2012 (2) TMI 549 - AT - Income Tax

Employment Relationship Confirmed for Overseas Worker in India

M/s Caterpillar India Pvt. Ltd. Versus The Deputy Director of Income-tax, International Taxation, Circle-I (I), Bangalore

The Tribunal concluded that an employer/employee relationship existed between the assessee company and the individual deputed to work in India. The ... Order passed u/s 201(1) and 201(1A) - Secondment of Employee - Held that:- Host company shall take all reasonable actions necessary to ensure that the Employee is in compliance with all applicable local laws, regulations or other requirements applicable to immigration and the services. The Employee will report to, and be under the direction and control of, Host Company and comply with Host Company’s policies and procedures applicable to the services, including without limitation, reasonable directives of Host Company concerning job safety and confidentiality in the handling of data and information. Home Company represents that, to the best of its knowledge; (i) the Employee has,or will have, the professional training and skills necessary to fulfill the functions he/she is to perform for the Host Company during the secondment based upon the requirements provided by Host Company, and (ii) Home Company has obtained, or promptly shall obtain, from the Employee his/her consent to the secondment. Employee-Related Costs - Held that:- During the period of this agreement, for administrative convenience, the Home Company shall make payment of salary, bonus and all other benefits to the Employee as per the terms with the Employee on behalf of the Host Company. Host Company shall promptly reimburse Home Company for any and all costs in borne on its behalf in accordance with sec.3. Costs of Host Company. Unless agreed upon otherwise in writing between the parties. Host Company shall bear and directly pay all the related local costs and expenses. Such costs may include, but shall not limited to, housing, rent, utilities, furniture, company car or other transportation and any other foreign service allowances. As can be seen from the above clauses, the facts of the case before us are exactly the same. In view of the same, we do not see any reason to take any other view. In view of the same, assessee’s appeal is allowed. Issues Involved:1. Employer/Employee Relationship2. Nature of Services Rendered3. Tax Deduction at Source (TDS) ObligationsDetailed Analysis:1. Employer/Employee Relationship:The primary issue was whether there existed an employer/employee relationship between the assessee company and Mr. Ed Melicor, who was deputed by Caterpillar Asia Pte Ltd. (CAPL) to work in India. The ITO held that there was no such relationship, as the assessee company had no powers to terminate the employee or decide his salary, indicating that Mr. Melicor remained an employee of CAPL. The CIT(A) confirmed this view, but the assessee contended that the secondment agreement indicated an employer/employee relationship, as Mr. Melicor worked under the direction and control of the assessee company.The Tribunal referred to a similar case, M/s IDS Software Solutions (India) Pvt. Ltd. vs. ITO, where it was held that the secondment agreement constituted an independent contract of service, making the assessee company the employer for practical purposes. The Tribunal concluded that, based on the secondment agreement's clauses, Mr. Melicor was under the control and supervision of the assessee company, thus establishing an employer/employee relationship.2. Nature of Services Rendered:The second issue was whether the services rendered by Mr. Ed Melicor were technical services, which would attract the provisions of Section 195 of the IT Act. The ITO categorized the services as managerial and technical, thus subjecting them to TDS under Section 195. The CIT(A) upheld this view.However, the Tribunal, drawing parallels with the IDS Software Solutions case, noted that the secondment agreement's clauses did not align with a typical technical services contract. The agreement outlined duties and obligations that made Mr. Melicor responsible and subservient to the assessee company, which is inconsistent with a technical services agreement. Thus, the Tribunal concluded that the services rendered were not technical services as per Explanation-2 below Section 9(1)(vii) of the IT Act.3. Tax Deduction at Source (TDS) Obligations:The final issue was whether the remittance made by the assessee to CAPL required TDS under Section 195. The ITO argued that since CAPL was the employer, the remittance was not a mere reimbursement but a fee for technical services, necessitating TDS. The CIT(A) agreed with this interpretation.The assessee contended that TDS was already deducted under Section 192 for the salary paid to Mr. Melicor in India, and thus, no further TDS under Section 195 was required. The Tribunal found that since Mr. Melicor was considered an employee of the assessee company, the salary paid was subject to TDS under Section 192, and the reimbursement to CAPL did not constitute fees for technical services. Consequently, the assessee was not liable to deduct TDS under Section 195.Conclusion:The Tribunal allowed the appeal, concluding that:- There existed an employer/employee relationship between the assessee company and Mr. Ed Melicor.- The services rendered by Mr. Melicor were not technical services under Section 9(1)(vii) of the IT Act.- The remittance to CAPL was a reimbursement of salary costs, not subject to TDS under Section 195, as TDS was already deducted under Section 192.Order:The appeal filed by the assessee was allowed, and the order was pronounced in the open court on the 29th of February, 2012.