Payments made for Air Freight not Taxable in India: ITAT [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in the case of M/s. KGL Network (P) Ltd v. The ACIT held that payments made for Air Freight by the assessee-company to such airline companies or its different agents are not liable to be taxed in India.

The assessee-company was engaged in the business of total logistic solutions providers, general cargo agents, etc. from one place to another place in any part of the world. The assessee company is reimbursed the amount of all expenses including freight by M/s. Samsung India Ltd., and there is no profit element involved in such reimbursement.  It was found that the assessee-company had made certain payments to non-resident parties with respect to air freight.

The Assessing Officer (AO) rejected the assessee’s contention on the ground that the assessee-company has failed to establish the fact that whether payments made to foreign agents are related to airfreight or it is mere reimbursement of expenses. However, the AO directed the assessee company to deduct TDS on the amount of payments made to various non-resident agents/parties for freight. The Commissioner of Income Tax (CIT) further rejected the contentions of the assessee and directed the AO to submit a remand report wherein Top-10 Agents Accounts for 96% of the payments made by assessee-company is considered and it was highlighted that most of the payments have been made to the KGL group companies. He noted that Article 8 of respective DTAA is applicable for making payments to foreign airlines and not to other parties including foreign agents.

The assessee-company contended that it was not required to deduct TDS and cited a number of case laws to support the view and amounts paid to the agents were reimbursed to the assessee-company by the parties. The assessee-company merely acted on behalf of M/s. Samsung India Ltd. It is also submitted that since no amount of freight is received in India and assessee-company remitted the amount of freight outside India, this Section will not apply to the assessee-company.

The Tribunal after perusing the arguments made by the parties was of the clear view that the payments made by the assessee-company to such airline companies or its different agents are not liable to be taxed in India even under the domestic law for the reason that such non-resident entities have not rendered any services in India. The payments made to the agents would be covered under Article 8 of respective DTAAs since none of the non-residents have P.E. in India therefore a question of deduction of tax does not arise.

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