EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.,WASHINGTON, USA V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(2)(2) INTERNATIONAL TAXATION NEW DELHI, NEW DELHI

ITA 869/DEL/2025

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Expeditors International of Washington INC., a non-resident company engaged in global freight logistics, appealed against the final assessment order for the assessment year 2022-23. The primary contention was regarding the classification of certain income received from services rendered outside India, which the Assessing Officer had classified as 'Fees for Technical Services' (FTS) and 'royalty'. The Dispute Resolution Panel (DRP) upheld the Assessing Officer's decision, leading to the appeal before the Tribunal. The Tribunal, referencing its previous decisions and the consistent judicial interpretation, ruled in favor of the assessee, stating that the income in question did not constitute FTS or royalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 47309 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2022-2023
• Other Referred Cases: International Management Group vs. Commissioner of Income Tax, Engineering Analysis Centre of Excellence (P) Ltd. vs. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961, India-USA Double Taxation Avoidance Agreement
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RHOAN KHARA
• Assessee Lawyers: VIZAY B. VASANTA; CONSOLIDATED
• Keywords: Initiation of penalty proceedings; Double taxation relief; Services rendered outside India
• Section: 143(3); 22; 234B

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SH. SUDHIR KUMAR, JUDICIAL MEMBER AND SH. NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.869/Del/2025 Assessment Year: 2022-23 Expeditors International of Washington INC. 1015 Third Avenue Seattle Washington USA 981041190 USA 98104 PAN No. AACCE4315R Vs. Assistant Commissioner of Income Tax Circle -1 (2) (2) International Taxation, New Delhi (APPELLANT) (RESPONDENT) Appellant by Sh. Rhoan Khara, Advocate Respondent by Sh. Vizay B. Vasanta, CIT DR Date of hearing: 27/03/2025 Date of Pronouncement: 09/04/2025 ORDER PER SUDHIR KUMAR, JM: The assessee has filed the present appeal against the order final assessment order dated 23.01.2025 passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the “Act”) in pursuance to the directions of Ld. Dispute Resolution Panel (“DRP”) pertaining to the Assessment year (“AY”) 2022-23. 2 2. The assessee has raised following grounds of appeal :- 1. That on the facts and in the circumstances of the case and in law, the order dated 23 January, 2025 passed by the Learned Assessing Officer (\"Ld. AO\") under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (\"the Act\") pursuant to the directions issued by the Learned Dispute Resolution Panel (\"Ld. DRP\") is erroneous and bad in law as well as in facts. 1.1 That on the facts and in the circumstances of the case and in law, the DRP directions issued by the Ld. DRP on 22 January, 2025 is barred by limitation being issued beyond timeline prescribed under Section 144C(12) of the Act. Consequently, the order dated 23 January, 2025 passed by the Ld. AO pursuant to such DRP directions is also without jurisdiction, bad in law and liable to be quashed. 2. That the Ld. AO and the Ld. DRP on the facts and in law, have erred in holding that fee for freight/logistic support services amounting to INR 1,99,77,26,225 received by the Appellant, for services rendered outside India, is in the nature of Fee for Technical Services / Fee for Included Services (\"FTS\"/ \"FIS\") as per the provisions of section 9(1)(vii) of the Act and Article 12 of the India-USA Double Taxation Avoidance Agreement (\"India-USA DTAA\"). 3 3. That the Ld. AO and the Ld. DRP, on the facts and in av have erred reimbursement of Global Account Management (GAM) charges amounting to INR 9,54,79,472 received by the Appellant from Expeditors International (India) Private Limited (\"El India\") is in nature of FTS / FIS under section 9(1)(vii) of the Act and Article 12 of the India-USA DTAA. 4. That the Ld. AO and the Ld. DRP, on the facts and in law, have erred in holding that the reimbursement of lease line charges amounting to INR 1,53,56,641 received by the Appellant from EI India is in nature of royalty under explanation 2 of section 9(1)(vi) of the Act and Article 12 of the India-USA DTAA 5. That without prejudice to any other ground of appeal, the Ld. AO on the facts and in law, has erred in levying interest under section 2348 of the Act. 6. That on the facts and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act mechanically by alleging that the Appellant has under-reported its income for the captioned year without recording any adequate satisfaction for such initiation. The above grounds of appeal are all independent and without prejudice to each other. 