TaxTMI 
TaxTMI 
2010 (2) TMI 807
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....re out basis. The personnel work under the supervision and control of Lucent India. However, during the Financial Year 2002-03, no remittances have been made by Lucent India to Tekmark in respect of personnel deputed to Lucent India. Tekmark, has opted to follow the cash system of accounting. Accordingly, there is no income liable for tax in India during the Financial Year 2002-03." During the previous year, the assessee has raised invoices on M/s. Lucent Technologies Hindustan Pvt. Ltd. (Lucent):- Invoice No. Amount (USD) 03012003 828692.51 03028927 1005937.68 Total 1834630.19 The assessee has submitted vide its letter dated 12-9-2005, that the following employees have visited India:- Name of the Employee Duration of Stay Mr. Zapata Jaun Eligio November 25, 2002 to June 14, 2003 Mr. Zapata Rivero Raul January 13, 2003 to April 28, 2003 It has further submitted that no services have been rendered to Lucent through these employees in India. It has only deputed its personnel to Lucent India and, therefore, has not rendered any services in India. It further stated that the responsibility of Tekmark is only to depute pers....
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....tly accrued to the assessee in India through its employees who were provided to the services of Lucent as per the terms and conditions and, hence, the entire amount of Rs. 8,98,96,880 is taxable under section 5(2)(1) of DTAA and had, accordingly, raised the demand. On appeal before the Ld. CIT(A) the assessee filed the tax residency certificate and the same had been accepted by the Assessing Officer. The assessee raised the following grounds of appeal before the Ld. CIT(A):- "I. The Appellant respectfully submits that based on the facts, circumstances of the case and internationally accepted tax principles, the Deputy Director of Income-tax (DDIT) has grossly erred in holding that the Appellant exposes a PE in India under Article 5(2)(ii) of India-US Double Tax Avoidance Agreement (DTAA). II. Without prejudice that the PE is not exposed, the DDIT has erred in concluding that the Appellant is a Partnership and is not a tax resident of USA for the purposes of DTAA and, hence, it cannot avail the benefits of the provisions of DTAA. The DDIT failed to appreciate the tax filing requirements in the US and ought to have held that:- The Appellant is a Limited ....
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....by appellant to Lucent India. The appellant is providing only personnel and not furnishing any services through the personnel. I am accordingly, of the view that the case of appellant is not covered by clause (1) of Article 5(2) as the appellant is not furnishing any services through the employees or other personnel. The appellant is only providing personnel on hire basis. Further, the appellant is also not supervising the activities of his personnel nor directing them to act in a certain manner. These personnel are also not under the control of the appellant for their work. I am, therefore, of the view that the case of the appellant is not covered under clause (1) of Article 5(2) of the DTAA. Hon'ble AAR has given a ruling in the case of M/s. Tekniskil (Sendirian) Berhard v. CIT [1996] 222 ITR 551 (AAR). In this case, TSB, a Malaysian company entered into a contract with HHI, a Korean company to provide workers. The work of these workers was to be supervised by HHI and workers had to work under the control of HHI. HHI could disqualify and demobilize any of the workers in the event of unsatisfactory services. The Hon'ble AAR had held that under these circumstances, the TS....
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....de personnel to work under the direction, supervision, control of Lucent India. In view of this, I hold that the ratio of ruling of Hon'ble AAR in the case of P. No. 28 of 1999 (cited supra) is, therefore, not applicable in the case of the appellant. It is held that the appellant does not have a PE within the meaning of Article 5(2)(1) of the DTAA. The Assessing Officer has, therefore, wrongly held that the appellant has a PE in India." 6. Considering the above, the CIT(A) allowed the appeal of the assessee by observing as under:- "The Assessing Officer has himself held that within the meaning of DTAA, the payment received by appellant constitute business income and would be taxable in India only, if the appellant has a PE. As held above, the appellant does not have a PE and, accordingly, its business income is not taxable in India as per Article 7 of the DTAA." 7. Aggrieved the Department is on appeal before us. We heard both the parties. 8. From the facts on record it is clear that what the American company has provided is selecting and offering personnel to work under the control and supervision of the assessee in India. It is not a part o....