AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1163
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....015 for the Assessment Year 2011-12 respectively. 2. The assessee has raised common grounds in these appeals except an extra ground for the Assessment Year 2007-08 regarding the jurisdiction of DRP in enhancing the total income therefore the grounds raised for the Assessment Year 2007-08 are reproduced as under : 1 " Treatment of re-imbursement of certain expenses as fees for technical services a) On the facts and in the circumstances of the case, the learned AO has erred in proposing and the Honourable DRP has further erred in confirming the treatment of certain reimbursement of expenses of Rs. 7,854,745 by Bangalore International Airport Limited ('BIAL') to Flughafen Zurich AG ('FZA') as fees for technical services and thus chargeable to tax. b) On the facts and in the circumstances of the case, the Honourable DRP has erred in holding that the reimbursement towards salary costs by BIAL to FZA of Rs. 18,553,973 is taxable as fees for technical services and thereby enhancing the total income. However, in the draft assessment order passed by the AO, the AO has treated the aforesaid salary cost as reimbursement not chargeable to tax since the same was taxed as....
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....ively during the assignment period. He has referred to the recitals of the preamble of the agreement and submitted that the purpose of secondment is to assign the employees with the BIAL on full time basis and exclusively for BIAL therefore there was a relationship of employer-employee between the BIAL and the seconded employees. The parties have understood and agreed upon that the assessee shall not be considered to have rendered any services whatsoever to BIAL by the assignment of assignees and that the assessee shall not be held responsible for any act or omission of the assignees during the assignment with BIAL. It is also understood and agreed between the parties to the agreement that in addition to any local currency remuneration paid to the assignee directly by the BIAL, the assignee would be entitled to remuneration in foreign currency delivered to him outside India by the assessee. Therefore the payment of BIAL in question is nothing but only a reimbursement of the salary which was paid by the assessee to the assignees in foreign currency outside India as per the terms of the agreement. He has also referred to the separate correspondence between the assessee and assignee a....
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....ated as Fees for Technical Services. In support of his contention, he has relied upon the decision of Hon'ble Supreme Court in the case of National Agricultural Co-operative Marketing Federation of India Vs. Union of India dt.25.3.2013 and submitted that the Hon'ble Supreme Court has observed that the substitution of word 'by' in Section 80P of the Act cannot be considered prior to the amendment and therefore the provision has to be read as it exists in the statute at the relevant time and nothing more can be read into. 5. On the other hand, the learned Departmental Representative has submitted that the relationship of employee and employer between the assignee and BIAL does not exists in this case as the assignee would be entitled to remuneration in foreign currency outside India by the assessee. Thus the assessee as an employer was under obligation to pay the assignee remuneration in foreign currency outside India even after the secondment of these personnel to BIAL. The relationship between the assessee and assignee has not ceased to exist. She has referred to the various terms of the expartiate agreement dt.1.7.2005 and submitted that the remuneration was required to....
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....n was received by the assessee as per the agreement dt.1.4.2007. The nomenclature of the agreement is immaterial but the substance and contents of the agreement are relevant to decide the issue under consideration. The recital as well as other relevant terms and conditions of the agreement are reproduced as under : ARTICLE II - TRANSFER OF EXPATRIATES (A) ITIPL shall request Intel US to transfer Expatriates who have the expertise required by ITIPL. ITJPL shall provide Intel US with a description of the qualifications required by ITIPL. Based on the list provided by ITIPL, Intel US shall identify the people. (B) Intel US shall transfer such Expatriates to ITIPL from time to time and for such duration as may be agreed between the Parties. ARTICLE III - DUTIES AND OBLIGATIONS (A) The Expatriates shall work under direct supervision of ITIPL during the entire period of their engagement and shall not during such period be deemed in any manner to be representing or acting on behalf of Intel US while performing their services. None of the acts of the Expatriates during the course of their engagement with ITIPL shall in any manner be deemed to be....
