The order of the Bench was delivered by
K. Narsimha Charry (Judicial Member)--This is an appeal preferred by the Revenue challenging the order dated February 26, 2010 of the learned Commissioner of Income-tax (Appeals)-XIII, New Delhi. Briefly stated facts, relevant for the purpose of this appeal, are that the assessee is a company dealing with the business of tour operations. For the assessment year 2005-06 they filed their return of income on October 30, 2005 declaring a total income of Rs. 2,28,89,480. During the course of assessment proceedings, the Assessing Officer found that the assessee made a payment of Rs. 32,43,977 and Rs. 11,32,585 to Patrice Dedyn (France) and Moulden Marketingh Ltd. (UK) (hereinafter for short referred to as "the non-residents") towards promotional expenses and held that such payment is covered both under section 9(1)(i) and 9(1)(vii) of the Income-tax Act (for short referred to as "the Act"). On this premise, the Assessing Officer proceeded to disallowed such an expense under section 40(a)(i) of the Act and added the same to the total income of the assessee. Aggrieved by the same assessee carried the matter in appeal and the learned Commissioner of Income-tax (Appeals), by way of impugned order, allowed the appeal deleting the additions made by the Assessing Officer.
2. Challenging the said finding of the learned Commissioner of Income-tax (Appeals), the Revenue came in this appeal on the grounds that the order of the learned Commissioner of Income-tax (Appeals) is wrong, perverse, illegal and against the provisions of law inasmuch as the learned Commissioner of Income-tax (Appeals) has erred in deleting the disallowance of Rs. 32,43,977 and Rs. 11,32,585 under section 40(a)(i) of the Act as such it is liable to be cancelled.
3. It is the argument of the learned Departmental representative that the payments made to Mrs. Patrice Dedyn (France) and Moulden Marketingh Ltd. (UK) are in the nature of marketing consultancy fees and fee for technical services within Explanation 2 thereof and fall within the ambit of section 9(1)(i) and (vii) of the Act. He submits that the learned Assessing Officer rightly rejected the contention of the assessee that article 15 of the Double Taxation Avoidance Agreement has no application because the earnings of the above persons through some professional services. He vehemently relied on the order of the Assessing Officer.
4. The argument of the learned authorised representative before us, as it was before the learned Commissioner of Income-tax (Appeals), is four fold. Firstly, that section 40(a) has no application to the expenditure incurred by the assessee for payments to the non-residents since such payments are not chargeable to tax under the Act and the tax at source cannot be deducted. Secondly, that since no operation of those persons are carried out in India and no part of their income is attributable to any India operations, section 9(1)(i) is not applicable. Thirdly, that the services rendered by them do not fall within the definition of technical services under the Indo French Treaty, and lastly section 40(a)(i) is not applicable to the payments made to the above two entities in view of the non discrimination clause in article 26 of the Indo French Treaty. Basing on these submissions he prayed to uphold the findings of the learned Commissioner of Income- tax (Appeals), and to dismiss the appeal.
5. Point that arises for our consideration is whether there is any legal infirmity in the order of the learned Commissioner of Income-tax (Appeals) in holding that the disallowance made by the Assessing Officer under section40(a)(i) is bad in law and consequently the additions made on that count had to be deleted.
6. We have carefully gone through the orders of the authorities below and also the other material papers made available by way of paper book. In so far as the first contention advanced on behalf of the assessee that the payments made to the non-residents are not chargeable to tax under the Act as such there is no liability on the part of the assessee to deduct tax at source, is concerned, assessee is relying upon the orders passed by the Income-tax Officer (TDS), Ward International Taxation, New Delhi on November 29, 2005, July 14, 2006 and July 27, 2007 in respect of the financial years 2005-06, 2006-07 and 2007-08 produced at page Nos. 49, 52 and 57 of the paper book. In these orders the authorities clearly stated that the services rendered by Mr. Patrice Dedyn (France) are outside India, income is not deemed to have arisen/accrued in India in terms of section 9(1)(i) of the Act as such payments could be made without deducting TDS. When once the authorities found, in respect of the assessment years 2006-07 to 2008-09 that the payments made to the Patrice Dedyn (France) are not being chargeable to tax under the Act and there was no requirement to deduct tax at source since the service being rendered outside India and cannot be deemed to have arisen or accrued in India in terms of section 9(1)(i) of the Act, it is not open for the Assessing Officer not to consider the orders passed under section 195 of the Act for the financial years 2005-06 to 2007-08 without assigning cogent reasons. Further for subsequent years, as evidenced by the assessment orders relating to the assessment years 2006-07 to 2008-09, vide page Nos. 58 to 66 of the paper book, no disallowance was made under section 40(a)(i) of the Act. The learned Commissioner of Income-tax (Appeals) held that when there is no change of facts, in view of these orders passed under section 195 of the Act and assessment orders for subsequent years, the Assessing Officer was not justified to take a different view. We too find so on this aspect.
