TaxTMI 
TaxTMI 
2012 (7) TMI 702
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....utually agreed terms and conditions was consistently required to provide high quality services which supports the position of M/s. Abbey National Plc, U.K. and its affiliates as being focused and efficient providers of financial and insurance services to customers in the United Kingdom. In order to ensure that high quality services were provided by M/s. Msource India Pvt Ltd., Abbey National Plc, UK entered into a consultancy agreement with the assessee on 4.2.2004 in which the description of services to be provided by the assessee are laid out and for which the assessee was to be compensated at cost plus 12% which included depreciation but excluded exchange fluctuation loss. 2.2 In order to facilitate the outsourcing agreement between Abbey National Plc, UK and Msource India Pvt Ltd, an agreement for secondment of staff was entered into between Abbey National Plc, UK and the assessee on 4.2.2004. The relevant clauses, of this agreement on the aspect of secondment of staff to the assessee are at Clauses 3.1 to 3.6 thereof which are as under : "3. Secondment of Staff to Abbey India 3.1 General In consideration of the payments to be made by Abbey India in accordance with ....
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....iabilities as employer and for accounting to the Inland Revenue in the United Kingdom and all other authorities for all taxes, National Insurance or similar contributions." 2.3 Clause 4 of the secondment agreement deals with payment for secondment by which the assessee agreed to reimburse the remuneration, pension contributions, expenses, statutory payments and other sums incurred by Abbey UK for each secondee during his or her period of secondment. Clause 4 reads as under : "4. Payment for Secondment 4.1 In consideration of the Secondment of Staff by Abbey UK, Abbey India shall make payments to Abbey UK (in Sterling) equivalent to the Remuneration, Pension Contributions, Expenses, Statutory Payments and any other sums incurred by Abbey UK applicable to each Secondee during his or her period of Secondment. 4.2 The payments under Clause 4.1 shall be made quarterly in arrears against detailed invoice submitted by Abbey UK." 2.4 Abbey National Plc, UK deducted income tax at source under section 192 of the Act in respect of salaries paid to secondees and the same was paid to the credit of the central government. It also issued Form No. 16 and filed statement of tax deduc....
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....ise supervision and control over the seconded employees during the period of secondment. The contention of the assessee that the payment made to Abbey National Plc., UK constituted reimbursement of expenditure was not accepted by the Assessing Officer who held that since the secondees were employees of Abbey National Plc., UK and were providing managerial services to the assessee, the payment made by the assessee to Abbey National Plc., UK under the secondment agreement constituted 'Fees for technical services' under section 9(1)(vii) of the Act. In coming to this finding the Assessing Officer relied on the ruling of the AAR in 670 of 2005 in the case of AT & S (I) Pvt. Ltd. v. CIT. The Assessing Officer consequently held that the assessee was liable to the deduct tax under section 195 of the Act in respect of reimbursements made to Abbey National Plc., UK under the secondment agreement and since no tax was deducted under section 195 of the Act, the entire payment made by the assessee amounting to Rs. 27,58,30,514 was disallowed by the Assessing Officer under section40(a)(i) of the Act. 3.4 Aggrieved by the order of assessment passed under section 143(3) of the Act on 15.12.2008....
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....s amounting to Rs. 1,89,65,662 were incurred as per the secondment agreement. The total amount of Rs. 5,81,91,873 reimbursed under the secondment agreement were credited by the assessee to the account of Abbey National Plc., UK debited to its profit and loss account during the relevant period and claimed as a deduction in computing its income under the Act. 4.2 The assessee filed its return of income for Assessment Year 2006-07 on 27.11.2006 declaring a total income of Rs. 2,09,49,057. The return was processed under section 143(1) of the Act and was taken up for scrutiny by issue of notice under section 143(2) on 16.11.2007 which was served on the assessee. Since the value of international transactions exceeded Rs. 15 crores in the relevant period, the case was referred to the concerned Transfer Pricing Officer for determination of arms length price of international transactions. After examining the assessee's case, the TPO accepted the arms length price of the international transactions vide order dt.31.10.2009. 4.3 In the course of assessment proceedings, the Assessing Officer sought the assessee's explanation as to why no tax was deducted under section 195 in respect of th....