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.... related information) and shall refrain from disclosing any of such information to any other person without the express written consent of ITIPL. The confidentiality obligations set forth in this subparagraph shall survive termination of this Agreement. ARTICLE IV - PAYMENT (A) Within 15 days following the calendar month during the transfer period, Intel US shall furnish ITIPL a statement detailing the Reimbursable Expenses due to Intel US with respect to such month. Each statement shall include a debit note that meets all of ITIPL's requirements for payment as instructed by ITIPL to Intel US. "Reimbursable Expenses" shall mean and include (a) all Expatriate related costs, including but not limited to base salary, bonus, Expatriate insurance, awards, conveyance, temporary living allowance, en route travel cost, discretionary allowance, non-relocating dependent allowance, gross up on taxes, goods and services allowance, site differentia! allowance, banking allowance, contribution to social security benefits, contribution to pension funds, and such other costs which are part of Expatriate's compensation structure less (b) the withholding tax applica....
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....sferred but all the personnel are experts in their specific field and holding managerial posts. The details of the persons are as under : Details of employees transferred to Intel Technology India Private Limited (TTIPL") Name of Assignee Designation Business Group of Expat Assignment Description of work done Anand, Sanjay Info Tech Manager Information Technology Group Sanjay was part of the Information Technology Group. He was designated as Info Tech manger and was responsible for managing the Com Systems Engineering team oflTIPL. The group works on SAP replatfomi efforts being driven by IT in ITtPL He was working in a team of 33 persons. Doshi, Gautam B Component Engineering Manager Digital Enterprise Group Gautam was part of the Enteiprise Microprocessor Group comprising 236 persons. He was the logic design architect and designated as component engineer manager in India. Baudier, Theresa K Info Tech Manager Information Technology Group Theresa was part of the Information Technology Group. She was designated as Info Tech manager and was responsible for managing the Engineering Computing (EC) group within IT India. EC is a group t....
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....orce any right or obligation against each other. The secondeess can claim their salary only from the parent company i.e DFCL and not from the assessee. Thus, the expatriates were performing their duties for and on behalf of the DFCL. Once it is found that the secondees were rendering the marginal and highly expertise services to the assessee the payment for such services is in the ambit of FTS defined in explanation 2 to sec. 9(1)(vii) of the Act, which read as under:- Explanation [2] - For the purposes of this clause, fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) 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'. 11. An identical issue has been considered and decided by the Hon'ble Delhi High Court in the case of Centrica (Supra). The Hon'ble High Court while dealing with the definition of FTS under Article 13(iv) of Indo....
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....he overseas entity is of no significance. It is argued that for all practical purposes, CIOP is the real employer, because the content of the work or employment, the entire direction and supervision over the seconded employees work and the pay and emoluments are borne by it. For convenience, the pay is disbursed by the overseas entity, but that amount is reimbursed to the overseas entity. Reliance is firstly placed on the concept of Economic employer, discussed by Klaus Vogel in 'Double Taxation Conventions', especially the following extracts: - "8. International hiring out of labour Paragraph 2 has given rise to numerous case of abuse through adoption of the practice known as International hiring out of labour. In this system, a local employer wishing to employ foreign labour for one or more periods of less than 183 days recruits through an intermediary established abroad who purports to be the employer and hires the labour out to the employer. The worker thus fulfills prima facie the three conditions laid down by paragraph 2 and may claim exemption from taxation in the country where he to temporarily working. To prevent such abuse, in situation of this type, the ....
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....controls and has responsibility for the place at which the work is performed; - Remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided (see paragraph 8.15 below) - Who puts the tools and materials necessary for the work at the individuals' disposal - Who determines the number and qualifications of the individuals performing the work; - Who has the right to select the individual who will perform the work and to terminate the contractual arrangements entered into with that individual for that purpose; 29. The issue which arises for the consideration of the Court in this case is whether the secondment of employees by BSTL and DEML, the overseas entities, falls within Article 12 of the India-Canada and Article 13 of the India- UK DTAAs, which embody the concept of a service permanent establishment (a "service PE"). In terms of those articles, the Court must determine whether the overseas entities rendered "technical services" under Article 13 of the India-UK DTAA and "included services" under Article 12 of the India-Canada DTAA. In essence, the inquiry is whether any tax....
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....ued in a narrow sense." This reading was supported by the Supreme Court, in the context of Section 9(1)(iv) of the Act in Continental Construction Ltd. v. CIT [1992] 195 ITR 81/60 Taxman 429. Further, the Court notes that the distinction to be drawn by CIOP between the provision of services by the overseas entities themselves and the 'mere' secondment of employees does not make a difference, since the services provided the overseas entities is the provision of technical services through the secondees - an instance envisaged under Article 13 itself. 31. The issue of Article 12 of the India-Canada treaty involves a more nuanced inquiry. Article 12 also incorporates fees for "included services". Whilst this includes "technical services or consultancy service" under clause 4, it states that '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 ... make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer o....