4 The Appellant craves leave to supplement, to cancel, to amend, to add and/or otherwise to alter/ modify any or all the ground(s) of appeal stated herein above on or before its hearing before your honor. 3. Briefly stated the facts are that the assessee is a non- resident company head quartered in Seattle, Washington and is engaged in the business of providing global freight logistics services worldwide. It carried out operations in three primary segments, namely airfreight, ocean freight and ocean services, customs brokerage and import services. The nature of services primarily includes consolidated or forwarding of air and ocean freight. Additionally, these services include distribution management, vendor consolidation, cargo insurance, purchase order management, customized logistics information. These operations are rendered by the assessee from outside India.For A.Y 2022-23 the assessee filed its return of income on 29-11- 2022 declaring income of Rs. 4,04,24,35,927/-. 4. The Ld. Assessing officer (AO) in his draft assessment order assessed the income of the assessee atRs.6,15,09,98,265/-as against the income of Rs.4,04,24,35,927/- returned by the assessee on account of the following additionsproposed by him: 5 (i)Sale of logistic services and global account manager expenses received, assessed as Fees for Technical Services (FTS) under the Act as well s India DTAA amounting to Rs. 2,09,32,05,697/-. (ii)Receipts on account of lease line charges as royalty under the Act as well as India USDTAA amounting to Rs. 1,53,56,641/-. 5. Against the above additions proposed by the Ld. AO the assessee raised the objections before the Ld. DRP who vide its order dated 30-12-2024 recorded the findings in para no 5.6. as under: 5.6. The assessee has submitted that the ITAT by following its own order for A.Y. 2010-11 and A.Y. 2011-12 has provided complete relief to assessee by consolidated order passed for A.Y. 2012-13 to A.Y. 2015-16 and A.Y. 2017-18 and separate order for Ays 2018-19, and A.Y. 2021-22. There is no change in factual and legal matrix in the case from A.Y.2021-22 and earlier years as well. The panel directs the AO to verify if the decisions of the Hon’ble ITAT relied upon by the assess are based on identical facts and has been accepted by the revenue and no appeal has been filed. If the decision of the Hon’ble ITAT has been accepted by the revenue, the AO shall follow the same. On the hand if the decision has been challenged before higher appellate forum, in order to keep 6 the issue alive, the panel upholds the conclusion of the AO, following its decision in the earlier A.Y. 6. The Ld. AO in his final assessment order dated23-01-2025 confirmed the impugned additions. 7. Aggrieved, the order of the AO the assessee is in appeal before the tribunal. 8. At the outset, the Ld. Counsel for the assessee submitted that the issues involved in the present appeal are squarely covered by the decisions of the Co-ordinate bench of the Tribunal in assessee’s own case in ITA no 1904 & 5851/Del/2017, 6827/Del/ 2018 for the A.Y. 2012-13,2013- 14,2014-15 & ITA No. 2855/Del/2023 for A.Y. 2021-22. He also submitted that appeals filed by the Revenue have been dismissed by the Hon’ble Delhi High court. He submitted that the issues in question are no longer res-integra and has consistently been decided in favour of the assessee in preceding AYs. He further submitted that there is no change either in the factual or legal position relating to the dispute issues presently under consideration in AY 2022-23. 10. The Ld. DR for the revenue did not controvert the above proposition. 7 11. We have considered the rival contentions and perused the relevant material available on record. We find that the issues involved are covered in favour of the assessee by the decision of Hon’ble ITAT, in assessee’s own case vide order dated 09- 02.2024 (supra). For the sake of clarity we reproduce the relevant findings of the aforesaid order as under :- “6. We have heard the Ld. Representative of the parties and perused the material on record. The Revenue has not disputed the fact that the Coordinate Bench of the Tribunal for the preceding AY(s) have decided the issues raised in AY 2021-22 in favour of the assessee. We have gone through the orders of the Co-ordinate Bench for AY 2010-11 (at page 286-316 of the Paper Book Volume II); for AY 2011-12 (at page 317-323 of the Paper Book Volume II); for AY 2012-13 to 2015-16 and 2017-18 (at page 324 to 345 of the Paper Book Volume II); for AY 2018-19 (at page 346-354 of the Paper Book Volume II) and for AY 2020-21 (at page 355 to 361 of the Paper Book Volume II). We note that the Co-ordinate Bench of the Tribunal in ITA No. 355/Del/2023 pertaining to AY 2020-21 has observed that all the issues under consideration in the present appeal have been consistently decided in favour of the assessee in assessee’s own case in AY(s) 2010-11 to 2015- 16, 2017-18 and 2018-19. 6.1 With respect to ground No. 2 relating to addition of Rs.1,49,85,14,454/- made by the Ld. AO on account of sale of logistic services treating the same as FTS under the Act as well as India-USA DTAA, the Coordinate Bench of the Tribunal in its decision dated 02.05.2023 in ITA No. 355/Del/2023 for AY 2020-21 in turn relying on its decision dated 31.10.2022 in ITA No. 1464/Del/2022 for AY 2018-19 observed and held as under:- “7. On perusal of material placed before us, we find, this is a recurring issue between the assessee and the revenue starting from 8 assessment year 2010-11. While deciding the issue in assessment year 2010-11, the Tribunal, in ITA No.1740/Del/2015 dated 30.09.2020 has held that the amount received by the assessee from freight/logistic support services cannot be treated as FTS/FIS either under the Act or under treaty provisions. Accordingly, the addition was deleted. Identical view was expressed by the Tribunal while deciding the appeals for subsequent assessment years, as noted above. In fact, though, the departmental authorities were conscious of the fact that the Tribunal has decided the issue in favour of the assessee in earlier assessment years, however, for the purpose of keeping the issue alive, a contrary decision has been taken. There being no change either in the factual or legal position relating to the disputed issue in the impugned assessment year, respectfully following the consistent view of the Tribunal in assessee’s own case in the preceding assessment years, as mentioned above, we delete the addition made by the assessing officer. This ground is allowed.” 6.2 With respect to ground No. 3 relating to the addition of Rs. 7,68,26,193/- made by the Ld. AO representing reimbursement of global account management charges received by the assessee treating the same as FTS under the Act as well as India- USA DTAA, the Coordinate Bench of the Tribunal in its decision dated 02.05.2023 in ITA No. 355/Del/2023 for AY 2020-21 in turn relying on its decision dated 31.10.2022 in ITA No. 1464/Del/2022 for AY 2018-19 observed and held as under:- “10. Having considered rival submissions, we find that this is a recurring issue between the parties continuing right from the assessment year 2010-11. On going through the relevant orders of the Tribunal in assessment years 2010-11 to 2015-16 and 2017-18, it is observed that the issue has been consistently decided in favour of the assessee in all these years, while holding that the amount received towards reimbursement of global account management 9 charges is not in the nature of FTS/FIS. Facts being identical, respectfully following the decision of the co-ordinate benches, we delete the addition made by the assessing officer. Ground raised is allowed. “6.3 With regard to ground No. 4 relating to the addition of Rs. 1,03,04,852/- made by the Ld. AO representing reimbursement of lease line charges received by the assessee treating the same as royalty under the Act as well as India-USA DTAA, the Coordinate Bench of the Tribunal in its decision dated 02.05.2023 in ITA No. 355/Del/2023 for AY 2020-21 in turn relying on its decision dated 31.10.2022 in ITA No. 1464/Del/2022 for AY 2018-19 observed and held under:- “13. Having considered rival submissions, it is observed that while deciding identical issue in assessee’s own case in assessment years 2012-13 to 2015-16, the Tribunal in ITA No.1904/Del/2017 and Ors. Dated 05.01.2022 has held that lease line charges are not in the nature of royalty. The same view was reiterated by the Tribunal while deciding the issue in assessment year 2017-18. It is further relevant to observe, while considering the allowability of payment made towards lease line charges at the hands of assessee’s payer, the assessing officer had held that the payment made is in the nature of royalty, hence, the assessee was required to deduct tax at source. Since, the assessee has not done so, the assessing officer made disallowance under section 40(a)(i) of the Act. However, while deciding the issue in case of the payer, the Hon'ble High Court held that the payment made, being not in the nature of royalty, no disallowance under section 40(a)(i) of the Act can be made. Thus, in view of the decision of the Tribunal in assessee’s own case and the decision of the Hon'ble High Court in case of the payer, the addition made cannot be sustained. Accordingly, we delete it. This ground is allowed.” 