Expeditors International of Washington Inc., Gurgaon V. DCIT (International Taxation), New Delhi

ITA 1705/DEL/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4864 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 31-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRABHA KANT
• Keywords: Transfer pricing; Double taxation relief; International transaction; Services rendered outside India
• Section: 143(3); 234B; 201; 144C

Judgement Text

1 ITA NO. 1705/DEL/2016 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 1705/DEL/2016 ( A.Y 2011-12) (THROUGH VIDEO CONFEREN CING) EXPEDITORS INTERNATIONAL OF WASHINGTON INC. 61, 5 TH FLOOR, CHIMES BUILDING, SECTOR-44, GURGAON AACCE4315R (APPELLANT) VS DCIT CIRCLE-1(2)(2) NEW DELHI (RESPONDENT) APPELLANT BY SH. DEEPAK CHOPRA, ADV, SH. VISHAL KALRA, ADV, SH. HARPREET AJMANI, ADV, SH. ROHAN KHARE, ADV RESPONDENT BY SH. PRABHAKANT, CIT ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER DATED 15/01/2016 PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 PASSED BY DCIT, CIRCLE 1(2)(2) NEW DELHI, FOR ASSESSMENT YEAR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- THE APPELLANT RESPECTFULLY SUBMITS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED UNDER SECTION 144C OF THE INCOME-TAX A CT, 1961 (THE ACT) BY DATE OF HEARING 17.12.2020 DATE OF PRONOUNCEMENT 11.02.2021 2 ITA NO. 1705/DEL/2016 THE LEARNED ASSESSING OFFICER (LD. AO) IS ERRONEO US AND BAD IN LAW AS WELL AS IN FACTS. 2. THAT THE LD. AO AND LD. DISPUTE RESOLUTION PANEL ( LD. DRP) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, HAS ERRED IN HOLDING THAT THE COST ALLOCATION OF INTERNATIONAL FREIGHT LOGISTIC SUPPOR T SERVICES, AMOUNTING TO INR 2,587,266,319 FOR SERVICES RENDERED OUTSIDE INDIA I S IN NATURE OF FEE FOR TECHNICAL SERVICES / FEE FOR INCLUDED SERVICES (FI S) AS PER THE PROVISIONS OF SECTION 9(L)(VII) OF THE ACT AS WELL AS UNDER ARTIC LE 12 OF THE INDIA- USA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 3. THAT THE LD. AO AND LD. DRP, ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE, HAS ERRED IN HOLDING THAT THE REIMBURSEMENT O F GLOBAL ACCOUNT MANAGEMENT (GAM) EXPENSES AMOUNTING TO INR 24,673 ,043 RECEIVED BY THE APPELLANT FROM EL INDIA IS IN NATURE OF TECHNICAL S ERVICES / FEE FOR INCLUDED SERVICES (FIS) AS PER THE PROVISIONS OF SECTION 9 (L)(VII) OF THE ACT AS WELL AS UNDER ARTICLE 12 OF THE INDIA-USA DOUBLE TAXATION A VOIDANCE AGREEMENT (DTAA). 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271 (1)(C) OF THE ACT MECHANICALLY FOR FURNISHING INACCURATE PARTICULARS WITHOUT RECORDING ANY ADEQUATE SATISFACTION FOR SUCH INITIATION. 