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....DTAA. The remaining amount of Rs. 1,27,94,180 was held to be not liable for TDS. Considering the findings in the order under section 201 dt.19.1.2010, the learned CIT(A) allowed relief in respect of reimbursement to the extent of Rs. 1,27,94,180 and consequently sustained the disallowance on account of reimbursement to the extent of Rs. 4,53,97,693. 4.5 Aggrieved, the assessee is in appeal before us. However, Revenue has not filed an appeal against the relief allowed by the learned CIT(A). 5.1 The grounds of appeal raised in respect of the appeals in ITA No. 1141/Bang/2010 for Assessment Year 2005-06 and ITA No. 41/Bang/2011 for Assessment Year 2006-07 are similar and are therefore the grounds raised for Assessment Year 2005-06 are reproduced hereunder : 1. The Honourable Commissioner of Income tax (Appeals) I (hereinafter referred to as 'CIT(A)) erred in law and on facts while passing the order. 2. The Honourable CIT(A) erred in holding payments proposed to be made by the appellant as 'fees for technical services' under section 9(1)(vii) of the Income tax Act, 1961 (hereinafter referred to as 'Act') 3. The Honourable CIT(A) has fa....
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.... of hearing, it is prayed that the order of the Honourable CIT(A) be set aside. 5.2 Grounds of appeal raised at S. No. 1 and 10 are general in nature and therefore no adjudication is called for thereon. In the grounds raised at S. No. 2, it is contended that the payments under the secondment agreement are not in the nature of 'fees for technical services' under section 9(1)(vii) of the Act. Grounds at S. No. 3 & 5 raise the contention that the impugned payments were in the nature of reimbursement of actual expenditure and were consequently not liable for TDS under section 195. Grounds at S.Nos. 6 to 9 relate to the argument that the impugned payments were not 'fees for technical services' under the India - UK DTAA. 6. ITA No. 42/Bang/2011 (A.Y. 2006-07) 6.1 Facts of the case For Assessment Year 2006-07, the assessee filed an application under section 195(2) of the Act on 19.2.2006 seeking authorization to reimburse salary and other administrative costs to Abbey National Plc., UK without deduction of tax at source under section 195. The ITO vide order dt.12.3.2007 under section 195(2) held that since the application under section 195(2) had been filed after the date of c....
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....e nature of pure reimbursement of administrative cost incurred in relation to the secondment of the expatriates to the Appellant and not towards any services rendered by Abbey National PLC, UK. 6. The Hon'ble CIT(A) has erred in upholding the AO's order that the expatriates are employees of ANP and ANP is involved in providing technical service to MSource on behalf of Abbey India. 7. The Hon'ble CIT(A) has failed to appreciate that as per the secondment agreement for all practical purposes, the expatriates are employees of the appellant as they function under the control, direction and supervision of appellant and in accordance with the policies, rules and guidance applicable to appellant's employees. The salary was paid by ANP to the expatriates and the payroll was maintained by ANP only for administrative convenience. 8. The Hon'ble CIT(A) ought to have appreciated that there is an employer-employee relationship between the Appellant and the expatriates and that the proposed remittances are towards the reimbursement of actual administrative costs of the expatriates as incurred by ANP. 9. The principle of determining empl....
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....p; The appellant craves leave to add, to alter or amend all or any of the aforestated grounds of appeals. 16. For the above and any other grounds which may be revised at the time of hearing, it is prayed that the order of the Hon'ble CIT(A) be set aside. 7.2 Ground Nos.1, 15 & 16 are general in nature and therefore no adjudication is called for thereon. Ground Nos.2,4 and 5 are contentions of the assessee that the payments made were in the nature of reimbursement of expenses and therefore not liable for TDS. Grounds 8 and 11 to 14 contend that the payments to Abbey National Plc., UK do not constitute 'fees for technical services' under section 9(1)(vii) of the Act and Article 13 of the India - UK DTAA. Grounds 6 to 9 contend that the assessee was the real economic employer of the secondee. Ground No. 10 has the contention that the assessee was not liable to deduct tax at source under section 195 in respect of payments made to Abbey National Plc., UK. In ground No. 14, the assessee challenges the charging of interest under section 201(1A) of the Act. 8.1 The learned counsel for the assessee put forth both written submissions and oral explanation as to why the payments....
