• Tue. Nov 29th, 2022

ITAT gives full credit of TDS as commission income is not a “management service” under India Germany DTAA

ByChad J. Johnson

Sep 28, 2022

The Income Tax Appeal Tribunal (ITAT), New Delhi Bench, granted full credit to TDS on the grounds that commission income is not a “management service” under the Agreement Indo-German Double Taxation Avoidance (DTAA).

The common grievance in both appeals relates to the treatment of commission income received by the assessee from Springer Nature India Private Limited (SNIPL) as Fees for Technical Services (FTS) under Section 12 of the India-Germany DTAA by the CIT(A) by changing the color of the revenue, which was treated as a royalty by the valuation agent.

The assessee, M/s Springer Verlag GmbH is a company incorporated under German law and is a tax resident of Germany and the assessee has entered into a commission agent agreement with SIPL. In accordance with the terms of the commissionaire agreement, the assessee provided services related to customer service, order processing, address management, invoicing, delivery, physical and online, management services debtors, contract management, processing of additional copies and translated published copies.

Upon careful valuation, the valuation agent has become satisfied that the entire receipt claimed as commission income is nothing but a taxable royalty under Section 9(1) ( vi) Income Tax Act 1961 and also under DTAA with Germany and concluded the assessment taking the same as Royalty @ 10% under India Germany DTAA. The CIT(A) was convinced by the challenge that the commission so received is not a royalty but changed the color of the assessment by treating the commission received as FTS in accordance with India Germany DTAA.

The bench consisting of Accountant Member NK Billaiya and Judicial Member NK Choudhry held that “Management services involve the management element of the service recipient’s business in a substantial way. In our view, the mere provision of support services does not qualify as management services. The engagement of third parties to receive support regarding the operational aspects of a business does not qualify as management services unless the service provider establishes policies or executes those policies in managing the recipient’s personnel. service. We find no merit in the findings of the CIT(A) in treating the commission as a “management service” under the India-Germany DTAA. »

In the question relating to the TDS, the Chamber observed that “we direct the assessment officer to examine the application in accordance with the provisions of the law and to authorize the full credit of the TDS after due verification” .

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M/s Springer Verlag GmbH v DCIT

Appellant’s Counsel: Shri Himanshu Sinha, Shri Bhuvan Dhoopar, Shri Vibhu Gupta

Counsel for the Respondent: Shri Sanjay Kumar