5. THAT THE LD. AO ERRED IN FACTS AND IN LAW IN CHARG ING AND COMPUTING INTEREST UNDER SECTION 234B OF THE ACT. 3. THE EXPEDITORS GROUP IS ENGAGED IN PROVIDING GLO BAL LOGISTIC SERVICES. THE GROUP HEADQUARTERS IN SEATTLE, WASHINGTON OPERA TES IN THREE SEGMENTS I.E., AIR FREIGHT, OCEAN FREIGHT AND OCEAN SERVICES AND C USTOM BROKERAGE AND IMPORT SERVICES. THE GROUPS SERVICES PRIMARILY IN CLUDED CONSULTATION OR FORWARDING OF AIR & OCEAN FREIGHT. ADDITIONALLY T HE GROUP ALSO PROVIDES SERVICES RELATED TO DISTRIBUTION MANAGEMENT VENDOR CONSOLIDATION CARGO INSURANCE, PURCHASE ORDER MANAGEMENT AND CUSTOMISE LOGISTICS INFORMATION AND VALUE ADDED SERVICES. THE CUSTOMERS OF THE GRO UP INCLUDE RETAILERS AND 3 ITA NO. 1705/DEL/2016 WHOLESALERS, AND ELECTRONICS AND MANUFACTURING COMP ANIES AROUND THE WORLD. THE OPERATIONS OF THE GROUP SPAN OVER UNITED STATES , NORTH AMERICA, FAR EAST, INDIA, EUROPE, AUSTRALIA, NEW ZEALAND, LATIN AMERIC A, AND THE MIDDLE EASTERN COUNTRIES. THE ASSESSEE, INCORPORATED IN USA, OPERA TES IN THREE PRIMARY SEGMENTS: AIRFREIGHT, OCEAN FREIGHT & OCEAN SERVICE S, AND CUSTOMS BROKERAGE AND OTHER SERVICES. THE ASSESSEE PROVIDES SIMILAR S ERVICES GLOBALLY THROUGH WHOLLY OR MAJORITY-OWNED SUBSIDIARIES. THE ASSESSEE , A TAX RESIDENT OF USA AS PER THE DOMESTIC LAWS OF USA AND FILED ITS TAX RESI DENCY CERTIFICATE VIDE SUBMISSION DATED 13.01.2015. IN INDIA, THE ASSESSEE PROVIDES SERVICES THROUGH ITS WHOLLY-OWNED SUBSIDIARY EXPEDITORS INTERNATIONA L (INDIA) PVT. LTD. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD UNDER TAKEN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES. THE I NTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED EN TERPRISE WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM'S LENGTH PRICE. ORDER OF TPO DATED 19.12.2014 HAS BEEN RECEIVED WHEREIN NO A DVERSE INFERENCE HAS BEEN DRAWN BY THE TPO IN RESPECT OF THE INTERNATION AL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE DURING THE FINANCIAL YEAR 2010-11. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30/11/2011 FOR ASSESSMENT YEAR, 2011-1 2 DECLARING INCOME OF RS. 35,43,86,009/-. DURING THE ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF RECEIPT S FROM INDIA ALONG WITH THE COPY OF AGREEMENTS/CONTRACTS WITH INDIAN CUSTOMERS OR ANY OTHER PARTY IN INDIA FROM WHOM PAYMENT IS RECEIVED DURING THE SUBJ ECT YEAR . ACCORDINGLY THE FOLLOWING DETAILS OF RECEIPTS WERE FILED AS UNDER:- S. NO NATURE OF TRANSACTION AMOUNT IN RS. 1 SALE OF CAPITAL EQUIPMENT 22,66,176/ - 2 ROYALTY INCOME 35,43,86,010/ - 3 INTERNATIONAL FREIGHT LOGISTIC SERVICES 2,58,72,66,319/ - 4 REIMBURSEMENT OF GLOBAL ACCOUNT MANAGEMENT EXPENSES 2,46,73,043/ - 5 SALE OF CONSUMABLES 10,08,768/ - 6 COST REIMBURSEMENT RECEIVED 76,70,102/ - 4 ITA NO. 1705/DEL/2016 7 LEASE LINE CHARGES RECEIVED 10,90,173/ - OUT OF THE ABOVE RECEIPTS, THE ASSESSEE HAS DECLARE D THE ROYALTY INCOME IN ITS RETURN OF INCOME. FURTHER, THE ASSESSEE WAS ASKED T O SHOW CASE AS TO WHY THE INTERNATIONAL FREIGHT LOGISTIC SERVICES AND REIMBUR SEMENT OF GLOBAL ACCOUNT MANAGEMENT EXPENSES WOULD NOT CONSTITUTE FEE FOR TE CHNICAL SERVICES AS PER THE SECTION 9(1)(VII) OF THE INCOME-TAX ACT, 1961 A ND INDIA-USA TAX TREATY. OUT OF THE ABOVE RECEIPTS, THE ASSESSEE FILED DETAILED REPLY ON 25/02/2015. THE ASSESSING OFFICER SPECIFICALLY MENTIONED IN PARA 3 THAT THE CONTENTIONS OF THE ASSESSEE WAS FORMED ON THE BASIS OF DRP DIRECTION F OR ASSESSMENT YEAR 2010- 11. THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER DATED 30/03/2015. THE ASSESSEE FILED OBJECTION BEFORE DRP AND THE DRP VIDE ORDER DATED 23/12/2015 PASSED CERTAIN DIRECTIONS. THE ASSESSI NG OFFICER PASSED THE ASSESSMENT ORDER ON 15/1/2016 THEREBY ASSESSING THE TOTAL INCOME AT RS. 296,63,25,372/- AS ROYALTY AND FEES FOR TECHNICAL S ERVICES. 3. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE HAS FILED PRESENT APPEAL BEFORE US. 4. THE LD. AR SUBMITTED THAT GROUND NO. 1 IS GENERA L GROUND. AS REGARDS, GROUND NO. 2 RELATING TO ADDITION ON ACCOUNT OF COS T ALLOCATION OF INTERNATIONAL FLIGHT LOGISTICS SUPPORT SERVICES AND GROUND NO. 3 RELATING TO ADDITION ON ACCOUNT OF REIMBURSEMENT OF GLOBAL ACCOUNT MANAGEME NT (GAM) CHARGES. THE LD. AR SUBMITTED THAT THE ISSUES IN QUESTIONS ARE N O LONGER RES INTEGRA AND HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL VIDE ORDER DATED 30.09.2020 PASSED FOR AY 2010-11. THE TRIBUNAL WHIL ST DISMISSING THE APPEAL OF THE REVENUE HAS HELD THAT SERVICES I.E. GAM RE-I MBURSEMENTS AND COST ALLOCATION OF INTERNATIONAL FREIGHT LOGISTIC SUPPOR T SERVICES DO NOT FALL WITHIN THE PURVIEW OF MANAGERIAL , CONSULTANCY OR TECHNICA L SERVICES AND HENCE, NEITHER FALLS UNDER SECTION 9(1 )(I) OR SECTION 9(L )(VII) NOR UNDER ARTICLE 12 OF THE DTAA. 5 ITA NO. 1705/DEL/2016 5. THE LD. DR SUBMITTED THAT IN ASSESSMENT YEAR 201 0-11, THE TRIBUNAL HAS NOT CONSIDERED THE AGREEMENT AS WELL AS THE DRP IS ALSO SILENT ON THE TERMS AND CONDITIONS OF THE AGREEMENT. BUT IN THE PRESEN T ASSESSMENT YEAR I.E. 2011-12, THE AGREEMENT WAS CONSIDERED BY THE DRP A ND IT IS VERY MUCH APPLICABLE IN THE PRESENT ASSESSMENT YEAR REGARDING ADDITION ON ACCOUNT OF RELEASING OF GAM CHARGES AND ADDITION ON ACCOUNT OF COST ALLOCATION OF INTERNATIONAL FLIGHT LOGISTIC SUPPORT SERVICES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS GROUND NO. 2, THE ASSESSING OFFICER HELD THAT THE SERVICES TO THE MANAGERIAL/CONSULTANCY HAS TO B E CONSIDERED IN RESPECT OF FEE FOR TECHNICAL SERVICES/FEE FOR INCLUDED SERVICE S IN TERMS OF SECTION 9 (1)(VII) OF THE INCOME TAX ACT, READ WITH ARTICLE 12(5) OF T HE DOUBLE TAXATION AVOIDANCE AGREEMENT. THE DRP CONFIRMED THE ORDER OF THE ASS ESSING OFFICER THEREBY HOLDING THAT THE GAM REIMBURSEMENT AND CONSIDERATIO N RECEIVED ON ACCOUNT OF COST ALLOCATION OF FLIGHT LOGISTIC SUPPORT SERVICES WHERE IN THE NATURE OF FIS AND MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOWHOW IN TERMS OF ARTICLE 12(4)(V) OF THE DTAA. THE TRIBUNAL IN ASSE SSMENT YEAR 2010-11 BEING ITA NO. 1740/DEL/2015 HELD AS UNDER:- 28. THUS, ON GOING THROUGH THE PROVISIONS OF THE A CT, FACTS OF THE CASE, BUSINESS OPERATIONS OF THE ASSESSEE, WE HOLD THAT T HE SERVICES RENDERED BY THE ASSESSEE DO NOT FALL WITHIN THE PURVIEW OF MANA GERIAL, CONSULTANCY OR TECHNICAL SERVICES. THE PAYMENT FOR FREIGHT AND LOG ISTICS CANNOT BE TREATED AS TECHNICAL SERVICES. SIMILARLY, THE PROVISIONS OF SE CTION 9(1)(I) ARE NOT ATTRACTED IN THIS CASE AS NO INCOME HAS ACCRUED OR ARISED FRO M THE BUSINESS CONNECTION ABROAD IN INDIA. THE EXPLANATION STATES THAT ONLY T HAT PART OF INCOME FROM BUSINESS OPERATIONS CAN