Facts of the Case

The Revenue filed a batch of appeals under Section 260A of the Income-tax Act, 1961 for multiple assessment years against common orders of the Income Tax Appellate Tribunal in favour of Expeditors International of Washington Inc., a company incorporated in the United States and engaged in providing global freight forwarding and logistics support services.

The controversy pertained to taxability of amounts received from Indian group entities towards Freight Logistic Support Services, reimbursement of Global Account Management charges, and reimbursement of Leaseline charges. The Revenue alleged that such receipts were taxable in India as Fees for Technical Services or Fees for Included Services under Section 9(1)(vii) of the Act read with Article 12 of the India–US Double Taxation Avoidance Agreement, and that Leaseline charges constituted royalty under Section 9(1)(vi).

Issues Involved

Whether Freight Logistic Support Services constituted Fees for Technical Services / Fees for Included Services under Section 9(1)(vii) of the Act and Article 12 of the India–US DTAA, whether reimbursement of Global Account Management charges was taxable as FTS/FIS, and whether reimbursement of Leaseline charges was taxable as royalty.

Appellant’s Arguments

The Revenue contended that Freight Logistic Support Services involved specialized technical knowledge, managerial expertise and consultancy, including customs brokerage, compliance with international regulations, documentation, training and personnel management. Reliance was placed on disclosures in the Transfer Pricing Study referring to “technical knowledge” and “training” to submit that the services satisfied the requirements of Article 12 of the DTAA.

It was further argued that reimbursements of Global Account Management charges constituted FTS/FIS and that Leaseline charges were taxable as royalty.

Respondent’s Arguments

The assessee contended that freight forwarding and logistics support services were routine commercial services and did not involve transfer of any technical knowledge, skill or know-how to the Indian entities. It was submitted that the services failed to satisfy the mandatory “make available” condition under Article 12 of the DTAA.

The assessee further submitted that issues relating to Global Account Management charges and Leaseline charges stood concluded in its favour by binding judgments of the Delhi High Court in earlier assessment years.

Court Order / Findings

The Delhi High Court noted that questions relating to Global Account Management charges and Leaseline charges were already conclusively settled against the Revenue in earlier decisions involving the same assessee and therefore did not raise any substantial question of law.

With respect to Freight Logistic Support Services, the Court undertook an extensive analysis of the scope of Fees for Technical Services under Section 9(1)(vii) and Article 12 of the DTAA. The Court reiterated that under the DTAA, mere rendering of technical or consultancy services is insufficient unless the services also “make available” technical knowledge, skill, experience or know-how to the recipient.

The Court examined the extracts from the Transfer Pricing Study relied upon by the Revenue and held that assisting in customs clearance, compliance with statutory regulations, preparation of documentation, or developing a global culture of personnel management did not amount to transfer of specialized technical knowledge. The Court observed that customs regulations are in the public domain and that merely assisting in compliance does not equip the recipient to independently perform such functions in future.

Relying on authoritative precedents including International Management Group (UK) Ltd., De Beers India Minerals Pvt. Ltd., US Technology Resources Pvt. Ltd. and Bio-Rad Laboratories (Singapore) Pte. Ltd., the Court held that the “make available” test requires a demonstrable transfer of enduring technical capability enabling the recipient to apply such knowledge independently, which was absent in the present case.

Important Clarification

The Court clarified that under Article 12 of the India–US DTAA, the conditions of rendering technical or consultancy services and making available technical knowledge must be cumulatively satisfied. Mere use of technical expertise by the service provider or provision of advisory or support services does not attract taxability unless there is a clear transfer of such expertise to the recipient.

Final Outcome

All appeals filed by the Revenue were dismissed. The Delhi High Court upheld the orders of the Income Tax Appellate Tribunal and held that Freight Logistic Support Services rendered by Expeditors International of Washington Inc. did not constitute Fees for Technical Services or Fees for Included Services under the Act or the India–US DTAA, and that reimbursements of Global Account Management and Leaseline charges were not taxable. The matters were decided in favour of the assessee and against the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770016625_COMMISSIONEROFINCOMETAXINTERNATIONALTAX1NEWDELHIVsEXPEDITORSINTERNATIONALOFWASHINGTONINC.pdf

 

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