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TMI Blog2019 (4) TMI 2000X X X X Extracts X X X X X X X X Extracts X X X X ..... were in the nature of taxes etc. which was paid by the respective parties on behalf of the assessee where no withholding of taxes is necessary. CIT(A) had taken note in the case of Hightension Switchgears Private Limited Vs. CIT, [ 2016 (7) TMI 340 - CALCUTTA HIGH COURT] wherein it was held by the Hon ble High Court that TDS is not required to be deducted on the amount reimbursed to the suppliers/vendor. Taking note of the sample invoice filed before us, we agree with the view taken by the Ld. CIT(A) that the expenses/payments were in the nature of reimbursement with no element of income chargeable to tax in India or no part of such payment was made towards carrying on any work by the parties /vendors and, therefore, taxes need not to be withheld by assessee on such payments so, we confirm the decision of the Ld. CIT(A). Therefore, this ground of appeal of revenue is dismissed. - I.T.A. No. 641/Kol/2017 Assessment Year: 2010-11 - - - Dated:- 5-4-2019 - Shri P.M. Jagtap, Vice President Shri A. T. Varkey, JM For the Appellant Shri C. J. Singh, JCIT, Sr. DR For the Respondent S/Shri S. K. Agarwal, FCA, Avisekh Kejriwal, FCA Abhishek Sureka, FCA ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an be better understood as explained below. (i) Consignment originating in India to be delivered to a destination outside India The subject service can be broadly divided into two parts - (1) Services from the customer's premises to the Indian port/loading in ship - Rendered by the assessee. (2) Services from the destination port to the delivery point outside India - Rendered by the non-resident group companies of the assessee, activities carried on outside India. In this case, the non-resident company raises an invoice on the assessee for reimbursement of expenses incurred on behalf of the assessee after the consignment reaches the destination port outside India. Such expenses, incurred at ports outside India, are primarily on account of customs clearance fee, handling charge, truckage, terminal charge, consumption tax, inspection charge, service charge, bank charges, etc. Consignment originating outside India to be delivered to India The subject service can be broadly divided into two parts - (1) Services from the foreign customer s premises to the foreign port/loading in ship Rendered by group companies of the assessee outside India. (2) Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty transaction then what is to be examined is whether the payments have been made at an arms length price or not. Unless the foreign company which is an independent legal entity incorporated in a foreign country have a business activity in India or a PE in India, it cannot be brought to tax for the income which it earns for the services rendered outside India. We note that the assessee has made payment to foreign companies towards logistic services undertaken by them from the foreign port onwards which is not in the domain of India. 6. We also note that since the AO took a stand that which he expressed in the remand report in which he stressed that since the amount is being disbursed by the assessee to the foreign companies and they being related parties to the assessee, the assessee being a resident of India there is a business connection in the case of payments made to these foreign group companies. So, in other words, the AO admitted that a foreign company which is into the business of international freight forwarding or similar business activities and is not a related party in India, then it would not have a business connection in India, and, therefore, not liable for taxe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transportation Services Agreement' with 'M' an Indian company for providing freight and logistics services to each other. As per this agreement, each party agreed to render services to the other in respect of import and export of consignments. The Assessing Officer noted two types of consignments, viz., Import consignments and Export consignments. He observed that Import consignments were those which originated outside India and were to be delivered in India. The services in origin of foreign country broadly comprised of overseas local pick, overseas ground transportation, overseas custom clearance, overseas documentation, loading and unloading and stuffing consignment in cargo, agreed to be performed outside India. 'M', undertook to perform destination services on the arrival of consignment in India. Destination services to be carried out in India by 'M' comprised of local unloading and loading of consignment, local custom clearance, local ground transportation, local documentation etc. On the other hand, export consignments originated from India for the delivery of consignments outside India. The assessee, as per the agreement, undertook to perform the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the primary question which arises for consideration 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 ). [Para 4] A bare perusal of the provision of Explanation 2 to section 9(1)(vii ) indicates that the 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services' but does not include the consideration for any construction, assembly etc. The Commissioner (Appeals) has held the services rendered by the assessee as 'fees for technical services' coming within the sweep of 'managerial, technical or consultancy services'. On the contrary, the contention of the assessee has remained before the authorities below as well as in instant appeal that such services do not fall within the ambit of any of the categories taken note of by the authorities below. Thus, it is necessary to examine as to whether the services so provided by the assessee fall within the scope of managerial, technical or consultancy services', as per Explanation 2 to section 9(1)(vii). [Para 5] In order to appreciate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c task. For instance, if goods are to be loaded and some worker is instructed to place the goods on a carrier in a particular manner, 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. [Para 7] Adverting to the facts of the instant ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt . [Para 10] On going through clause 2 of the Agreement, it is obvious that 'M' shall 'separately execute a technology and software license agreement' for the provision of computer equipment and software supplied by the assessee. It is nobody's case that the consideration in question relates to the supply of any computer equipment and software by the assessee to 'M'. One fails to appreciate as to how this clause 2 makes the services provided by the assessee as technical . Rather clause 2 mandates to execute a separate technology and software license agreement for the provision of computer equipment and software. How is it that the consideration for the services can be attributed to a proposed agreement, which has yet to see the light of the day. [Para 11] The Commissioner (Appeals) in reaching the conclusion that the assessee 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 of the character of fees of 'technical services', therefore, this contention raised on behalf of the revenue has to be repealed. [Para 16] Thus it car be noticed that the payment made to the assessee in question is not a consideration for managerial or technical or consultancy services and that being the position, it cannot fall within the ambit of section 9(1)(vii). [Para 17] Section 4 provides that the income tax shall be charged on the total income of any assessee 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 assessee in question is a non-resident company. Section 5(2) mandates that the total income of a non-resident includes the income from what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 9(1)(i) nor under section 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. Therefore, the impugned order has to be set aside and it has to be held that the amount in question cannot be charged to tax. [Para 19] In the result, the appeal is allowed. [Para 20] 6. Therefore, respectfully following the ratio laid by the Tribunal in the case of UPS SCS (Asia) Ltd. Vs. ADIT (supra) we find no infirmity in the order of the Ld. CIT(A) and we confirm the order of Ld. CIT(A) and dismiss this ground of appeal of the revenue. 7. The next ground of appeal of the revenue is against the action of the Ld. CIT(A) in deleting the disallowance of ₹ 15,91,602/- made by the AO u/s. 40(a)(ia) of the Act. 8. Brief facts as noted by the Ld. CIT(A) because the AO has brought this item of disallowance also in the basket of ₹ 3,07,54,392/-. During the year, the assessee made payments towards reimbursement of expenses incurred on behalf of the assessee by some parties the details ..... X X X X Extracts X X X X X X X X Extracts X X X X
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