BE SAID TO BE ACCRUING OR A RISING IN INDIA ONLY IF IT IS RELATABLE TO THE CARRYING OF OPERATIONS IN INDIA. T HUS, THE PAYMENT RECEIVED BY THE ASSESSEE NEITHER FALLS UNDER SECTION 9(L)(I) OR SECTION 9(L)(VII). HENCE, WE 6 ITA NO. 1705/DEL/2016 HEREBY DECLINE TO INTERFERE WITH THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL IN THIS CASE. AFTER GOING THROUGH THE DIRECTIONS OF DRP AS WELL AS THE AGREEMENTS IN CONSONANCE WITH PRESENT ASSESSMENT YEAR, IT IS FOUN D THAT THE ACTIVITIES MENTIONED BY THE ASSESSEE DO NOT FALL WITHIN THE PU RVIEW OF MANAGERIAL/CONSULTANCY OR TECHNICAL SERVICES. THUS , THE PAYMENT TOWARDS THE SAME CANNOT BE TREATED AS TECHNICAL SERVICES. THE SUPPORT SERVICES ARE VERY MUCH OF A GENERAL SERVICES IN NATURE AND DOES NOT REQUIRE ANY MANAGERIAL/TECHNICAL OR CONSULTANCY EXPERTISE. THE ASSESSEE DURING THE ASSESSMENT YEAR 2011-12 HAS CATEGORICALLY MENTIONED THAT THE NATURE OF THESE OPERATIONS IS PURELY LOGISTIC SUPPORT PROVIDED BY T HE ASSESSEE FOR SHIPMENT OF TRANSPORT OF GOODS PERFORM OUTSIDE IN INDIA AND THE CONTRACT IS ENTERED BETWEEN EXPERTISE INTERNATIONAL INDIA PVT. LTD. AND THE CUS TOMERS I.E. AT THE CONSIGNER SENT IN THE CASE OF EXPERT OF CONSIGNMENT FROM INDI A TO OVERSEAS COUNTRIES FOUND USA AND BETWEEN THE ASSESSEE AND THE CUSTOMER THAT IS AT THE CONSIGNMENT END IN THE CASE OF IMPORT OF CONSIGNMEN T FROM OTHER COUNTRIES I.E. USA TO INDIA. AS REGARDS GAM CHARGES/EXPENSES, THE COST OF THESE GROUP IS ALLOCATED TO A RESPECTIVE COUNTRIES BENEFITED TO TH ESE SERVICES AND ARE INCURRED OUTSIDE INDIA. THE GAM STAFF IS EMPLOYED WITH THE ASSESSEE AND THERE IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN THE EMPLOYEE S AND THE EXPEDITOR INTERNATIONAL INDIA. THESE ACTUAL EXPENSES INCURRE D BY THE ASSESSEE ARE ALLOCATED IN PROPORTION TO THE REVENUE BY THE RELEV ANT EXPEDITE GROUP ENTITY IN THAT COUNTRY FROM THAT PARTICULAR CUSTOMER ACCOUNT WHICH IS MANAGED BY THE GAM TEAM. THESE SO CALLED EXPENSES WITHOUT ANY INC OME ELEMENT EMBED IN THEM ARE THEN REIMBURSEMENT TO THE ASSESSEE ON ACTU AL BASIS BY EXPEDITORS INTERNATIONAL INDIA. THESE FACTS WERE NEITHER DISP UTED BY THE REVENUE BEFORE THE DRP IN ASSESSMENT YEAR 2010-11 NOR IN THE PRESE NT ASSESSMENT YEAR I.E. A.Y 2011-12. THE ACTIVITIES WERE NOT CHANGED IN TH E PRESENT ASSESSMENT YEAR AS WELL. THEREFORE, THOUGH THE CONTENTION OF THE L D. DR WAS THAT THE AGREEMENT WAS NOT TAKEN INTO ACCOUNT AS WELL AS THE TP STUDY WAS NOT TAKEN INTO ACCOUNT 7 ITA NO. 1705/DEL/2016 IN ASSESSMENT YEAR 2010-11 DOES NOT STAND CORRECT A S THE AGREEMENT RELATED TO FRIGHT LOGISTIC SUPPORT SERVICES AND GLOBAL ACCOUNT MANAGEMENT CHARGES WERE VERY MUCH MENTIONED IN ORDER DATED 30/09/2020 BY TH E TRIBUNAL. THERE ARE NO DISTINGUISHABLE FACTS POINTED OUT BY THE LD. DR. HENCE, THE ISSUES IN THE PRESENT YEAR ARE SQUARELY COVERED/IDENTICAL TO THAT OF ASSESSMENT YEAR 201-11. THUS, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11TH DAY OF FEBRUARY, 2021. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 11/02/2021 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI