Syed Shah Mohammed Quadri, J. - In this application under section 245Q(1) of the Income-tax Act, 1961 (for short "the Act"), the applicant - M/s. Wallace Pharmaceuticals Private Limited - seeks advance rulings of this Authority on the following three questions:-

a.Whether applicant is required to deduct tax at source in respect of the monthly payments (consultancy fees $ 10000) made to consultant whose office and area of operation is situated in U.S.A. [As per agreement dated 1st March, 2004 - Copy of Agreement Attached].

b.Whether applicant is required to deduct tax at source in respect of commission payable @ 10% on the orders procured by the consultant to the applicant.

c.Whether applicant is required to deduct tax at source in respect of the reimbursement of payments made to, "Consultant" who had engaged/engages the services of professionals for rendering services to the applicant from time to time. [copy of bill dated 8th November, 2004 attached]

2. The applicant is engaged in the manufacture and sale of Pharmaceuticals products. With a view to expand its business, it entered into an agreement with Penser Group (a limited Company incorporated in USA) - Penser - on 1st March, 2004. In consideration of consultant fee of $ 10000 per month, Penser agreed to provide the following services:-

(a)Research Wallace and its business development practices; and

(b)Advise Wallace employees and Wallace consultants in the Field. Wallace shall designate a team of its employees who will serve as Penser’s point contact; and

(c)Attend meetings on mutually agreeable dates and at mutually agreeable times and locations as requested by Wallace; and

(d)Identify certain target pharma and biotech companies in the United States and outside (‘Prospects’) to market Wallace’s Products along with any and all support from Wallace product team; and

(e)Contact Prospects to promote and convince them into entering Indian market; and

(f)Explain to Prospects the capability of Wallace to promote, distribute and sell their products in India; and

(g)Explain to Prospects the prevailing laws of India for Trademarks and Patents. All legal and administrative formalities in India, including product registration and EMR filing, on behalf of Penser and the Prospects will be done by Wallace to enable them to enter the Indian market; and

(h)Identify and procure orders for the import of generic drugs and formulations to be manufactured by Wallace and exported to United States; and

(i)Carry out additional projects and services in the Field, as mutually agreed upon (collectively ‘Services’). Services shall include but are not limited to telephone time, on-site consulting at Wallace or elsewhere, review of written documents and data, and preparation of written documents.

It is, further, submitted that Penser had utilized the services of an Advocate and paid him $30,000 which was reimbursed by the applicant. The TDS in India is not recognized by USA Tax Authorities. It is asserted that the services have been rendered to the applicant outside India, in USA, therefore, the applicant need not deduct tax @ 20%/15% on the aforementioned payments.

3. The Commissioner, in his comments, to the first question, submitted, inter alia, that if any services are not rendered or deemed not to be rendered in India by the non-resident consultants, there would be no liability to deduct tax at source on payments made by the applicant to the non-resident. However, if any services are rendered or deemed to be rendered in India, tax will be required to be deducted under section 195 of the Act and it is not clear from the said agreement dated 1st March, 2004 that such services rendered would not include services rendered in India as the area of operation is not clearly defined therein. The same comments are reiterated in regard to the other questions.

4. Mr. Arun Gupta, learned counsel appearing for the applicant, submitted that under section 9(1)(vii)(b) of the Act, income by way of fees for technical servic