TaxTMI 
TaxTMI 
2022 (4) TMI 1444
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....e two fold: 1. Treating the assessee to be an, 'assessee in default' under section 201(1) of the Act for non-deduction of taxes at source under section 195 of the Act. And; 2. Levy of interest under section 201(1A). As the above common issues in all these appeals were heard together, they are being disposed of by this common order for sake of convenience and brevity. 3. Brief facts of the case are as under: 3.1 The assessee is a subsidiary of Goldman Sachs (Mauritius) LLC, Mauritius. The assessee is engaged in providing back-end support services in the nature of information technology enabled services and software development services to the Goldman Sachs group entities. 3.2 The Ld. AO noticed that, the assessee employed expatriate employees, and part of their salary is paid by the assessee and part of it by the overseas entity, which are then reimbursed at cost by the assessee. The reimbursements made by the assessee are recorded as salary and payroll costs in the books of the assessee. 3.3 The Ld. AO issued notice under section 201 of the Act to the assessee, to show caus....
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....ns of the assessee, and passed the order under section 201(1) and section 201(1A) of the act, treating the assessee, as 'assessee in default'. The Ld. AO held that, that there was no employee-employer relationship between the expatriate employees and assessee, and that, the legal/real employer of such employees were the overseas entity, and not the assessee. Further, the Ld. AO held that, the overseas entity, have, through the employees, rendered technical, managerial and consultancy services to the assessee. Accordingly, the Ld. AO concluded that, the reimbursement of salary and other related costs made to the overseas entity, would be covered under the definition of FTS/FIS as per the provisions of section 9(1)(vii) of the Act and also as per the provisions of the DTAA between India and the respective countries. Aggrieved by the order of the Ld. AO passed u/s. 201(1) and 201(1A) of the Act, assessee preferred appeal before the Ld. CIT(A). 4. Before the Ld. CIT(A), the assessee filed following additional evidences: * List of all expatriate employees with details of their PAN, designation, division and a brief description of the functions performed; * Note capturing t....
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.... considering the submission of assessee held that, the facts of the assessee were in pari-materia with the facts considered by this Hon'ble Tribunal in the case of Intel Corporation in IT(IT)A No. 135/Bang/2016. The Ld. CIT(A), therefore concluded that the legal employer of the expatriate employees was the overseas entity and hence the payments re FTS/FIS under the Act and the respective DTAA. The Ld. CIT(A) dismissed appeals of the assessee, and upheld the order of the Ld. AO, relying on the following decisions: * Decision of Hon'ble Delhi High Court in case of Centrica India Offshore (P) Limited (2014) 44 taxmann.com 300 (Delhi); * Decision of coordinate bench of this Tribunal in case of Food World Supermarkets Limited (2015) 63 taxmann.com 43 * Decision of coordinate bench of this Tribunal in case of Intel Corporation IT(IT)A No. 135/Bang/2016; * Decision of coordinate bench of this Tribunal in case of Emulex Design & Manufacturing Corporation IT(IT)A No. 358/Bang/2015. Aggrieved by the order of Ld. CIT(A), assessee filed appeals before this Tribunal. 7. Before considering the issue in hand, the Ld. AR took us through the terms and conditions agreed between the....
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....be reasonably requested for by GSSPL and/or required by regulatory authorities and the bankers to GSSPL, including, without limitation, vouchers, certifications, etc. 3.3 Payment of Direct Costs and Common Costs by GSSPL, shall be made subject to applicable Indian taxes and withholdings. Service tax, if applicable in relation to the Direct Costs and Common Costs, shall be borne by GSSPL. GSSPL shall issue appropriate certificates to the Group Companies with respect to the taxes so withheld. 4. MISCELLANEOUS 4.1 Any Affiliate of The Goldman Sachs Group, Inc. (i.e., in addition to the Group Companies) may, at any time with the consent of GSSPL, become a party hereto, subject to the Affiliate executing a 'Deed of Adherence' or such similar document as may be specified by GSSPL, agreeing to be bound by all terms and conditions of this Agreement. GSSPL shall provide written notice of such Affiliate's execution of the 'Deed of Adherence' or similar document, to all Group Companies. 4.2 The provisions of this Agreement shall apply in relation to any Direct Costs and Common Costs (1) outstan....
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....erminate this Agreement by giving at least one (1) month's prior notice in writing, provided, however, that in the event of insolvency, bankruptcy, dissolution, involuntary transfer of ownership (in whole or in part) of a Party this Agreement shall be terminated automatically and immediately as to such Party. This Agreement shall remain effective as to non-terminating Parties as long as at least two Parties, and one of which shall be GSSPL (i.e. GSSPL and at least one Group Company), are not terminating Parties. 4.10 This Agreement shall be governed by and interpreted according to the laws of England and Wales." 8. The Ld. AR submitted that, based on the above agreement, the assessee entered into independent contract with each of the seconded employees. It is submitted by the Ld. AR that the seconded employees worked under the control of the assessee. It is also mentioned that 100% of the salary payable by assessee to such employee is subject to TDS under the head salary and Form 16 is issued to the employees that are seconded. The assessee confirms the appointment of the seconded employee and an agreement is entered into between the assessee and the second....
