The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that payments provided for services rendered by marketing partners such as provision of pre-sale and after sale product services to the customers are taxable as Fees for Technical Services (FTS) as per the definition given in Section 9(1)(vii) of the Income Tax Act, 1971.
The Tribunal comprising Judicial Member V Durga Rao and Accountant Member G Manjunatha also added that the assessee, Sunsmart Technologies Pvt. Ltd. ought to have deducted TDS in terms of Section 195 of the Income Tax Act.
On behalf of the assessee, Authorised Representative Advocate D. Anand referring to marketing, agreement between the assessee and M/s.SSG Technologies, LLC, submitted that if you consider the scope of services rendered by the partner, it is in the nature of simple marketing services without any technical knowledge and thus, same cannot be classified as FTS as per Explanation-2 to Section 9(1)(vii) of the Income Tax Act.
The revenue, on the other hand, represented by Additional CIT Varuvooru Sreedhar, pointed out that in order to give pre-sale and post-sale services to product, the partner requires expertise in products manufactured by the assessee and thus, said services definitely comes under FTS.
The Tribunal observed that, “As per Explanation-2 to Sec.9(1)(vii) of the Act, FTS means any consideration (including in lump sum consideration) for the rendering of any managerial, technical or consultancy services, but does not include consideration for any construction, assembling, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘salaries’ ”.
It was further observed by the Tribunal that “as per Explanation-2 to Section 9(2) of the Act, income of a non-resident shall be deemed to accrue or arise in India under Clause (v) or Clause (vi) or Clause (vii) of sub-section (1) and shall be included in the total income of the non-resident”. Examining the nature of services provided by the marketing partner, it was held that, “services rendered by M/s.SSG Technologies, LLC, definitely comes under ‘FTS’ as defined under Explanation-2 to Section 9(1)(vii) of the Income Tax Act” as “the scope of agreement clearly specifies the nature of services to be rendered by marketing partner and as per said agreement, the assessee will train the resources of marketing partner to provide pre-sale and after sale product services to the customers”.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates.
