Sales promotion and marketing activity cannot be construed as ‘fees for technical service’ – AAR


OXFORD UNIVERSITY PRESS (AAR No.1110 of 2011)

Background

The assessee (applicant) is engaged in publishing, printing and reprinting of educational books for schools, Universities, Professional and other educational institutions or scholarly books. The applicant has appointed Ms Geetha Kumararaja, a resident of Colombo, Sri Lanka as a marketing executive that involves promotion of sale of books published by the applicant. The question before the AAR was whether the remuneration received by Ms Geetha was chargeable to tax in India and consequently, whether the payment should be subjected to tax deduction under the income tax Act. 

Applicant’s contentions:

  • No managerial, technical or consultancy services are involved in her work and, therefore, provision of section 9(1)(vii) of the Act are not applicable.
  •  Ms Geetha is also entitled to claim the benefit of Article 14 of the DTAA in respect of income derived from her professional services and activities of an independent character. As per Article 14 of the India-Sri Lanka DTAA, her income is taxable only in the country in which she was rendering the services as a resident in Sri Lanka. 
  • Being resident of Sri Lanka and non-resident the remuneration received by her is not taxable in India both under section 5(2) and section 9(1)(vii) of the Act and Article 14 of the DTAA of India-Sri Lanka DTAA.
HELD:
  • On examination of the details, we are of the view that the services rendered are basically for promotion of sales and brand name of the applicant in Sri Lanka. They are basically sales promotion.
  • The job description fits in more with a marketing executive than anything else. There is no definition of technical services in India-Sri Lanka Tax Treaty and, therefore, in order to examine whether the payment is fees for technical services, we have to resort to provisions of the Act. Fees for technical services is defined in explanation 2 to section 9(1)(vii) of the Act.
  • The services rendered by Ms Geetha do not fall under any of the items mentioned in the explanation namely, managerial, technical or consultancy services. The services rendered by her are, therefore, not technical services as defined in the Act
  • We agree with the learned counsel for the applicant that the payment made to Ms Geetha is not taxable either under the Act or the India-Sri Lanka Tax Treaty. We also find that the payments falls under Article 14 of the India-Sri Lanka Tax Treaty and even on that account the same is not taxable in India.

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