By Tarunkumar G. Singhal, Anil D. Doshi, Chartered Accountants
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Section 9 (i) (vii) – Buying agency services cannot be characterised as ‘managerial’, ‘technical’ or ‘consultancy’ services as they are not technical services but routine services offered in procurement assistance.
Facts
The Taxpayer, a tax resident of Hong Kong (FCo), was providing buying agency services for its Indian Associated Enterprise (AE). Services were rendered by FCo from Hong Kong.
Commission for such offshore services was not offered to tax by FCo and it was claimed that the same is not service in the nature of FTS.
The issue before the Tribunal was whether buying agency services can be regarded to be in the nature of FTS under the IT Act.
Held
For a particular stream of income to be characterised as FTS, it is necessary that some sort of ‘managerial’, ‘technical’ or ‘consultancy’ services should have been rendered in. Various components of FTS should be interpreted based on their understanding in common parlance.
Buying agency services are not FTS but routine services offered for assisting in the process of procurement of goods. The buying agency service agreement shows that FCo was to receive commission for procuring the products of AE and for rendering incidental services for purchases.
Relying on Delhi High Court’s decision in J.K. (Bombay) Ltd. [118 ITR 312], Madras HC’s decision in Skycell Communications Ltd. [251 ITR 53] and Mumbai Tribunal’s decision in Linde AG [62 ITD 330], the Tribunal held that the services rendered by FCo were purely in the nature of procurement services and cannot be characterised as ‘managerial’, ‘technical’ or ‘consultancy’ services.
Accordingly, the consideration received by FCo was classified as ‘commission’ and not FTS.
