TaxTMI 
TaxTMI 
2012 (7) TMI 656
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant has not made available technical skill, Knowledge etc. to Lucent. 3) WITHOUT PREJUDICE TO STATED ABOVE, On the facts and circumstances of the case and in Law, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer to tax the entire Gross receipts received by the appellant from the Lucent without reducing the amount due to the technocrats which were in the nature of pure reimbursement and such amount was diverted at source and hence never constitutes the receipts of the appellant." 2. The entire controversy here in this appeal revolves around the solitary issue, whether the receipts of Rs. 2,14,33,555/- received by the assessee which is a non-resident company from Lucent Technologies Hindustan (Pvt.) Ltd ( in short 'Lucent'), an Indian company, in lieu of services provided, is taxable in India in terms of Article 12 of the Indo-US DTAA or not. The factual matrix as culled out from the records are that the assessee, M/s Avion Systems Inc., which is a US based company is specialized in providing highly qualified technocrats and technology relating to telecom sector and higher solutions in telecom engineering services. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng complexity of today's multimillion - gate SoC (System on a Chip) designs, the aggressive time-to-market requirements are becoming tougher to meet. Avion's ASIC design experience can provide the expertise needed to complete your ASIC/COT designs with absolute precision, while complying with strict time-line requirements. Whether it's developing synthesizable RTL or assisting in the verification of acquired IP (Intellectual Property), Avion's VLSI engineers can provide the additional bandwidth that's needed to reduce your chip's design cycle-time. Alternatively, our engineers can take your existing designs and create re-useable core components that can be leveraged to help reduce the design cycles of your next-generation initiative. Avion Systems also provides complete backend services required to take your design from 'Netlist-to-GDS'. Our physical design engineers are experienced in the layout and timing issues associated with VDSM (very Deep sub-Micron) technologies. There is an increasing need for faster, better and more reliable networks, thus increasing the need for the next generation of networking hardware and software products. Companies of all ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....directly reimbursed to these personnel along with the mark up of 6% to the assessee over and above the reimbursement of the salary. Thus, the entire transactions of the assessee vis-à-vis Lucent company does not fall within the ambit of 'FIS' as stipulated under Article 12(4)(b). 2.3 The Assessing Officer rejected the contention of the assessee and after considering the submissions and analysis of the various clauses of the agreement reached to the following conclusions which in brief are narrated hereunder :- i) That the manpower supplied by the assessee was termed as "Temporary Worker", however, its effective control, payment responsibility, retirement benefits, deduction of tax etc. were vested with the assessee and hence, they are the employees of the assessee company working under the supervision and control of the assessee to execute the necessary contract for the Lucent; ii) The contract between the two parties is in fact not that of simply supplying of manpower but for outsourcing of contract taken by Lucent in India for commissioning of telecom equipment and technology for Reliance Telecom. This conclusion was drawn from the fact that no labour ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... resources, who had earlier worked on various projects for Lucent. These technical experts were located in the different parts of the world and whenever there was a need for any technical person by Lucent for its project, it would place an order to the assessee by forwarding the resumes of these personnel. Learned AR drew our attention to various correspondence and resumes on sample basis of some of the personnel engaged by the assessee for Lucent company, to demonstrate that the assessee's job was mainly to locate the required personnel and then supply them to Lucent. All the VISA, travelling formalities undertaken by the personnel were mostly done with the help of the Lucent. He further submitted that the assessee was not involved in selection or performance of such temporary personnel and even the time sheets of working hours were maintained by the Lucent. Salary of these personnel were paid to the assessee, only to reimburse them according to their working hours and what the assessee used to get in lieu of all this was 6% of charges only. He also drew our attention to sample invoices which was raised to the Lucent showing the reimbursement of payment along with mark up of 6%. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat would be the need for hiring them through the assessee. The arguments placed by learned AR was to camouflage this fact as to get benefit under article 12. He has strongly relied upon the findings of the Assessing Officer as well as CIT(A), especially the example 3 of MOU of Indo-US DTAA for the purpose of Article 124(b). 