AI Drafter 
TaxTMI 
TaxTMI 
2022 (4) TMI 1444
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.... 2017-18 22.02.2019 22.02.2019 2018-19 22.02.2019 22.02.2019 2. The common issue that arises out of the above impugned orders are 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 sala....
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....nstitute FTS/FIS under the provisions of the applicable Double Taxation Avoidance Agreement ("DTAA"). 3.7 The Ld. AO, did not accept the submissions 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 addition....
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....e The assessee filed its rejoinder to the said remand report and contended that the Ld. AO did not provide for sufficient opportunity to adduce the evidences, were produced before the Ld. CIT(A) as additional evidences. 6. The Ld. CIT(A) after 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 ....
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....monthly basis or at such other times as may be mutually agreed between the Parties. 3.2 The determination of the Direct Costs and Common Costs payable by GSSPL under Clause 2.3 and 2.4 above shall be on the basis of periodic statements, accompanied with such supporting documentation as may 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....
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.... or regulations of any jurisdiction. 4.8 The Parties shall attempt to resolve amicably any dispute, controversy or claim arising out of or relating to this Agreement, including any question regarding its existence, validity, interpretation, breach or termination, 4.9 Any of the Panics may terminate 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 t....
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....Solutions India Pvt. Ltd. vs. ITO reported in (2009) 122 TTJ 410. • Decision of coordinate bench of this Tribunal in case of Abbey Business Service Pvt. Ltd. vs. DCIT reported in (2012) 23 taxmann.com 346. • Decision of Hon'ble Pune Tribunal in case of M/s. Faurecia Automative Holding vs. DCIT in ITA No. 784/Pun/2015 by order dated 08/07/2019 • Decision of Hon'ble Mumbai 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 secondmen....
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....the intermediary does not fulfill the conditions required for him to be considered as the employer within the meaning of paragraph 2. In settling this question, the competent authorities may refer not only to the above mentioned indications but to a number of circumstances enabling them to establish that the real employer is the user of the labour (and not the foreign intermediary): • the hirer does not bear the responsibility or 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 seconde....
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....sion of Hon'ble Karnataka High Court in case of DIT vs. Abbey Business Services India (P.) Ltd. reported in (2020) 122 taxmann.com. 21. On the contrary, the Ld. CIT. DR place reliance on orders passed by authorities below. 22. The Ld. CIT. DR referred to the decision of Hon'ble Delhi High Court in case of Centrica India Offshore Pvt. Ltd. vs. CIT reported in (2014) 364 ITR 336 (Delhi), wherein similar situation arose. Hon'ble Court held that, overseas entities, through seconded employees, provided '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....
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.... the submissions advanced by both sides in light of records placed before us. In an identical facts this Tribunal analysed various aspects of secondment in case of M/s. Toyota Boshoku Automotive India Pvt. Ltd. vs. ACIT in IT(TP)A Nos. 1646/Bang/2017 & 2586/Bang/2019 for A.Ys. 2013-14 & 2015-16 by order dated 13.04.2022 as under: "At the outset it would be useful to understand the concept of Assignment or secondment. Multi-national companies with a view to utilize skill within the group companies has 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 o....
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....ing State in which the place of effective management of the enterprise is situated." Article 15(1) of OECD Model Convention lays down the rule of taxation of income earned by the seconded employee by giving the right to tax by the State where employment is exercised. The term "Employment is exercised" means, the place where the employee is physically present when performing the activities for which the employment income is paid. Article 15(2) of OECD Model Convention carves out exception to the rule in Article 15(1) 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 ....
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....temporary basis, individuals may, if certain objective criteria are met, be deemed to be the employees of the service recipient in the other country (i.e. source country), and therefore, taxable in the source country where they are performing their services. Thus where the control is excersised by the entity to whom the services are rendered, such an entity shall be construed to be the employer for the purpose of Article 15(2)(b)." 26.1. In the above background let us analyse the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006, between 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 em....
