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TMI Blog2024 (5) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax at source on shipment clearing and forwarding charges. 2. That the appellant craves leave to add, amend, alter or forego any ground/(s) of appeal either before or at the time of hearing of the appeal." 3. Briefly stated facts of the case are that the assessee filed its return of income on 30.11.2017, declaring total income at INR 49,03,960/-. The case was selected for scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961 ("the Act") was framed vide order dated 26.12.2019. The Assessing Officer ("AO") while framing the assessment, noticed that the assessee had claimed an amount of INR 89,42,83,355/- towards shipment clearing and forwarding expenses. It was noticed that out of these amount, an amount of INR 33,49,56,683/- was paid overseas on which no tax was deducted by the assessee. Therefore, the AO called upon the assessee to explain as to why it failed to deduct tax in terms of section 195 of the Act. In response to the show cause notice, the assessee filed its response, stating that the amount cannot be subjected to deduction of tax. However, the AO did not accept the explanation of the assessee and proceeded to make disallowance u/s 40(a)(i) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee, Shri Salil Kapoor, opposed these submissions and supported the decision of Ld.CIT(A). He submitted that the AO mis-directed himself and did not appreciate the facts in right perspective. He submitted that the entire services were rendered outside India. The payments for such services were made outside India. Therefore, the income did not arise or accrue in India, which has rightly been held by Ld.CIT(A). He submitted that if the payments were made for the services rendered outside India then how can the assessee be made liable for withholding tax. There is no provision under the Act that would mandate the assessee for deduction of tax under the facts and circumstances of the present case. Ld. Counsel for the assessee reiterated the contents of written submission and contended that even otherwise also, the issue regarding taxability of freight forwarding charges is covered in favour of the assessee by a series of decisions of Co-ordinate Benches of this Tribunal. For the sake of clarity, the relevant contents of the written submissions are reproduced as under:- * "LX Pantos India Private Limited ('Pantos India') is an Indian company engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come tax department has preferred an appeal before ITAT. Our Submissions Our stand and argument * It is humbly submitted that the overseas entities' scope of work was limited to providing logistic services overseas. These services involve pick-up of goods from overseas consignor and delivery to overseas carrier and vice-versa, stuffing/ lashing/ packing of goods and clearance of goods at customs. * These services are administrative in nature involving no professional skills or knowledge. Further, the overseas entities are responsible for mere execution of the deliveries and do not engage in any sort of planning or evaluation/testing of the goods and thus there was no requirement to deduct TDS. * The section 195 of the Act provides that every person, responsible for paying any sum (which is chargeable to tax in India) to a non-resident, is required to withhold taxes at the applicable rates in force, at the time of credit or payment, whichever is earlier. * In view of the above, only payments made to non-resident which are chargeable to tax in India are to be covered under this section for the purpose of withholding taxes. * The income of overseas entity does not ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract has cherry picked the said word without looking at its meaning in the context of the agreement. * AO, while alleging that the service provide are of 'consultancy nature', has selectively cherry- picked the following single clause mentioned in the 'Co-Operation Agreement'. AO has failed to read the same in context with the complete agreement, wherein scope of work has been defined separately. Further, AO has also wrongly interpreted the judicial precedents to conclude that the subject services of general business / administrative nature (involving no professional skills or knowledge) are of a 'consultancy nature'. * After a detailed consideration of the factual and the legal aspects involved, the CIT(A) has allowed our appeals. The CIT(A) in para 5 (5.1 to 5.11), pg. 36-41 has given a detailed finding in this regard. * We shall place reliance on below mentioned judicial precedents also referred before CIT(A): * Circular No. 715 dated 08/08/1995 issued by CBDT Question 6 of the said circular specifies that payment made to clearing and forwarding agent is covered for TDS under section 194C and accordingly cannot be considered as FTS. "Questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... * Linde A.G. v. ΙΤΟ [1997] 62 ITD 330 (Mum.) * Dy. DIT v. Samsung Engg. Co. Ltd. [2011] 43 SOT 38 (Mum.) (URO)." 