Income Tax Appellate Tribunal - Chennai
Laserwords Us Inc, Pondicherry vs Dcit International Taxation 1(2), ... on 27 February, 2019
:- 2 -: IT(TP)A No74/2018 pursuant to directions of ld. Dispute Resolution Panel (in short ''ld. DRP''), it has raised the following grounds:-
''1.1. ''The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed.
1.2. The lower authorities have finalized their order with improper adjustments to the transaction of the Appellant, because of misapplying the provisions of the Act and DTAA, and by adopting faulty assessment procedure to finalize the adjustment, without considering the information, arguments and evidence provided by the Appellant.
1.3. The lower authorities have, in the facts and circumstances of the case and in law, erred in not serving show cause notice on the Appellant thereby denying the Appellant's basic right to explain and put forth its legal and factual arguments against the action of lower authorities.
1.4. The lower authorities have, in the facts and circumstances of the case and in law, erred in making reference to functions performed by SPi America LLC (,SPi US') while taxing the Appellant as per the provisions of DTAA.
2. Non Taxability of Income from Marketing Service A. Not Taxable under the Act:
2.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in concluding that the services were made available to SPi India, without establishing the taxability of the same under the provisions of the Act.:- 4 -: IT(TP)A No74/2018
known as M/s. Laser words Private Limited (in short Spi India) had an agreement with the latter for providing marketing and sales service in United States of America. Assessee is a company incorporated in USA. Assessee had filed its return for the impugned assessment year, wherein Nil income was admitted by it. Ld. Assessing Officer found from the Transfer Pricing study submitted by the assessee that it was rendering marketing and sales services to M/s. Spi India by way of identification of customers and liaisoning with them for the assessee which was engaged in the business of e-publishing. Assessee provided business solutions like client work flow requisition to its principal in India. Assessee had a marketing and sales team in USA and the services rendered by the assessee to M/s. Spi Technologies India Private Limited included development of sales channel, selection and training of appropriate sales staff, account management and customer relationship. Role of the assessee was to identify a customer for its principal in India, interact with such customer, identify their exact requirements, collate and share the deliverables expected by the customers with its principal in India. As per the ld. Assessing Officer, marketing service agreement between assessee and its principal had the following clauses which indicated that assessee was rendering technical services to its principal in India.
''With respect to each Party, Proprietary Information shall mean all information of a confidential or Proprietary nature disclosed to it by the other Party pursuant to this Agreement or any agreement :- 6 -: IT(TP)A No74/2018 ₹14,51,34,576/- had to be considered as fees for included services which was taxable at the rate of 15% as per India- USA DTAA. A draft assessment order on the above lines was forwarded by the ld. Assessing Officer to the assessee.
3. On receipt of the draft assessment order, assessee chose to file an application before ld. Dispute Resolution Panel. Ld. DRP after giving through the submissions of the assessee found that out of the total sale commission of ₹14,51,34,576/- received by the assessee from its Indian principal, a sum of ₹1,47,29,539/- was sub contracting charges which could not be considered as fee for included services. According to the ld. DRP balance sum of ₹13,04,05,037/- could be considered as fees for included services. Ld. DRP thus gave a relief of ₹1,47,29,539/- to the assessee. Thereafter ld. Assessing Officer completed the assessment taxing the sum of ₹13,04,05,037/- at the rate of 15% considering it as fees for included services under Article 12 of the India and USA DTAA.
4. Now before us, ld. Authorised Representative strongly assailing the orders of the lower authorities submitted that assessee was only a subsidiary of M/s. Spi Technologies India Private Limited. According to him, the marketing services rendered by the assessee was through its employees in USA. Contention of the ld. AR was that there was no technical services nor included services made available :- 8 -: IT(TP)A No74/2018 inputs given by principal in India for developing the skill set of the marketing personnel of the assessee in USA, was used by the assessee in USA for indentifying the customers and obtaining orders. Marketing team of the assessee according to the ld. Departmental Representative was collating collecting information and doing technical services like XML conversion, formalizing the lay outs, etc. According to him, technical knowhow was passing from the assessee to its principal in India. Assessee, as per ld. Departmental Representative, could not say that no technical services were made available to its principal in India. As per the ld. Departmental Representative, assessee's case could not be compared with a simple commission agent who was merely marketing the goods. According to the ld. Departmental Representative, assessee having made available technical knowledge, skill, know-how process and technical plan to its counterparts in India the payments received were nothing but fees for included services and covered by clause (4) to Article 12 of India and USA DTAA. According to him, lower authorities were justified in taxing such amount at 15%.
6. Ad libitum reply of the assessee was that there was no flow of technical knowledge from the assessee to its Indian principal at any stage. To a question from the Bench, whether assessee's principal was rendering e-publishing services to other countries and whether :- 10 -: IT(TP)A No74/2018 services of technical or other personnel) if such services:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received .- or
b) make available technical knowledge, experience, skill, know-
how, or processes, or consist of the development and transfer of a technical plan or technical design''.
To apply clause (b) above, it is necessary that technical knowledge, skill, know-how, are imparted or processes or development or transfer of technical plan or technical design is there from assessee to its principal in India. Admittedly, assessee would not fall within clause (a) since it did not provide any services which were ancillary and subsidiary to the application or enjoyment of the right, property or information. The invoices raised by the assessee for its services has been placed at paper book pages 132 to 135. The invoices are typically worded and one such invoice is reproduced hereunder:-
INVOICE # LWI/2014-15/003 June 30, 2014 To Accounts Payable, SPI Technologies India Private Limited, 117/1 LB Road, Adyar, Chennai - 600 020, India.
Amount in USD Towards Sales & Marketing expenses:
Sales & Marketing expenses for the month of June'14 $1,53,668.00
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Total $1,53,668.00
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(US Dollars One Lakh Fifty Three Thousand Six Hundred and Sixty Eight Only) :- 12 -: IT(TP)A No74/2018 marketing efforts in other countries. In the circumstances of the case, we are of the opinion that the issue requires a fresh look by the ld. Assessing Officer. We set aside the orders of the lower authorities and remit the question whether receipts of the assessee from its principal in India could be considered as fees for included services or not back to the file of the ld. Assessing Officer for consideration afresh in accordance with law.
8. In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced on Wednesday, the 27th day of February, 2019, at Chennai.
Sd/- Sd/-
(ध ु व
ु आर.एल रे डी) (अ ाहम पी. जॉज )
(DUVVURU RL REDDY) (ABRAHAM P. GEORGE)
या यक सद य/JUDICIAL MEMBER लेखा सद य /ACCOUNTANT MEMBER
चे नई/Chennai
दनांक/Dated: 27th February, 2019
KV
आदे श क त ल प अ े षत/Copy to:
1. अपीलाथ /Appellant 3. आयकर आय
ु त (अपील)/CIT(A) 5. वभागीय त न%ध/DR
2. 'यथ /Respondent 4. आयकर आय
ु त/CIT 6. गाड) फाईल/GF