INCOME TAX ACT, 1961

Section 9(1)(vii)

Income deemed to accrue or arise in India - Under section 9(1)(vii) - Fee for technical services - Non-resident company engaged by assessee for rendering various services at the time of import, was only required to inspect quality of fabric

Assessee-company was a 100% export oriented undertaking engaged in business of manufacturing and export of garments. It was importing accessories from other countries and for the said purpose; it engaged a non-resident company to render various services at the time of import such as inspection of fabrics, timely dispatch of material, etc. Assessee paid 12.5% of the import value as charges to the said non- resident company. AO was of the view that that the said non-resident company was a service provider and was not an agent of the assessee and the services rendered by it would be treated as technical services covered under the scope and ambit of section 9(1)(vii). Since, the assessee failed to deduct tax at source on payment made to the non-resident therefore, the assessee was treated as an assessee in default. Held: From the agreement executed by the assessee with the non-resident company, it was evident that the non-resident company was required to inspect quality of fabric and other accessories in accordance with the sample approved by the assessee and coordinate with the suppliers to ship the goods within stipulated date. Further, the assessee in consultation with the exporters was identifying the manufacturers as well as the quality and price of the material to be imported and the non-resident company was nowhere involved either in identification of the exporter or in selecting the material and negotiating the price. Further, the quality of material was also determined by the assessee and the non-resident company was only required to make physical inspection to see if would resemble the quality specified by the assessee. For rendering the said services, no technical knowledge was required. Further, the non-resident company was also not rendering any consultancy service to the assessee. Therefore, the services provided by the non-resident company would not fall within the services contemplated under section 9(1)(vii) and hence, the assessee was not liable to deduct tax at source on payment made to such non-resident company.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2007-08

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