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TMI Blog2021 (8) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 7, 85,93, 661/- made by the Assessing Officer under section 40( a)(i) of the Income Tax Act, 1961. 2. At the outset it is noted that there is a delay of 123 days on the part of the Revenue in filing this appeal before the Tribunal. In this regard, the Revenue has moved an application seeking condonation of the said delay and keeping in view the reason given therein, we are satisfied that there was a sufficient cause for the delay of 123 days on the part of the Revenue in filing the appeal before the Tribunal. Even the ld. Counsel for the assessee has not raised any objection in this regard. The said delay on the part of the Revenue in filing this appeal before the Tribunal is accordingly condoned and this appeal of the Revenue is being disposed off on merit. 3. The assessee in the present case is a Company, which is engaged in the business of rendering of Logistic Services. The return of income for the year under consideration was filed by it on 30. 11.2014 declaring total income of ₹ 2,83, 50,120/-. In the Profit Loss Account filed alongwith the said return, a sum of ₹ 19,92, 81, 628/- was debited by the assessee on account of shipment and related expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable. In view of the above, as the said income 1s not chargeable to tax in India (on the basis of beneficial provisions of Article 8 of the Tax Treaty), no taxes were required to be withheld in India . 4. The explanation offered on behalf of the assessee- company as above was not found acceptable by the Assessing Officer and he proceeded to make a disallowance of ₹ 7,85, 93, 661/- on account of the amount paid by the assessee to International Freight Forwarding Agents under section 40(a)(i) read with section 194C of the Act for the following reasons given in the assessment order dated 29.11. 2016 passed under section 143( 3) of the Act:- 2.1.1 The assessee has not furnished any proof that the payments made to international freight forwarding agents are the agents of the principal shippers. ln the absence of any evidence it cannot be ascertained that the freight forwarding agents are the agents of the shippers. Further, as per Article 8 of Indo Japan DTAA, it mentioned that profits from the operation of overdraft or ships in international traffic carried on by an enterprise of the contracting state shall be taxable only in that contracting state. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limited of the purchased of goods or merchandise for 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) habitually secures orders in lndia, 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: Hence, tor the non-residents, the assessee acts as business connection. Further, the 1st proviso to the Explanation 2 shall also not be affected as Nissin Corporation is neither a broker, general commission agent nor any other agent. As per website information it operated in logistic business, travel service business and real estate business. It is not an agent instead it has a worldwide business and is a leading company in logistics business worldwide. Hence, by any stretch of imagination it cannot be construed to be an agent. The other related parties are the business of mother company i.e. Nissin Corporation and therefore, they also cannot be referred to as agents. 2.2 In view of the discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment made to International Freight Forwarding Agents is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 rendered vide its order dated 05. 04.2019 in ITA No. 641/Kol/ 2017 wherein a similar disallowance made u/s 40(a)(i) on account of payment made to International Freight Forwarding Agents for the alleged non-deduction of tax at source was held to be not sustainable by the Tribunal after considering all the relevant aspects of the matter including the decision of Mumbai Bench of ITAT in the case of UPS SCS ( Asis) Limited (supra)in paragraph no. 4 to 6 of its order which read as under: 4. We have heard rival submissions and gone through the facts and circumstances of the case. Before us the Ld. AR submitted that the amount of ₹ 3,07,54,392/- includes an amount of ₹ 1,68,44,535/- which was given to foreign companies for export consignments/off-shore activities. We note that the assessee is engaged in the business of providing logistic services both in India and outside India and is a joint venture company between Nissin Corporation, Japan and ABC (India) Ltd. and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Nissin Corporation, Japan, (ii) Nissin International Transport USA Inc., USA, (iii) Nissin Logistics (Vn) Co. Ltd, Vietnam, (iv) Nissin Transport (S) Pte Ltd, Singapore, (v) Nissin Transport Philippines Corp, Philippines, (vi) Nissin Transportation Warehousing (H.K.) Ltd, Hongkong, (vii) Nistrans (M) Sdn Bhd, Malaysia, (viii) PT. Nissin Transport Indonesia, Indonesia and (ix) Siam Nistrans Co. Ltd., Thailand. It was brought to our notice that during the assessment proceedings, proper opportunity was not given to the assessee to explain the nature of activities carried out by the foreign companies from the foreign port onwards in respect to the logistic work. Therefore, the confusion arose in the first place. It was submitted by the Ld. AR that before the Ld. CIT(A) all the facts were brought to his notice and the Ld. CIT(A) after calling for a remand report and considering the same and the rejoinder filed by the assessee (which has been reproduced in the impugned order), the Ld. CIT(A) has allowed the claim of the assessee. Before us, the Ld. DR vehemently submitted that the payments have been made to the related parties (group