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Learn MoreThe Tax Authority observed that the services are in the nature of consultancy charges under the Act and liable for withholding taxes as FCo did not carry out marketing services but was required to conduct market survey and identify potential customers.
However, the Taxpayer argued that FCo was engaged only for the purpose of marketing the Taxpayer’s product in South East Asian countries.The nature of the transaction is required to be determined on the basis of the substance and not by the nomenclature. Hence the payments cannot be considered as consultancy charges. .
Held:
The work of FCo is to identify the potential customers and file a report regarding the market strategy and developmental studies. The Agreement does not enable FCo to market the products of Taxpayer in South East Asian countries. FCo had to provide a market survey report based on which the Taxpayer could market its product. Hence the payments were in the nature of consultancy charges taxable under the provisions of the Act.