TaxTMI 
TaxTMI 
2012 (8) TMI 466
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....ees who have the required level of expertise required by it. The U.S. Principal would then second the employees for specified periods. This secondment of the employees by the U.S. Principal was based on the U.S. principal's global mobility policy. The employees of the principal seconded to the applicant shall continue to have their payroll processed by the principal. But, the applicant was to reimburse the principal for those amounts and also pay the principal a service charge at $ 15 per employee per payroll cycle for processing the payroll of the seconded employees. The U.S. principal was to ensure that the employees acted in accordance with the instructions and directions of the applicant, that they would devote their whole time to the a....
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....d this Authority allowed the application under section 245R(2) of the Act to give rulings on the following questions: Secondment Charge 1. Whether on the facts and circumstances of the case, the amount reimbursed or reimbursable by the applicant to Target Corporation, USA, under the terms of the secondment agreement dated 10.6.2007 is in the nature of income accruing to Target in respect of which, tax is liable to be deducted at source by the applicant under the provisions of Income-tax Act, 1961? 2. If the answer to the first question is in the affirmative, what is the rate at which tax is required to be deducted at source by the applicant? Payroll processing charge 1. On the facts and in ....
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....rections. There was thus an employer-employee relationship between the applicant and the employee and the proposed payments are in the nature of reimbursement. The fact that the salaries are initially received by the employees from the US Principal does not sever the employer-employee relationship between the applicant and the employee. The applicant was deducting the withholding tax from the salaries paid to the employees. 5. The Revenue has contended that the relationship of employer and employee is between the US Principal and the employees. In other words, the seconded employee continues to be the employee of the US Principal and never becomes the employee of the applicant in terms of the agreement. The salary and other benefits are ....
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....ate the employment. The employees were admittedly employed by the US Principal and they were being paid their salaries by the US Principal. They are continuing to be paid their salaries and other service benefits by the US Principal even after secondment. Before the applicant can claim to establish that the employees have become its employees, it has first to show that the employees ceased to be the employees of the US Principal. One would search in vain to find cessation of such original employment. There is also a presumption in law of the continuance of a state of things shown to have come into existence. Here, the employment with the US Principal has come into existence. There is nothing to rebut the presumption that the same continues.....
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.... by the applicant to the US Principal for making available to it the services of the employees of the Principal. Therefore, on question No. 1, it has to be ruled that what the applicant pays to the US Principal is not in the nature of reimbursement, but it is the income of Target, the US Principal. 10. I must notice here that the applicant has not sought a Ruling from this Authority whether payment would be fees for technical services or something else. No doubt question No. 1 poses the aspect as to whether the secondment charges is income in the hands of the US Principal in respect of which tax is liable to be deducted at source under the Act. Except arguing that since it is reimbursement, it is not chargeable to tax under the Act and h....
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.... applicant that the payroll process charge is not fees for technical services in terms of Article 12 of the DTAC since US Principal is not making available any technical knowledge, experience, skills, know-how or process of the applicant. It is submitted that in view of this, Article 12 the payment or income would be taxable only in USA. On behalf of the Revenue, it is contended that it will be fees for technical services even going by Article 12 of the DTAC. It is sought to be argued that by making available the services its employees, US Principal, is making available technical knowledge, experience and skills to the applicant. In the alternative, it is contended that the US Principal must be taken to have a permanent establishment in Ind....