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.... as 'salaries'. Reliance was also placed on the decision of the Hon'ble Apex Court in the case of Ram Prashad v. CIT [1972] 86 ITR 122 in support of the argument that for ascertaining whether a person is a servant, a rough and ready test is whether under the terms of employment, the employer exercises a supervisory control in respect of the work entrusted to him. The learned counsel for the assessee also submitted that since Abbey National Plc., UK did not assume any risk for the performance by the secondees nor exercised any control, direction or supervision over them while on assignment with the assessee. Abbey National Plc., UK cannot be regarded as the economic employer of the secondees. 8.2 As per clause 3.6 of the secondment agreement (reproduced supra), (i) the secondees do not constitute employees of the assessee but shall remain employees of Abbey National Plc, UK ; (ii) the secondees shall not be entitled to any remuneration nor employment benefits from the assessee but Abbey National Plc, UK, as employer of the secondees, shall be responsible for the remuneration, employment benefits, pension contributions, for accounting to the Inland Revenue in the United Kingdom (U....
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....sed by the user. In this context, substance should prevail over form, i.e. each case should be examined to see whether the functions of employer were exercised mainly by the intermediary or by the user. It is therefore up to the Contracting States to agree on the situations in which the intermediary does not fulfil the conditions required for him to be considered as the employer within the meaning of paragraph 2. In settling this question, the competent authorities may refer not only to the above mentioned indications but to a number of circumstances enabling them to establish that the real employer is the user of the labour (and not the foreign intermediary) : - the hirer does not bear the responsibility or risk for the results produced by the employee's work ; - the authority to instruct the worker lies with the user, - the work is performed at a place which is under the control and responsibility of the user, - the remuneration to the hirer is calculated on the basis of the time utilized, or there is in other ways a connection between this remuneration and wages received by ....
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....sessee placed reliance on the decisions cited above and submitted that consequently the said reimbursements are not liable for TDS u/s.195 of the Act. 8.6 The learned counsel for the assessee contended that the reimbursements made to Abbey National Plc, UK were bereft of any profit or income element which fact was not disputed by the Assessing Officer or learned CIT(A) and submitted that consequently such reimbursement does not result in any profit or income in the hands of the payee is not liable for TDS. In support of this contention, the assessee has relied on the following judicial decisions : 1. CIT v. Tejali Farsaram Kharawalla Ltd (61 ITR 95) (SC) 2. CIT v. Telco (245 ITR 823) (Bom) 3. CIT v. Indian Engineering Projects Pvt Ltd (202 ITR 1014) (Del) 4. Clifford Chance UK v. DCIT (82 ITD 106) (Mum) 5. Raymond Ltd v. DCIT [2003] 86 ITD 791 (Mum SB) 6. CIT v. Dunlop Rubber Co Ltd [1983] 142 ITR 493 (Cal) 7. HNS India VSAT Inc v. DDIT (95 ITD 157) (Del) 8. Gujarat Ambuja Cements Ltd v. DCIT [2005] 2 SOT 784 (Mum) 9. MSEB v. DCIT [2004] 90 ITD 7....
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....s apart from deputing secondees, Abbey National Plc., UK did not render any service to the assessee. It was submitted that consequently in respect of the reimbursements made, the provisions of section 9(1)(vii) would not be attracted. It was submitted that as per section 9(1)(vii), the term 'fees for technical services' means any 'consideration' for rendering of managerial, consultancy or technical services which meant something given in return for obtaining or getting a thing. The learned counsel for the assessee submitted that the remuneration and other administrative costs relating to seconded personnel was initially paid by Abbey National Plc, UK and these sums were subsequently reimbursed by the assessee. It was also submitted that this arrangement was made out of social security and other reasons such as business exigencies and commercial expediency and did not contain any mark up resulting in any profit or income from it and therefore cannot be treated as 'consideration' as per the definition of the term 'fees for technical services u/s.9(1)(vii) of the Act. The learned counsel for the assessee submitted that as per the facts of the case it was clear that Abbey National Plc.....