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....bai Tribunal in case of DIT vs. HCL Infosystems Ltd. reported in (2005) 144 taxman 492; 13. The Ld. AR submitted that, payments to the assessee under the secondment agreement, cannot be treated as 'fees for technical services.' It was submitted that India Recharge and Cost Allocation" Agreement', dated 03/03/2006, entered by the assessee with overseas entity, for secondment of staff from overseas entity, to the assessee in India, and not an agreement for rendering of services by overseas entity to the assessee in India. The Ld. AR submitted that as per Article 2 of the Agreement with Mr. Christopher(supra) shows that, he works under the direct management, supervision and control, and as per instructions of the assessee in India during the period of secondment. It was submitted that the place of performance of the duty and the manner in which the secondee had to work, were decided by the assessee, and it was the assessee and not overseas entity, who was responsible and accountable to ensure proper performance of duty by the secondees. 14. It was submitted by the Ld. AR that: (i) the nature of work to be performed by the secondee was specified by the....
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.... risk for the results produced by the employee's work; * the authority to instruct the worker lies with the user, * the work is performed at 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 employee; * 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." 17. The Ld. AR thus submitted that, when the assessee is considered as the real and economic employer of the secondees, the reimbursement of salary and other administrative costs to overseas entity, constitutes expenditure in the nature of 'salary' and consequently the reimbursements made to overseas entity, under the India Recharge & Cost Allocation Agreement dated 03/03/2006, cannot be considered as 'fees for technical services', either under the Act, or under the India US DTAA, and consequently, the said reimbursements are not liable for TDS u/s. 195 of the Act. 18. The Ld. AR submitted that,....
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....vided 'technical' services to the assessee, and that, the expression, 'rendering technical services', expressly include, 'provision of services of personnel'. 23. He submitted that in the decisions of, Verizon Data Services India P Ltd. In re reported in 337 ITR 192 the authority for advance ruling held that, the oversees entity is the real employer of the expatriate employees and it retains employer employee relationship with them. Thus, reimbursement of salaries was payment for rendering technical services hence taxable as FTS and liable to withholding of tax u/s. 195. The Hon'ble Madras High Court in Verizon Data Services India (P) Ltd. v. AAR & Ors., reported in 346 ITR 489 upheld the ruling of AAR. 24. The Ld. DR also relied on the decision of coordinate bench of this Tribunal in case of Food World Supermarkets Ltd. vs. DDIT (International Taxation) reported in (2015) 63 taxman.com 43, wherein this Tribunal hailed as under: 13. The SLP filed against the judgment of Hon'ble Delhi High Court has been dismissed by the Hon'ble Supreme Court in Centrica India Offshore (P.) Ltd.'s case (supra). Therefore the view taken by....
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.... global mobility policy of assignment or secondment. Secondment is deputing or sending one employee in one entity of the multi-national company in one country to another entity of the same multi-national company in another country. For reasons like continued pensionary benefits and other similar reasons the employee would want to retain his contract of employment with the original employer rather than with the seconded employer. In such agreement there are usually three parties, the employer deputing or seconding his employee, the employee and the employer to whom the employee is seconded or deputed. Such arrangements are also referred to as "International hiring out of labor". Sec. 9(1)(ii) of the Act lays down that Income in the form of salaries is deemed to accrue or arise in India and is deemed to have been earned in India if is received for services rendered in India. Under the Act, irrespective of the residential status of the employee, salary would be taxable in India, if it is for services rendered in India which is deemed to have been earned in India. In the case of seconded employee, if they are tax residents of a country with whom India has a Treaty for avoidance of doub....
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.... by facilitating short term secondment without the burden of having to pay tax in the country where the employment is exercised subject to the following three conditions: (a) If the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned. and; (b) if the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and, (c) if the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. The Second Condition - the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State. The meaning of the term 'employer' is critical as there are occasions when seconded employees are on the rolls of a non-resident employer, but in essence, work as per the directions and under the supervision of an enterprise to whom he has been seconded and yet claims short stay exemption. Sinc....
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....een the assessee before us and overseas entity, the independent employment contract between the assessee and the seconded employees and the correspondence between the employee and the assessee regarding bifurcation of salary payable to them. The assessee confirms the employment of Mr. Christopher pursuant to which an agreement is entered into between the assessee and Mr. Christopher. The said agreement is reproduced herein above. 26.2. From the recitals to the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006 between the assessee and overseas entity, it is clear that, the process of secondment of employees by overseas entity to the assessee in India is initiated, when the assessee in India, requires services of seconded employees of overseas entities, for its business projects by the assessee in India. The assessee in India then enters into an agreement for seconded with such employees. By way of illustration, we may take the case of one Laura May, who is a American national and who is on the rolls of overseas entity. 26.3. Article 3.3 of the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006 between the assessee and overseas entity ....
