International freight forwarding and logistic services carried out by non-resident taxpayer outside India were neither managerial, nor technical nor consultancy in nature and hence would not be taxable as FTS under Income-tax Act.
Services which are rendered outside India by nonresident will not fall within the scope of section 9(1) (i) of Income-tax Act.
Facts:
Taxpayer, a non-resident Hongkong company (FCO), was engaged in the business of provision of supply chain management, including provision of freight, forwarding and logistic services.
FCO entered into a regional transportation and service agreement (agreement) with an Indian company (ICO) for providing freight and logistics services to each other.
In terms of the agreement, ICO undertook to perform destination services (such as, local unloading and loading, custom clearance, ground documentation and local transportation) within India while FCO undertook to perform destination services outside India.
FCO earned international transportation fees from ICO towards services rendered by it outside India on export consignments and claimed that such fees were not taxable in India u/s.5 r.w.s. 9 of Income-tax Act as the income arose from services rendered outside India and that no operations were carried on in India.
The Tax Department contended that services rendered by FCO were in the nature of freight and logistics services, which would be FTS u/s.9(1)(vii) of the Income-tax Act.
Also, FCO’s business of providing timebound service, coupled with continuous real-time transmission of information, also ‘made available’ its technology in the form of sophisticated equipments, software, etc. Thus, fees constituted FTS u/s.9(1)(vii) of the Incometax Act. Reliance in this regard was placed on the decision of Blue Dart Express Limited3.
Held:
International freight forwarding and logistic services performed by FCO outside India were neither managerial, nor technical nor consultancy services. Hence, they would not be taxable as FTS u/s.9(1)(vii) of the Income-tax Act. Further, since the services were rendered outside India, they would not fall within the scope of section 9(1)(i) of the Act.
Managerial services:
The nature of services rendered by FCO could not fall under managerial services as managerial services contemplate not only execution but also planning and strategising. If the overall planning aspect is missing, and one has to follow a direction from the other for executing particular job, it cannot be said that the former is managing that affair.
The role of FCO in the entire transaction was to perform only customs clearance and transportation to the ultimate customer outside India. Accordingly, such restricted services cannot be characterised as managerial services.
Consultancy services:
The nature of services (i.e., freight and logistics services in the form of transport, procurement, customs clearance, delivery, warehousing and picking up) cannot be considered as consultancy services.
Technical services:
Just as ‘managerial services’ and ‘consultancy services’ pre-suppose some sort of direct human involvement, technical services also cover those which have direct human involvement. While technical services may be rendered with or without any equipment, the human involvement is inevitable.
Even if the view of the Tax Department that computer was used in tracing the movement of the goods is accepted, such use of computer cannot bring the services within the purview of ‘technical services’.
Business connection
Under Explanation 1(a) to section 9 of the Income-tax Act, only that part of income from business operations can be said to be accruing or arising in India, as is relatable to the carrying on of operations in India. If a non-resident earns any income from India by means of operations carried on outside India, the same will not fall within the scope of section 9(1)(i) of the Incometax Act.
Also, as FCO rendered ‘International services’ outside India, income cannot be taxed u/s.9(1)(i) of the Income-tax Act.
