendering procurement services outside India does not
constitute a business connection of ASL in India as section 9(1)(i) of the Act
provides that, an income of a non-resident can be taxable in India if it is
attributable to a business connection in India. It is not in dispute that the
sourcing services provided to AIMPL by the assessee were render in India
nor does it constitute business connection in India. Therefore, commission
received by the appellant for services are not taxable in India under Section
9(1)(i) of the Act for following reasons:.
- All the activities performed by ASL for AIMPL are rendered outside India.
- There is no nexus of the services performed by ASL with the sale of
goods by AIMPL, which purchases the goods on its own account.
Final authority in relation to the purchase of the goods is with AIMPL
and not with the assessee in any manner.
1
- There is no income attributable to India as no activities are performed
in India.
- Reliance is placed on the following case laws wherein it was held by
the various Courts that since the business operations were carried out
outside India, such income earned by the non-residents is not taxable
in India:
- UPS SCS (Asia) Limited vs ADIT (50 SOT) (Mumbai ITAT)
(please refer page 1 of the case laws paper book)
- CIT vs Toshoku Ltd (125 ITR 525) (Supreme Court) (please refer
page 25 of the case laws paper book)
- CIT vs. EON Technology P. Limited (343 ITR 366) (Delhi HC)
(please refer page 15 of the case laws paper book)
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- A.B. Hotel Ltd. (Radison Hotel) vs DCIT (2008 25 SOT 368)
(Delhi ITAT)
3.18. Applying the same principle to the facts there is no dispute that
assessee rendered services from outside India, i.e. Hong Kong and hence
ASL does not form a business connection in India.
3.19. Explanation 1(a) to section 9(1)(i) of the Act which provides that even
in case a non-resident has a business connection in India, then only such
income as is reasonably attributable to the operations carried out in India
shall be taxable in India. This has been upheld by AAR in the case Spahi
Projects Pvt. Ltd. (supra).
4. Ld DR relied on the orders of AO and DRP and contends that the
Explanation 1(a) to section 9(1)(i) of the Act provides and inclusive
definition of the meaning of the term `fees for technical services' and
applying this inclusive test the payments received by the assessee are fees
for technical services. The Ld DR further argues that the compensation of
the assessee from AIMPL is more towards the efforts of the assessee in
relation to the manufacture rather than buying. The cost of manufacturing
technology is also built in the cost of products and the commission paid to
assessee thereby inferring that the payment of commission also includes
payment for technology giving it color of FTS. The Ld DR also relied on
the general extracts of Adidas website as pointed out by the AO in the
assessment order.
5. We have heard the rival contentions and pursued the submissions
made by the parties in detail. The main issue for consideration is whether the
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consideration received by the assessee from AIMPL under the Buying
Agency Services Agreement (`BAS') could be characterized as `fees for
technical services' under section 9(1)(vii) of the Act and accordingly by
taxed under the provisions of section 115A of the Act. Explanation 2 to
section 9(1)(vii) defines `fees for technical services' as under:
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".
5.1. It is evident that for a particular stream of income to be characterized
as `fees for technical services', it is necessary that some sort of `managerial',
`technical' or `consultancy' services should have been rendered in
consideration. The terms `managerial', `technical' or `consultancy' do not
find a definition in the Income-tax Act, 1961 and it is a settled law that they
need to be interpreted based on their understanding in common parlance. Let
us examine the meaning of each of these words:
Managerial : the Delhi High Court in the case of J.K. (Bombay) Ltd.
vs. CBDT & Anr. (1979) 118 ITR 312 (Del) referred to an article on
`Management Sciences' in Encyclopaedia 747, wherein it is stated that
the management in organisations include at least the following: (a)
discovering, developing, defining and evaluating the goals of the
organisation and the alternative policies that will lead towards the
goals; (b) getting the organisation to adopt the policies; (c) scrutinising
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the effectiveness of the policies that are adopted and (d) initiating steps
to change policies when they are judged to be less effective than they
ought to be. Management thus pervades all organizations.
Technical : In the case of Skycell Communications Ltd. vs. DCIT (251
ITR 53) (Madras), the Hon'ble High Court has held that the popular
meaning associated with the word `technical' is `involving or
concerning applied and industrial science'.
Consultancy : consultancy is generally understood to mean an advisory
services. Further, it may be fair to state that not all kind of advisory
could qualify as technical services. For any consultancy to be treated as
a technical services, it would be necessary that an 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.
5.2. Our attention was also brought to the decision of the Mumbai bench
of the ITAT in the case of Linde AG vs ITO (62 ITD 330) wherein it is
observed that:
"In the definition for `fees for technical services' the
consideration has to be for rendering technical, managerial or
consultancy services. By making purchase for the Indian concern
no consultancy services is provided as no advise is given to them.
It is a simple procurement of equipments by the assessee for
them. It is also not a technical service in the sense of technical
education is concerned with teaching applied sciences and
special training in applied sciences, technical procedures and
skills required for practice of trade or profession, especially
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those involving the use of machinery or scientific equipment. If
the information is given for the use of the machinery or scientific
equipment it would partake the character of fees for technical
services but when it is only for the procurement of the scientific
equipments it would be a simple service of commercial and
industrial nature. It, therefore, cannot be termed as a technical
service for which the procurement fees charged by the assessee
cannot be a consideration for technical services. The third
category is managerial service. The managerial service, as
aforesaid, is towards the adoption and carrying out the policies
of a organisation. It is of permanent nature for the organisation
as a whole. In making the stray purchases, it cannot be said that
the assessee has been managing the affairs of the Indian concern
or was rendering managerial services to the assessee."
5.3. The copies of the Buying Agency Services agreement are placed on
record, the nature of services have not been disputed. Department has only
interpreted them to be amounting to ` Fees for Technical Services', in our
considered opinion these are not technical services but routine services
offered in the procurement assistance . The agreements demonstrate that the
assessee was to receive commission for procuring the products of AIMPL
and rendering incidental services for purchases. The primary services
provided by the assessee to AIMPL in terms of the Buying Agency Services
agreement are as under:
(i) Co-ordinate between AIMPL and manufacturers for the purpose of
buying the merchandise,
(ii) assisting in negotiations,
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ITA No. 5300/Del/2010
(iii) assist in procurement of samples and sending them to AIMPL,
23(iv) maintain relationship with the manufacturers and search for new
manufacturers,
(v) supply credit reports and other marketing information concerning
manufacturers and
(vi) provide translation services as required for communication between
AIMPL and the manufacturers.
5.4. Applying the principles and case laws discussed above to the facts of
the present case, we are of the view that the services rendered by the
assessee in this case were purely in the nature of procurement services and
cannot be characterized as `managerial' `technical' or `consultancy'
services. Accordingly, the consideration received by the assessee was
appropriately classified as `commission' as against `fees for technical
services'.
5.5. Ground Number 3 and 4 are inconsequential as no separate penalty
proceedings have been initiated so far and the Grounds about levy of interest
u/s 234 B, 234 D and 244 A are consequential in nature. Ground regarding
TDS credit will be verified by the AO in accordance with law.
6. In view of the foregoings, assessee's appeal is allowed on above
terms.
Order pronounced in open court on 18-09-2012.
Sd/- Sd/-
( T.S. KAPOOR ) ( R.P. TOLANI )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 18-09-2012.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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ITA No. 5300/Del/2010
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