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....fied, the payment even though regarded as 'fees for technical services' under the Act, would fall outside the scope of 'fees for technical services' under the Treaty, the learned counsel for the assessee relied on the following judicial decisions: 1. Raymond Ltd v. DCIT [2003] 86 ITD 791 (Mum-Trib) 2. Intertek Testing Services India Private Limited [2008] 307 ITR 418 (AAR) 3. Diamond Services International P Ltd v. Union of India [2008] 304 ITR 201 (Bom) 4. CESC Ltd v. DCIT 80 TTJ 765 (Kol) 5. National Organic Chemical Industries Ltd. v. DCIT 96 TTJ 765 6. NQA Quality System Registrar Limited v. DCIT 92 TTJ 946 (Del) 7. Cushman & Wakefield Pvt Ltd v. DIT [2008] 305 ITR 208 (AAR) 8. Sheraton International Inc. v. DDIT [2007] 106 TTJ (Del) 620. 9. McKinsey And Co., Inc (Philippines) v. ACIT (International Taxation) 284 ITR 227 (AT)(Mum) 10. ITO v. De Beers India Minerals (P) Ltd. [2008] 113 TTJ (Bang) 101. 11. DCIT v. Boston Consulting Group Pte. Ltd. [2005] 93 TTJ (Mum) 293. 12. ACIT v. Paradigm Geophysical (P) Ltd....
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....ly linked to reimbursement of salary costs. It was therefore argued that if the salary costs reimbursed is held as not liable for disallowance u/s.40(a)(i), the reimbursement of other administrative expenses should also be held as not liable for disallowance u/s.40(a)(i) of the Act. The learned counsel for the assessee further submitted that the Assessing Officer had erred in relying on the ruling of the AAR in the case of A T & S India P. Ltd. (supra). In that case, the foreign company retained the right and control over the seconded personnel and therefore it was held that the India company cannot be considered as the real employer. In the instant case, it is submitted that the right to control, supervise and instruct the secondees were exercised by the assessee who was entitled to terminate the secondment of any secondee. It was also submitted that the above ruling of the AAR did not discuss the taxability of the reimbursements under the Treaty nor was there any discussion on the 'make available' clause. It was therefore argued that the ruling in the case of A T & S India P. Ltd. (supra) does not apply to the assessee's case. 8.12 In view of the above arguments and submission....
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....e learned Departmental Representative. The learned counsel for the assessee drew our attention to clause 4.1 of the secondment agreement which stated that in consideration of the secondment of staff by Abbey National Plc. UK, the assessee shall make payments to Abbey National Plc., UK (in sterling) equivalent to the remuneration, pension contributions, expenses, statutory payments and other sums incurred by Abbey National Plc., UK applicable to each secondee during his or her period of secondment. The learned counsel for the assessee submitted that the payments made by the assessee were pure reimbursement of expenses without any profit or income element. 11.1 We have heard both parties and have carefully perused and considered the grounds of appeal raised, arguments put forth and submissions made by both parties and the material on record. In this regard, the following issues/questions arise for our consideration. (i) Whether the assessee can be regarded as the real and economic employer of the employees seconded to the assessee under the secondment agreement ? (ii) Whether the payments made by the assessee to Abbey National Plc., UK were pure reimburseme....