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....sation is decided and fixed by GSSPL in US$, 25% of this is paid in India and 75% will be paid through the New York payroll. Overall 100% compensation responsibility is that of the Indian company and not the overseas company (as wrongly noted by CIT(A)) 4.2 Bonus Bonus amount is decided by GSSPL 4.4 Increment Increments and bonus entitlements are decided by GSSPL, in its sole discretion 5.1 Place of Work Place of work is in Bangalore (India) 7 Leave policy Leave is decided as per GSSPL's local policy 9.1 Notice period Either the employee or GSSPL can give notice (mutual) to end the employment with one month's notice 9.2 Termination Firm has right to terminate the employment for a cause ("firm" is defined as GSSPL at para 2.1 and hence it is GSSPL which has the right to terminate the employment) 11 Discipline and Grievance Employee is bound by the Employee Handbook of GSSPL (and not of overseas companies as noted by CIT(A) at para 23 of his order) 16 Miscellaneous The contract is governed by the laws of India 17 Signatures The contract of employment is signed both by the expatriate emp....
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....rvices payable by-- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day 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 h....
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.... (b) for services 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 personal 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 firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services)." 27. Rendering of managerial, technical and consultancy services is governed by Article 12 on 'Fees for included services' of the Double Tax Avoidance Agreement, between India and US. Payments made to 'individual or firm of individuals for service rendered by them in independent professional capacity are specifically excluded since they are covered by Article 15 on Independent Personal Services. Likewise, Article 12 specifically excludes payments made towards services rendered by a....
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....y as 'reimbursement' could not be determinative. It was also held that, the fact that overseas entity did not charge mark-up over and above costs of maintaining secondee could not negate nature of transaction. 29.2. Hon'ble Pune Tribunal in case of M/s. Faurecia Automative Holding (supra) has observed as under: "4.10. We have gone through the facts of the case obtaining in Centrica India (supra). The assessee therein contended that payment to foreign party towards seconded employees was only reimbursement and hence, no income was chargeable to tax in its hands. The Authority for Advance Ruling (AAR) held that payment made by the petitioner to the overseas entity was in the nature of income in view of the existence of Service Permanent establishment (PE) in India and hence liable for tax withholding. Overturning the view of the AAR that Service PE was constituted, the Hon'ble High Court held that the payment to AE was in the nature of 'fees for technical services' and not reimbursement of expenses and further laid down that the nomenclature of reimbursement was not decisive. It noted that: 'Money paid by assessee to overseas entity ac....
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....portion of the judgment of the Hon'ble Supreme Court, which is as follows:- "As regards the question of deputation, an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with the MSCo the said company retains control over the deputationist's terms and employment. The concept of a service PE finds place in the UN Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entail it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. Applying the above tests to the facts of this case, it is found that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requir....
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....Further contention was that AT & S is not engaged in the business of providing technical services in the ordinary course of its business is also not tenable. Therefore, payments made to AT & S by the applicant are for rendering "services of technical or other personnel" and are in the nature of fees for technical services within the meaning of Explanation 2 to sub clause (vii) of section 9(1) and Article 12(4) of the relevant DTAA and are subject to deduction of tax at source under section 195. 30.1. The ruling of Hon'ble AAR is on the factual finding that payments were not only reimbursement of actual salary, bonus etc., but was also included other sums. 30.2. Per contra in the present facts of the case, it is not at all the contention of the revenue that, something over and above what was paid as salary, bonus etc. 30.3. Liability under section 195 to deduct tax at source when making payment to a non-resident arises, only if, sum paid is chargeable to tax in India. Payment of salaries is not covered under section 195. Thus, it is necessary to take into consideration following aspect to determine Payments to enterprise seconding employees, the Indian entity has an obligatio....
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....visions of the Act. 33. Hon'ble Delhi High Court in the case of DIT Vs. HCL Infosystems Ltd. reported in (2005) 144 Taxmann 492 (Delhi) upheld the order of Hon'ble Delhi Tribunal which held that, when an Indian company had already deducted and remitted taxes under Sec. 192 of the Act on salaries paid abroad to the technical personnel and when such salary is reimbursed on a cost to cost basis without any profit element, the provisions of Sec. 195 of the Act cannot be applied to reimbursement of salaries made to foreign company, once again. 34. Coordinate bench of this Tribunal in case of IDS Software Solutions v. ITO reported in (2009) 32 SOT 25, Abbey Business Services (P.) Ltd. v. DCIT reported in (2012) 23 taxmann.com 346, took the view that expats are deputed to work under the control and supervision of the Indian company and that the oversees entity is not responsible for the actions of the expatriate employees. Thus, oversees entity does not render any technical service to the Indian company, since such payment are towards reimbursement of salary cost borne by oversees entity, and that, no income can be said to accrue to oversees entity in India. The decision of this....
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....y 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and ....
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....nel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961. We find that the issue is no longer res integra and is covered by decision of Volkswagen India Pvt. Ltd. Vs. CCE, Pune-I, 2014 (34) STR 135 (Tri. Mumbai) [maintained by Apex Court in 2016 (42) S.T.R. J145 (S.C.)] wherein it was held that: 5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working as their employees and having employee employer relatio....