TaxTMI 
TaxTMI 
2020 (1) TMI 1474
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....l payroll in its new manufacturing facility in India. Thus, the applicant requested KRP, a wholly owned subsidiary of PMK, for the supply of such experienced expatriate personnel. The applicant entered into an inter-company agreement with KRP for disbursing social security contribution, insurance and relocation expenses payable by the applicant to the expatriate personnel in their home country which is proposed to be disbursed by KRP and subsequently reimbursed by the applicant. Thus, KRP act as payroll disbursement agency to deposit social security contribution, insurance and relocation expenses payable by the applicant to expatriate personnel in their home country which is proposed to be disbursed by KRP and subsequently reimbursed by the applicant. Thus, KRP act as payroll disbursement agency portion of salary and other social security obligations of the expatriate in their home country on behalf of the applicant. KRP charged the actual cost incurred for reimbursing the payments to expatriates on behalf of the applicant. The applicant deducted tax at source under section 192 on the entire amount paid by the applicant which is inclusive of the reimbursement payment made to KRP. K....
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....riate personnel to meet their financial commitments in their home countries. Therefore, there is no income accruing from such an arrangement. 5. The applicant submits that section 195 of the Act casts an obligation on any person to withhold tax on payments made to non-residents, which are chargeable to tax under the provisions of the Act. Accordingly, only if the payments are liable to tax in India as "income", there is a requirement for the applicant to deduct tax at source on the payments to be made by it to KRP. The applicant relied on Central Board of Direct Taxes Circular No. 720, dated August 30, 1995 ([1995] 215 ITR (St.) 46 ) to state that no tax withholding is applicable on reimbursement since salary payments already suffered withholding tax under section 192. The applicant also contended that KRP merely disbursed payments to expatriate personnel on behalf of the applicants and hence payments would not tantamount to fee for technical service as defined under article 12(4) of Tax Treaty. Further in the absence of a permanent establishment in India payments made to KRP under this agreement cannot also be treated as business profits as per article 7 of Tax Treaty to be taxed....
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....of Delhi in the case of Centrica India Off shore (P.) Ltd. v. CIT [2014] 364 ITR 336 (Delhi), held that, where the terms of "secondment agreement" entered into by the assessee in con ducting its business of quality control and management, amount reimbursed by the assessee to overseas companies towards salaries of seconded employees amounted to "fee for technical services" liable to tax in India. 11. The Department states that, dual income arise from the transaction : (a) Salary of the expatriate personnel as per section 9(i)(ii) of the Act ; (b) Rendering of technical services by the expatriate personnel to the applicant on behalf of KRP as per section 9(1)(vii) of the Act. 12. As per learned Departmental representative, the salary income is clearly taxable in the source country, i. e., in India for receipts from both countries i.e. already being taxed in the source country i. e., India for receipts from both countries, i. e., India and Switzerland. The amount which was not taxed is income arising from rendering of technical services. Thus, the claim by the applicant that deduction of tax at source under section 192 is already borne by them for the salary and deduction of tax....
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....rvices. 18. It is submitted that payment made by the applicant to KRP for making payments on behalf of the applicant for social security contribution, insurance contribution as well as salary payment to the expatriate personnel does not amount to consideration for rendering any managerial, technical or consultancy services by KRP and hence such payments do not fall in the definition of fees for technical services under the Act and so payment by the applicant to KRP cannot be brought to tax as fees for technical services under the provisions of the Act. 19. Further article 12(1) of the India-Swiss Tax Treaty provides that royalty, fees for technical services and payments for the use of equipment arising in India may be taxed in India. The term "fees for technical services" ("FTS") is defined under the article 12(4) of the India-Swiss Tax Treaty to include : ". . . 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." 20. The applicant also states that KRP is not rendering any managerial, technical or consultancy services to the applicant to....
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.... Taxman 100 (AAR) -John Deere India Pvt. Ltd. v. DDIT (IT) [2019] 70 ITR (Trib) 73 (Pune) ; [2019] 55 CCH 0236 (Pune Tribunal) -AT & T Communication Services India Pvt. Ltd. (ITA No. 354/ Delhi/2017 and 1653/Delhi/2016) dated October 31, 2018 (Delhi Tribunal) -Faurecia Automotive Holding v. Dy. CIT (ITA No 784/Pun/2015) dated July 8, 2019 (Pune Tribunal) 25. We have carefully gone through the facts of the case, the contentions of the applicant, the Revenue and the written submissions and other documents. We have also perused that the inter-company agreement between KRP and the applicant and also the sample copy of the appointment letter of the applicant-company. The preamble of the inter-company agreement and the responsibility as to the personnel are extracted below : Preamble KRP a 100 per cent. subsidiary of PMK, with registered office at . . . . (Switzerland/Canton of Fribourg), is a limited company under Swiss law the statutory aim of which is to make available to companies or any other entities that are members of the K Group, whatever its world-wide location may be, all human resources and to provide all services related to make available personnel within the K gro....
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....during the period of assignment. KRP will not have continuing obligation towards the company with regard to the performance of the personnel. As a result, the company is solely liable and warrantor for : (a) any act or omission, including negligence or fraud attributable locally to personnel supplied, (b) any third party claim addressed to KRP following a local act or omission, whatever this may be, including negligence or fraud, attributable to personnel made available, (c) any loss, damage, claim, legal procedure or other costs or expenditure resulting from -or related to -bodily harm (including death) or incorporeal damages as well as to an attempt upon safety, health or other protective dispositions of personnel locally supplied, whether outside or within the direct framework of his or her employment with the company. Termination of employment 1. During probation period either party may terminate the employment by giving one month's notice in writing or adjustment/payment of one month basic salary in lieu thereof. 2. On confirmation of services, either party may terminate the employment by giving two month's notice in writing or adjustment/ payment of two mo....
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....are indeed employees of the applicant and there does exist employee-employer relationship between the personnel and the applicant-company. The applicant has selected the suitable employees depending upon business needs, qualifications and international brand image and best practices of the group from the list available with KRP and has issued the employment letters to them. It exercises control and issues directions to the employees who are required to supply their complete time and labour to the applicant. The applicant also has the power to terminate the employment. The sample employment letter submitted also indicates the period of employment as 2 to 4 years. On going through the details of salary and perquisites in form No. 16 and form No. 12BA, it is noticed that the concerned employee is offering the entire salary and perquisites and social security/insurance/relocation receipts in the return on which tax has been deducted in India. 28. The Revenue has placed strong reliance on the decision of the hon'ble High Court of Delhi in the case of Centrica India Offshore Pvt. Ltd. [2014] 364 ITR 336 (Delhi) ; 44 taxmann.com 300 (Delhi). There the assessee, was a wholly owned sub....
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.... towards salaries of seconded employees amounted to "fee for technical services" liable to tax in India. 29. The facts in the case of Centrica (supra) are distinguishable. It is an important point to note that in the case of Centrica India Offshore (supra) the Indian company was formed to provide back office support to the parent company in connection with co-ordination with Indian parties rendering support services to parent company and the expatriate employees were seconded to Indian company to provide the said services in initial stages. The seconded employees continued to remain on the payroll of the overseas entities who used to pay and disburse the salaries and the assessee reimbursed such salary costs to the overseas employers. Further in that case it was noted that the money paid to the overseas entity accrues to the overseas entity, which may or may not apply it for payment to the secondees, based on its contractual relationship with them but in the instant case the payments never accrued to KRP and were specifically related to social security/insurance/relocation commitments and are mandatorily paid to respective accounts. 30. The other case relied upon by the Revenue w....