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....d of approach for determination of employer-employee relationship is to consider whether having regard to the nature of work, there was due control and supervision by the employer. 12.2 In the instant case, an agreement for secondment of staff was entered into between the assessee and Abbey National Plc., UK on 4.2.2004 to facilitate the outsourcing agreement between Abbey National Plc., UK and Msource. As per clause 3.1 of the said agreement, Abbey National Plc., UK agreed to second its staff to the assessee in accordance with other terms and conditions of the agreement and in consideration of the payments to be made by the assessee in accordance with clause 4 of the agreement. As per clause 3.2, the parties thereto undertook to sign and date a secondment term sheet in respect of each employee to be seconded to the assessee for the duration to be specified therein or as otherwise agreed between the parties. As per clause 3.3.2, Abbey National Plc. UK was to immediately withdraw any secondee from secondment at the written request of the assessee. Abbey National Plc., UK may also terminate a particular secondment prematurely at any time where deemed desirable or necessary by them....
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....at the secondees shall remain and be the employees of Abbey National Plc., UK during secondment and not the assessee. It further states that the secondees shall not be entitled to any remuneration or employment benefits from the assessee and for which Abbey National Plc., UK is responsible as well as for all other liabilities as employer for accounting to Inland Revenue in UK and other authorities for all taxes, national insurance on similar contributions. It is a well settled principle that an agreement or a contract is to be read as a whole. The Hon'ble Apex Court in the case of Ishikawajina-Harima Heavy Industries Ltd v. DCIT [2007] 288 ITR 406 held that "in construing a contract, the terms and conditions are to be read as a whole. A content must be construed keeping in view the intention of the parties. No doubt the applicability of the tax laws would depend on the nature of the contract but the same should not be construed keeping in view the taxing provisions." The jurisdictional High Court in the case of CIT v. Gogte Minerals [1996] 220 ITR 29 held that the court cannot look at the matter from a narrow angle, but interpret the contract as a whole with reference to the statut....
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....el Convention on Income on capital on Article 15 thereof holds a view that incase of secondment arrangements, the person under whose supervision and control they are employed should be considered as the real and economic employer. The relevant extracts are as under : "It should be noted that the term "employer" is not defined in the Convention but it is understood that the employer is the person having rights on the work produced and bearing the relative responsibility and risks. In cases of international hiring-out of labour, these functions are to a large extent exercised by the user. In this context, substance should prevail over form, i.e. each case should be examined to see whether the functions of employer were exercised mainly by the intermediary or by the user. It is therefore up to the Contracting States to agree on the situations in which the intermediary does not fulfil the conditions required for him to be considered as the employer within the meaning of paragraph 2. In settling this question, the competent authorities may refer not only to the above-mentioned indications but to a number of circumstances enabling them to establish that the real employer is the user o....
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....behalf we were referred to the views_expressed by Professor Klaus Voegel in his treatise on Double Taxation Conventions under the heading "International Hiring Agreements" at page 885. The view put Forth by him is reproduced hereunder : "The question of who is the employer arises particularly in situations in which the employee is sent abroad to work for a foreign enterprise as well. In such cases, the determination of employer rests on the degree of personal and economic dependence of the employee towards the enterprises involved. Accordingly, the foreign enterprise does not quality as an employer merely because the employee performs services for it or because the enterprise was issuing to the employee instructions regarding his work, or places tools, etc., at his disposals (of Hinnekens. L. Interfax 331 (1988). The situation is different if the employee works exclusively for the enterprise in the State of employment and was released for the period in question by the enterprise in his State of residence (BFH 114 (1986) re Germany's DTC with Spain)." If this view is applied to the present case, the assessee company can be considered as the economic employer because the servic....
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....entered into this agreement to provide for the secondment of certain employees of Abbey UK to Abbey India. 3. Article I - IDS has agreed to second one employee to the assessee during the secondment period from 19.8.2005 to 31.12.2007. Clause 3.1 - General - In consideration of the payments to be made by Abbey India in accordance with Clause 4 Abbey UK shall second staff to Abbey India during the term in accordance with the following provisions 4. Article II - Duties and obligations - Employee to be seconded to act in accordance with the reasonable requests, instructions and directions of IDS India. The seconded employee was reportable and responsible to the assessee company and was required to devote the whole of his time, attention and skills to the duties required by the secondment arrangement. Clause 3.5 - Supervision and Control - The parties agree that the secondees shall be under the direct management, supervision and control of Abbey India during the applicable periods of secondment. It is further agreed that (a) Abbey UK shall not be responsible for and shall not be liable for any loss or damage occasioned by the secondees' work . (b) The authority t....
