By Geeta Jani, Dhishat B. Mehta Chartered Accountants
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Sections. 9(1)(vi), 9(1)(vii) – Payment for sales and Marketing services does not amount to Royalty or fees for technical services (FTS) under the Act. Services do not satisfy “make available” condition under the India-USA DTAA , hence do not constitute fees for includes services (FIS)
Facts:
The Taxpayer carrying on hotel business entered into international sales and marketing agreement with a foreign company (F Co). These services included international sales and marketing services, special chain services, reservation system and special advertisement costs. F Co provided such services from outside India.
During the relevant financial year taxpayer paid sales and marketing fees and reimbursed certain expenses, without deducting taxes thereon. The Tax Authority disallowed the expenses on the ground that the Taxpayer was liable to withhold taxes on payments made to a non-resident.
Held:
Sales and Marketing services is not covered within Explanation 2 to section 9(1)(vi) and hence outside the scope of royalty taxation under the Act.
The services rendered by F Co does not involve rendering of any managerial, technical or consultancy services rendered in India and therefore it cannot be regarded to be FTS u/s. 9(1)(vii) of the Act. In view of this, the income received by taxpayer cannot be deemed to accrue and arise in India.
Under the India-US DTAA, on interpretation of ‘make available’ as per Article 12, reliance was placed on Bombay Tribunal decision in Raymond Ltd (86 ITD 791) which interpreted the term “make available” to mean that the person utilising the services must be able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. In the facts as the services provided by F Co did not make available the sales and marketing services to the Taxpayer the same was outside the ambit of FIS taxation.
