Payment for Services provided by Marketing Partner to the assessee in software business amounts to FTS: ITAT

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Payment for Services provided by Marketing Partner to the assessee in software business amounts to FTS: ITAT

 

M/s.Sunsmart Technologies Pvt. Ltd. (ITA No.2791/Chny/2019)

Facts:

  1. The assessee company had entered into marketing agreement with M/s.SSG Technologies, LLC, Dubai, for marketing its product in middle east Asian countries.
  1. As per the terms of the agreement between the parties, the assessee authorized its partner to market, promote and distribute the products to the customers and also provide sales support services only in accordance with the assessee’s policies and procedures.
  1. The agreement further specifies that the assessee will train the partner resources for carrying out pre-sale activity and also implementation and support services.
  1. As per the AO, the scope of agreement between the parties definitely services rendered by marketing partner comes under Fees for Technical Services (FTS), because, in order to give pre-sale and post-sale services to product, the partner requires expertise in products manufactured by the assessee. Therefore, the AO disallowed the said expenditure.
  1. The assessee maintained that the marketing expenses were nothing but a commission paid outside India and further, said services is a simpliciter marketing services, do not come under FTS as per Explanation-2 to Sec.9(1)(vii) of the Income Tax Act.

ITAT Chennai held as below:

  1. The scope of agreement clearly specifies the nature of services to be rendered by marketing partner and as per said agreement, the assessee will train the resources of marketing partner to provide pre-sale and after sale product services to the customers. Since, the assessee is in the business of providing software solutions and services to various industries, in our considered view, said services definitely requires technical expertise and knowledge.
  1. Therefore, the the AO has rightly held that services rendered by marketing partner in terms of agreement between the assessee and M/s.SSG Technologies, LLC, comes under FTS as per Explanation-2 to Sec.9(1)(vii) and so TDS ought to have been deducted U/S 195.
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