FEDEX EXPRESS INTERNATIONAL B.V.,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2(3)(1), MUMBAI

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ITA 3282/MUM/2023Status: DisposedITAT Mumbai29 May 2026AY 2020-2110 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that once the transactions between the Indian entities and the assessee were found to be at arm's length price (ALP) through transfer pricing analysis, no further profit attribution to the PE could be made. The AO's addition was directed to be deleted.

What were the facts?

The assessee, a non-resident company, provided transportation services to its Indian group entities. The Assessing Officer (AO) determined that these Indian entities constituted a Dependent Agent Permanent Establishment (DAPE) and attributed profits to it, despite the assessee claiming transactions were at arm's length.

What were the issues?

Whether profit attribution to a Dependent Agent Permanent Establishment (DAPE) is permissible when the underlying international transactions have already been determined to be at arm's length price.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 244A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “I” BENCH, MUMBAI

For Appellant: Shri Sriram Seshadri/, Shri Amulya K
For Respondent: Shri Krishna Kumar (Sr. DR)
Hearing: 06.04.2026Pronounced: 29.05.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI PRABHSASH SHANKAR, ACCOUNTANT MEMBER

ITA No. 3282/Mum/2023 (Assessment Year: 2020-21) FedEx Express International B.V. Asst. CIT (IT)-2(3)(1) Room No. 1614, 16th Floor, Boomberang, 801, A-Wing, Vs. Chandivali Farm Road, Air India Building, Nariman Point, Andheri (E), Mumbai-400 072 Mumbai – 400 021 PAN/GIR No. AADCF 2700 Q (Appellant) : (Respondent) Appellant by : Shri Sriram Seshadri/ Shri Amulya K. Respondent by : Shri Krishna Kumar (Sr. DR) Date of Hearing : 06.04.2026 Date of Pronouncement : 29.05.2026 O R D E R Per Saktijit Dey, Vice President: Captioned appeal has been filed by the assessee, challenging the final assessment order dated 20.07.2023 passed u/s. 143(3) read with section 144C(13) of the Income Tax Act, 1961 (‘the Act’ for short), pertaining to the assessment year (A.Y. for short) 2020-21, in pursuance to directions of learned Dispute Resolution Panel (‘ld. DRP for short).

2.

Learned counsel for the assessee, on instructions, did not press ground no. 1. Accordingly, this ground is dismissed as not pressed.

3.

Substantial issue arising in the appeal as per ground nos. 2, 3, 4 and 5 relates to attribution of profit to the Permanent Establishment (PE) in India.

4.

Briefly, the facts are, the assessee is a non-resident corporate entity incorporated in Netherlands, hence, is a tax resident of Netherlands. As stated by the Assessing Officer

2 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) (A.O. for short), the assessee is a group company of FedEx Group, having its headquarters in United States of America (USA for short), which is engaged in the business of providing world wide services in transportation, delivery and allied services, etc. Assessee’s area of operation is Middle East and India. As stated by the A.O., the assessee is engaged in transportation of time-sensitive and time-definitive shipments to various destinations around the world and is responsible for the delivery of the freight to the airport/ultimate destination, as the case may be. In connection with such activity, the assessee undertakes to pay duties and taxes outside India, on behalf of the consignors/consignees. It is also stated by the AO that through its Dubai branch, the assessee had entered into Transportation Services Agreements (‘TSA’) with following two Indian entities: 1. FedEx Express Transportation and Supply Chain Services India Private Limited (‘FETSCS’). 2. TNT India Pvt. Ltd. (‘TNT India’). 5. Upon execution of these agreements, the assessee agreed to perform transportation related services with respect to outbound/inbound packages of FETSCS and TNT India,A, for which the assessee receives International Transport Fees. It may be stated, for the assessment year under dispute, the assessee filed its return of income on 12.02.2021, declaring Nil income and claimed refund of Rs.15,81,24,960/-.

6.

In course of assessment proceedings, the A.O. noticed that while providing the outbound and inbound transport and delivery services, the assessee has received an amount of Rs.1081,23,86,331/- from two Indian group entities. Whereas, the assessee has not offered them to tax stating that the receipts are in the nature of business income in terms with Article 7 of India-Netherland Double Taxation Avoidance Agreement (DTAA) and in absence of Permanent Establishment (PE), are not taxable in India. The assessee had

