Sum paid to NR to identify potential customers and to conduct market survey abroad held taxable as FTS

Payment made to a foreign company for marketing survey and identifying potential foreign customers for assessee's product was only for consultancy services and it was taxable in India as FTS

Facts:

a) The assessee engaged a foreign company ‘SR’ as marketing agent for South East Asian countries;

b) SR had to study the market situation in South East Asia for the products manufactured by the assessee and it had to market the products of the assessee in those countries;

c) The CIT(A) found that payment made to SR was consultancy charge, therefore, tax had to be deducted. Accordingly, it confirmed the disallowance made by the Assessing Officer. Aggrieved-assessee filed the instant appeal.   

The Tribunal held in favour of revenue as under:

1) The work of SR was to identify the potential customers and file a report regarding the market strategy and developmental studies;

2) The agreement did not enable SR to market the products of the assessee in South East Asian countries. The company SR only had to do survey and file a report so that the assessee could market its products after considering the report filed by the foreign party;

3) Therefore, the payment made to SR was only consultancy charge. It was not a case of marketing the products in the foreign country. The CIT
(A) had rightly confirmed the order of the Assessing Officer. Thus, the order of the lower authority holding assessee liable for TDS was to be confirmed - English Indian Clays Ltd. v. ACIT [2013] 39 taxmann.com 50 (Cochin - Trib.)