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....al, financial or accounting information and information relating to price or cost or any other proprietary or business related information. He was to refrain from disclosing the information to anybody except with the written consent of the assessee Clause 5 - The parties agree that they will comply with the Data Pritection Act 1998 ("DPA") and all other relevant legislation relating to the secondments. Clause 10 - Governing law - The parties hereby agree that this agreement shall be construed in accordance with English Law and the parties submit to the exclusive jurisdiction of the English Courts. 10. Article III - Duties and obligations of the assessee during the secondment period. Clause 3.5 - Supervision and Control (b) the authority to instruct the secondees shall lie with Abbey India; and (c) the secondees' work shall be performed at such place as Abbey India may instruct. 11. Para 3 of the decision - (a) Dr. Sunderarajan was being offered employment with IDS Group Inc. as Executive Vice President, Worldwide Engineering and Managing Director of the assessee company; Para 11 of the decision - It may be true that IDS, the US company is the employer ....
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....usion of the Jurisdictional ITAT in IDS Software's case (supra) that payments under secondment agreement were not liable for TDS u/s 195 was not based on the reason that only one employee was seconded. As a result, the ratio or principle underlying the said decision is squarely applicable in the present case Even in the present case, the secondment was specific. The names of secondees during the AY 2005-06 and AY 2006-07 are on record and the same can be seen at pages 23 to 25 of the written submissions filed by the learned DR The contention that the appellant's role to exercise supervision and control over the secondees and as such the secondment is general in nature is incorrect. The de facto control, supervision and management of employees seconded were with the appellant. Clause 3.5 of the secondment agreement is clear in this regard. 2. Clause (F) of secondment agreement provided that during the currency of the secondment agreement, the employee ceased to be the employee of IDS Inc, the obligation of IDS to second such employee would also cease. In the case of Abbey India secondees would be and remain employees of Abbey UK during secondment. The secondees shall ....
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....r secondment arrangement is not decisive or relevant in determining the taxability of such payments. The conclusion of the Jurisdictional ITAT in IDS Software's case (supra) that payments under secondment agreement were not liable for TDS u/s 195 was not based on quantum of payments The contention that there are no details to show that cross charges received from Abbey were being reimbursed by assessee is incorrect. As per clause 4.1 of the secondment agreement, payments equivalent to the remuneration, pension contributions, expenses, statutory payments and any other sums incurred by Abbey UK applicable to each secondee during his or her period of secondment were made by the appellant. Notes to accounts for the year ended 31st March 2006 [page 17 of DR submissions] stated, "The Company reimburses all expenses incurred by Abbey National plc including payroll costs for the employees who are on secondment for the Company's activities." Point No. 9 of notes to accounts for the year ended 31st March 2006 [page 18 of DR submissions] stated, "The Company has not yet made any remittance towards the reimbursement of secondment and other administrative costs .... " Page no.....
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....s reimbursed under secondment arrangement. The narration below the journal entries in the ledger 'administration and general expenses' [page 21 of DR submissions] states that the invoice raised by Abbey UK was towards the cost of secondees. 6 IDS India proposed to remit the payments to IDS Inc towards salary costs without deducting tax from such payments under section 195 of the Act. Abbey India proposed to remit payments to ANP for Rs. 27,58,30,514/- However, tax deducted at source only on Rs. 16,62,04,340/- which has been allowed by the CIT(A). and the balance Rs. 10,96,26,174/- the Abbey India had not deducted tax and considered disallowable u/s 40(a)(i) of the Act. The difference as pointed out by the learned DR is not at all germane to the issue on hand. Further, if salary costs reimbursed is held as not liable for disallowance under section 40(a)(i), the reimbursement of expenses should also be held as not liable for disallowance under section 40(a)(i). 12.9 We have heard both parties and have carefully perused and considered the contention and submissions of both the parties and the material on record and are of the considered opinion that the contention....
