Inspection And Examination Of Goods Before Shipment Not Taxable As Technical And Managerial Services: ITAT Delhi
The Delhi Bench of ITAT, consisting of members Amit Shukla (Judicial Member) and Dr. B. R. R. Kumar (Accountant Member), ruled that inspection and examination of goods before shipment cannot be treated as technical and managerial services under Section 9 (1) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) (CIT (A)) had confirmed the additions made to...
The Delhi Bench of ITAT, consisting of members Amit Shukla (Judicial Member) and Dr. B. R. R. Kumar (Accountant Member), ruled that inspection and examination of goods before shipment cannot be treated as technical and managerial services under Section 9 (1) of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals) (CIT (A)) had confirmed the additions made to Assessee's taxable income under Section 40 (a) (i) of the Act on the ground that the Assessee had not deducted tax at source (TDS) while making reimbursement of sums in the nature of 'fee for technical services' to foreign entities. The Assessee filed an appeal against the order of the CIT (A).
The Assessee contended that the CIT (A) misinterpreted the provisions of Section 9 of the Act as well as the DTAA between India and USA. It was submitted that the specified payments made to foreign entities included charges for renewal of subscription for availing information regarding the Iron and Steel prices in China. Also, the Assessee contended, the reimbursement of travelling expenses of a German Company was in connection with their examination of the shipment to be supplied. The Assessee submitted that these payments were not exigible to TDS. The CIT (A) contended that the inspection and examination done in order to determine whether the quality, quantity and weight of the shipment is in consonance with the contract is a technical service. The revenue authorities contended that since the Assessee had not deducted TDS in these payments made to foreign entities, the payments were disallowed as deduction under Section 40 (a) (i) of the Act.
Section 9 (1) (vii) of the Act provides that income by way of fees for technical services payable by a resident shall be deemed to accrue or arise in India. Explanation 2 of this section provides that 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". Also, Section 40 (a) (i) of the Act provides that any fee for technical services or other sum chargeable under the Act, which is payable outside India, shall not be deducted in computing the income from business or profession if tax is required to be deducted at source on them and such tax has not been deducted.
The court held the charges on renewal of subscription for availing price information cannot be treated under Section 40 (a) (i) of the Act. Also, the court held that inspection and examination of goods before shipment is a common practice and it cannot be treated as a technical service under Section 9 of the Act.
"We find that the inspection and examination of the goods before shipment is a common practice and it cannot be treated as a technical service. The inspection with regard to quality, quantity and weight of the product pre- shipment of rolling coils, non-alloy steel rolls cannot be treated as technical and managerial services as per the provisions of the DTAA and Section 9(1) of the I.T. Act."
The court allowed the appeal of the Assessee, also holding that since the Assessee had not earned any exempted income in the relevant assessment year, no disallowance under Section 14A is attracted.
Case Title: Maharashtra Seamless Ltd. Vs DCIT