The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that the Cost allocation of international freight logistic support services and reimbursement of Global Account Management (GAM) expenses can not be treated as Technical Services or Fee for Included Services (FIS).
The assessee, M/s Expeditors International of Washington is 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.
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.
The entire dispute centers around the taxability of the amount received by the assessee from Expeditors International in respect of services performed outside India on the export consignments of Expeditors International originating from India.
The primary question which arises for consideration 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).
The assessee submits that the Transfer Pricing officer (TPO) has already accepted the logistics operations at arm’s length price and no adverse observation has been given by him.
The assessee also said that no disallowance has been made with respect to freight logistics transactions in the scrutiny assessment proceedings of El India in any of the previous years.
The two-member bench headed by the Vice President Sushma Chowla held 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.
The tribunal further observed that the provisions of Section 9(1)(i) are not attracted in this case as no income has accrued or arise from the business connection abroad in India. The explanation states that only that part of income from business operations can be said to be accruing or arising in India only if it is relatable to the carrying of operations in India.
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