9. We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. The Revenue by way of the present appeal has challenged the correctness of the order of Ld.CIT(A) who had deleted the impugned addition by holding that the assessee was not liable to deduct tax u/s 195 of the Act in respect of shipment clearing and forwarding expenses paid by it to overseas parties at different countries. It is pertinent to mention here that the case of AO in sum and substance is that as per one of the terms of contract, the assessee was provided information regarding tariff etc. prevalent in that country. The assessee was also informed about any change into tariff rates. Such information would have influenced the decision making process. Thus, such services fall under the category of fee for technical services. And under such facts, the assessee was required to deduct tax at source. On the other hand, case of the assessee is that section 195(1)of the Act states that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal services means any consideration for rendering of any managerial, technical and consultancy services but does not include the consideration for any construction, assembly etc. The AO has held the services rendered by the non resident payee parties as fee for technical services coming within the sweep of consultancy services. On the contrary, the contention of the assessee is that such services do not fall within the ambit of any of the categories as envisages u/s.9 (1)(vii) of I.T.Act. 5.3 In order to appreciate the nature of services more elaborately, it is relevant to consider the terms of the agreement entered into between the assessee and Pantos Logistics (S) Co.Ltd. The scope of services has been given in clause 1.1, wherein it is provided that the non-resident party has to perform logistic services viz. handling of air and sea freight shipments in China. In the present appeal, I am concerned with the international services provided to the assessee company. These services comprise of transport, procurement etc. on behalf of the assessee. 5.4 First I will consider the ambit of 'managerial services' to test whether the instant services can qualify to be so called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties in the entire transaction was to perform only the destination services outside India by unloading and loading of consignment, custom clearance and transportation to the ultimate customer. In my considered opinion, it is too much to categorize such restricted services as managerial services. 5.6 Now I take up the next component of the definition of "fees for technical services", being consultancy services', which has been pressed into service by the AO to fortify his view that the amount paid by the assessee is covered within section 9(1)(vii). The word "consultancy" means giving some sort of consultation de hors the performance or the execution of any work. It is only when some consideration is given for rendering some advice or opinion etc., that the same falls within the scope of "consultancy services". The word 'consultancy' excludes actual execution'. The nature of services, being freight and logistics services provided by the parties to the assessee has not been disputed by the A.O. There is nothing like giving any consultation worth the name. Rather such payment is wholly and exclusively for the execution in the shape of transport, procurement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acterized as using 'technical services'. 5.9. Thus it can be noticed that the payment made to overseas parties in question is not a consideration for managerial or technical or consultancy services. That being the position, it cannot fall within the ambit of section 9(1)(vii) of I.T. Act. 5.10 Section 4 provides that the income tax shall be charged on the total income of any assessee 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. 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 overseas parties in the present facts and circumstances qualifying for inclusion in the total income, can be under section 9. I have observed that section 9(1)(vii) is not applicable. Now let me examine the prescription of section 9(1)(i) which deals with the income accruing or arising from any business connection in India. It provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the overseas parties on change into tariff ratio etc. The AO tried to find support from one of terms of the Contract executed between the assessee and non-resident. We find merit into the contention of the assessee, such advise would not partake character of rendering consultancy service. Merely, providing information of such nature in our considered view would not be sufficient for treating the entire services as managerial or consultancy services. If the view of the AO is accepted then any information received by the assessee from non-residents during the coruse of business would be treated as rendition of consultancy services by the non-resident. Looking to the context of providing information, it cannot be deduced such information was provided for consultancy. Under the identical facts, Coordinate Bench of this Tribunal in the case of ACIT vs M/s. Indiar Carriers Pvt.Ltd. in ITA No. 1605/Del/2010 [Assessment Year 2006-07] vide order dated 13.05.2011 held as under:- 5.1. "We have heard both the parties. There is no dispute about the fact that the assessee had made payment to UTI Network, Inc, outside India against freight forwarding functions. The income by way of freight forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 40(a)(i) can be invoked. This proposition of law has been approved by the Hon'ble Supreme Court in the case of GE India Technology Centre (P) Vs. CIT dated 09.09.2010. Since the payment of Rs. 3,22,042/- is not chargeable to tax in India under section 9(1)(vii) read with section 195 of the Act, provisions of section 40 (a) (i) will not be applicable. Accordingly, we do not find any infirmity in the order of the ld. CIT (A) deleting the addition." 11. In the light of binding precedent (supra), we do not see any infirmity into the decision of Ld.CIT(A) holding "Since the income cannot be described as deemed to accrue or arise in India and there is no doubt about such income having not been received as deemed to be received as accruing or arising in India, the taxability of such income fails." The Revenue has not rebutted this finding of Ld.CIT(A) by bringing any contrary material on record. The Revenue has also not brought to our notice any other contrary binding precedent applicable on the facts of the present case. We therefore, do not see any error in the finding of Ld.CIT(A), same is hereby affirmed. The grounds raised by the Revenue are devoid of any m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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