TaxTMI 
TaxTMI 
2020 (10) TMI 654
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....en taken from the order of the ld. DRP. 4. The assessee is 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....
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....s Amount (in INR) 1. Returned income (Royal ty income as per return of income) 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 I....
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....ature of services for which the above referred amount has been paid to the assessee being, freight and logistics services 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 i....
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.... the import of goods to USA, the Following activities are undertaken by the assessee once the consignment reaches to the US airport/port: i. Unloading of goods from cargo 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....
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....nner, the act of the worker in placing the goods in the prescribed manner, cannot be described as managing the goods. It is a simple direction given to the worker who has to execute it in the way prescribed. It is quite natural 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 origi....
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.... also equal ly involved and to whom the taxpayer is committed to provide the requisite software and equipment. The Assessing Officer in reaching the conclusion that the taxpayer rendered 'technical services' also observed that its '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 "tec....
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..... Thus, it can be noticed that the payment made to the taxpayer 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). Section 4 provides that the income 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 whe....
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....situate in India. [Explanation 1].-For the purposes of this clause- (a) in the case of business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable 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 n....
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....d other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status. [Explanation 2A.-For the removal of doubts, it is hereby clarified that the significant economic presence of a non-resident in India 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,- ....
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....he removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:] [Provided that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a nonresident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred 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 (....
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.... entity, ceases to exist; (d) "specified date" means the- (i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or (ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent. Explanation 7.- For the purposes of this clause,- (a) no income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside 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 to....
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.... Government ; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, 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 interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India. [Explanation.-For the purposes of this clause,- (a) it is hereby declared that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head off ice or any permanent establishment 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 i....
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....; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 70[Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April , 1976. Explanation 2.-For the purposes of this clause, "royalty" means consideration (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....
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....udes and shall be deemed to have always included transmission by satellite (including up-l inking, amplification, conversion for down l inking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;] (vii) income by way of fees for technical services75 payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person76 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 fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April , 1976, and approved by the Central Government.] [Explanation 1.-For the purposes of the foregoing proviso, an ....