8. We have given our anxious consideration to the rival contentions of the parties, findings given in the impugned orders and also carefully perused the materials places on record. Uncontroverted facts in this case are that the assessee, who is a US based company, does not have any permanent establishment in India, has entered into a transaction with an Indian company, Lucent, for supply of qualified technical personnel for Lucent's telecom operations in India, in pursuance of its contract with Reliance Telecom. In relation to this transaction, the assessee has opted to be governed by Indo-US (DTAA) and has took shelter under Article 12, that the payment which have been received from the Indian company is not included in 'FIS' under clause 4 of Article 12, hence, is not liable to be taxed in India. Here were are besieged with firstly, whether the technical p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ical personnel to fulfil its contractual obligations as it does not has requisite and enough personnel, therefore, the assessee who has requisite experts and technical personnel of desired experience and expertise in telecom related technology has provided such personnel to Lucent as per the contract. From this, it can be further deduced that technical personnel belong to or are employees of the assessee. To say that they are not the employees of the assessee as per the contention of the learned AR will not be correct interpretation of the terms and conditions and scope of the agreement. This aspect also gets endorsed by various other clauses of the agreement which are narrated in brief for the sake of ready reference and appreciation :- (i) Clause 6 defines "temporary worker" which shall mean the persons or persons employed by AVION and provided by AVION to the Lucent to carry out tasks required by the Lucent in execution of various projects undertaken by the Lucent, all under the terms of this Contract. "Work" shall mean the job(s) for which the Temporary Worker(s) is required by the Lucent. (ii) Clause 8 provides that order placed by the Lucent shall contain ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Attachment 2 to the said agreement is very relevant for the purpose of this issue which gives the undertaking by an employee in the following manner :- "As a precondition to receiving this assignment, I, the undersigned, an employee of AVION India, agree to the following : 1. I understand that I am an employee of AVION and not of Lucent and that I will be paid directly by AVION. 2. I understand that any problems or complaints I may have regarding the work assignment must be directed to my AVION Supervisor and not to the Lucent. 3. I understand that my rate of pay from AVION may be greater or less than that received by other individuals who are performing similar services for Lucent, regardless of whether they are employees of Lucent or other agencies. 4. I understand that there have been and will be no representations as to any assurance or possibility of being hired as a regular employee of Lucent, and that since I am not an employee of Lucent, no promotions or other forms of advancement or transfer by Lucent are available now or in the future. 5. I understand that my work assignment is contingent upon execution of the Agreement Rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....schedule of performance. (x) Clause 40 provides for plant rules, which provides the conditions governing the delivery, receipt and storage or materials at the site of the Work so that Avion will not interfere with Lucent's operations. (xi) Clause 41 provides warranty given by Avion to Lucent for any materials purchased and services provided. (xii) Attachment 3 to the agreement provides that the employees of Avion during the discharge of its work with Lucent will assign all the intellectual property rights and provides terms and conditions to be signed by the employee with regard to creation of intellectual property rights, which would belong to Lucent only. 10. From the covenants given in the agreement clearly shows that firstly, temporary workers are not the employees of the Lucent; secondly, Lucent will not take any kind of responsibility of any temporary worker provided by Avion; thirdly, Avion will be responsible for all the personnel deployed to the Lucent and all the compliance of laws relating to employer-employee relationship, registration, payment of salary etc., will be undertaken by Avion, fourthly, Attachment II categorically stipulates tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er :- "ARTICLE 12-Royalties and fees for included services : 1. x x x x 2. x x x x 3. x x x x 4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 11.1. Application of clause 4(a) is ruled out in the instant case. However, we have to examine whether the assessee's case falls within the clause (b) of Article 12(4), which states that the payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services make available technical knowledge, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e extra-strong wallboard. The U.S. contractors work with the technicians in the Indian firm for a few months. Are the payments to the U.S. firm considered to be payments for "included services"? Analysis : The payments would be fees for included services. The services are of a technical or consultancy nature; in the example, they have elements of both types of services. The services make available to the Indian company technical knowledge, skill and processes." 11.3. Here also the assessee has requisite and technical skills in providing solutions in technology relating to telecom sector. The Lucent, an Indian company wants technical experts, who have experience and skill, which here in this case undoubtedly belongs to the assessee, for its purpose of contract for commissioning and supply of telecom equipments in India. These services clearly fall within the illustration given in the Example 3 and, hence, the services rendered by the assessee falls within the clause 4(b) of Article 12 of the Treaty. Therefore, we hold that the payment received by the assessee from Lucent is taxable in India under Article 12 as fees for included services. 12. Learned AR during....