ACIT Vs Expeditors International of Washington (ITAT Delhi)
No payment for international freight logistic support services and Global Account Management (GAM) expenses could be treated as technical services fee
Conclusion: Amount paid for international freight logistic support services and Global Account Management (GAM) expenses by assessee-foreign company to Indian company could not be treated as Technical Services or Fee for Included Services (FIS) and also could not be taxed under section 9(1)(i) as no income had accrued or arised from the business connection abroad in India.
Held: Assessee-foreign company was engaged in the business of providing global logistics services worldwide. It had agreed with an Indian Company for providing the freight and logistics services to each other. Each party agreed to render services to the other in respect of import and export of consignments. Assessee undertook the logistics operations with respect to the consignment in the USA and no part of the operations or business was carried out by the assessee in India. The entire dispute centered around the taxability of the amount received by assessee from an Indian comapny in respect of services performed outside India on the export consignments of Indian company originating from India. The primary question which arose for consideration was as to whether the payment in respect of these services could be held as ‘fees for technical services’ within the meaning of section 9(1)(vii). It was held that the services rendered by assessee did not fall within the purview of managerial, consultancy or technical services. The payment for freight and logistics could not be treated as technical services. Similarly, the provisions of Section 9(1)(i) were not attracted in this case as no income had accrued or arised from the business connection abroad in India. The explanation stated that only that part of income from business operations could be said to be accruing or arising in India only if it was relatable to the carrying of operations in India. Thus, the payment received by assessee neither fell under Section 9(1)(i) or Section 9(1)(vii).
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been filed by the revenue against the order dated 28.01.2015 passed by the AO u/s 144C(13)/143(3) of the Income Tax Act, 1961.
2. Following grounds have been raised by the revenue:
“1. Whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP is correct in holding that the receipts are not in the nature of fees for technical services.
2. Whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP is correct in holding that the receipts of the assessee do not fall within the scope of section 9(1)(i) of the Income Tax Act.”
3. The facts and the arguments have been taken from the order of the ld. DRP.
4. The assessee is headquartered in Seattle, Washington, and is engaged in the business of providing global logistics services worldwide. The Company carries out operations in various segments such as airfreight, ocean freight & ocean services, customs brokerage and import services. The nature of services primarily includes consolidation or forwarding of air and ocean freight. Additionally these services include distribution management, vendor consolidation, cargo insurance, purchase order management, and customized logistics information. These operations are rendered by the assessee from outside India.
Logistics Operations:
5. During AY 2010-11, the assessee entered into logistics transactions with Expediters International (India) Private Limited (‘EI India’) which is its Associated Enterprise. The Indian leg of the logistics contrary with me customers is handled by EI India from the customers premises to the Indian port of airport, while the assessee typically handles similar services at the other end of the consignment for the USA region and vice-versa. The contract is entered into between El and the customer i.e. at the consignor’s end in the case of export of consignment from India to overseas countries viz. USA and between the assesse and the customer i.e. at the consignor’s end in the case of import of consignment from other countries viz. USA to India.
6. The logistics operations covers a range of activities from packing, loading/unloading, trucking, /containerization, custom clearance and other cargo handling activities besides moving the goods via air/sea. The nature of these operations is purely logistics support provided by the assessee for shipment of transport of goods, performed outside of India.
Reimbursement of Global Account Management (‘GAM’) expenses:
7. During the course of assessment proceedings, the assessee submitted the nature of GAM expenses which are incurred in relation to routine’ business support services rendered by a team of employees (“team”) of the assessee, which has the responsibility to manage a set of global customers of the Expeditors group, having operations in many countries.
8. Global Account Managers (“GAMs”) are appointed in order to manage the clients globally. GAMs manage global customer sales and act as a marketing interface. They instruct, coach the local account teams belonging under them and support the account teams throughout the whole project. The cost of these GAMs is allocated to all the respective countries benefiting from these services. Accordingly, El India paid the assessee on account of GAM expenses incurred outside India.
9. The GAM staff is employed with the assessee and there is no employer – employee relationship between the employees and EI India. The assesse incurs expenses on the employees working as part of the GAM team, viz. their salary, operational expenses (including salary, telephone expenses of GAM team, conveyance, tour and travelling expenses, entertainment expenses etc). These actual expenses incurred by the assessee are allocated in proportion to the revenue earned by the relevant Expediter group entity in that country from that particular customer account, which is managed by the GAM team.
10. These allocated expenses without any income element embedded in them are then reimbursed to the assessee on actual basis by El India.
11. The AO in the draft assessment order on 26March 2014has proposed the following additions to the income and disallowance of expenses:
