Case Number: ITA 434/DEL/2019
Appellant: Springer Verlag GmbH, New Delhi
Respondent: DCIT, Circle-3(1)(2), International Taxation, New Delhi
Assessment Year: 2014-15
Case Filed On: 2019-01-21
Order Type: Final Tribunal Order
Date of Order: 2022-08-23
Pronounced On: 2022-08-23
Springer Verlag GmbH, a company incorporated under German laws and a tax resident of Germany, engaged in the business of publishing books and journals in research, education, and professional fields, entered into a Commissionaire Agreement with Springer Nature India Pvt. Ltd. (SNIPL) on 02.01.2013. Under this agreement, Springer Verlag GmbH was appointed as a non-exclusive sales representative globally to promote, grant, and distribute SNIPL’s products.
The case was heard by the Delhi ‘D’ Bench of the Income Tax Appellate Tribunal (ITAT) through video conferencing, with Shri N.K. Billaiya, Accountant Member, and Shri N.K. Choudhry, Judicial Member, presiding. The appellant was represented by Shri Himanshu Sinha, Adv., Shri Bhuvan Dhoopar, Adv., and Shri Vibhu Gupta, Adv., while the respondent was represented by Shri Sanjay Kumar, Sr. DR.
The common grievance in the appeals was the classification of commission income received by Springer Verlag GmbH from SNIPL as Fee for Technical Services (FTS) under Article 12 of the India-Germany DTAA by the CIT(A), which the Assessing Officer had earlier treated as royalty.
The key issues raised in this appeal included:
The Tribunal observed that the services provided by Springer Verlag GmbH included customer service, order handling, address maintenance, invoicing, delivery (both physical and online), debtor management services, contract management, processing of complementary copies, and translated published copies. The Assessing Officer had initially treated the commission income as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and the DTAA with Germany, concluding the assessment by treating it as royalty taxable at 10% under the India-Germany DTAA.
However, the CIT(A) reclassified the commission income as FTS under the India-Germany DTAA, holding that the services rendered by Springer Verlag GmbH were managerial in nature and thus taxable as FTS.
The Tribunal relied on various judicial precedents to analyze whether the services provided could be classified as FTS. The Hon’ble Delhi High Court in the case of Panalfa Autoelektrik Ltd. and the Authority for Advance Rulings in Intertek Testing Services India [P] Ltd. provided relevant insights into the classification of managerial, technical, and consultancy services.
The Tribunal noted that managerial services involve the application of knowledge, skill, or expertise in the control or administration of a commercial enterprise. It emphasized that mere support services without substantial managerial functions do not qualify as managerial services.
The Tribunal concluded that the commission received by Springer Verlag GmbH from SNIPL for services under the Commissionaire Agreement did not qualify as FTS. The Tribunal found that the services provided were in the nature of support services and not managerial services. Consequently, the commission income should not be treated as FTS under the India-Germany DTAA.
The Tribunal set aside the findings of the CIT(A) and directed the Assessing Officer to delete the impugned addition, thereby allowing the appeals filed by Springer Verlag GmbH.
This case highlights the importance of accurately classifying income under international tax treaties. The distinction between FTS and other types of income, such as royalty or business income, can significantly impact the tax liability of non-resident entities.
The outcome of this case sets a precedent for similar cases involving the classification of commission income under international tax treaties. It underscores the need for careful consideration of the nature of services provided and the definitions under the applicable DTAA.
For more information on similar cases and legal precedents, visit the official website of the Income Tax Appellate Tribunal of India.
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