7. It is, therefore, apparent that all the issues challenged by the assessee in ground Nos. 2, 3 and 4 relating to receipts on account of logistic support services, reimbursement of global account management charges and lease line charges respectively have been consistently decided in favour of the ITA No. 2855/Del/2023 7 assessee in preceding AYs, the latest being the decision (supra) 10 of the Coordinate Bench of the Tribunal in ITA No. 355/Del/2023 for AY 2020-21 wherein the Tribunal in turn relied upon the favourable decisions of the Coordinate Bench in preceding AYs prior to AY 2018-19. The Revenue has not brought to our notice any change in to facts and circumstances in the year under consideration. The Revenue has also not brought to our notice any other binding precedent on the issues under consideration. We, therefore, respectfully following the decision (supra) of the Co-ordinate Bench of the Tribunal in assessee’s own case, the facts being identical as admitted by both the parties, decide ground No. 2, 3 and 4 in favour of the assessee. Accordingly ground No. 2, 3 and 4 are allowed. 8. Ground No. 1 is general in nature. 9. Ground No. 5 and 6 relating to levy of interest under section 234A and 234B of the Act are consequential in nature. 10. Ground No. 7 relating to initiation of penalty proceedings under section 270A of the Act being premature, do not require adjudication. 11. In the result, the appeal of the assessee is allowed.” 12. The Hon’ble Delhi High Court deciding the appeals ITA No.202/2022 and others,filed by the Department in the assessee’s own case held as under: 11. As we had explained in International Management Group, FTS is firstly concerned with rendition of specialized knowledge, skill, expertise and know-how. It is principally concerned with a transfer of knowledge, skill and expertise. Those three attributes must be those which are possessed by 11 the service provider and are distinctive and special qualities that it possesses, 12. The second facet of FTS is the \"make available\" condition and which envisions an enablement or transfer of specialized knowledge and skill. As was explained in International Management Group, the mere furnishing of service would not be sufficient to categorise the service as FTS. It would have to be necessarily accompanied by a transfer of expertise and which would consequently enable the recipient of service becoming skilled in its own right and empowered to perform those functions independently. 13. When tested on those precepts we firstly find that rules and regulations pertaining to clearance of customs frontiers was clearly not specialized skill or knowledge acquired or possessed by the assessee. These rules are in the public domain and have been framed by competent authorities operating in different jurisdictions. A fortiori, imparting instructions in respect of those statutory regulations would also not qualify FTS. Similarly, we fail to appreciate how the creation of a global of a global ethos or a workforce which is expected to follow a common code could he said to constitute FTS. 14. Insofar as the question of the development of software is concerned, we need not render any independent observations except to remind the appellant of the principles which the 12 Supreme Court had come to authoritatively lay down in Engineering Analysis Centre of Excellence (P) Ltd. v. Commissioner of Income Tax 15. In view of the aforesaid, we do not find any ground to interfere with the view as expressed by the Tribunal. The appeals fail and shall stand dismissed. 13. Respectfully following the aforesaid, decisions we allow the appeal filed by the assessee. 14. In the result, the appeal filed by the assessee is allowed. Order pronounced in the court on 09.04.2025. SD/- SD/- (NAVEEN CHANDRA) (SUDHIR KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER *NEHA, Sr. PS* Date:- 09.04.2025 Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(Appeals) ` 5.DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI "