AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 943
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....ed in holding that the payments towards servers represents consideration for use/right to use/transfer of rights in respect of a 'process' and to be taxed as 'royalty'. 2.3. That the learned CIT(A) erred in holding that the payments towards testers represents consideration for use/right to use equipments and to be taxed as 'royalty'. 3.1. That the learned CIT(A) erred in holding that the Appellant has provided use/ right to use scientific equipments to Intel technology India Private Limited ('ITIPL') and the consideration towards the boards of Rs. 12,98,64,473 represents 'royalty'. 3.2. That without prejudice to grounds taken above, the learned CIT (A) has erred in not reducing the alleged income of Rs. 12,98,64,473 by Rs. 11,93,38,358 being the amount reversed from the sum payable for the boards. 4. That the learned CIT(A) has erred in confirming the action of the Assessing Officer in assessing the miscellaneous receipts amounting to Rs. 14,606,825 as 'Income from Other Sources'. 5. That the Appellant craves leave to add to and / or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3....
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....0 from ITIPL towards salary cost, relocation cost and other related costs of employees transferred to ITIPL. * The internal policy of the Intel Group allows the employees working in the Group to be transferred to different companies within the Group. In accordance with this policy, certain employees who were earlier working with Intel Corp were transferred to the employment of ITIPL. * The services of the transferred employees are rendered to ITIPL and ITIPL is responsible for bearing the costs related thereto and discharging the withholding tax obligations under section 192 of the Act associated with the employees' transferred to ITIPL. For ease of disbursement and for timely payment to the account of the employees, it has been arranged that Intel Corp shall disburse the salary and other benefits, as required, to the employees in their home country on behalf of ITIPL. ITIPL is required to reimburse Intel Corp the amount disbursed to ITIPL employees on its behalf. * The amount of Rs. 30,17,13,220 represents reimbursement of salary and bonus cost, which was paid by Intel Corp in the first instance on behalf of ITIPL for administrative convenience and later the same was recovered ....
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..... Therefore, reimbursement of such salary is not subject to tax in the hands of the Appellant. The ratio of decision in HCL Infosystems case (supra) directly applies to the case of Intel Corp. * Similar view has been held in the following cases: o IDS Software Solutions India (P) Ltd. v. ITO [(2009) 122 TTJ 410 (Bangalore ITAT)]. o Ariba Technologies India Pvt. Ltd. [ITA No. 616 (Bang)/2011 dated April 4, 2012). o Abbey Business Services India (P) Ltd. v. DCIT [(2012) (53 SOT 401) Bang.] o As per clause (A) of Article-III of the Agreement, the expatriates shall work under the direct supervision of ITIPL during their entire period of engagement and shall not be deemed to be representing or acting on behalf of the Company while performing their services. Also none of their acts during the course of the engagement shall be deemed to be binding on the Company. o As per clause (B) of Article-III of the Agreement, the Company shall disburse the salary and other benefits to the expatriates in their home country less the withholding tax applicable on the salary in India. ITIPL shall reimburse the Company the reimbursable expenses. o As per clause (C) of Article-III of the Agr....
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....the real employer of the seconded employees, thereby creating a purported employment relationship with the seconded employees. 5. On the other hand, the learned Departmental Representative has submitted that the Assessing Officer as well as CIT (Appeals) has analysed the various terms and conditions of the agreement and found that the payment in question is FTS and consequently chargeable to tax in India. He has further submitted that there is no difference between the Indo- USA DTAA and Indo-UK DTAA as it was in the case of Centrica India Pvt. Ltd. Vs. CIT 364 ITR 336 (Del) wherein the Hon'ble Delhi High Court has held that the payment on account of salary to the seconded employees is in the nature of FTS. The learned Departmental Representative has further submitted that an identical issue has been considered by the coordinate bench of this Tribunal in the case of Food World Supermarkets Ltd. Vs. DCIT 174 TTJ 859 (Bang-Tribunal). 6. In a rejoinder the ld. AR has submitted that as per the agreement between the assessee and its subsidiary company, the employees were completely under the supervision and control of the Indian subsidiary and shall not be deemed to represent or a....