3 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) further stated that even assuming that there is an agency PE in India, however, since the transactions with the agents have been remunerated at arm’s length, no further profit is attributable to the PE. The A.O., however, was not convinced with the submissions of the assessee. After going through the agreements, the A.O. observed that the very same services were provided earlier to the Indian entities by the parent company in USA and through the freshly agreement the assessee has essentially stepped into the shoes of the parent company. Referring to the terms of the agreements, the A.O. observed that the Indian group entities are merely acting as agents of the assessee to conduct the business of the assessee in India. He observed that the Indian group entities do not have any independent existence economically and in all respect are dependent on the assessee. He observed that the Indian group entities are virtually carrying out assessee’s business activities in India. Thus, ultimately, he concluded that both the Indian group entities are dependent agents of the assessee in India, hence, constitute dependent agent PE (DAPE) in terms with Article 5(5) of India-Netherlands DTAA. Having held so, he proceeded to attribute profit to the PEs. For outbound consignments, he attributed 55% of the Revenue earned by the assessee from Indian entities to the PE, whereas, in respect of inbound consignments he attributed 22.5%. Thus, the A.O. worked out the total profit attributable both for outbound and inbound transportation services at Rs.868,59,74,043/-. Applying net global profitability rate of 2% to the aforesaid figure, he worked out net profit attributable to PE in India at Rs.17,37,19,421/- and brought it to tax by applying the rate of 40%. Accordingly, he framed the draft assessment order.

7.

Against the draft assessment order, the assessee raised objections before learned DRP, However, assessee did not get any relief before ld. DRP. Accordingly, the draft assessment order was finalized through the final assessment order.

4 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) 8. Before us, ld. Counsel appearing for the assessee submitted that the Indian entities were subjected to transfer pricing assessments. He submitted, though the Transfer Pricing Officer (‘TPO’ for short) had proposed adjustments to the ALP declared by the assessee, however, the Tribunal while deciding the appeal for the impugned assessment year had accepted the ALP declared by the assessee. Thus, he submitted, once the transactions between the Indian group entities and assessee were found to be at ALP, no further attribution of profit can be made to the PEs in India. In support of such contention, ld. Counsel relied upon the following decisions: 1. Director of Income-tax (International Taxation) vs. Morgan Stanley & Co. [2007] 162 Taxman 165 (SC) 2. Assistant Director of Income-tax vs. E-Funds IT Solution Inc. [2017] 86 taxmann.com 240 (SC)

9.

Proceeding further, he submitted, the Indian PEs in the return filed for the assessment year under dispute had offered five times more income than the profit attributed by the A.O. Thus, he submitted, the addition made by A.O. cannot be sustained. In support, he relied upon the decision of Hon'ble Supreme Court decision in case of Director of Income Tax vs. Travelport Inc. (in Civil Appeal No. 6511-6518/2010 vide judgment dated 19.04.2023). Finally, ld. Counsel for the assessee submitted that while deciding identical issue in assessee’s case in A.Ys. 2018-19 and 2019-20, the co-ordinate bench has held that once the transactions between the Indian PEs and the assessee were found to be at ALP, no further attribution of profit can be made to PE. In this context, he drew our attention to the observations of the co-ordinate bench in case of M/s. Fedex Express International B. V. vs. ACIT (ITA Nos. 2463 and 2464/Mum/2022 vide order dated 31.07.2023).

5 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) 10. The ld. Departmental Representative (ld. DR for short) strongly relied upon the observations of the A.O. and ld. DRP.

11.

We have considered rival submissions and perused the materials available on record. At the outset, we must observe, at the time of hearing, ld. Counsel appearing for the assessee submitted that the assessee is not contesting the existence of DAPE. In view of the aforesaid, we proceed on the footing that the assessee did have DAPE in India in the form of FETSCS and TNT India. Thus, the only issue which remains to be decided is, whether the A.O. was justified in attributing profit to the PEs. In this context, it must be noted that the transactions between Indian PEs and the assessee since were in the nature of international transactions, the Indian entities undertook transfer pricing analysis and in the returns of income filed by them, it was claimed that the transactions were at ALP. Though, the TPO did not agree with the ALP declared by the entities and suggested adjustment to the ALP, however, when the matter reached Income Tax Appellate Tribunal (ITAT), while deciding the appeal in ITA No. 4783/Mum/2024 vide order dated 30.07.2025, the co- ordinate bench granted substantial relief to the assessee resulting in acceptance of the ALP declared by the Indian entity. Thus, it has to be concluded that the transaction between the Indian group entities and the assessee were found to be at ALP. That being the factual position on record, it needs to be examined whether further profit can be attributed to the PEs out of the amounts received by the assessee. In case of Director of Income-tax (International Taxation) vs. Morgan Stanley & Co. (supra), the Hon'ble Supreme Court while examining the issue has categorically held that once the transactions between the associated enterprises were found to be at ALP, no further profit can be attributed to the PE. The same view was reiterated by Hon'ble Supreme Court in case of Assistant Director

