TaxTMI 
TaxTMI 
2018 (7) TMI 1614
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....2010. The assessment for AY 2007-08 was framed by Dy. Director of Income Tax (IT), 4(1) Mumbai (in short 'DDIT/AO') under section 143(3) read with section 144(C) of the Act vide dated 07-02-2011. 2. The only common issue in these two appeals of the assessee against order of the CIT(A) upholding the action of the TPO/AO in making adjustment of Transfer Pricing to determine the Arms Length Price (ALP) on account of reimbursement of personnel costs amounting to Rs. 5,78,25,175/- by Morgan Stanley Advantage Services Pvt. Ltd. (MSAS) to the assessee. For this assessee has raised following 3 grounds which are alternative and without prejudice to each other: - "1. Ground No.1: In upholding that the reimbursement of personnel costs amounting to Rs. 57,825,175 by Morgan Stanley Advantage Services Private Limtied (MSAS) to the Appellant is the Appellant's income and in respect of which transfer pricing provisions would be applicable in order to determine the Arm's Length Price (ALP). 2.Gound No.2: Without prejudice to the above, in upholding the mark-up of 23.23 percent levied by the Additional Commissioner of Income-tax, Transfer Pricing - Range II(3), Mumbai (hereinaft....
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....eed to continue paying salary of the employee in Singapore and cross charging India for the same. As per Form-16 of the expatriate an amount of Rs. 7,31,62,201/- had been paid as salary and in return, the assessee received an amount of Rs. 5,78,25,175/- as reimbursement from the Indian company. The AO during the course of assessment proceedings asked the assessee as to why the amount of Rs. 5,78,25,175/- received from the MSAS should not be treated as Fee for Technical Services (FTS) and brought to tax accordingly. The assessee before AO claimed that as per contractual agreement between MSAS and assessee, salary is paid by assessee on behalf of MSAS and the same is recharged by the assessee to MSAS. It was therefore claimed that the amount received by the assessee is in the nature of reimbursement of cost incurred by the assessee on behalf of MSAS and accordingly, no income arises in the hands of the assessee. The AO was not convinced with the explanation of the assessee, who held that Director/employee deputed to India was highly qualified and technical experience having vast experience and expertise in this area and the role of the assessee was more than employer and further ther....
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....se there is nothing like salary which the appellant has received. The appellant has only paid to its employee and has recovered payments from the company to which such employee was deputed. Such recovery in the facts of the case and as per the findings in the ground no. 1 & 2 has not been found to merely reimbursement and further not at arm's length. ii. It is the fact of the case that the appellant has deputed one senior and experienced person of its organization to MSAS for a period of three years, who had to render his services to ;the MSAS. There is agreement in this regard. Further it is not the case that such deputed person has not provided services to the MSAS. According]y the appellant's contention that there is no agreement between it and MSAS for services to be rendered is not material. It is further stated that for services to be rendered what is important is the factum of services rendered and payments received. Existence of a contract/agreement for the same is not material. In such facts of the case the case laws/decisions relied upon by the appellant are distinguishable as in none of the cases the facts are as in the case on hand. iii. It has been co....
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....ilable to the MSAS. ix. The expression '.make available is not defined in the Income Tax Act or DTAA signed by India with various countries. In view of above, one has to look forward for Its meaning in other legal enactments or in the general dictionary to understand its meaning. It is found that the expression has been used in various other enactments in United Slaves. The expression has been used in enactment 'Terrorism Risk Insurance Act 'of United 'States and in 'Copyright Infringement Act' of USA. On later Act number of decisions has come up regarding meaning of expression 'make available' which means "offer or make available or provide for" in the contexts. If these words are substituted in sub para-4(b) of article -12 of India US treaty (where first time word make available was used in treaty context), it will be as under - If such services offered/supply technical knowledge, experience, skills, know-how or processes..,..., it makes perfect sense. A person having such technical knowledge/experience/skills/know-how will not be offering through its services these technical knowledge/experience/skills/know-how to the recipient of the services for the price of only serv....
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....d deduct them. Whether the latter will be the case will depend on the tax law of the Netherlands, the tax treaty between the Netherlands and the country of habitual residence and on various international social security treaties such as EU Regulation 1408/11 and the European Social Charter. Please Note: 'Making available' should be taken to mean any kind of supply of personnel such as posting, transfer or supply. If you make available personnel, you are a supplier, The employer to whom you make available personnel is referred to as the recipient": (Website reference- http://www.belastingdienst.nl/variabellb uitenland/en/business tax payers/business xii. The meaning of above expression was also searched on the Internet and it was found in the free dictionary by Farlex that 'Make Available' is the meaning of the word 'offer' and this meaning clearly fits into in para-4 of article-12. xiii. Further efforts made to search the meaning of above expression i.e. 'make available' on the google search on the Internet and it was found that the other persons are using this expression 'make available' in the sense of "making accessi....
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....eparately dealt elsewhere in the treaty. The appellant has also not argued on interpretation of word 'make available* in US courts. In view of above the meaning of expression 'Make available5 has to be read in the above context. In the present case, service provider has provided or made accessible the services of its technical knowledge/experience .... 'Enabled to apply' phrase used in same protocol does not mean that service provider also has to teach technology embedded in the service provided. xvii. Further in the facts of the case Mr. Nagrani who is a person of high skill, knowledge and experience was deputed to the MSAS and was rendering his services to the M$AB was nothing but making his knowledge, skill etc. available to the MSAS, In the process he was also enabling the MSAS to acquire such knowledge, skill etc. from him by the MSAS so that after the period of deputation gets over, MSAS could still apply the same for its benefit, and continue to sustain and grow on its own. xviii. In view of the discussion here in above the contention of-the appellant regarding making available and context and meaning given to this phrase by the appellant is not found to be....
