Taxation of Specialized Courier Services & Supply Chain Services to Domestic and Overseas Customers: ITAT grants Relief to World Courier India

The Income Tax Appellate Tribunal (ITAT), Bangalore bench has directed the income tax department to re-consider the assessment against the World Courier India in respect of the taxation of their income from specialized courier services & supply chain services to domestic and overseas customers.

The assessee-Company is a wholly owned subsidiary of World Courier (Group) Inc, USA, provides specialized courier services and supply chain services to domestic and overseas customers.The Assessing Officer was of the view that the above said payment to the non-resident was in the nature of royalty and therefore was taxable in India. Since the assessee did not deduct tax at source while making the payment to the aforesaid nonresident as required under section 195 of the Act, the AO was of the view that the sum claimed as deduction should be disallowed and added to the total income of the assessee.

The assessee, in their defense, contended that there was a Management Information System (MIS) maintenance agreement under which the World Courier Management Inc, USA, which was proprietor of softwares which would help the World Courier Group offices located across the globe to track the movements of the courier and theassessee does not use such software for any software development activities. It was argued therefore, that thereceipts cannot be treated as ‘Royalty’ within the meaning of Indo-US Double Taxation Avoidance Agreement (DTAA).

The Tribunal bench comprising Vice President N V Vasudevan and Accountant Member Chandra Poojari held that since the end-user only gets the right to use computer software under a non-exclusive licence, ensuring the owner continues to retain ownership under section 14(b) of the Copyright Act read with sub-section 14(a) (i)-(vii), payments for computer software sold/licenced on a CD/other physical media cannot be classed as a royalty.

“As contended by the learned DR, neither the AO nor the CIT(A) had the benefit of the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd.(supra) and therefore in all fairness, the issue should be remanded to the AO to examine the terms of the agreement under which right were granted to the Assessee in the light of the provisions of the DTAA as to whether the same would amount to royalty. We accordingly remand the issue to the AO. The AO will afford opportunity of being heard to the Assessee in the set aside proceedings,” the Tribunal said.

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M/s. World Courier (India) Pvt. Ltd vs Assistant Commissioner of Income Tax , 2021 TAXSCAN (ITAT) 271 , Shri. Bharath H , Shri. Kannan Narayanan