In ITA 306/2023 -DEL HC- Delhi High Court upholds ITAT’s decision, says no special skills or knowledge required for services under commissionaire agreement between Springer Nature Customer Services Centre GMBH & Springer India
Justice Rajiv Shakdher & Justice Girish Kathpalia [12-07-2023]

Read Order: The Commissioner of Income Tax V. Springer Nature Customer Services Centre GMBH (Earlier known as Springer Customers Centre GMBH)

Chahat Varma

New Delhi, July 18, 2023:  The Delhi High Court has upheld the decision of the Income Tax Appellate Tribunal (ITAT) regarding the deletion of an addition of Rs. 22,89,835 made to the income of Springer Nature Customer Services Centre GMBH (formerly known as Springer Customers Centre GMBH), the respondent/assessee. The addition was related to a commission fee received by the respondent/assessee from Springer India Pvt. Ltd. (SIPL) under a Commissionaire Agreement. The High Court 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 present case involved an appeal against the order passed by the ITAT. The ITAT had partly allowed the appeal filed by the respondent/assessee. The Assessing Officer (AO) had made several additions to the income of the respondent/assessee. The first addition consisted of an amount paid by SIPL to the respondent/assessee under a Commissionaire Agreement, which 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 respondent/assessee for e-journals from Informatics Publishing Private Ltd. and ZS Associates. The AO treated these 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) [CIT (A)] 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 royalty. The Tribunal, in its order, deleted the first component of the first addition, which was confirmed by the CIT(A). Regarding the second addition, the Tribunal accepted the objection raised by the respondent/assessee that the subscription fee could not be treated as royalty.

The division bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the Commissionaire Agreement between the respondent/assessee and SIPL did not indicate any requirement for the respondent to perform executive or supervisory functions, such as discovering, developing, or defining goals, or formulating and implementing policies. The respondent/assessee’s role was limited to providing support to business operations. The bench observed that ‘Technical services’ typically involved applied and industrial sciences or craftsmanship, requiring specialized skills or knowledge, excluding fields like art or human sciences. Likewise, ‘Consultancy services’, involved providing 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, as well as the support services mentioned in Article 3 of the Agreement, did not fall within the category of technical or consultancy services. The respondent/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.

The bench further expressed its opinion that the argument that the subscription fee should be treated as FTS cannot be accepted since it was not the position taken by the appellant/revenue before the Tribunal. The bench criticized this change in stance as a flip-flop that should be avoided. Furthermore, the bench opined that the subscription amount cannot be considered as royalty because there was no evidence to suggest that the respondent/assessee granted copyright rights to the subscribers of the e-journals. The respondent/assessee only sold copyrighted publications without conferring any copyright ownership. The bench agreed with the Tribunal's decision to delete the addition made under this category, considering the judgment of the Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. The Commissioner of Income Tax & Anr [LQ/SC/2021/152].