TaxTMI 
TaxTMI 
2023 (4) TMI 33
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....or Technical Services". 1. The Assessing Officer/Dispute Resolution Panel has erred in taxing the reimbursed salary amount of Rs. 1,49,96,676 received by the Appellant during the year as fees for technical services' in terms of section 9(1)(vii) of the Income-tax Act, 1961 as well as under Article 12 of the Double Taxation Avoidance Agreement entered into and subsisting between India and Canada ("India-Canada DTAA") 2. The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the reimbursement of salary and other related costs received by it does not fall within the purview of the term fees for technical services' either under the Income-tax Act, 1961 or under the provisions of the India-Canada DTAA and the stand taken by the Assessing Officer/ Dispute Resolution Panel in this regard is misconceived, illegal, erroneous and incorrect. 3. The Appellant submits that the Assessing Officer be directed to delete the addition of Rs. 1,49,96,676 so made and to re-compute its total income accordingly. Re: Re-adjudication beyond scope 1. The Assessing Officer/Dispute Resolution Pa....
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....cord, are: The assessee is a company incorporated in Canada and is a group concern of Owens Corning group of companies, a leading manufacturer of glass. Owens Corning India Private Ltd is a company incorporated in India and is engaged in the manufacture of glass fibres in India. During the year under consideration, the assessee filed its return of income on 26/11/2013, declaring a total income of Rs. Nil. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the course of assessment proceedings, the assessee was asked to show cause as to why the reimbursement of expenses of Rs. 1,49,96,673, shown as a salary and other related costs should not be brought to tax as fees for technical services. In reply thereto, the assessee submitted that the said reimbursement is in relation to the salary paid to its employee Mr. Anindya Ghosh, who was seconded to Owens Corning India Private Ltd, and the said payment was reimbursed by Owens Corning India Private Ltd. The assessee further submitted that the services rendered by the aforesaid employee of the assessee are nature ....
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....tion held that the reimbursement of salary and related cost received by the assessee from Owens Corning India Private Ltd. is in the nature of fees for technical services under the provisions of the Act and fees for included services under the provisions of the India Canada DTAA. Without prejudice, the AO also held that the assessee company has the Service Permanent Establishment ("Service PE") in India during the year under consideration on the basis that the seconded employee was sent to India to manage the affairs of Owens Corning India Private Ltd and for all practical purposes, the employee remain a permanent employee of the assessee, even though stationed in India. The assessee filed detailed objections before the learned DRP against the findings and addition made in the draft assessment order. Vide directions dated 27/01/2022, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee and held that the reimbursement of expenses received by the assessee is in the nature of fees for included services/fees for technical services. The learned DRP also rejected the objections of the assessee regarding the AO going beyond the direction o....
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.... for included services" as defined under the provisions of India Canada DTAA. The learned DR by referring to the findings of the learned DRP submitted that due to services provided by the seconded employee, the Indian company and its employees carry on the business model on their own without reference to the service provider, and thus the same also satisfies the condition of "make available". 7. We have considered the rival submissions and perused the material available on record. On 01/01/2012, the assessee entered into an Employee Secondment Agreement with Owens Corning India Private Ltd, whereby one of the employees of the assessee, i.e. Mr. Anindya Ghosh, was seconded to Owens Corning India Private Ltd for a limited period. As per the aforesaid Employee Secondment Agreement, the seconded employee will work under the control, direction, and supervision of Owens Corning India Private Ltd during his assignment and Owens Corning India Private Ltd shall have the right to promote/discipline/suspend/take any action in respect of the seconded employee. It is further provided that the payroll of the seconded employee shall continue with the assessee for the limited purpose of continu....
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.... of the assessee and held the reimbursement of expenses to be nothing but fees for included services under the provisions of the India Canada DTAA as well as fees for technical services under section 9(1)(vii) of the Act. However, while coming to the aforesaid conclusion, the AO made certain factual errors, such as the AO took into consideration the qualification of one Mr. Anil Gupta, instead of Mr. Anindya Ghosh. When the aforesaid factual anomaly was pointed out by the assessee, the coordinate bench of the Tribunal remanded the matter to the AO for re-appreciation of correct facts and re-adjudication of the matter in the light of the submissions made on behalf of the assessee. 9. In pursuance of the directions of the coordinate bench of the Tribunal, the AO issued a fresh show cause notice. In the 2nd round, the AO after considering the qualification of the seconded employee, Mr. Anindya Ghosh, and his rank in the organisation as mentioned in his LinkedIn profile came to the conclusion that services rendered by the seconded employee are in the nature of fees for included service/fees for technical services. In addition to the aforesaid conclusion, the AO also held that since ....