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....to 12.9 above, we are of the considered opinion that the assessee should be considered as the real and economic employer of the secondees. 13. Whether the payments made by the assessee to Abbey National Plc., UK were pure reimbursement of expenses and if so whether the said reimbursements constituted income in the hands of Abbey National Plc., UK ? 13.1 The learned counsel for the assessee had argued in detail that the impugned payments were pure reimbursements of expenses and therefore did not constitute income in the hands of Abbey National Plc., UK so as to warrant deduction of tax at source thereon. The learned Departmental Representative, on the other hand, has contended that there is no material on record to substantiate that the payments were in the nature of reimbursement of expenses. On being asked by the bench as to how the payments to Abbey National Plc., UK were pure reimbursement of expenses without any mark up or profit element, the learned counsel for the assessee drew our attention to the notes to accounts for the year ending 31.3.2006, break up of the reimbursements made during F.Y. 2005-06; copy of the ledger for 'administration and general expenses' in the ....
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..... The company provides services through employees of Abbey National Plc who are seconded to the Company. The Company reimburses all expenses incurred by Abbey National Plc including payroll costs for the employees who are on secondment for the Company's activities." 13.3 Point No.9 of notes to accounts for the year ending 31.3.2006 states as under (Page 18 of the submissions filed by the learned Departmental Representative) - "The Company has not yet made any remittance towards the reimbursement of secondment and other administrative costs to Abbey National Plc pending receipt of permission from the Income Tax authorities under section 195(2) for remittance of such amounts without withholding taxes. The provision for tax has been computed assuming that such permission will be received and no withholding tax maybe required. Reliance has been placed in part on judicial precedents." 13.4 The break up of reimbursements agreed to be made by the assessee are given on page 20 of the submissions of learned DR. Page 21 of the submissions of the learned Departmental Representative contains a copy of the ledger 'administration and general expenses' in the books of the assessee for th....
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.... hands of the payee. 14.4 The Authority for Advance Ruling in Cholamandalam MS General Insurance Co. Ltd. (supra) held that reimbursement of salary costs to foreign company under a secondment agreement has no income or profit element and therefore does not constitute income chargeable to tax in India. 14.5 The jurisdictional High Court in the case of Karnataka Urban Infrastructure Development Finance Corporation v. CIT [2009] 308 ITR 297 held that reimbursement of expenditure incurred towards accommodation and conveyance of employees of non-resident consultant companies is not liable for TDS under section 195 of the Act. 14.6 The Special Bench of the ITAT, Mumbai in the case of Mahindra & Mahindra Ltd. v. DCIT [2009] 313 ITR (AT) 263 held "when a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii), should be or have atleast some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be d....
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....) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries." From the definition (supra), it is clear that for rendering of any managerial, technical or consultancy services including the provision of services of technical or other personnel is regarded as fees for technical services u/s.9(1)(vii) of the Act. 15.2 In the instant case, the agreement entered into by the assessee with Abbey National Plc, UK was for secondment of staff and the consideration paid was for this purpose only and not for the rendering of any services. Therefore, in the instant case, the secondment of staff/personnel would not be tantamount to rendering of technical, professional or consultancy services. 15.3 Section 9(1)(vii) of the Act is attracted if there is a rendering of service for which a consideration should follow. In the instant case, it was specifically agreed by the parties that Abbey National Plc, UK would only second staff to the assessee as per the secondment agreement. No services were rendered by it to the assessee. 'Fees for techn....
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....nical services' u/s.9(1)(vii) of the Act. In view of the above discussion, we are of the considered opinion that the reimbursement of salary costs and other administration expenses made by the assessee cannot be categorized as 'fees for technical services' u/s.9(1)(vii) of the Act. 16. Whether the payments made by the assessee to Abbey National Plc, UK constitutes 'fees for technical services' under Article 13 of DTAA between India & U.K. ? 16.1 In this order, we have held that the reimbursement of salary costs and other related administration expenses made by the assessee to Abbey National Plc, UK, cannot be regarded as income chargeable to tax in the hands of Abbey National Plc, UK. We have also held that such payments do not constitute 'fees for technical services' u/s.9(1)(vii) of the Act. When a payment made to a non-resident is not regarded as 'fees for technical services' u/s.9(1)(vii) nor income chargeable to tax in its hands, the question, whether such payments constitute fees for technical services' under Article 13 of the Treaty between India - U.K., does not survive. This is because Treaties cannot impose tax which is not contemplated or levied under the provision....
