2022 (1) TMI 1290 - AT - Income Tax

Tribunal rules for assessee, deletes additions by AO, removes surcharge & cess. Excessive interest & penalty dismissed.

Expeditors International of Washington Inc. Versus ACIT (International Taxation) Circle-1 (2) (2), DCIT, (International Taxation) Circle-1 (2) (2), New Delhi.

The Tribunal ruled in favor of the assessee in all aspects of the case, directing the deletion of additions made by the Assessing Officer regarding fee ... Income accrued or arised from the business connection in India - Fee for freight/logistic support services - Whether was in the nature of fee for technical services/fee for included services - HELD THAT:- As decided in assessee own case for Assessment Year 2010-11 [2020 (10) TMI 654 - ITAT DELHI] 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 provisions of Section 9(1)(i) are not attracted in this case as no income has accrued or arised 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. Thus, the payment received by the assessee neither falls under Section 9(1)(i) or Section 9(1)(vii). Reimbursement of Global Account Management (“GAM”) charges treating the same in the nature for fee for technical services/fee for included services - HELD THAT:- Revenue has not disputed the fact that the Co-ordinate Bench for Assessment Year 2010-11 [2020 (10) TMI 654 - ITAT DELHI] held that 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 provisions of Section 9(1)(i) are not attracted in this case as no income has accrued or arised 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. Thus, the payment received by the assessee neither falls under Section 9(1)(i) or Section 9(1)(vii). Disallowance of reimbursement of lease line charges holding that the amount is in the nature of royalty - HELD THAT:- As in assessment Year 2004-05 in the assessee’s own case wherein the issue was decided in favour of the assessee by the Co-ordinate Bench of Tribunal. Levying surcharge and education cess - Addition u/s 40(a)(ia) - HELD THAT:- As relying on Sesa Goa case [2020 (3) TMI 347 - BOMBAY HIGH COURT]. we find that the legislature, in Section 40(a)(ii) has provided that “any rate or tax levied” on “profits and gains of business or profession” shall not be deducted in computing the income chargeable under the head “profits and gains of business or profession”. There is no reference to any “cess”. Obviously therefore, there is no scope to accept Ms. Linhares's contention that “cess” being in the nature of a “Tax” is equally not deductable in computing the income chargeable under the head “profits and gains of business or profession”. Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii). - Decided in favour of assessee. Issues Involved:1. Nature of fee for freight/logistic support services.2. Nature of reimbursement of Global Account Management (GAM) charges.3. Nature of reimbursement of lease line charges.4. Levying surcharge and education cess.5. Levying excessive interest under sections 234B and 234C.6. Initiation of penalty proceedings under section 271(1)(c).Detailed Analysis:1. Nature of Fee for Freight/Logistic Support Services:The assessee contested the addition of INR 2,75,31,32,292 as fee for freight/logistic support services, arguing it was not in the nature of fee for technical services. The Tribunal referenced previous decisions for Assessment Years 2010-11 and 2011-12, which held that the services rendered by the assessee did not fall within the purview of managerial, consultancy, or technical services. The Tribunal reiterated that the payment for freight and logistics cannot be treated as technical services, and thus, directed the Assessing Officer to delete the addition.2. Nature of Reimbursement of Global Account Management (GAM) Charges:The assessee challenged the addition of INR 3,09,85,415 as GAM charges, arguing it was not fee for technical services. The Tribunal referred to its previous decisions, noting that the activities mentioned by the assessee did not fall within the purview of managerial, consultancy, or technical services. It was found that the GAM charges were purely logistic support services and did not require any managerial or technical expertise. Consequently, the Tribunal directed the deletion of this addition as well.3. Nature of Reimbursement of Lease Line Charges:The assessee disputed the addition of INR 1,20,59,744 as lease line charges, which were treated as royalty. The Tribunal cited earlier decisions, including those upheld by the Hon'ble Delhi High Court, which found that such expenses could not be treated as royalty. The Tribunal maintained a consistent view and directed the deletion of this addition.4. Levying Surcharge and Education Cess:The assessee argued against the levy of surcharge and education cess, asserting that the tax rate under the India-USA DTAA is all-inclusive. The Tribunal referenced the decision of the Hon'ble High Court of Bombay at Panaji in the case of Sesa Goa, which clarified that 'cess' was not included in 'any rate or tax levied' under Section 40(a)(ii) of the IT Act. The Tribunal directed the deletion of the surcharge and education cess.5. Levying Excessive Interest under Sections 234B and 234C:The assessee contended that the interest levied under sections 234B and 234C was excessive and should be calculated only on the returned income, not on the assessed income. The Tribunal found these grounds to be consequential and dismissed them.6. Initiation of Penalty Proceedings under Section 271(1)(c):The assessee challenged the initiation of penalty proceedings under section 271(1)(c), arguing that it was done mechanically without recording adequate satisfaction. The Tribunal held that this ground was premature and dismissed it.Conclusion:In all appeals, the Tribunal consistently allowed the grounds raised by the assessee regarding the nature of services and reimbursements, directing the deletion of additions made by the Assessing Officer. The Tribunal also directed the deletion of surcharge and education cess, while dismissing the grounds related to excessive interest and premature penalty proceedings. All appeals of the assessee were partly allowed.