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TMI Blog2024 (5) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient for treating the entire services as managerial or consultancy services. If the view of the AO is accepted then any information received by the assessee from non-residents during the coruse of business would be treated as rendition of consultancy services by the non-resident. Looking to the context of providing information, it cannot be deduced such information was provided for consultancy. No infirmity into the decision of Ld.CIT(A) holding 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 as deemed to be received as accruing or arising in India, the taxability of such income fails. The Revenue has not rebutted this finding of Ld.CIT(A) by bringing any contrary material on record - Decided in favour of assessee. - Shri Kul Bharat, Judicial Member And Shri M.Balaganesh, Accountant Member For the Appellant : Shri Dharambir Singh, CIT DR For the Respondent : Shri Salil Kapoor, Adv. And Ms. Ananya Kapoor, Adv. ORDER PER KUL BHARAT, JM : Both the appeals filed by the Revenue are directed against the order passed by Ld.CIT(A), National Faceless Appeal Centre ( NFAC ), New Delhi dated 03 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es neither falls u/s 9(1) nor u/s 9(1)(i) of the Act. Since the income could not be described as deemed to accrue or arising in India hence, taxability of such amount fails. Therefore, there is no justification for the action of the AO for invoking the provision of section 40(a)(i) of the Act, thereby making disallowance of the expenditure. 5. Aggrieved against the order of Ld.CIT(A), the Revenue preferred appeal before this Tribunal. 6. The only effective ground raised by the Revenue in this appeal is against the deletion of disallowance made by the Assessing Authority by invoking the provision of section 40(a)(i) of the Act. 7. Ld. CIT DR for the Revenue vehemently argued that Ld.CIT(A) was not justified in deleting the addition. Ld.CIT DR took us through the impugned order and the terms of contract executed between the assessee and non-residents. He submitted that the overseas client not only rendered services but also undertook to apprise and advise the assessee about any changes which may affect the freight tariffs and rules or other information applicable to and from China and to and from India. Ld. CIT DR drew our attention to clause 1.1 and 2.3 of the Agreement between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 115JB 38,01,114 (1,02,29,607) Less: Prepaid taxes (1,64,70,388) (3,04,74,482) Tax payable/ (Refund) (1,26,69,270) (3,04,74,482) * Pantos India's case was selected for scrutiny under section 143(2) of the Income Tax Act, 1961 (the Act). During the course of said proceedings, Assessing Officer ('AO') held that Pantos India is availing advisory services from the overseas logistics company and the same is in the nature of consultancy services which would qualify as Fees for technical services ('FTS') under the Act and various Double Taxation Avoidance Agreements ('DTAA'). Thus, the Pantos India was required to deduct TDS on the shipment clearing and forwarding charges paid to overseas logistics companies under section 195 of the Act. * Considering, Pantos India does not deduct any taxes on the payment made to overseas logistics companies, the aforesaid expenses amounting to INR 33.49 crores and INR 46.11 crores have been disallowed in AY 2017-18 and AY 2018-19 respectively under section 40(a) (i) of the Act. * Aggrieved by the order of AO, Pantos India preferred an appeal before the CIT(A) on the ground that the shipment clearing and forwarding s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r providing transportation and custom clearing services in their respective countries. Relevant extract of the Article 2.3 of the co-operation agreement referred by AO is reproduced below: 2.3 PLISZ and PLIIN respectively will advise each other of any changes, which may affect the freight tariffs and rules or other information applicable to and from China and to and from India. * AO contended that Pantos India is availing advisory services from its associated enterprises and overseas entities which are duly covered under the definition of consultancy under section 9(1)(vii) of the Act and under DTAA as well. Thus, Pantos India is liable to deduct TDS on its claim of Shipment Clearing and Forwarding Expenses of INR 33,49,56,683/- and INR 46,10,99,407 during AY 2017-18 and AY 2018-19 respectively. Since Pantos India did not deduct tax at source as per the provisions of Section 195 of the Act on payment of such expenses, the same should not be allowed as deduction to Pantos India in view of the provisions of section 40(a)(i) of the Act. Our Arguments * Our principal argument is that the services rendered were not in nature of consultancy and advisory basis which the liability for dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the entities mentioned in section 194C of the Act. As regards payments made to clearing and forwarding agent for carriage of goods, the same shall be subjected to tax deduction at source under section 194C of the Act. Thus, above circular clarifies that income is not FTS as per Section 194J but contractual service u/s 194C. It is pertinent to note