6 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) of Income-tax vs. E-Funds IT Solution Inc. (supra). In fact, in assessee’s own case in A.Ys. 2018-19 and 2019-20, identical nature of dispute came up for consideration before the co- ordinate bench in the order referred to above. While deciding the issue, the co-ordinate bench has held as under: 21. We have heard rival submissions and also perused the relevant finding given in the impugned orders as well as the orders referred to before us. In so far as the issue of dependent agency PE of the assessee in India, it has not been contested by the ld. Counsel and only issue before us is the issue of profit attribution from the alleged DAPE which is to be decided. As discussed above, assessee is engaged in transportation of time-sensitive and time-definitive shipments to various destinations around the world and is responsible for the delivery of the freight to the airport/ultimate destination. It also undertook to pay duties and taxes at airports outside India on behalf of consignors/consignees. In India, assessee provides transportation services to its group entities in India i.e. FedEx Express Transportation and Supply Chain Services India Private Limited (FETSCS) and TNT India Private Limited (TNT India) by engaging the services of Federal Express Corporation (FEC), an airline entity incorporated in the United States of America. Indian AEs have the registered office in India and are primarily engaged in business of door to door delivery of goods, documents within and outside India by air as well as surface distribution in India. These AEs are also engaged in supply chain management, warehousing within the territory of India, custom clearance and other ancillary services. TNT India is the mainly engaged in the business of courier and express services. The assessee has entered into Transportation Services Agreement with both Indian AEs and pursuant to the said agreement, assessee was providing transportation services outside India, i.e., from and to India in respect of their customer packages, against payment of International Transportation Fee (TTF) and International Hub Service Fees (IHSF) respectively to the assessee. The assessee is responsible for transportation of the said packages from Indian airport to its ultimate destination outside of India, and vice-versa. The amounts received for the impugned assessment years are as under:- AY 2018-19 Amount (INR) ITF from FETSCS 82,97,81,497 IHSF from TNT India 9,80,96,213 Assessee's Total Income from its Indian AES [A+B] 92,78,77,710

A.Y.2019-20 Amount (INR) ITF from FETSCS 10,06,47,62,901 IHSF from TNT India 1,22,25,67,999 Assessee's Total Income from its Indian AES [A+B] 11,28,73,30,900

22.

Similarly, assessee has engaged its AE for transportation services within India in respect of its customer packages against payment of fee. Indian AEs are responsible for transportation delivery of the said packages from an Indian airport to its ultimate destination in India or from its origin in India to Indian airport. Likewise, the details of amounts paid by the assessee in the impugned assessment years are as under:-

7 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) A.Y.2018-19 Amount (INR) LSF from FETSCS 15,52,68,802 LSF to TNT India 70,837,078 Total LSF paid to the Indian AES [A+B] 226,105,880

A.Y.2019-20 Amount (INR) LSF to FETSCS 1,83,65,06,785 LSF to TNT India 91,39,33,547 Total LSF paid to the Indian AES [A+B] 2,75,04,40,332

23.

As per Article 7(2) of India-Netherlands treaty, not all the profits of foreign enterprises in India would be taxable in India and it is only those which have economic nexus with India. If compensation to the foreign enterprise in India is justified by FAR analysis and transfer pricing analysis and if it has been found to be at arm’s length, then no further income should be attributed to its PE in India, because when for the same transaction, arm’s length analysis has been undertaken and is equated with attribution of profits, then we do not find any reason as to why such adhoc attribution should be made as done by the ld. AO. Here, in this case Indian companies whose activities constitutes a PE for the foreign enterprise, and it has been remunerated on an arm's length basis upon taking into account all the functions and assets and risks of the foreign enterprise in India and if the same are found at arm’s length, then there is hardly any scope left from making any further attribution to the PE. The situation would however be different if TP analysis does not adequately reflect the functions performed and the risks assumed on behalf of the foreign enterprise in India, then there would arise a need to attribute profits to the PE for those functions/risks that have not been considered in the TP analysis. Then such determination exercise of attribution would be based on the facts of the case. 24. These propositions has been reiterated by the Hon’ble Supreme Court in the case of E-funds (supra) relying on its earlier decision of Morgan Stanley (supra) wherein the Hon’ble Supreme Court has held that no further profits could be attributed, even if there existed a PE in India, where transactions between foreign enterprise in India and Indian entity which is the PE, are at arm’s length price. Herein, the profits attributable to the PE shall be determined in accordance with Article 7 of India-Netherland Tax treaty, which for sake of ready reference is reproduced hereunder:- “2. Subject to the provisions of paragraph (3), where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment." 25. Thus, profits taxable in India are those profits which Indian AEs are expected to earn under same or similar uninfluenced conditions, which is nothing but arm’s length profit which are expected to be earned and is a kind of reward of the economic activities which is carried out in India. Here, the entire economic activity in India is carried by the Indian AE whose activities have been held to be DAPE for the assessee and if such economic activities have been held to be at arm’s