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....verseas entity on behalf of assessee which shall be reimbursed by assessee to overseas entity against a debit note. 5. That, during the period of assignment with the assessee in India, all other terms and conditions as per polices of the assessee company would be applicable. 26.8. The assessee is thus required to make following payments as salary package to the seconded employees: Para No Context Description 2 Employer GSSPL (Indian company) is the employer 2.2 Exclusivity Employee works exclusively for GSSPL 4.1 Compensation Compensation 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....
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....to employer of the seconded employees. It is an admitted fact that all the seconded employees are in India for more that 183 days in a 12 month period. Further all the seconded employees have PAN card as well as file their returns in India in respect of the 100 % salary, though the assessee pays only part of the salary in India. 26.12. The definition of FTS under the Act is given in Explanation 2 to Sec. 9(1)(vii) of the Act that reads as follows:- "Income deemed to accrue or arise in India. 9.(1) The following incomes shall be deemed to accrue or arise in India:- (i) to (vi) (vii) income by way of fees for technical services 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....
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....ch services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (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 th....
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.... Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. vs. CIT (supra) dealt with identical case of reimbursement of salaries paid to expatriate employees. The Hon'ble Court held that, overseas entities had, through seconded employees, undoubtedly provided 'technical' services to Centrica India and that, the expression rendering technical services expressly includes provision of services of personnel. The Hon'ble Court held that the Seconded employees, were provided by overseas entities and work conducted by them thus, i.e. assistance in conducting business of assessee of quality control and management was through overseas entities. The Hon'ble Court also held that, mere fact that secondment agreement, phrases payment made by Centrica India to overseas entity 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 ....
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....refore, reliance placed on this decision is of no assistance to revenue. 29.4. There is another decision of Hon'ble Supreme Court in case of DIT v. Morgan Stanley reported in (2007) 162 Taxman 165, wherein, it is held that, in case of deputation, the entity to whom the employees have been deputed cannot be regarded as employer of such employees as the employees continue to have lien on his employment with the entity which deputes him. Entity seconding the employee is the employer as it retained the right over seconded employee is also held by Hon'ble AAR in case of AT & S India Pvt. Ltd., reported in 287 ITR 421. 29.5. The observations of the Hon'ble Supreme Court in the case of Morgan Stanley (supra) were in the context of existence of service PE. This is clear from a reading of the relevant 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'....
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....s other items. On the above facts, Hon'ble AAR ruled that the Contention that the payments are only in the nature of reimbursement of actual expenditure is not supported by any evidence and there is no material to show what actual expenditure was incurred by AT & S and what was claimed as reimbursement. A part of the salary of seconded personnel is paid by the applicant in Indian rupees and the remaining part is paid by the applicant to AT & S in Euro. While working with the applicant, the seconded personnel are required to comply with the regulations of the applicant, but they would go back to the AT & S on the expiry of assignment. Aforesaid terms and conditions show that the seconded personnel in effect continue to be employees of AT & S. Recipient of the compensation is AT & S and not the seconded employees. 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 claus....
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....uch services. In this factual situation, it is possible to contend that merely providing the service of a technical person for a specified period in mutual business interest not as a part of technical or consultancy service package but independent of it, does not fall within the ambit of S. 9(1)(vii)." 32. Hon'ble Bombay High Court in case of Marks & Spencer Reliance India Pvt. Ltd. VS. DIT reported in (2013) 38 taxmann.com 190, upheld the view of Hon'ble Mumbai Tribunal which held that, payment towards reimbursement of salary expenditure without any element of profit, would not be taxable under the provisions of the Act. Hon'ble Court also held that, when the entire salary has been subjected to tax in India at the highest average tax rate, the assessee could not held to be in default for not without tax under the provisions 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 ....
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....kill to the Indian entity, the same shall not constitute fees for technical services. In support we refer to the decision of Hon'ble Karnataka High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. reported in (2012) 21 taxmann.com 214, on the concept of 'make available', observed and held as under: "What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology '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 hav....