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....ction 9(1)(vii) of the Act. He contended that the payment by MSAS is purely in the nature of salary reimbursement on account of cost incurred by the assessee. Once the payment is in the nature of salary, the same is covered under the exception mentioned in explanation-2 to section 9(1)(vii) of the Act. Therefore, the same cannot be regarded as FTS given in the definition of the term of FTS but as salary income in the hands of the deputed employee. The relevant provision of section 9(1)(vii) explanation-2 reads as under: "Section 9(1)(vii) Explanation 2: For the purposes of this clause, "fees for technical services" means any consideration (including any lumpsum 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"." 6. The above definition reads as in consideration including any lumpsum consideration, for the rendering of any managerial, technical or con....
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....rvices may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.] 3. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including ....
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....DR) also relied on the decision of ITAT Delhi 'G' Bench in the case of Deputy Director of Income Tax, International Taxation, Circle-3(1), New Delhi v. JC Bamford Excavators Ltd. [2014] 43 Taxmann.com 343 (Delhi - Trib.), wherein it is held that "JCB India constituted the assessee's service PE in India, the AO held that it carried no the business in India and royalties/fees for technical services received from JCB India was effectively connected with such service Permanent Establishment (PE). Relying on para 6 of article 13, the AO held that such royalties/fees for technical services was liable to be considered as Business Profits' under article 7 of the DTAA as it was effectively connected with the P.E.". In view of this argument, Ld. CIT(DR) stated that the reimbursement of salary by MSAS to assessee is FTS falling within the provisions of section 9(1)(vii) of the Act and chargeable to tax in India. 10. We have heard the rival contentions and gone through the facts and circumstances of the case. The facts are that one Shri Vineet Nagrani, was employee with the assessee with effect from 16.1.2002 for its business operations and holds a MBA degree. Shri Vineet Nagrani was depute....
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....yee only. For this, first we will place reliance on the decision of coordinate bench of this Tribunal in the case of Additional Director of Income Tax (IT) Vs. Mark & Spencer Reliance India (P) Ltd. (2013) 38 Taxmann.com 190 (Mumbai - Trib.). "4.7 The present case is a case of part reimbursement of expenses and therefore there is no income element present in part reimbursement. The services rendered by the four persons deputed to the appellant are assistance in management and set up of business, assistance in property selection and evaluation and leading the retail operation, merchandising and product matter and set up of merchandising team under direct control, management and supervision of the appellant. This means that the four persons deputed to the appellant have worked as per the needs of the appellant to set up its retail business operations. The services necessary to set retail business operations cannot be said to be technical services within the scope of treaty between India and U.K. and as explained by ITAT Mumbai in the case of Raymonds Ltd (supra). Further, from the above it also cannot be said that the services have been 'made available1 to the appellant to b....
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....t as officer or authorized signatory or nominee or in any other lawful personal capacity for the assessee company, would also be out of place in the agreement for rendering technical services as it cannot be imagined that a technical person would also be required to act in non-technical capacities under an agreement for rendering technical services. Clause (H) on which considerable reliance was placed by the Department to contend that the agreement is one for rendering technical services, is merely a clause ensuring secrecy and confidentiality of the information accessed by the seconded employee in the course of his employment with the assessee company. Such confidentiality extends not only to technical information, which would be the case if the agreement is one for rendering technical services but also to financial or accounting information, price or cost data and any other proprietary or business related information. Article VI which provides for indemnity, that is to say, the liability of the assessee company to indemnify the US company from all claims, demands, etc., consequent to any actor omission by the seconded employee is also inconsistent with the claim of the Department....
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....es of a technical or other personnel) which; (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3 (b) of this Article is received; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design1. 14. As per clause (e) of para 4 if the payment is a consideration for rendering of any technical or consultancy services which make available technical knowledge, experience, skill, know-how or process, or consist of development and transfer of technical plan or technical design shall be treated as fee for technical services. An identical issue has been considered by the Hon'ble Karnataka High court in case of De Beers India Minerals (P.) Ltd. (supra) in par 22 as under: "22. What is the meaning of "make available'. The technical or consultancy service rendered should be of such a nature that it 'makes avai....
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....ccordingly, in view the decision of Hon'ble Karnataka High Couirt in case of De Beers India Minerals (P) Ltd. (supra) and Special Bench decision in case of Mahindra and Mahindra Ltd. (supra), we hold that the payment in question does not fall under the term fee for technical services as per provisions of Indo-UK DTAA. ......................................................... ......................................................... ......................................................... 18. There is no dispute about the facts as record by the CIT(A) that the assessee has made the payment towards part reimbursement of the salary expenditure which clearly shows that there is not element of profit in the said payment. This claim of the assessee is also supported by the various clauses of the agreement and seconded agreement as referred by us in the forgoing paras. Further the entire amount of salary received bv these personnel has been subjected to tax in India at the highest average rate of tax. Therefore, there is no question of any default on the part of the assessee. It is pertinent to mention that payment by the assessee is actually payment m....
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.... "4. for the purposes of paragraphs 2 of this Article, and subject of paragraph 5 of this Article, the terms "fees for technical services" means payment of any king of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which; (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available technical knowledge, experience, skill know- how or processes, or consist of the development and transfer of a technical plan or technical design". 14. As per clause (e) of para 4 if the payment is a consideration for rendering of any technical or consultancy services which make available technical knowledge, experience, skill, know-how or process, or consist of development and transfer of technical plan or technical design shall be treated as fee for technical service....