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2025 (4) TMI 917 - AT - Income TaxIncome deemed to accrue or arise in India - Addition on account of sale of logistic services treating the same as FTS under the Act as well as India-USA DTAA - HELD THAT - The Hon ble Delhi High Court deciding the appeals 2025 (2) TMI 712 - DELHI HIGH COURT and others filed by the Department in the assessee s own case held as we had explained in International Management Group FTS is firstly concerned with rendition of specialized knowledge skill expertise and know-how. It is principally concerned with a transfer of knowledge skill and expertise. Those three attributes must be those which are possessed by the service provider and are distinctive and special qualities that it possesses Second facet of FTS is the make available condition and which envisions an enablement or transfer of specialized knowledge and skill. As was explained in International Management Group the mere furnishing of service would not be sufficient to categorise the service as FTS. It would have to be necessarily accompanied by a transfer of expertise and which would consequently enable the recipient of service becoming skilled in its own right and empowered to perform those functions independently. When tested on those precepts we firstly find that rules and regulations pertaining to clearance of customs frontiers was clearly not specialized skill or knowledge acquired or possessed by the assessee. These rules are in the public domain and have been framed by competent authorities operating in different jurisdictions. A fortiori imparting instructions in respect of those statutory regulations would also not qualify FTS. Similarly we fail to appreciate how the creation of a global of a global ethos or a workforce which is expected to follow a common code could he said to constitute FTS. Development of software - We need not render any independent observations except to remind the appellant of the principles which the Supreme Court had come to authoritatively lay down in Engineering Analysis Centre of Excellence (P) Ltd. 2021 (3) TMI 138 - SUPREME COURT No ground to interfere with the view as expressed above. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered were:
2. ISSUE-WISE DETAILED ANALYSIS Limitation of DRP Directions and Jurisdiction of Assessment Order The appellant contended that the DRP's directions were issued beyond the statutory timeline prescribed under Section 144C(12) of the Act, rendering both the directions and the consequential final assessment order without jurisdiction and bad in law. The record does not indicate that this preliminary issue was adjudicated in detail by the Tribunal, as the main focus of the order was on the substantive taxability of the receipts in question. The Tribunal treated this ground as general in nature and did not provide a separate analysis or ruling on this procedural objection, effectively proceeding to decide the appeal on the merits of the substantive issues. Taxability of Freight/Logistic Support Services as FTS/FIS Relevant Legal Framework and Precedents: The dispute centered on whether the fee for freight/logistic support services received by the non-resident assessee for services rendered outside India qualified as FTS/FIS under Section 9(1)(vii) of the Act and Article 12 of the India-USA DTAA. The legal framework requires that for income to be taxed as FTS/FIS, it must involve the rendering of managerial, technical, or consultancy services, and under the DTAA, the "make available" condition must be satisfied, i.e., the service must enable the recipient to apply the technical knowledge, experience, skill, know-how, or processes independently. Court's Interpretation and Reasoning: The Tribunal relied heavily on its own prior decisions in the assessee's case for earlier assessment years, which had consistently held that such freight/logistic support services did not constitute FTS/FIS either under the Act or the DTAA. The Tribunal cited the principle that the mere provision of services, without a transfer of technical knowledge or skill enabling the recipient to perform such services independently, does not meet the "make available" requirement. The Tribunal also referred to the Delhi High Court's observations, which clarified that FTS is concerned with the transfer of specialized knowledge, skill, or expertise, and that the mere furnishing of service is insufficient. Key Evidence and Findings: The Tribunal noted that the nature of services provided-consolidation or forwarding of air and ocean freight, distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information-were rendered from outside India and did not involve imparting specialized knowledge or skills to the Indian recipient. Application of Law to Facts: The Tribunal found no material change in the factual or legal matrix compared to earlier years, and the revenue did not dispute this. The Tribunal held that the income from such services could not be treated as FTS/FIS, following its own prior orders and the binding precedent from the High Court. Treatment of Competing Arguments: The revenue's position was to keep the issue alive for higher appellate forums, but did not present any new arguments or evidence to distinguish the current year from earlier years. The Tribunal noted the absence of any change in facts or law and the lack of any contrary binding precedent. Conclusion: The addition made by the AO treating the freight/logistic support services as FTS/FIS was deleted. Taxability of Reimbursement of Global Account Management Charges as FTS/FIS Relevant Legal Framework and Precedents: The same legal provisions and interpretative principles applied as above. The Tribunal referred to its previous decisions in the assessee's own case, which had held that reimbursement of GAM charges did not constitute FTS/FIS. Court's Interpretation and Reasoning: The Tribunal reiterated that the reimbursement of GAM charges was not in the nature of FTS/FIS, as it did not involve the transfer of technical knowledge or skill to the Indian entity. Key Evidence and Findings: The Tribunal observed that the facts were identical to those in earlier years, where the issue had been consistently decided in favour of the assessee. Application of Law to Facts: The Tribunal, following the principle of consistency and in the absence of any distinguishing facts or legal developments, deleted the addition. Treatment of Competing Arguments: No new arguments were advanced by the revenue, and the Tribunal found no basis to depart from its previous rulings. Conclusion: The addition on account of reimbursement of GAM charges was deleted. Taxability of Reimbursement of Lease Line Charges as Royalty Relevant Legal Framework and Precedents: The issue was whether reimbursement of lease line charges constituted "royalty" under Explanation 2 to Section 9(1)(vi) of the Act and Article 12 of the India-USA DTAA. The Tribunal referred to its prior decisions, which had held that such payments did not amount to royalty. Court's Interpretation and Reasoning: The Tribunal noted that in earlier years, it had held that lease line charges were not in the nature of royalty, and this view had been upheld by the High Court in the case of the payer, where it was held that such payments were not royalty and no disallowance under Section 40(a)(i) was warranted. Key Evidence and Findings: The Tribunal found that the reimbursement of lease line charges did not involve transfer of any rights in respect of a copyright, patent, or similar property, nor did it involve the use of any process or equipment in a manner that would attract the definition of royalty. Application of Law to Facts: The Tribunal, applying the same reasoning as in earlier years, deleted the addition. Treatment of Competing Arguments: The revenue did not present any new arguments or evidence to support a different conclusion. Conclusion: The addition treating reimbursement of lease line charges as royalty was deleted. Levy of Interest under Section 234B The ground relating to the levy of interest under Section 234B was treated as consequential in nature, dependent on the outcome of the substantive additions. As the substantive additions were deleted, the levy of interest would be recomputed accordingly. Initiation of Penalty Proceedings under Section 270A The ground challenging the initiation of penalty proceedings under Section 270A was held to be premature and did not require adjudication at this stage, as the initiation of penalty is a separate proceeding that would be dealt with independently. 3. SIGNIFICANT HOLDINGS
Core Principles Established:
Final Determinations on Each Issue:
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