The Delhi High Court in case of DIT v Panalfa
Autoelektrik Ltd: 49 taxmann.com 412, held that export
commission for arranging export sales could not be considered as
consideration for providing managerial, consultancy or technical
services, and therefore would not be taxable in India.
In this case, the taxpayer made an application for remittance of
export commission to a foreign company, incorporated in
Liechenstein, which was engaged in procuring export orders for the
taxpayer outside India. The contention of the taxpayer was that the
payment was not in the nature of fees for technical services under
the domestic tax law and therefore no tax was required to be
deducted at source in India.
"Fees for technical services" are defined in the
domestic law to mean consideration for technical, managerial or
consultancy services. In this case, the Court elaborately discussed
the meaning of terms 'managerial', 'technical' and
Delineating the meaning of the term 'consultancy', the
Court observed that "consultant" is a derivative of the
word "consult" which entails deliberations,
consideration, conferring with someone, conferring about or upon a
matter. "Consult" has also been defined as "ask
advice for, seek counsel or a professional opinion from; refer to
(a source of information); seek permission or approval from for a
The Court went on to observe that the term
"managerial" relates to manager or management. Manager is
a person who manages an industry or business or who deals with
administration or a person who organizes other people's
activity [New Shorter Oxford Dictionary]. The Court further cited
with approval, the observations of the Supreme Court in R. Dalmia
v. CIT  106 ITR 895 wherein the apex court held that
"management" includes the act of managing by direction,
or regulation or superintendence. Thus, managerial service
essentially involved controlling, directing or administering the
The Court further went on to observe that "technical
services" consist of services of technical nature, when
special skills or knowledge relating to technical field are
required for their provision, and managerial services are rendered
for performing management functions and consultancy services relate
to provision of advice by someone having special qualification that
allow him to do so.
In the present case, the Court observed that the aforesaid
requisites and required necessities were not satisfied due to the
The foreign company was appointed as a commission agent for
sale of products within the territories specified and subject to
and in accordance with the terms set out, which the foreign company
accepted. The foreign company, therefore, was acting as an agent
for procuring orders and not rendering managerial advice or
Further, the taxpayer was legally bound with the foreign
company's representations and acts, only when there was a
written and signed authorization Thus, the taxpayer dictated and
directed the foreign company and it could not be said that the
foreign company was providing advise to the taxpayer.
The foreign company was certainly not providing any technical
services in the realm of technology to the taxpayer;
The Court thus held that the taxpayer was not required to deduct
tax at source while making payment of export commission to a
The above decision lays down important ratio of law since it has
not only distinguished some earlier rulings on the issue (Shell
ruling, Wallace Pharma case etc.), but has clearly delineated the
meaning of the terms 'technical', 'managerial' and
'consultancy' services, which would be relevant in
determining taxability of payment for various kinds of services
under different contracts. Multinational companies enter into
various arrangements with Indian companies, sometimes group
companies, where Indian companies are required to remit payments
for various kinds of back office, general management and support
services. This decision would be useful in determining taxability
of such payments in India.
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guide to the subject matter. Specialist advice should be sought
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