Payment Made Overseas For Providing Information On Tariff Change Is Not 'FTS' And Hence Does Not Warrant TDS Deduction U/s 195: Delhi ITAT

Finding that the sole basis of the Revenue for holding that the payment made to overseas logistics company is towards consultancy services is that as per one of the terms of contract executed between Assessee and the overseas parties, the said parties advised the Assessee on change into tariff ratio, the ITAT observed that such advice would not partake character of rendering consultancy service and that mere provision of such information would not be sufficient for treating the entire services as managerial or consultancy services.

Section 195 of the Income-tax Act, specifies the TDS provision in the case of an individual making a payment by way of interest or any other amount other than salary to an NRI or a foreign company.

Section 9(1)(vii) of the Income Tax Act, states that any income that is deemed to accrue or arise in India, even if the income is earned by a non-resident, is subject to tax in India. This provision is important as it expands the scope of taxable income in India and brings non-resident taxpayers within its ambit.

The Division Bench comprising Kul Bharat (Judicial Member) and M. Balaganesh (Accountant Member) observed that “It is not the case that overseas parties have their Permanent Establishment (“PE”) in India and derive income from the business set up and controlled in India. Hence, such amount is not chargeable to tax in India and no tax needs to be deducted at source”. (Para 9)

The brief facts were that the AO while framing the assessment, noticed that the assessee had claimed an amount of INR 89,42,83,355/- towards shipment clearing and forwarding expenses. It was noticed that out of this amount, an amount of INR 33,49,56,683/- was paid overseas on which no tax was deducted by the assessee. The AO called upon the assessee to explain as to why it failed to deduct tax in terms of section 195, as he was of the view that the services so rendered to the assessee by the persons hired by it fell under the category of consulting services and payments made to the parties, are liable for deducting tax at source since it was squarely covered by the provisions of section 195 of the Act which mandates deduction of tax at source on payments made to non-resident.

The Bench remarked that if Revenue's view is accepted then any information received by the Assessee from non-residents during the course of business would be treated as rendition of consultancy services by the non-resident.

The Bench noted that the Revenue had not disputed the fact that freight and logistics services were provided by the non-residents.

Since, payment was wholly and exclusively for the execution in the shape of transport, procurement, customs clearance, delivery, warehousing and picking up services, hence, the same could not be treated as payment for consultancy services, added the Bench.

The Bench relied Coordinate Ruling in ACIT vs M/s. Indiar Carriers Pvt Ltd - ITA No.1605/Del/2010, where on identical facts it was held that payment made to freight forwarding agent is covered by Circular No. 715 dt Aug 8, 1995 and, therefore, it was not for managerial services and the expenditure was in nature of business expenses.

Hence, the ITAT dismissed the Revenue's appeal and concluded that “Since the income cannot be described as deemed to accrue or arise in India and there is no doubt about such income having not been received as deemed to be received as accruing or arising in India, the taxability of such income fails.”

Counsel for Assessee: Advocates Salil Kapoor and Ananya Kapoor

Counsel for Revenue: Dharambir Singh

Case Title: ACIT Vs Lx Pantos India Private Limited

Case Number: ITA Nos.911 & 912/Del/2023

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