TDS on Patment

[Abhishek Sariya]

ABC Logistics Private Limited an IATA agent (querist) is engaged in the business of providing services and freight forwarding for import and export of goods on behalf of the shipper/consignee.

In order to carry out these activities, the querist enters into an agreement with Non Resident IATA agents whereby each party agree to carry out the related activity in their respective locations.

The freight collectible from the customer and that payable to the Airline is negotiated and determined. The difference between the two is being shared in agreed proportion between the querist and the Non Resident Agent at the conclusion of the transaction.

In case of Import into India, freight is to be collected from the importer, by the querist, and is to be remitted to the foreign agent.

In the case of export of goods from India, the Querist pays Freight amount locally to the airline and submits its bill on the Non Resident Agent in foreign currency for the freight, handling in India. Remittance for the same is received in foreign currency.

The remittances made to the Non Resident Agent are mainly on account of freight except in some cases it includes charges for handling consignments outside India.

The Querist while remitting the amount to Non Resident does not deduct any tax as the TDS provisions are not applicable to freight.

Non Resident IATA agent does not have any permanent place of business in India nor it carries out any business activity in India.

Issues/Questions:

A. Characterisation of Income:

a. What is the character of payment made by the querist to its Overseas Counterpart? Is it in the nature of Business Profits (Article 7) or Fees for Technical Services (FTS- Article 12)?

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b. Whether the querist is required to deduct TDS from payments being made to its overseas counterpart?

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c. Whether activities of the querist make it a dependant Agent of its Overseas counterpart under the Act or under the Applicable Tax treaty?

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d. If the remittance made overseas is liable to TDS, is it on the whole amount or only the element of share of profit of the overseas counterpart? Or can it be successfully contended that the whole amount is in nature of freight which is not liable to tax in India under Article 8?

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e. If the TDS provisions u/s 195 are attracted, what would be the rate of TDS

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AI Summary

Determining TDS on Payments to Non-Resident IATA Agents: Business Profits or Technical Fees? Tax Treaty Implications Explored. ABC Logistics Private Limited, an IATA agent, provides freight forwarding services for imports and exports. They partner with Non-Resident IATA agents, sharing profits from freight charges. The querist collects freight from importers in India and pays airlines locally for exports, receiving remittances in foreign currency. The query involves whether payments to the Non-Resident Agent are business profits or fees for technical services, the applicability of TDS deductions, and whether the querist acts as a dependent agent under tax treaties. Additionally, it questions whether TDS applies to the entire remittance or just the profit share and the applicable TDS rate.