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.... Austria is not charging the applicant any separate fee for the secondment and (4) the seconded personnel work under the direct control and supervision of the applicant?" In holding that the obligation under Section 195 would be triggered, the AAR held as follows: 'From the above analysis of both the agreements it is clear that pursuant to the obligation under the FCA, the AT&S Austria has offered the services of technical experts to the applicant on the latter's request and the terms and conditions for providing services of technical experts are contained in the secondment agreement which we have referred to above in great details. Though the term "reimbursement" is used in the agreements, the nature of payments under the secondment agreement has to satisfy the characteristic of reimbursement and that the term "reimbursement" in the agreement will not be determinative of nature of payments. The term "reimbursement" is not a technical word or a word of Article In Oxford English Dictionary, to reimburse means-to repay a person who has spent or lost money-and accordingly reimbursement means to make good the amount spent or lost. However, under the secondment....
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...., lodging; and annual leave of 30 days per year; and home leave which the employee will be entitled to once. The applicant shall have to organize an economic class return flight tickets to go on home leave. The employment agreement also provides that the employee will be responsible for meeting all requirements under Indian tax laws including tax compliance and filing of returns and the applicant is authorized to deduct taxes from the compensation and benefits payable.' 38. The mere fact that CIOP, and the secondment agreement, phrases the payment made from CIOP to the overseas entity as 'reimbursement' cannot be determinative. Neither is the fact that the overseas does not charge a mark-up over and above the costs of maintaining the secondee relevant in itself, since the absence to markup (subject to an independent transfer pricing exercise) cannot negate the nature of the transaction. It would lead to an absurd conclusion if, all else constant, the fact that no payment is demanded negates accrual of income to the overseas entity. Instead, the various factors concerning the determination of the real employment link continue to operate, and the consequent findi....
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....n 2 to sec . 9(1)(vii) of the Act. The decisions relied upon by the assessee in the case of IDS Software Solutions (Supra) and Abbey Business Solution (Supra) would not help the case of the assessee when there is a direct judgment of Hon'ble Delhi High Court on this point." We find that the ratio of the decisions of Hon'ble Delhi High Court in the case of Centrica India Pvt. Ltd. Vs. CIT (supra) as well as the decision of the co-ordinate bench of this Tribunal in the case of Foodworld Supermarkets Ltd. Vs. DCIT (supra) is applicable to the facts of the case on hand. The decisions relied upon by the ld. AR are on the point of double deduction of tax at source under Section 192 and further under Section 195 of the Act whereas the issue in the case of the assessee is taxability of the income in the regular assessment and not in the proceedings under Section 201(1) & 201(1A) of the Act. Therefore the TDS deducted by the ITIPL would not change the nature of the payment and chargeability of the same to tax in India. In view of the above facts and circumstances, the decisions of the Hon'ble Delhi High Court as well as coordinate bench of this Tribunal, we do not find any error or ....
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....ay of April, 1976, and approved by the Central Government.] [Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation [2].-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) 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".] " Article 12(4) For purposes of this Article the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any managerial, technical or consultancy services, including the provision of services by technical or other personnel." 8. The learned Authorised Representative has given much stress to....
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....e has referred to the relevant part of the DRP direction and submitted that when this was the subject matter of the objections filed by the assesse before the DRP then the jurisdiction of DRP cannot be challenged. 12. We have considered the rival submissions as well as relevant material on record. The assesse has challenged the jurisdiction of DRP in enhancing the total income when the A.O. has not considered the entire payment in foreign currency as FTS. We find that while challenging the draft order the assesse filed objections before the DRP which are reproduced in para 2 of the DRP as under : "2. Objections to the Draft assessment order before the Dispute Resolution Panel : 1. The draft assessment order made under Section 143(3) read with section 144C of the Act is bad on facts. 2. Grant of lower refund by virtue of treating reimbursement of expenses as fees for technical services. 2.1 The Assessing Officer erred in computing the refund due to the assessee at Rs. 18,55,431. 2.2 Without prejudice to the generality of the above, the Assessing Officer has erred, inter alia, in : a. Not appreciating the fact that certain expenses were incurred by the assessee o....