By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Sub-arranger fee paid to non-resident does not amount to FTS under the Act as such services do not require technical knowledge, expertise or qualification. Doing small parts of overall activity cannot be regarded as rendering managerial services.
Facts:
• The Taxpayer was appointed as arranger by an Indian bank for mobilising deposits from NRI customers and to act as a collecting bank for receiving and handling application forms under “India Millennium Deposit” (IMD) scheme.The services included; canvassing potential investors; printing marketing material and distributing them; assisting customers in filing the application and obtaining necessary documents; ensuring compliance with local laws; ensuring that payment instruments and applications are correct; issuing acknowledgements; preparing daily remittance schedules and consolidated statements etc.
• The Taxpayer in turn appointed sub-arrangers for mobilising IMDs both in and outside India.The sub-arrangers work was in the nature of soliciting NRI customers for IMD of Indian banks and then to remit the amount received by them to the designated banks.
• The Tax Authority disallowed the payments of subarranger fees on the grounds that such payments to non-residents were in the nature of FTS on which tax was required to be withheld under the Act.
Held:
• From the nature and scope of services rendered by the sub-arrangers, it was clear that no technical knowledge, expertise or qualification was required. Convincing potential customers and helping them to fill requisite forms and coordinating transfer of funds, cannot be considered as a “technical service”.
• The services rendered by the sub-arrangers were only a small part of the management of the IMD issue. Sub-arrangers were not involved in the “management” of IMD issue. The Taxpayer was simply acting as commission agent or broker for which it was entitled to a particular rate of commission. Sub-arranger obligation was a part of overall obligation of IMDs and hence services cannot be regarded as fees for managerial services.