8 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) length in the case of Indian AEs then it has to be reckoned to have been rightly rewarded, then nothing further survives to be taxed in India in the hands of the assessee. 26. It has been also brought on record that assessee has been subjected to TP adjustment and in the case of the assessee also the transactions have been found to be at arm’s length and additionally one of the two Indian AEs have also been subjected to TP adjustment and its transaction with assessee also to be at arm’s length and new adjustments have been made. 27. Before us, ld. Counsel had also brought on record and also showed from TP documentation for A.Y.2018-19 of the assessee and both the Indian AEs and also from the TP order of the assessee and TNT India for the same year, that the international transactions of the Indian AEs with the assessee, are at arm’s length price wherein the mean margin determined based on five comparable companies in the case of both Indian AEs was 2.85% of income while the assessee has remunerated at a higher margin of 4% on their gross income. Apart from that, the ld. TPO has not recorded any finding that suggests that all the FAR undertaken by each of the parties were not adequately captured which negates any requirement for further attribution of profits in the absence of any left- out functions and risk taking activities. Accordingly, we agree with the contention of the ld. Counsel that once the transactions have been found to be at arm’s length, no further profit attribution can be made. 28. In any case, it has been brought on record that assessee had incurred losses in the fiscal year 2018, 2019 and 2020 and ld. AO without analyzing the transactions had made the losses of the assessee into profit just merely rely on the draft report of the CBDT and a recommendery course of action for the profit attribution to the PE. Before, us, ld. Counsel has also demonstrated as to how no income can be taxable in the hands of the assessee looking to the fact that already in relation to the operations carried out by the assessee for its Indian AE already income has been subjected to tax in India in the hands of the AE in the following manner:- Particulars AY 2018-19 AY 2019-20 (Amount in INR) (Amount in INR) Profits attributed by the Ld. AO (A) 1,47,28,772 17,91,69,446 Less: Profits already taxed in the hands of FETSCS 5,00,50,249 61,30,37,171 (B) In connection with the outbound 1,08,32,707 12,81,28,531 segment In connection with logistic service fees Less: Profits already taxed in the hands of TNT India (C) In connection with the billed segment 1,04,59,120 12,38,04,286 In connection with logistic service fees 49,42,122 6,37,62,806 Net Result [(A)-(B)-(C)] -6,15,55,426 -74,95,63,348 29. The ld. DRP somewhere had stated that remuneration paid to Indian AE does not capture the functions/risks and return on the use of intangibles and therefore, it has upheld the profit attribution. Such a finding is not based on any proper analysis of the facts and documents and it is merely a hypothesis. Accordingly, such an observation of the ld. DRP cannot be sustained for the reason that already international transaction between assessee and the Indian AE have been

9 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT) subject matter of TP analysis and which had been concluded at arm’s length price. Even if no reference to the TPO has been made in A.Y. 2019-20, since the facts and circumstances and the margins on same transactions are the same and ld. AO was also not alleged that the transaction between the assessee and its AE are not at arm’s length, then in such case also, we do not find any reason to deviate from the decision as applicable for A.Y.2018-19 also. Accordingly, this issue is decided in favour of the assessee. Finally, appeal of the assessee is allowed.

12.

The observations of the co-ordinate bench squarely apply to the facts of the present appeal. It is further relevant to observe, on examining the TP analysis of FETSCS, pertaining to A.Y. 2020-21, placed in the paper book, we have noticed that the profit declared by it in relation to the transactions with the assessee is much more than the profit attributed by the A.O. of the present assessee to the Indian PE. Thus, on over all consideration of facts and materials on record, we are of the view that the transaction between the Indian group entities, which are DAPEs of the assessee, and the assessee having been found to be at arm’s length, no further profit can be attributed to the PEs. Accordingly, we direct the A.O. to delete the addition.

13.

In view of our decision above, the secondary issues raised by the assessee, concerning the attribution of profit to the PEs in India having become academic do not require adjudication. As far as ground no. 6 is concerned, it relates to grant of interest u/s. 244(A) of the Act. We direct the A.O. to factually verify assessee’s claim and decide in accordance with the law.

14.

In the result, the appeal is partly allowed. Order pronounced in the open court on 29.05.2026 Sd/- Sd/- (Prabhash Shankar) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 29.05.2026 Roshani, Sr. PS

10 ITA No. 3282/Mum/2023 (A.Y. 2020-21) FedEx Express International B.V. vs. Asst. CIT (IT)

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai

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