entities) and, therefore, automatically there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities and accordingly, the assessee cannot be construed to have business connection with foreign group entities in India. Further, we note that the assessee does not have an authority to conclude contracts on behalf of foreign group companies. The assessee being in the business of logistic service, the question of maintaining a stock of goods in India also does not arise and the assessee does not secure orders in India mainly or wholly for the foreign group entities but carries business on its own. Thus, the assessee cannot be construed to have created a business connection in India for foreign group entities. It is not the case of the AO that the services rendered are not at arms length so, therefore, we do not find any merit in the grounds of appeal raised by the revenue in this regard. We also observe that the precise question as to whether a foreign company incorporated under the respective foreign country laws when engaged in the business of providing freight and forwarding and logistic services with an Indian entity needs to deduct TDS at source came before the coordinate bench of this Tribunal Mumbai bench reported in (2012) 18 Taxman.com 302 in UPS SCS (Asia) Ltd. Vs. ADIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services rendered by the assessee under the agreement 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'. In order to buttress his viewpoint, the Assessing Officer also observed that 'M' had deducted tax at source from the transportation fees paid to the assessee and in that view of the matter the assessee's contention that the amount was not chargeable to tax in India, was bereft of any force. The Commissioner (Appeals) echoed the assessment order on this point by holding that the transportation fees received by the assessee from 'M' was taxable in India as 'fees for technical services' under section 9(1)(vii) as it was for the services in the nature of 'managerial, technical or consultancy services'. On second appeal it was held by Tribunal as under: The entire dispute centers around the taxability of the amount received by the assessee from 'M' in respect of services performed outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f transport, procurement, customs clearance, sorting, warehousing and pick up services on the cargo exported by 'M' on behalf of its customers. Having noted the nature of services provided by the assessee outside India, for which 'M' India made the payment, it is necessary to consider if these can be described as managerial or technical or consultancy services. [Para 6] First one has to 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 affairs 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 without there being any planning part involved in the execution and also the evaluation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultancy means giving some sort of consultation de hors the performance or the execution of any work. It is only when some consideration is given for rendering some advice or opinion etc., that the same falls within the scope of consultancy services . The word 'consultancy' excludes actual 'execution'. The nature of services, being freight and logistics services provided by the assessee to 'M' has not been disputed by the authorities below. 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, the payment in lieu of freight and logistics services cannot be ranked as consultancy services. [Para 9] The only left over component of the definition of fees for technical services taken note of by the ld. CIT(A) is technical services . He observed that the assessee'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 equipme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule is wider in scope than the rule of ejusdem generis in order to discover the meaning of a word which has not been defined in the Act. As noted above the word 'technical' has been sandwiched between the words 'managerial' and 'consultancy' in Explanation 2 to section 9(1)(vii) and no definition has been assigned to the 'technical' services in the relevant provision, one needs to ascertain the meaning of the 'technical services' from the overall meaning of the words 'managerial' and 'consultancy' services by applying the principle of nosticur a sociis. It has been held above that the 'managerial services' and 'consultancy services' pre suppose 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 endeavour. Where simply an equipment or a standard facility albeit developed or manufactured with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. This Explanation makes it prominent that only that part of the income from business operations can be said to be accruing or arising in India, as is relatable to the carrying on of operations in India. In other words, if a non-resident earns any income from India by means of operations carried on outside India, that will not fall within the scope of section 9(1)(i ). Even Explanation below section 9(2), as relied on by the revenue, requiring inclusion of income in the total income of the non-resident whether or not the non- resident has a residence or place of business or business-connection in India or the non-resident has rendered services in India, is applicable only in respect of clauses (v) to (vii ). Clause (i) of section 9 has not been included by the legislature within the ambit of this Explanation. It shows that unless a non-resident earns income from business operations carried out in India, such income cannot be deemed as accruing or arising in India. Reverting to the facts of the instant case, it is crystal clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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