The New Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) held that payment made overseas for providing information on Tariff Change is not FTS and set aside the demand of Tax Deducted at Source ( TDS ) under section 195 of the Income Tax Act, 1961.
The AO while framing the assessment, noticed that Lx Pantos India Private Limited, the assessee had claimed an amount of INR 89,42,83,355/- towards shipment clearing and forwarding expenses. It was noticed that out of this amount, an amount of INR 33,49,56,683/- was paid overseas on which no tax was deducted by the assessee.
The AO called upon the assessee to explain why it failed to deduct tax in terms of section 195, as he was of the view that the services so rendered to the assessee by the persons hired by it fell under the category of consulting services and payments made to the parties, are liable for deducting tax at source since it was squarely covered by the provisions of section 195 of the Act which mandates deduction of tax at source on payments made to non-resident.
The Bench remarked that if Revenue’s view is accepted then any information received by the Assessee from non-residents during business would be treated as a rendition of consultancy services by the non-resident. The Bench noted that the Revenue had not disputed the fact that freight and logistics services were provided by the non-residents.
Since, payment was wholly and exclusively for the execution in the shape of transport, procurement, customs clearance, delivery, warehousing and picking-up services, hence, the same could not be treated as payment for consultancy services, added the Bench.
In this case, ACIT vs M/s. Indiar Carriers Pvt Ltd, it was held that payment made to the freight forwarding agent is covered by Circular No. 715 dt Aug 8, 1995, and, therefore, it was not for managerial services and the expenditure was in nature of business expenses.
It was found that the sole basis of the Revenue for holding that the payment made to the overseas logistics company is towards consultancy services is that as per one of the terms of the contract executed between the Assessee and the overseas parties, the said parties advised the Assessee on change into tariff ratio, the ITAT observed that such advice would not partake character of rendering consultancy service and that mere provision of such information would not be sufficient for treating the entire services as managerial or consultancy services.
Section 195 of the Income-tax Act, specifies the TDS provision in the case of an individual making a payment by way of interest or any other amount other than salary to an NRI or a foreign company. Section 9(1)(vii) of the Income Tax Act, states that any income that is deemed to accrue or arise in India, even if the income is earned by a non-resident, is subject to tax in India. This provision is important as it expands the scope of taxable income in India and brings non-resident taxpayers within its ambit.
The Two-member Bench comprising Kul Bharat (Judicial Member) and M. Balaganesh (Accountant Member) observed that it is not the case that overseas parties have their Permanent Establishment (“PE”) in India and derive income from the business set up and controlled in India. Hence, such an amount is not chargeable to tax in India and no tax needs to be deducted at source.
While dismissing the Revenue’s appeal, the Tribunal concluded that 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.
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