2012 (2) TMI 365 - AT - Income Tax

Fees for technical services Revenue treated transportation fees receivable as FTS u/s 9(1)(vii) Hongkong company engaged in the business of provision of supply chain management including the provision of freight and forwarding and logistics services Held that - In instant case role of the assessee in the entire transaction was to perform only the destination services outside India by unloading and loading of consignment custom clearance and transportation to the ultimate customer. In our opinion it is too much to categorize such restricted services as managerial services. Further use of computer in tracing the movement of the goods though indirect remote and not necessary can not bring the payment for freight and logistics services within the purview of technical services . Also section 9(1)(i) cannot be invoked since assessee rendered International services outside India - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the transportation fee received by the assessee qualifies as "fees for technical services" under Section 9(1)(vii) of the Income-tax Act, 1961.
2. The applicability of Section 9(1)(i) of the Income-tax Act, 1961, regarding the income accruing from business connections in India.

Issue-wise Detailed Analysis:

1. Transportation Fee as "Fees for Technical Services":
- Nature of Services: The assessee, a foreign company, provided freight and logistics services to Menlo India, including transport, procurement, customs clearance, sorting, delivery, warehousing, and pick-up services. These services were performed outside India for export consignments originating from India.
- Assessing Officer's View: The AO considered these services as "fees for technical services" under Section 9(1)(vii), arguing that they involved managerial, technical, or consultancy services. The AO also noted that Menlo India had deducted tax at source from the transportation fees paid to the assessee.
- CIT(A)'s View: The CIT(A) upheld the AO's decision, stating that the transportation fees were taxable in India as they were for managerial, technical, or consultancy services.
- Tribunal's Analysis: The tribunal examined whether the services provided could be categorized as managerial, technical, or consultancy services:
- Managerial Services: The tribunal concluded that the services did not involve managing affairs or planning but were merely execution tasks, thus not qualifying as managerial services.
- Consultancy Services: The tribunal found that the services did not involve giving advice or opinion but were purely execution-based, thus not qualifying as consultancy services.
- Technical Services: The tribunal noted that the use of technology or sophisticated equipment for tracking cargo did not constitute technical services. The essence of the payment was for execution services, not for the use of technology.

2. Applicability of Section 9(1)(i):
- Section 9(1)(i) Overview: This section deals with income accruing or arising from any business connection in India. Explanation 1(a) specifies that only the part of the income attributable to operations carried out in India is deemed to accrue or arise in India.
- Tribunal's Analysis: The tribunal noted that the assessee rendered services outside India, and no operations were carried out in India. Therefore, the income from these services could not be attributed to any business connection in India under Section 9(1)(i).

Conclusion:
- Section 9(1)(vii) Inapplicable: The tribunal held that the transportation fee did not qualify as "fees for technical services" as it did not involve managerial, technical, or consultancy services.
- Section 9(1)(i) Inapplicable: Since the services were rendered outside India, the income could not be deemed to accrue or arise in India under Section 9(1)(i).
- Final Decision: The tribunal overturned the impugned order, concluding that the amount in question could not be charged to tax in India.

Result: The appeal by the assessee was allowed.