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....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, files their respective returns under Section 139 of Income Tax Act, 1961 and shows the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon..... 14. Coming to the third issue of payment of salary, allowances and expenses of the personnel drawn from different global entities to work with the appellant, we find that learned Counsel submits that the employer-employee relationship exists between the Appellant and Seconded Personnel 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 t....
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....are Solutions vs. ITO (supra), Hon'ble Pune Tribunal in case of M/s. Faurecia Automative Holding (supra), Hon'ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (supra), we are of the view that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as "Fee For technical Services" Once there is no violation of provision of section 195, assessee cannot be held to be an assessee in default under section 201(1) of the Act for all the years under consideration. We therefore direct the Ld. AO to delete the interest levied under section 201(1A) of the Act for all the years under consideration. In the result, the appeal filed by the assessee for all the years under consideration stands allowed. Order pronounced in the open court on 29th April, 2022. ============= Document 1 Goldman Sachs Services Private Limed Crystal Downs Embery Gof Links Business Pan Officermediate Ring Road Bangalore 560 071 in Tel: 91 80 4127 1600 | Fax 51 80 4127 1601 Private and Confidential October 31, 2011 Christopher Roberts Villa 228, Phase 1, Adarsh Palm Meadows, Ramagondanahalli,....
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....ion and abilities to the business of GSSPL You shall at all times act in the best interests of GSSPL 22 During the term of your employment with the firm, you and required to work exclusively for the firm unless you obtain prior written consent from the firm in respect of your involvement in outside employment or business activities 3. DATE OF EMPLOYMENT 3.1 Your employment with GSSPL will commence on January 1, 2010 and shall continue for a fixed term of three years, subject to the notice provisions contained in paragraph herein. 3.2 Notwithstanding the other provisions of this Statement your employment will automatically terminate on your 58" birthday unless intended by the firm by written agreement. 3.3 For the purposes of calculating your entitlement to benefits, including vacation and other leave entitlements, the firm will take into account your previous years of service at Goldman Sachs so that for these purposes, your tenure at the firm will be deemed to have commenced from January 1, 2010 4. 41 COMPENSATION Your basic mary will be USD 130,000 per annum payable monthy, loss tax or other withholdings and applic....
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....be required to work such additional hours as are necessary to meet the business demands of your job 7. ANNUAL LEAVE AND HOLIDAYS 7.1 You will be entitled to 20 days' paid leave in a full holiday year, which runs from 1 January to 31 December Subject to the provisions of applicable law, this will be pro-rated in your first and last years of service and details of the pro-rated entlement will be set out in the India Employee Handbook 12 In addition, you will be entitled to 12 paid public holidays details of which will be provided to you at the start of each holiday year and which may be subject to change on an annual bas 73 On the termination of your employment you will be paid in respect of any accrued but untaken leave. If you have exceeded your accrued server entitlement, you hereby consent to the excess being deducted from any due to you by the firm on termination 75 You may be required by the firm to take any outstanding leave entitlement during your nahon period 76 further details about leave watement including how to book trave ane contamed in the India Employer Handbook Details of authorised leave other than loave en....
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....s contained in the Employee Handbook Whilst the disciplinary process does not form part of your contract of employment, the disciplinary rules do Disciplinary sarictions may include oral or written warnings and the firm reserves the right to transfer you to another position, to demote you or to impose a financial penalty, a appropriate. If the fam suspects that you have committed an act of senous or gross misconduct, it may suspend you from your duties, pending the outcome of the firm's investigation into the alleged moiconduct 112 if you are dissatisfied with a disciplinary decision taken against you, you should contact Human Capital Management, which will arrange for your concem to be rassed with the appropriate person 113 if you hovna geevance you may raise the matter with the porton you riport to wither in writing o person or you may use the firm's formal onevance procedure details of which are set out in the Employee Handbook Document 5Traceback (most recent call last): File "C:\inetpub\vhosts\taxmanagementindia.com\httpdocs\python_image_text_project\google\direct_extract_text.py", line 19, in from google_doc_api import process_sing....