The Income Tax Appellate Tribunal (ITAT) Delhi bench ruled that under Section 9 (1) of the Income Tax Act, 1961 the activity of inspection and investigation of goods prior to shipment would not be considered as technical and managerial services.
Before that the commissioner of the income tax Appeals CIT(A) proved the additions built to taxpayers’ income subjected to tax beneath Section 40 (a) (i) of the Act on the basis of the taxpayer had not deducted tax at source (TDS) during making the reimbursement of the sums in the nature of fee towards the technical services to the foreign entities. The taxpayer furnished the petition with respect to the order of the CIT(A).
The taxpayer mentioned that CIT (A) misinterpreted the provisions of Section 9 of the Act as well as the DTAA between India and the USA. It was submitted that the prescribed payments made to the foreign entities consist of the charges for renewal of the subscription to claim the details for the iron and steel rates in China. The taxpayer mentioned the reimbursement of travelling the expenses of a German company was in association with their examination of the shipment to be supplied. The taxpayer submitted that the same payment was not eligible for TDS.
Amit Shukla (Judicial Member) and Dr B. R. R. Kumar (Accountant Member), held that section 9(1) (vii) of the act furnish that the income through the way of fees for the technical services subjected to pay through the resident will be deemed to come in Indian.
The bench specified that “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 the income of the recipient chargeable under the head Salaries. Also, Section 40 (a) (i) of the Act mentions that any fee or money charged for technical services or other sum taken under the Act, which has to be paid 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 Tribunal ruled that the investigation of goods prior to the shipment is a mutual procedure and this will not be seen 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 Income Tax Act.”
