SPAHI PROJECTS PRIVATE LTD. Vs. CIT-CENTRAL-III

JUDGEMENT

(1.) THE applicant which is an Indian Company and is engaged in the business of manufacture and supply of industrial pesticides has filed this application for advance ruling seeking determination of the non -resident's tax liability under the Income -tax Act in connection with the proposed transactions with the non -resident Company by name Zaikog Trading Co. (hereafter referred to as 'Zaikog') is a company incorporated in the Republic of South Africa and it is in the business of promotion and distribution of various products. Zaikog has offered its services to promote and market the product known as 'Imida Chloprid formulation for termite control'. For the services rendered by it, Zaikog will receive from the applicant a commission of 3 per cent or a mutually agreed percentage on every completed transaction. In the application, it is broadly stated that the role of Zaikog is to communicate the details of the interested parties to the applicant who will pursue the proposal for confirmed orders. Such confirmed orders will be executed directly by the applicant. The sale consideration will be received in India by the applicant. The amount of commission payable to Zaikog is paid from India by the applicant. The applicant submits that Zaikog renders all services outside India i.e., in South Africa and no services of whatsoever nature are performed in India and Zaikog does not maintain any establishment in India. As the income received by Zaikog is business income, it is contended that the same cannot be taxed under the Income -tax Act, 1961 in the absence of business connection and permanent establishment in India. At the time of arguments, the learned counsel for the applicant has clarified that the business transactions between the applicant and the Zaikog have not yet started. It is further stated that Zaikog offers to tax the income received on account of the transactions with the applicant as its business income in South Africa. In a note furnished by the applicant's counsel at the time of hearing, the role and responsibilities of Zaikog have been described to be : (i) to procure orders from different buyers, (ii) to negotiate price and other terms and intimate the same to the applicant, (iii) to re -negotiate the terms/price if necessary, based on the instructions of the applicant, (iv) follow up in getting purchase orders from customers and forward the same to the applicant, (v) follow up regarding LC opening, shipment and payment, (vi) attending to queries in regard to shipment.

(2.) IT is stated that Zaikog raises a debit note for commission at the agreed rate and the amount is credited to Zaikog's bank account in South Africa. The counsel for the applicant has clarified more than once that Zaikog has no authority to conclude the contracts so as to bind the applicant and it cannot take any independent decision without reference to the applicant. Its main duty is to canvas for orders, liaisoning with the customers and the applicant and to keep track of the shipments and payments to be made by the African customers to the applicant. It is further clarified that the purchase orders collected by the agent do not become effective unless and until confirmed by the applicant.

(3.) ON the facts and circumstances of the case whether there is any liability for Zaikog to file a return of income in India?