Payments to non-resident freight forwarders not chargeable to tax

Payments made to non-resident freight forwarders not chargeable to tax u/s. 9(1)(vii) of the Income-tax Act, 1961 hence the payer not liable to withhold tax u/s. 195

Recently in the case of ACIT Vs Indair Carriers Pvt. Ltd. [I.T.A. No. 1605 (Del) of 2010], the Delhi Income-tax Appellate Tribunal, held that payments made to non-resident freight forwarders are not chargeable to tax under section 9(1)(vii) of the Income-tax Act, 1961 and hence the payer is not liable to withhold tax under section 195 of the Act. Consequently, there is no question of dis allowance of the amounts paid to non-resident freight forwarders under section 40(a)(i) of the Act.

 Facts

The assessee was engaged in the business of handling cargo, i.e., booking of cargo received by it, mainly from exporters in India and air transportation of that cargo to various countries of the world as per client requirements.

During the year under consideration, the assessee made certain payment on account of freight forwarding functions done by UTI Network Inc. outside India in respect of cargo exports from India to foreign destinations. During the assessment proceedings, along with certain other disallowances, the assessing officer (“AO”) disallowed the amount paid to UTI Network Inc. for the reason that Indair had failed to withhold tax. According to the AO, services rendered by UTI Network Inc. were in the nature of managerial services covered under the definition of ‘Fees for technical services’ under section 9(1)(vii) of the Act, and hence, liable to tax in India.

Please become a Premium member. If you are already a Premium member, login here to access the full content.