7. Now turning to the second contention, there is no dispute in respect of the fact that all the operations and activities of the non-residents were carried on outside India. The non-residents were appointed by the assessee to render services outside India to generate business and to find out new clients. The learned Commissioner of Income-tax (Appeals) placed reliance on the decision reported in CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC) and Carborandum Co. v. CIT [1977] 108 ITR 335 (SC) for the principle that if no operations of business are carried out in taxable territories, the income accruing or arisen abroad through and from any business connection in India cannot be deemed to accrue or arise in India. Before us also the learned Departmental representative placed reliance on the decisions of the Hon’ble jurisdictional High Court in DIT v. Panalfa Autoelektrik Ltd. [2014] 227 Taxman 351 (Delhi) for the principle that commission paid to foreign agent for arranging of export sales and recovery of payments cannot be recorded as fee for technical services under section 9(1)(vii) of the Act and Welspring Universal v. Joint CIT [2015] 153 ITD 496 (Delhi) for the principle that where commission paid to a non-resident agent for procuring export orders was not chargeable to tax in the hands of the said agent, assessee is not liable to deduct tax at source. In view of these decisions is clear that the payment made to the non-residents is not taxable under section 9(1)(i) of the Act as such assessee is under no obligation to make any deduction at source on such payments. On this count also, the reasoning given by the learned Commissioner of Income-tax (Appeals) is sound and correct.
8. Adverting to the contention that the services rendered by the non- residents do not fall in the expression technical services and the payment is not fee for technical services under section 9(1)(vii), the assessee is resting their case on the terms and the Protocol of the Indo France DTAA. The learned Commissioner of Income-tax (Appeals) observed that in view of the decision of Supreme Court in Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) and CIT v. P. V. A. L. Kulandagan Chettiar [2004] 267 ITR 654 (SC), the assessee is entitled to seek the benefit of the provisions contained in the Double Taxation Avoidance Agreement France and to adopt the restricted definition of the term "fee for technical services" contained in the UK Treaty and "fees for included services" contained in US Treaty, as such in order to fall within these two expressions, there ought to be not only rendering of technical or consultancy services but it should involve making available technical knowledge, experience, skill, know-how or processes or development and transfer technical plan or technical design. Since the role of the non-residents in the case on hand is only to provide incremental business to the assessee from outside India being the independent representatives, their services are neither technical services nor included services, but only constitute their independent business.
9. Before us, learned authorised representative placed reliance on the decision of the Hon’ble jurisdictional High Court in Steria (India) Ltd. v. CIT [2016] 386 ITR 390 (Delhi) ; [2016] 72 taxmann.com 1 (Delhi) for the principle that in view of clause (vii) of the Protocol forming part of the India-France Double Taxation Avoidance Agreement, less restrictive definition of expression "fees for technical services" appearing in the Indo-UK Double Taxation Avoidance Agreement forming part of the India- France Double Taxation Avoidance Agreement as well, hence the payment by an Indian company to a French company for management services would not constitute fees for technical services under the India-French Double Taxation Avoidance Agreement. While respectfully following the decisions of the Hon’ble apex court Azadi Bachao Andolan and P. V. A. L. Kulandagan Chettiar (supra) and the Hon’ble jurisdictional High Court in Steria (India) Ltd. (supra), we hold that the learned Commissioner of Income-tax (Appeals) is right in holding that the payments made to the non-residents cannot be characterised as fee for technical services and the question of any deduction of tax at source does not arise.
10. The last limb of the argument of learned authorised representative also goes unimpeached and there is no attempt before us to demonstrate as to how the learned Commissioner of Income-tax (Appeals) is wrong in holding that the provisions of section 40(a)(i) have no applications to the payment made to the non-residents in view of the non-discrimination provisions contained in article 26 of Indo French Treaty. The learned Commissioner of Income-tax (Appeals), for this principle, placed reliance on the decision reported in Herbalife International India P. Ltd. v. Asst. CIT [2006] 101 ITD 450 (Delhi) and Millennium Infocom Technologies Ltd. v. Asst. CIT [2009] 309 ITR (AT) 18 (Delhi). The two decisions are applicable to the facts of the case on hand on all fours.
11. For the reasons set forth in the preceding paragraphs, we find that the reasoning adopted and the conclusions reached by the learned Commissioner of Income-tax (Appeals) are implacable and they do not warrant any interference by this Tribunal. We, therefore, upheld the same and while answering the issue in the negative, we confirm the orders of the learned Commissioner of (Appeals) and dismiss the appeals.
12. In the result, the appeal of the Revenue is dismissed.