Delhi High Court upholds ITAT’s decision on services under commissionaire agreement between Springer Nature & Springer India

Delhi High Court upholds ITAT’s decision on services under commissionaire agreement between Springer Nature & Springer India

Criticizes the change in stance as a flip-flop that should be avoided

The Delhi High Court has upheld the decision of the Income Tax Appellate Tribunal (ITAT) on the deletion of an addition of Rs.22,89,835 made to the income of Springer Nature Customer Services Centre GMBH (formerly Springer Customers Centre GMBH), the assessee.

The addition was related to a commission fee received by the assessee from Springer India Pvt. Ltd. (SIPL) under a Commissionaire Agreement.

The division bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia stated that it would not interfere with the tribunal's decision, as there was no evidence to suggest that the respondent provided technical or consultancy services.

The case involved the assessees’ appeal against the order passed by the ITAT, which partly allowed the appeal. The assessing officer (AO) had made several additions to the income of the assessee.

•The first addition included an amount paid by SIPL to the assessee under a Commissionaire Agreement. It included a commission fee and service charges for the sale of Indian journals in printed form.

• The second addition was the subscription fees received by the assessee for e-journals from Informatics Publishing Private Ltd. and ZS Associates.

The AO treated the additions as royalty and invoked the provisions of Section 9(1)(vi) of the Income Tax Act and Article 12 of the India-Germany Double Taxation Avoidance Agreement (DTAA).

The Commissioner of Income Tax (Appeals) partly allowed the appeal, deleting the second component of the first addition categorized as service charges for the sale of Indian journals in printed form. The CIT(A) categorized the first component of the first addition as a fee for technical services (FTS) instead of a royalty.

However, in its order, ITAT deleted the first component of the first addition, which was confirmed by CIT(A). Regarding the second addition, the tribunal accepted the objection raised by the assessee that the subscription fee could not be treated as royalty.

Justice Shakdher and Justice Kathpalia observed that the Commissionaire Agreement between the assessee and SIPL did not indicate any requirement for the respondent to perform executive or supervisory functions. These included discovering, developing, or defining goals, or formulating and implementing policies. The assessee’s role was limited to providing support to business operations.

The Court observed that ‘technical services’ typically involved applied and industrial sciences or craftsmanship, requiring specialized skills or knowledge, excluding fields like art or human sciences. Similarly, ‘consultancy services’ provided professional advice or services in a specialized field. However, there was no mention of any special skills or knowledge possessed by the respondent's personnel in providing the services mentioned in the Commissionaire Agreement.

The promotion, sale, and distribution of SIPL's publications, and the support services mentioned in Article 3 of the Agreement, did not come under technical or consultancy services. The assessee did not provide professional advice or services in a specialized field.

The bench held that to be categorized as a technical service, it should be related to applied science or industrial science. It stated that the argument that subscription fees should be treated as FTS cannot be accepted since it was not the position taken by the appellant before the tribunal.

The Court criticized the change in stance as a flip-flop that should be avoided. It stated that the subscription amount could not be considered as royalty because there was no evidence to suggest that the assessee granted copyright rights to the subscribers of the e-journals. The assessee only sold copyrighted publications without conferring any copyright ownership.

Citing the judgment of the Supreme Court in the Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr case, the Judges agreed with the decision of the tribunal to delete the addition made under that category.