TaxTMI 
TaxTMI 
2020 (1) TMI 1474
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....atriate personnel) to be employed on local 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....
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.... of the applicant, is only facilitative in nature and to facilitate the expatriate 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....
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....ration reimbursed by Indian company to a foreign company is taxable as fee for technical services (FTS). (b) The hon'ble High Court 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 ....
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....ayments are in nature of salary, the same falls out of the purview of the definition of fees for technical services under the provisions of the Act as highlighted in the definition of fees for technical services. 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 co....
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....(Mumbai) ; [2014] 147 ITD 83 (Mumbai Tribunal) affirmed by Bombay HC (ITA 893/2014) -DIT v. HCL Infosystem Ltd. [2005] 274 ITR 261 (Delhi). -Cholamandalam MS General Insurance Co. Ltd., In re [2009] 309 ITR 356 (AAR) ; [2009] 178 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 co....
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.... be regarded as employees of KRP and shall also not in any way be subject to any kind of instructions or control of KRP. The personnel shall function solely under the control, direction and supervision of the company and in accordance with the policies, rules and guidelines generally applicable to the employees of the company 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. Te....
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.... from the auditor that the reimbursed amount is on cost to cost basis. 27. It is also noticed from sample invoices of the company that the reimbursements range from 350 to 1421 euros per month and is roughly above 10-15 per cent. of the salary of expatriate employee. From the above facts and from a perusal of the documents submitted, we are of the view that the expatriate personnel 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 offerin....
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....mpany -did not have the necessary human resource. The secondees are not only providing services to the assessee, but rather tiding the assessee through the initial period, and ensuring that going forward, the skill set of assessee's other employees is built and these services may be continued by them without assistance. Thus the amount reimbursed by the assessee to overseas companies 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 o....