Order Procurement Services rendered outside India not Taxable in India: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that the order procurement services rendered outside India not taxable according to the income tax Act.

The return filed by the assessee company is engaged in the business of software development, testing and training were subjected to scrutiny. During the proceedings, the Assessing Officer observed that the “order procurement services” rendered by the non-residents and commission /retainer fee as royalty and fees for technical services.

The assessee claimed that the AO ignored the fact that the order procurement services rendered outside India are not taxable in India. According to the assessee, the relevant Section is Section 195 which requires any person to deduct income tax from any payment made to a non-resident when such payment is chargeable under the provisions of the Income Tax Act. Thus, no deduction of tax at source will be applicable when the payment of the non-resident is not taxable in India.

The Tribunal noted that in case of the assessee company, two non-resident foreign companies, one by the name of J2S INC, USA and another by the name of NAVOS, Belgium were appointed to locate foreign buyers to whom the assessee company could sell its services.

“Thus, both the foreign companies rendered order procurement services outside India which is their business activity. Invoices received from the parties also show that services rendered by them were sales procurement services and not fees for technical services or royalties. The contention of the Ld. DR that the services provided is in the nature of advisory services based upon the skills of the non-resident, is contrary to the terms and conditions of the agreements. In the previous year relevant to the Assessment Year 2012-13 only the retainer fee as per the agreement was paid and no order procurement services in real terms were materialized by the said non-resident.

Thus, the Explanation Clause of Section 9 (vii) of the Act will not be applicable on the ground that income was from the source outside India. Both the non-resident assessee derived their income as their business activity and their business profit is determined under Article 7 of DTAA between India and USA as well as from Article 7 of DTAA between India and Belgium and will then decide as to where business income will be taxable. Therefore, none of the provisions of Section 9 of the Act will be applicable in the present case, business income cannot be treated as fees for technical services as held by the Assessing Officer. Therefore, the Assessing Officer, as well as CIT(A), was not correct in treating the “order procurement services” rendered by the non-residents and commission/retainer fee as royalty and fees for technical services,” the Tribunal said.

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