that the purpose of section 194J and 195, read with section 115A, FTS is defined in section 9(i) (vii). Thus, when the payments are not covered by 194J, they cannot be covered by section 195 also, as the definition of FTS is same. The above circular was referred by Delhi Tribunal in the case discussed below. ACIT Vs Indair Carriers Pvt. Ltd. [I.T.A. No. 1605 (Del) of 2010): (Jurisdictional Tribunal) The payment made to freight forwarding agent as held by the Id. CIT (Appeals) is covered by Circular No. 715 dated 8/08/1995 and, therefore, the payment cannot be treated in respect of managerial services. The expenditure is in the nature of business expenses. Moreover, the said payment is not chargeable to tax under section 195. When the amount is not chargeable to tax in India, provisions of section 40(a) (i) of the Act are not applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered the submission of the assessee and given a careful thought. Every person is liable to pay income tax in respect of his total income in accordance with the provisions of the Act. For determination of taxability, the Act in general follows a combination of the source and residence Rules. In this case, the entire dispute centre around the taxability of the amount received by the Pantos Logistics (S) Co.Ltd. and other non resident parties from the assessee in respect of services performed outside India on the export consignment. There is no quarrel over the nature of services for which the above referred amount has been paid to the non resident parties being freight and logistic services such as transport, procurement, custom clearance, sorting delivery. Now the question arises for my consideration 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)(vi) of L.T. Act. The expression fees for technical services has been defined in Explanation 2 to section 9(1)(vii) as under: For the purpose of this clause fees for technical services means any consideration (including any lumpsum consideration) for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 directions of the other for doing a specific 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso equally involved and to whom the overseas parties are committed to providing the requisite software and equipment . 5.8 The principle of noscitur a sociis mandates that the meaning of a word is to be judged by the company of other words which it keeps. This rule is wider in scope than the rule of ejusdem geners. In order to discover the meaning of a word which has not been defined in the Act, the Hon'ble Supreme Court has applied the principle of noscitur a sociis in several cases including Aravinda Paramila Works Vs. CIT [(1999) 237 ITR 284 (SC) As noted above the word 'technical' has been sandwiched between the words 'managerial' and consultancy' in Explanation sec. 9(1)(vii) and rno definition has 2 to been assigned to the technical services in the relevant provision, we need to ascertain 1 the meaning of the technical services' from the overall meaning of the words 'managerial and the principle of nosticur asools has be consultancy services by applying 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the scope of section 9(1)(i). Even Explanation below section 9(2), 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 (vil). Clause (i) of section 9 has not been included by the legislature within the ambit of this. 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 clear that the overseas parties rendered International services outside India which required the payment in question. If this is the position, which has not even been disputed by the A.O, then there can be no question of roping such income within the ken of section 9(1)(i) of the Act. 5.11. It is, therefore, patent that the payment received by overseas parties neither falls u/s 9(1)() nor u/s 9(1)(vii) of the Act. Since the income cannot be described as deemed to accrue or arise in India and there is no doubt about such income having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment cannot be treated in respect of managerial services. The expenditure is in the nature of business expenses. Moreover, the said payment is not chargeable to tax under section 195. When the amount is not chargeable to tax in India, provisions of section 40(a)(i) of the Act are not applicable. 5.2 Hon'ble Delhi High Court in the case of Van Oord ACZ India P. Ltd. (323 ITR 130) has held that liability to deduct tax at source arises only when the sum paid to the non-resident was chargeable to tax in India. Once that was chargeable to tax, it was not for the assessee to find out how much amount of receipt was chargeable to tax, but it was the obligation of the assessee to deduct the tax at source on the entire sum paid by him to the recipient. Under section 195 of the Act, the obligation to deduct tax at source was attracted only when the payment was chargeable to tax in India. Hon'ble Supreme Court in the case of Elly Lilly Co. P. Ltd. 312 ITR 225 (SC) has held that the purpose of provisions for deduction of tax at source in Chapter XVIIB of the Income-tax Act, 1961 is to see that from the sum which is chargeable under section 4 for levy and collection of Indian tax, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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