The Income Tax Appellate Tribunal (ITAT), New Delhi Bench granted full credit of TDS on the ground that Commission Income is not ‘managerial service’ under India Germany Double Taxation Avoidance Agreement (DTAA).
The common grievance in both the appeals relates to the treating of commission income received by the assessee from Springer Nature India Private Limited (SNIPL) as fee for technical services (FTS) under Article 12 of the India-Germany DTAA by the CIT(A) by changing the colour of income, which was treated as royalty by the Assessing Officer.
The assessee, M/s Springer Verlag GmbH is a company incorporated in accordance with the German laws and is a tax resident of Germany and the assessee entered into a Commissionaire Agreement with SIPL. As per the terms of the Commissionaire Agreement, the assessee provided services relating to Customer service, Order handling, Address maintenance, Invoicing, Delivery, physical as well as online, Debtor management services, Contract management, Processing of complementary copies and translated published copies.
While completing the scrutiny assessment, the Assessing Officer formed a strong belief that the entire receipt claimed as commission income is nothing but royalty taxable u/s 9(1)(vi) of the Income-tax Act, 1961 and also under the DTAA with Germany and concluded assessment by taking the same as royalty @ 10% under India Germany DTAA. The CIT(A) was convinced with the challenge that the commission so received is not royalty but changed the colour of assessment by treating the commission received as FTS as per India Germany DTAA.
The Bench consisting of N K Billaiya, Accountant Member and N K Choudhry, Judicial Member held that “Managerial services entail the element of management of the business of the service recipient in a substantial manner. In our view, mere provision of support services cannot be labelled as managerial services. Hiring of outside parties to receive support in respect of the operational aspects of a business cannot qualify as managerial services unless the service provider lays down policies or executes such policies by managing the personnel of the service recipient. We do not find any merit in the findings of the CIT(A) by treating the commission as ‘managerial service’ under the India Germany DTAA.”
In the issue relating to TDS, the Bench observed that “we direct the Assessing Officer to consider the claim as per the provisions of law and allow full credit of TDS after due verification.”
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