The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that the services rendered by non-resident agent for completion of export commitment would not fall under the definition for fee for technical services.
The assessee acquired the shares in VA Tech Wabag GmBH, Austria (VA Tech, Austria) from Siemens Aktiengesellschaft Osterreich, Austria (Siemens). At the time of acquisition of shares, the assessee took over the contingent liability, which included a corporate performance guarantee given by Siemens to the Bank of Austria, which in turn provided performance guarantee to various customers of VA Tech Austria.
The assessee explained that when it has acquired the shares of VA Tech Austria from Siemens through its 100 percent subsidiary VA Tech Wabag (Singapore) Pte Limited, the assessee took over the corporate performance guarantee given by the Siemens to Bank of Austria. The A.O during the course of assessment proceedings noted that as a part of acquisition of VA Tech WABAG, Austria through its Singapore AE, the assessee had exposed itself to the Performance Corporate Guarantee to the extent of Euro 67.985 million of which 64.985 was through ICICI Singapore and Euro 3 million through Bank Austria.
As the costs of counter guarantee issued through ICICI were found to be prohibitive and the terms and conditions not favourable, the guarantees given through ICICI Singapore were swapped by assessee with SBI Belgium. This clearly shows that the transaction involves elements of costs and risks. The AO accordingly taken 1% of the average exposure and directed upward adjustment of Rs. 3,49,27,400/- and treated the same as international transaction. Aggrieved, the assessee raised objections before DRP.
The DRP deleted the corporate guarantee determined by the TPO as ALP and making upward adjustment accordingly. Aggrieved, the Revenue appealed before the tribunal.
After hearing both the parties, the tribunal noted that in the decision of Madras High Court in the case of CIT v. Faizan Shoes (P.) Ltd., the High Court has considered that the services rendered by non-resident agent for completion of export commitment would not fall under the definition for fee for technical services.
The two member bench consisting of Manoj Kumar Aggarwal (Accountant member) and Mahavir Singh (Vice President) held that none of the authorities below have discussed the nature of marketing fee whether these are paid fee for technical services this needs to be examined.
In case, these are not fee for technical services, the AO cannot make disallowance, the tribunal noted. Hence, to examine this issue, the matter was restored back to the file of AO. Thus, the appeal was partly allowed.
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