ITA 229/2014

Page 1 of 17

* IN THE HIGH COURT OF DELHI AT NEW DELHI

+

ITA No. 292/2014

Reserved on : 22^nd July, 2014

%

Date of Decision : 18^th September, 2014

DIRECTOR OF INCOME TAX (INTL. TAX.)-II ....Appellant

Through

Mr. Kamal Sawhney, Sr. Standing

Counsel with Mr. Sanjay Kumar, Jr. Standing Counsel.

Versus

PANALFA AUTOELEKTRIK LTD.

…Respondent

Through

Mr. Satyen Sethi, Advocate.

CORAM:

HON’BLE MR. JUSTICE SANJIV KHANNA

HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J.

The present appeal by the Revenue, which arises out of

proceedings under Section 195/197 of the Income Tax Act, 1961

(„Act‟, for short), relating to assessment year 2010-11 on an

application filed by Panalfa Autoelektrik Ltd. (assessee, for short),

requires adjudication of the following substantial question of law:-

“Whether the ITAT was right in holding that the

commission paid to M/s. Agenta World Trading and

Consulting Establishment for procuring export orders, is

not fee for technical services under Section 9(i)(vii) of

the Income Tax Act, 1961?”

2. For the sake of clarity, we record that the impugned order

passed by the Income Tax Appellate Tribunal („Tribunal‟, for short) is

dated 25^th October, 2013 and was passed in ITA 4654/Del/2012.

3. The assessee made an application dated 16^th February, 2010

under Section 195(2) for authorization to remit Euro 1,40,055.53 as

2014:DHC:4799-DB

ITA 229/2014

Page 2 of 17

commission for arranging export sales and realizing payments to M/s.

Agenta World Trading and Consulting Establishment, a non-resident

company registered in Liechtenstein. There is no Double Taxation

Avoidance Agreement between India and Liechtenstein and, therefore,

in the present appeal we are only concerned with the question of

receipt, accrual or deemed accrual of the said income in India as per

the mandate of the Act.

4. The Assessing Officer relying upon the decision of the

Authority for Advance Rulings in In Re:M/s. Wallace

Pharmaceuticals P. Ltd. [2005] 278 ITR 97 (AAR) held that the

commission payment to the non-resident company on procuring orders

was taxable as „fee for technical service‟ under sub-clause (b) to

Section 9(1) (vii) of the Act. The initial direction that the tax should

be deducted at source @ 20% recorded in the order dated 4^th May,

2010, was modified/reduced to 10% vide order dated 8^th November,

2010 after recording that deduction at a higher rate would not be

applicable in the present case.

5. The Commissioner of Income Tax (Appeals), however,

reversed the aforesaid finding holding that the commission payment in

the present case was not in the nature of „fee for technical service‟ and

he distinguished the decision in the case of Wallace Pharmaceuticals

P. Ltd. (supra). The said finding has been affirmed by the Tribunal in

the impugned order.

6. In order to appreciate the controversy, we would first like to

refer and interpret Sections 5(2), 9(1)(i) and 9(1)(vii) of the Act,

though, the Assessing Officer in the present case had not invoked

Section 9(1)(i) of the Act. The relevant provisions read as under:-

2014:DHC:4799-DB

ITA 229/2014

Page 3 of 17

“5. Scope of total income.—

xxx

(2) Subject to the provisions of this Act, the total income of any

previous year of a person who is a non-resident includes all

income from whatever source derived which—

(a) is received or is deemed to be received in India in such year

by or on behalf of such person; or

(b) accrues or arises or is deemed to accrue or arise to him in

India during