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....unt of the salaries of the Expatriates. (D) All Indian taxes and levies payable in relation to this Agreement shall be borne/paid by ITIPL, wherever applicable. (E) During the transfer period, the Expatriates shall devote the whole of their time, attention and skills to the duties with ITIPL. (F) ITIPL shall have the right, at any time, to approve or reject the Expatriate selected for transfer to ITIPL and to request from Intel US the replacement of any Expatriate who, in the opinion of ITIPL, is not qualified or does not meet the requirements necessary to fulfill his/her duties with ITIPL. (G) During the transfer period, the Expatriates transferred from Intel US may be required to act or serve as officers, authorized signatories, nominees or in any other lawful personal capacity on behalf of ITIPL as may be required by ITIPL. (H) If at any time before the transfer of the Expatriate, any one or all of the Expatriates shall cease to be transferred by Intel US for any reason whatsoever, Intel US's obligation to transfer such Expatriate or Expatriates shall cease forthwith. Notwithstanding the foregoing, Intel US's obligation to transfer all the remaining Expatriates shal....
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....ere ITIPL is required to obtain clearances, for such payment of Reimbursable Expenses, from income tax and other regulatory agencies of the Government of India, the payment would be made after obtaining such clearances. (D) All debit notes shall be denominated in US Dollars or such other currency as the parties may from time to time mutually agree.' As per the business need of ITIPL the assessee to transfer from time to time certain expatriates based on such need and for such duration as may be agreed between the parties. Therefore duration of secondment was to be mutually agreed by the parties and not an exclusive discretion of ITIPL. Further there is no dispute that the expatriates remained the legal employees of the assessee and the assessee was to pay the salary and other benefits to the persons on secondment with ITIPL. The salary and other benefits of the personnel were protected and payable by the assessee and in turn claimed the said payment from ITIPL. As per the Clause B of Article III of the agreement the assessee shall disperse the salary and other benefits to the expatriates. Much stress was given by the ld. AR on the submission that expatriates are in the econom....
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....rams and initiatives and supervising them and ensuring that they are completed to success. Desai Utpal N Component Engineering Manager Digital Enterprise Group Utpal was part of the Enterprise Microprocessor Group comprising 236 persons. He was the global clocking architect and designated as the component engineering manager in India. He was a tech lead in clocking design and engaged in fub-design/integration activities. Also engaged in driving synergy on clocking-tools/methodologies across different projects. Thus it is clear that all the expatriates are holding managerial position and are experts of their respective fields of managerial skills. Therefore the seconded are rendering the managerial and highly expertise services the ITIPL for which the assessee received the payment in question. An identical issue was considered by the co-ordinate bench of this Tribunal in the case of M/s. Food World Supermarkets Ltd. Vs. DCIT (supra) in paras 10 to 13 as under : " 10. As it is clear that all 5 secondees are not ordinary employees or workers but they are deputed the high level managerial/executive positions which shows that they are deputed because of expertise and manag....
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....technical services-"4. The definitions of fees for technical services in paragraph 4 of this Article shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article. (b) for service that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the private use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or partnership for professional service as defined in Article 15 (Independent personal services) of this Convention. X X X X X X 12. The Hon'ble High Court while deciding the issue has observed that the assessee filed the provision of services of other personnel. The term including the provision of services of technical or 'other personnel;' is common in both definition provided under Explanation 2 to sec. 9(1)(vii) of the Act as well as i....
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....s not fulfill the conditions required for him to be considered as the employer within the meaning of paragraph 2. In setting 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 nor 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 or 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 the employer; - Tools and materials are essentially put at the employee's disposal by the user : - the number and qualifications of the employees are not solely determined by the hirer....." The Court also notes that the Model Tax Convention on Income and on Capital (Condensed Version, July 2010) in this context, states as follows: - "8.14 Where a comparison of the nature of the services rendered ....
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....'technical' services to CIOP, especially since that expression expressly includes the provision of the services of personnel. The seconded employees, who work, so to say, for CIOP are provided by the overseas entities and the work conducted by them thus, i.e. assistance in conducting the business of COIP of quality control and management is through the overseas entities. The nature of the services - cast as "business support services" by CIOP - as also clearly within the hold "technical or consultancy. These services envisage the provision of quality service by vendors to the overseas entities, which CIOP, and the secondees, are to oversee. This requires the secondees to draw from their technical knowledge, and falls within the scope of the term. This reading of 'technical' services does not limit itself only to technological services, but rather, extends to know-how, techniques and technical knowledge. This is supported by clause 4 of Article 12 itself, which lists these various sub-categories. Indeed, the term 'technical' has not been defined in the DTAA, and must be accorded its broader dictionary meaning, unless limited by the parties to the instrument. ....
