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TMI Blog2020 (10) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the carrying of operations in India. Thus, the payment received by the assessee neither falls under Section 9(1)(i) or Section 9(1)(vii). Hence, we hereby decline to interfere with the directions of the Dispute Resolution Panel in this case. - Decided against revenue. - ITA No. 1740/Del/2015 - - - Dated:- 30-9-2020 - Before Ms. Sushma Chowla, Vice President and Dr. B. R. R. Kumar, Accountant Member Assessee by : Sh. Deepak Chopra, Adv. Revenue by : Sh. Satpal Gulati, CIT DR ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the revenue against the order dated 28.01.2015 passed by the AO u/s 144C(13)/143(3) of the Income Tax Act, 1961. 2. Following grounds have been raised by the revenue: 1. Whether on the facts and in the circumstances of the case and in law, the Hon ble DRP is correct in holding that the receipts are not in the nature of fees for technical services. 2. Whether on the facts and in the circumstances of the case and in law, the Hon ble DRP is correct in holding that the receipts of the assessee do not fall within the scope of section 9(1)(i) of the Income Tax Act. 3. The facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. They instruct, coach the local account teams belonging under them and support the account teams throughout the whole project. The cost of these GAMs is al located to all the respective countries benefiting from these services. Accordingly, El India paid the assessee on account of GAM expenses incurred outside India. 9. The GAM staff is employed with the assessee and there is no employer - employee relationship between the employees and EI India. The assesse incurs expenses on the employees working as part of the GAM team, viz. their salary, operational expenses (including salary, telephone expenses of GAM team, conveyance, tour and travelling expenses, entertainment expenses etc). These actual expenses incurred by the assessee are allocated in proportion to the revenue earned by the relevant Expediter group entity in that country from that particular customer account, which is managed by the GAM team. 10. These al located expenses without any income element embedded in them are then reimbursed to the assessee on actual basis by El India. 11. The AO in the draft assessment order on 26March 2014has proposed the Following additions to the income and disallowance of expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 311 as international transportation fee from Expeditors International towards services rendered by it abroad on the above described export consignments. In addition, the taxpayer received the reimbursement of Global Account Management ( GAM ) expanses of INR 20,875,810. Such amount was claimed by the taxpayer to be not chargeable to tax in India as per the provisions of section 5 read with section 9 of the Income-tax Act, 1961. It was so claimed on the premise that the income arose from services rendered by it outside India and no operations in this regard were carried out in India. The taxpayer also claimed that its relationship with Expeditors International was that of independent contractor and the business between them was done on principal to principal basis and at arm's length. The Assessing Officer observed that the services rendered by the taxpayer were in the nature of freight and logistics services such as transport, procurement, custom clearance, sorting, delivery, warehousing and picking up services. In his opinion such services were covered under the provisions of section 9(1)(vii), being fees for technical services . 13. The entire dispute centers around the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods to India / export of goods from USA, the assessee executes the respective portion of the consignment in the USA region only whereas El India independently carries out its part of the consignment in the India region. For the purpose of execution of such consignment, involving the export of the goods from the USA, the Following activities are undertaken by the assessee until the consignment leaves the US airport/port: i. Pick-up services which involve procuring goods/packages from the customers in USA; ii. Sorting of goods/ packages if required; iii. Warehousing of goods due to the time lag between the procurement and shipment of goods, if any; iv. Nominating Customs Housing Agent (CHA) for export of goods at the customs station; v. Obtaining custom clearance at the airport/port; vi. Loading of goods onto cargo airplane or ship for transportation. 17. After the goods have been loaded to the airplane / ship, the US portion of the logistic contract involving transportation of the consignment is completed. 18. Similarly, in respect of logistic consignment requiring export of goods from India/ import of goods to USA, the assessee executes the respective po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication of the ld. DRP on the issue of managerial service is as under: First, the Panel will consider the ambit of 'managerial services to test whether the instant services can qualify to be so called. Ordinarily the managerial services mean managing the af fairs by laying down certain policies, standards and procedures and then evaluating the actual performance in the light of the procedures so laid down. The managerial services contemplate not only execution but also the planning part of the activity to be done. If the overall planning aspect is missing and one has to follow a direction from the other for executing particular job in a particular manner, it cannot be said that the former is managing that affair. It would mean that the directions of the latter are executed simplicity without there being any planning part involved in the execution and also the evaluation of the performance. In the absence of any specific definition of the phrase managerial services as used in section 9(1)(vii) defining the fees for technical services , it needs to be considered in a commercial sense. It cannot be interpreted in a narrow sense to mean simply executing the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any work. It is only when some consideration is. given for rendering some advice or opinion etc. , that the same falls wi thin the scope of consultancy services . The word 'consultancy' excludes actual 'execution'. The nature of services, being freight and logistics services provided by the taxpayer to El has not been disputed by