9911796707
TMI Blog2020 (10) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... headquartered in Seattle, Washington, and is engaged in the business of providing global logistics services worldwide. The Company carries out operations in various segments such as airfreight, ocean freight & ocean services, customs brokerage and import services. The nature of services primarily includes consolidation or forwarding of air and ocean freight. Additionally these services include distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information. These operations are rendered by the assessee from outside India. Logistics Operations: 5. During AY 2010-11, the assessee entered into logistics transactions with Expediters International (India) Private Limited ('EI India') which is its Associated Enterprise. The Indian leg of the logistics contrary with me customers is handled by EI India from the customers premises to the Indian port of airport, while the assessee typically handles similar services at the other end of the consignment for the USA region and vice-versa. The contract is entered into between El and the customer i.e. at the consignor's end in the case of export of consignment from India to overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) 246,183,805 2. Fee for Included Services Share in logistics operations 1,653,922,311 Reimbursement of GAM expenses 20,875,810 1,684,798,121 Total taxable income 1,930,981,930 12. Issue-1: Whether in the facts of the case, the AO is- right in assessing the cost al location of international freight logistic support services and reimbursement of Global Account Management ('GAM') expenses as Technical Services / Fee for Included Services ('FIS') as per the provisions of section 9(1)(vii) of the Act. Briefly stated the facts of the case are that the assessee, a foreign company incorporated under the laws of USA, is engaged in the business of the provision of freight and forwarding and logistics services. The assessee company agreed with Expeditors International an Indian Company for providing the freight and logistics services to each other. Each party agreed to render services to the other in respect of import and export of consignments. It is observed that Import consignments are those which originate outside India and are to be delivered in India. The services in origin of foreign country broadly comprise of overseas local pick, overseas ground transpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices such as transport, procurement, customs clearance, sorting, delivery, warehousing and pick up services. The primary question which arises for consideration of is as to whether the payment in respect of these services can be held as 'fees for technical services' within the meaning of section 9(1)(vii). The expression fees for technical services" has been defined in Explanation 2 to section 9(1)(vii) as under:- fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient changeable under the head 'Salaries". 14. A bare perusal of the above quoted provision indicates that the "fees for technical services" means any consideration for rendering of any "managerial, technical or consultancy services" but does not include the consideration for any construction, assembly etc. The Assessing Officer has held the services rendered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argo airplane or ship for transportation purposes in USA; ii. Obtaining customs clearance at the airport/port; iii. Nominating Customs Housing Agent (CHA) for import of goods at the custom station; iv. Warehousing of goods (if required) till the time the necessary customs -clearances are obtained; v. Transportation of goods to the ultimate consumer in USA; 19. In line with worldwide acceptable standards in the logistics industry and the group's policy, the income from freight logistics operations represents gross income less costs for the actual transportation expense paid to third parties and other direct costs such as third party fees, commission, allowance, discount, delivery costs, cost of carrier's liability insurance, gateway costs, terminal fee etc. for the services provided at the origin. Thereafter, the residual profits is then shared equally (i.e. 50/50 between assessee and El India) in respect of the import and export of international cargo. 20. The assessee undertakes the logistics operations with respect to the consignment in the USA and no part of the operations or business was carried out by the assessee in India. 21. Further, the assessee places reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural that some sort of application of mind is required in each and every aspect of the work done. As in the above example when the worker will lift the goods, he is expected to be vigilant in picking up the goods moving towards the carrier and then placing them. This act of the worker cannot be described as managing the goods because he simply followed the direction given to him. On the other hand, 'managing' encompasses not only the simple execution of a work, but also certain other aspects, such as planning for the way in which the execution is to be done coupled with the overall responsibility in a larger sense. Thus it is manifest that the word 'managing' is wider in scope than the word 'executing'. Rather the later is embedded in the former and not vice versa. Adverting to the facts of the instant case, it is observed that the taxpayer performed the freight and logistics services outside India in respect of consignments originating, from India undertaken to be delivered by Expeditors International . The role of the taxpayer in the entire transaction was to perform only the destination services outside India by unloading and- loading of consignment, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'business structure is time bound service coupled with continuous real time transmission of information by using and also making available advanced technology in the form of sophisticated equipment and software. He was swayed by the contention of the taxpayer that the Expeditors International or the ultimate customer could track the movement of cargo with the help of computers. The Panel noted that the consideration received by the taxpayer did not include any consideration for the supply of any equipment to Expeditors International . Now the Panel will examine as to whether the use of computer in any manner for knowing the location of the cargo at a particular time, can be held as technical service. Explanation to section 9(1)(vii) defines the expression "fees for technical services" as consideration for rendering 'managerial , technical or consultancy services' . It is seen that there is no definition of the term "technical services" in the Act. The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. This rule is wider in scope than the rule of ejusdem generis. In order to discover the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax shall be charged on the total income of any taxpayer of the previous year for any assessment year at the rates in accordance with and subject to the provisions of this Act. Scope of total income of any person has been enshrined in section 5. The taxpayer in question is a non-resident company. Section 5(2) mandates that the total income of a non-resident includes the income from whatever source derived which is received or is deemed to be received in India; or accrues or arises or is deemed to accrue or arise in India. The only possibility of the receipt by the assessee in the present facts and circumstances qualifying for inclusion in the total income, can be under section 9. The Panel has observed that section 9(1)(vii) is not applicable. Now let us examine the prescription of section 9(1)(i) which deals with the income accruing or arising from any business connection in India. It provides that where an income accrues or arises whether directly or indirectly through or from any business connection in India etc., it shall be deemed to accrue or arise in India. Explanation 1(a) states that in the case of a business of which all operations are not carried out in India, the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the operations50 carried out in India ; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ; [* * *] [(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the col lection of news and views in India for transmission out of India ;] [(d) in the case of a non-resident, being- (1) an individual who is not a citizen of India ; or (2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or (3) a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual , firm or company through or from operations which are confined to the shooting of any cinematograph film in India;] [(e) in the case of a foreign company engaged in the business of mining of diamonds, no inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a shall constitute "business connection" in India and "significant economic presence" for this purpose, shall mean- (a) transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or (b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means: Provided that the transactions or activities shall constitute significant economic presence in India, whether or not,- (i) the agreement for such transactions or activities is entered in India; or (ii) the non-resident has a residence or place of business in India; or (iii) the non-resident renders services in India: Provided further that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India.] Following Explanation 2A shall be inserted in clause (i) of sub-section (1) of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April , 2015:] [Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 61a[prior to their repeal], made under the Securities and Exchange Board of India Act, 1992 (15 of 1992):] [Provided also that nothing contained in this Explanation shall apply to an asset or a capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992).] [Explanation 6.-For the purposes of this clause, i t is hereby declared that- (a) the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India, referred to in the Explanation 5,- (i) if such company or entity directly owns the assets situated in India and the transfer or (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or (ii) if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly; (b) "permanent establishment" shall have the meaning assigned to it in clause (iiia) of section 92F;] (vi) income by way of royalty 67 payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the royal ty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model , design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of , a patent, invention, model , design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial , commercial or scientific knowledge, experience or skill ; [(iva) the use or right to use any industrial , commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of alicence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made before the 1st day of April , 1976, and approved by the Central Government.] [Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April , 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation [2].-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient78 or consideration which would be income of the recipient chargeable under the head "Salaries";]" 28. Thus, on going through the provisions of the Act, facts of the case, business operations of the assessee, we hold that the services rendered by the assessee do not fall within the purview of managerial , consultancy or technical services. The payment for freight and logistics cannot be treated as technical services. Similarly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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