2021 (2) TMI 718 - AT - Income Tax

Expenses Incurred with no income element - Reimbursement of Global Account Management (GAM) charges - AO held that the services to the managerial/consultancy has to be considered in respect of fee for technical services/fee for included services in terms of Section 9(1)(vii) of the Income Tax Act, read with Article 12(5) of the Double Taxation Avoidance Agreement - DRP confirmed the order of the Assessing Officer thereby holding that the GAM reimbursement and consideration received on account of cost allocation of flight logistic Support Services where in the nature of FIS and make available technical knowledge, experience, skill, knowhow in terms of Article 12(4)(v) of the DTAA - HELD THAT - The assessee during the assessment year 2011-12 has categorically mentioned that the nature of these operations is purely logistic support provided by the assessee for shipment of transport of goods perform outside in India and the contract is entered between expertise international India Pvt. Ltd. and the customers i.e. at the consigner sent in the case of expert of Consignment from India to overseas countries found USA and between the assessee and the customer that is at the consignment end in the case of import of consignment from other countries i.e. USA to India. As regards GAM charges/expenses, the cost of these group is allocated to a respective countries benefited to these services and are incurred outside India. GAM staff is employed with the assessee and there is no employer-employee relationship between the employees and the expeditor international India. These actual expenses incurred by the assessee are allocated in proportion to the Revenue by the relevant expedite group entity in that country from that particular customer account which is managed by the GAM team. These so called expenses without any income element embed in them are then reimbursement to the assessee on actual basis by Expeditors International India. These facts were neither disputed by the Revenue before the DRP in Assessment Year 2010-11 nor in the present Assessment Year i.e. A.Y. 2011-12. The activities were not changed in the present assessment year as well. Therefore, though the contention of the Ld. DR was that the agreement was not taken into account as well as the TP Study was not taken into account in Assessment Year 2010-11 does not stand correct as the agreement related to fright logistic support services and global account management charges were very much mentioned in order dated 30/09/2020 by the Tribunal - Appeal of the assessee is allowed.

Summary

Issues:
Appeal against order under Section 143(3) read with Section 144C of the Income Tax Act, 1961 for Assessment Year 2010-11.

Analysis:
1. The appellant challenged the order under Section 144C of the Income-tax Act, 1961, arguing it was erroneous and bad in law. The Assessing Officer and Dispute Resolution Panel erred in treating international freight logistic support services and Global Account Management expenses as Fee for Technical Services/Fee for Included Services under Section 9(1)(vii) of the Act and Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA).

2. The Expeditors Group, engaged in global logistic services, operates in various segments worldwide. The appellant, a US tax resident, provides similar services through its subsidiary in India. The appellant's income details and transactions were scrutinized during assessment proceedings for AY 2010-11 and 2011-12. The Assessing Officer assessed the total income considering royalty and fees for technical services.

3. The appellant appealed against the assessment order, arguing that the issues regarding cost allocation of logistic services and Global Account Management charges had been previously decided in their favor by the Tribunal for AY 2010-11. The Tribunal held that these services did not fall under managerial, consultancy, or technical services as per the Act or DTAA.

4. The Tribunal analyzed the nature of services provided by the appellant and concluded that they did not constitute technical services. The services were deemed general in nature and did not require managerial or technical expertise. The Tribunal found that the activities mentioned by the appellant did not fall under the purview of technical services, as argued by the Assessing Officer and DRP.

5. The Tribunal noted that the activities remained consistent with those in AY 2010-11 and that the appellant's contentions were supported by the agreements and facts presented. The expenses incurred were reimbursed based on actual costs, without any income element. The Tribunal found no new facts or arguments that distinguished the present assessment year from the previous one, leading to the allowance of the appellant's appeal.

6. The Tribunal allowed the appeal of the appellant, ruling in their favor based on the consistency of facts and agreements presented, and the lack of substantial differences from the previous assessment year.

This detailed analysis covers the issues raised in the appeal against the assessment order for AY 2010-11, providing a comprehensive overview of the legal judgment delivered by the Appellate Tribunal ITAT DELHI.