the Assessing Officer. There is nothing like giving any consultation worth the name. Rather such payment is wholly and exclusively for the execution in the shape of transport, procurement, customs clearance, delivery, warehousing and picking up services. That being the position, this Panel opine that the payment in lieu of freight and logistics services cannot be ranked as consultancy services. The only left over component of the definition of fees for technical services taken note of by the Assessing Officer is technical services . He observed that the taxpayer s business structure is time bound service coupled with continuous real time transmission of information by using and also making available its technology in the form of sophisticated equipments and software etc. The Assessing Officer has held that in order to ensure efficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some sort of direct human involvement. These services cannot be conceived without the direct involvement of man. These services can be rendered with or without any equipment, but the human involvement is inevitable. Moving in the light of this rule, there remains no doubt whatsoever that the technical services cannot be contemplated without the direct involvement of human endeavor. Where simply an equipment or a standard facility albeit developed or manufactured with the use of technology is used, such a user cannot be characterized as using 'technical services'. Coming back to the facts of the present case,, even if the Panel accept the Assessing Officer s point of view that the computer could be used, in tracing the movement of the goods, such use of computer, though indirect, remote and not necessary, cannot bring the payment for freight and logistics services within the. purview of technical services . The essence of the consideration for the payment is rendering of services and not the use of computer. If incidentally computer is used at any stage, which is otherwise not necessary for rendering such services, the payment for freight and logistics will not partake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpayer rendered International services outside India which required the payment in question. If this-is the position, which has not even been disputed by the Assessing Officer, then there can be no question of roping such income within the ken of section 9(1)(i) of the Act. It is, therefore, patent that the payment received by the taxpayer neither falls u/s 9(1)(i) nor u/s 9(1)(vii). Since the income cannot be described as deemed to accrue or arise in India and there is no doubt about such income having not been received or deemed to be received or accruing or arising in India, the taxability of such income fails. This Panel, therefore, direct the Assessing Officer to delete the addition made to the income of the taxpayer. 26. Before us, the ld. DR relied on the order of the TPO while the ld. AR reiterated the submissions made before the ld. DRP and on the order of the ld. DRP. 27. The provisions of Section 9(1)(vii) are as under: 9. (1) The Following incomes shall be deemed45 to accrue or arise in India :- (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident; or (ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or (iii) for the provision of services by the non-resident; or] (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (c) habitual ly secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business : Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities or engaging in interaction with such number of users in India, as may be prescribed: Provided that the transactions or activities shall constitute significant economic presence in India, whether or not- (i) the agreement for such transactions or activities is entered in India; or (ii) the non-resident has a residence or place of business in India; or (iii) the non-resident renders services in India: Provided further that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India. Explanation 3.-Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.] [Explanation 4.-For the removal of doubts, it is hereby clarified that the expression through shall mean and include and shall be deemed to have always meant and included by means of , in consequence of or by reason of . Explanation 5.-For the removal of doubts, it is hereby clarified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of- (i) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or (ii) reporting to persons holding the share or interest, then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity: Provided further that the first accounting period of the company or, as the case may be, the entity shall begin from the date of its registration or incorporation and end with the 31st day of March or such other day, as the case may be, Following the date of such registration or incorporation, and the later accounting period shall be the successive periods of twelve months: Provided also that if the company or the entity ceases to exist before the end of accounting period, as aforesaid, then, the accounting period shall end immediately before the company or, as the case may be, the entity, ceases to exist; (d) specified date means the- (i) date on which the accounting peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed; (c) associated enterprise shall have the meaning assigned to it in section 92A;] (ii) income which falls under the head Salaries , if it is earned63 in India. [Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India ;] (iii) income chargeable under the head Salaries payable by the Government 63 to a citizen of India for service outside India ; (iv) a dividend paid by an Indian company outside India ; [(v) income by way of interest payable by- (a) the 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 busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, if such income is payable in pursuance of an agreement made before the 1st day of April , 1976, and the agreement is approved by the Central Government : [Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of alicence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.] Explanation 1.-For the purposes of the [first] proviso, an agreement made on or after the 1st day of April , 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6.-For the removal of doubts, it is hereby clarified that the expression process includes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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