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....fied. Even otherwise, unlike in section 9(1)(vii) of the Act, the term 'managerial services' is absent in Article 13(4)(c) which covers only technical or consultancy services. In the instant case, the Assessing Officer had categorized the payments made to Abbey National Plc, UK as 'managerial services' which is not covered in Article 13 of the India - UK Treaty. Therefore, the reimbursement made by the assessee do not fall under Article 13 of the India-U.K. Treaty. 16.5 Additionally, the requirement of 'make available' is to be satisfied for a payment to fall under Article 13 of the India-U.K. Treaty. The meaning of the term 'make available' under the Treaty has been elaborately dealt with in the decision of the Hon'ble jurisdictional High Court in the case of De Beers India Minerals Ltd (supra). The relevant portions of the said decision at paras 13, 14, 22, 26 and 27 are extracted hereunder : "13. Under the Act if the consideration paid for rendering technical services constitutes income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which d....
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....ws that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be ....
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....in test of rendering services and making technical knowledge available at the same time is satisfied. 23 to 25. ....... 26. Thus, in terms of the contract entered into with Fugro, they have given the data, photographs and maps. But they have not made available technical expertise, skill or knowledge in respect of such collection or processing of data to the assessees, which the assessee can apply independently and without assistance and undertake such survey independently excluding Fugro in future. The Fugro has not made available the aforesaid technology with the aid of which they were able to collect the data, which was passed onto the assessees as a technical service. In other words, Fugro has rendered technical service to the assessee. They have not made available the technical knowledge with which they rendered technical service. There is no transmission of technical knowledge, expertise, skill, etc. from Fugro along with technical services rendered by them. The assessees are completely kept in dark about the process and the technologies which the Fugro adopted in arriving at the information / data which is passed on to the assessees as technical service. The assessee is....
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....vices as contained in DTAA. Therefore the liability to tax is not attracted. Accordingly the first substantial question of law is answered in favour of the assessees and against the Revenue." 16.6 Applying the above principles laid down by the Hon'ble Karnataka High court in the case of De Beers India Minerals Ltd (supra) to the instant case, it would be evident that there is no 'make available' of technology, processes, skills, experience etc. by Abbey National Plc, UK to the assessee. The payments made by the assessee to Abbey National Plc, UK is reimbursement of salaries, costs, etc of seconded staff and not for rendering of any services. As a result of the said payments, the assessee, is not equipped with transfer of technology, processes, skills, etc by Abbey National Plc, UK to the assessee. Therefore, the reimbursement of salary and other costs by the assessee to Abbey National Plc, UK cannot be regarded as 'fees for technical services' under Article 13 of the India-UK Treaty. 16.7 The learned Departmental Representative has placed reliance on certain decisions in support of the contention that the payments made by the assessee to Abbey National Plc, UK constituted 'fe....
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....is case, it was held that payment for imparting of training to use highly sophisticated machine results in make available of technical knowledge, experience and hence would be regarded as fees for technical services u/s.9(1)(vii) of the Act and Article 13 of the India-UK Treaty. In the instant case, there is no imparting of training by Abbey National Plc, UK. The payments made by the assessee were in respect of reimbursement of salary costs and other expenses made for secondment of personnel by Abbey National Plc, UK and not for the rendering of any service. Thus, the decision relied on by the learned Departmental Representative is distinguishable. 16.8 Further, in the instant case, the learned CIT(A) has allowed relief in respect of reimbursement of salary costs and confirmed the disallowance of reimbursement of other administration expenses. Revenue has not filed any appeal against the relief granted by the learned CIT(A). The reimbursement of other administration expenses under the secondment arrangement was inseparable and inextricably linked to reimbursement of salary costs. We have already held that reimbursement of salary costs and other administration expenses under the ....