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....the amounts paid to the overseas entities in the transaction covered by the India-Canada DTAA, thus, it must not only be showed that technical services were performed, but that such knowledge etc. was 'made available'. Xxxxxxxxxx 37. This brings the Court to the next issue, concerning reimbursement and the doctrine of diversion of income by overriding title. This Court notices that a case with almost identical circumstances, in In Re: AT & S India (P.) Ltd. (supra), also came up before the AAR. There, an agreement between AT&S India and its parent, AT& Austria was entered into, by which AT&S Austria undertook to assign or cause its subsidiaries to assign its qualified employees to the AT&S India. These individuals were to work for AT&S India and receive compensation substantially similar to what they would have received as employees of AT&S Austria. They were engaged by AT&S India on a full time basis. The question before the AAR was identical to this case: "Whether pursuant to the secondment agreement entered into by the applicant with AT&S Austria, the payment to be made by the applicant to AT&S Austria, towards reimbursement of salary cost incurred by AT&S Austria....
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....antum of compensation as the actual expenditure, it would make no difference as the same is payable to the AT&S Austria under the secondment agreement for services provided by it. It would, therefore, be not only unrealistic but also contrary to the terms of the agreement to treat payments under the said agreement as mere reimbursement of salaries of the seconded employees who are said to be the employees of the applicant. To show that the real employer of such employees is the applicant and not the AT&S Austria, Mr. Chaitanya invited our attention to various employment agreements entered into between the applicant and the seconded employees and also the certificate of deduction of tax at source on their global salary. All the employment agreements are similarly worded. We have carefully gone through the employment agreement between the applicant and Mr. Markus Stoinkellner. The duration of the employment is from 1st Sept., 2005 till 30th Aug., 2008. In Article 3 thereof salary of the employee is noted as the remuneration, perquisites and other entitlements as detailed in Appendix-A. However, Appendix-A does not specify any amount. All that it says, is that the salary will be as ....
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....ct reasoning that conflates liability to tax with subsequent deductions that may be claimed. 13. The SLP filed against the judgment of Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court in 227 Taxman 368. Therefore the view taken by the Hon'ble High Court has attained finality. The concept of income includes positive as well as negative income or nil income. In the case of payment being FTS or royalty as per sec. 9(1) of the Act it is irrelevant whether any profit element in the income or not. It is not only a matter of computation of total income when the concept of profit element in payment is relevant. If the payment being FTS or royalty is made to nonresident, then the concept of total income becomes irrelevant and the provisions of sec. 44D recognize the gross payment chargeable to tax. Thus all the payment made by the assessee to non-resident on account of FTS or royalty an chargeable to tax irrespective of any profit element in the said payment or not. However, there is an exception to this Rule of charging the gross amount when the non-resident is having fixed place of business or PE in India and the amount is earned through the PE, then the expenditu....
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....e learned Authorised Representative of the assessee has submitted that these were all equipments procured by the assessee from third party and transferred to the ITIPL at Written Down Value (WDV). Therefore there is no element of profit in this transaction. The TPO has accepted this transaction at ALP. He has further contended that for the Assessment Year 2012-13, an identical transaction of transfer of assets has been accepted by the Assessing Officer. He has referred to the assessment order at page 43 of the Paper Book-II and submitted that identical assets transferred by the assessee were accepted by the Assessing Officer without any addition. He has also referred to the TPO's order at page No.83 and 84 of the Paper Book-II and submitted that the TPO has accepted the transaction at Arm's Length Price (ALP). Thus the ld. AR has submitted that when there is no transfer of technology or know how then the transfer of assets does not fall under the definition of royalty as per the provisions of Act or DTAA. 11. On the other hand, the ld. DR has relied upon the orders of the authorities below and submitted that these are not an ordinary equipment or assets but these items are servers....
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....essee but these are third party products therefore there is no transfer of any right or right to use in respect of any process or technology know how along with these testing boards. Accordingly in view of our finding on the issue of receipt on transfer of other assets like servers the addition made by the Assessing Officer is deleted. 15. Ground No.4 is regarding miscellaneous receipts. 16. During the year under consideration the assessee received a sum of Rs. 1,46,06,825 but the same was not offered to tax. The Assessing Officer asked the assessee to furnish the details of receipts. The assessee explained that these amounts represents reimbursement of expenses which related to the ITIPL but were incurred by the assessee in the first instance. Thus the assessee contended that the reimbursements are not chargeable to tax either under the provisions of the Act or under the provisions of the DTAA. The Assessing Officer did not accept the contention of the assessee and observed that no evidence was furnished by the assessee to establish the fact that the amount received were miscellaneous reimbursement expenses from ITIPL. Accordingly, in the absence of details, the same were added ....