ita no. 5300/del/2010 adidas sourcing limited vs. asstt...

Adidas sourcing Ltd.

ITA No. 5300/Del/2010

1

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)

O R D E R

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

http://www.itatonline.org


ITA No. 5300/Del/2010

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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.


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.


fact, in proposing to levy interest under sections 234B and 234D

of the Act.


fact, in proposing to withdraw interest granted under section

244A of the Act.


fact, in not allowing credit for the whole of the amount of tax

deducted at source.



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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)



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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.



ITA No. 5300/Del/2010

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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)



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

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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



ITA No. 5300/Del/2010

22

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,



ITA No. 5300/Del/2010

23

(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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