No Tax on Fee Paid for Marketing Service rendered outside India Since not ‘Technical Service’: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) in the case of Onprocess Technology India Pvt. Ltd. v. DCIT while hearing jointly the appeals filed by both the parties, allowed the appeal filed by the assessee held that fees paid for marketing service rendered outside India and hence did not become chargeable to tax in India since is not ‘technical service/ consultancy’.

The facts of the case are that the initial company named M/s BNKe Sol. Pvt. Ltd. (BSPL) engaged in the business of providing BPO services and real estate had established a wholly owned subsidiary at USA BNKe Sol. Inc. (BSI) to provide marketing services to the Indian assessee for securing orders abroad. Under a scheme of arrangement affirmed by the Calcutta HC, BSPL demerged to transfer its BPO business to the new BNKSSPL which was taken over by a US company and hence the resultant company was renamed as M/s on Process Technology India Pvt. Ltd who is the assessee in the present matter.

In order to secure orders and solicit business from foreign customers, the assessee engaged the services of foreign marketing companies to who market support fees was paid. The Assessing Officer (AO) noted that the fee was paid without the deduction of tax u/s 195 of the Act since the orders were executed in India, the income accrued to the payees in India and hence chargeable to tax. The Commissioner of Income Tax on Appeal (CIT(A)) upheld the order on the ground that the payments made to foreign entities qualified to be called as ‘fees for technical services’ both under domestic law and India-USA DTAA. Hence the present appeal.

It was submitted by the assessee that the fees was paid for marketing service rendered outside India and hence did not become chargeable to tax in India. Furthermore, 75% of the fees were paid to the wholly owned subsidiary BSI engaged in the promotion of sale of BPO services to clients based in USA for which the assessee paid arms length remuneration for the services entirely performed in USA for promoting BPO services of the Indian assessee and to secure orders for its BPO business. Further both under the provisions of domestic law and DTAA, fees received by the foreign entities were not taxable in India.

The revenue, on the other hand, contended that the consultancy service was embedded in the marketing services described in the agreement between the assessee and the foreign companies hence covered under the phrase ‘technical consultancy’ following the principle of ejusdem generis’.

The Tribunal bench comprising of Judicial Member A.T Varkey and Accountant Member P.M. Jagtap  after considering the contentions of both the parties held that the educational qualifications of the list of employees, guidelines annexed to the registration Certificate and other documents indicated that the assessee was performing functions of ‘Call Centre’. Further, no part of the marketing services were rendered or performed in India and in no manner involved provision of ‘technical service’ but the fees paid was confined only for the provision of BPO services.

The Tribunal was hence of the view that the authorities referred were incorrect in holding that the assessee had an obligation to deduct tax before making payment to foreign parties. The Tribunal further dismissed the appeal filed by the revenue upholding the grounds as were raised by the assessee company.