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....the appeals had raised several grounds. However, the solitary issue argued by the learned Sr. Counsel is that the AO/DRP erred in taxing the reimbursements of salaries of expat employees made by Google India Pvt. Ltd. (GPIL) to the assessee by characterising such reimbursements as fees for "technical services" (FTS) as per Explanation 2 to Section 9(1)(vii) of the Act as well as "Fees for Included services" (FIS) as per Article 12(4) of the DTAA between India and USA (India-US Tax Treaty)." 11. In the aforesaid decision, the coordinate bench of the Tribunal noted that the tax at source under section 192 of the Act against the salary and other allowances paid/payable to the seconded employees were deducted by the Indian company. The coordinate bench further noted that the salaries of such seconded employees were deposited in their overseas bank accounts, which were reimbursed by the Indian entity on a cost-to-cost basis and the seconded employees were working solely under the control and supervision of the Indian entity. Accordingly, the coordinate bench of the Tribunal decided the aforesaid issue in favour of the taxpayer by observing as under:- "9. Further the GIPL had....
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....ench of the Tribunal in the case of Biesse Manufacturing Company (P.) Ltd. by following the judgement of the Hon'ble Jurisdictional High Court in the case of Flipkart Internet (P.) Ltd. (supra) and the Bangalore Bench of the Tribunal in the case Goldman Sachs Services (P) Ltd. (supra) had decided the issue in favour of the assessee. The contentions raised and the findings of the Tribunal in the assessee of Biesse Manufacturing Company (P.) Ltd. (supra) reads as follows: - "17. During the course of assessment proceedings, the AO noticed that the assessee has made payment to M/s. Biesse Spa, Italy towards secondment of employees deputed to India during the year under consideration for an amount of Rs. 1.39.07,427. The AO also noticed that no tax was deducted at source on these amounts paid to the AE and issued a show cause notice to the assessee as to why the amount should not be disallowed us. 40(a)(i). The assessee submitted that these were salaries paid to Italian employees working in India. The payment was made to the employees in Italy and the same was reimbursed by the assessee. The assessee also submitted that the seconded employees was under the payroll of the as....
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....aka High Court in the case of Flipkart Internet Pvt. Ltd (supra) while considering the issue of NIL TDS certificate towards reimbursement of salary cost held as follows:- "33. In the present case, the stand taken on the material available is on the construction of legal position. As pointed out in the discussion earlier that the understanding of the legal position being erroneous, the only conclusion that could be arrived at is to allow the application. 34. Though the Revenue has raised numerous contentions that further information is required to record a detailed finding, such stand is taken up for the first time in the present proceedings A perusal of the file of the Department does not make out any instance where the Department had sought for further information which was not furnished On the contrary, the petitioner has made out detailed representation on the legal position and record does not reflect any requisition for further information remaining unanswered In fact, the Apex Court in GE India Technology Centre (P) Ltd. (supra) has rightly observed at para-16 as follows: "16. The fact that the Revenue has not obtained any information per se cannot ....
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....onsidered a similar issued and held that- "26.9. Admittedly, the assessee deducted tax at source u/s. 192 of the Act, on the 100% salary paid to the seconded employees, and paid the same to the credit of the Central Government. The assessee only reimbursed part of the salary cost of the seconded employee to overseas entity that has already subjected to TDS under section 192 of the Act. And therefore, at the time of making such reimbursement, to overseas entity, no taxes were deducted at source by the assessee in respect of reimbursements made as, according to the assessee, it was in the nature of cost-to-cost reimbursement, and, no element of income was involved. 26.10. The assessee in India does the TDS on 100% salaries u/s 192 and pay the same to the credit of the Central Government. Form 16 at page 228-230 issued to Christopher Roberts of PB Vol I, by the assessee in Indian, Certificate under section 203 of TDS having deducted at source and further indicates the following- • Employee has a PAN number in India • Total taxable salary is Rs 9,761,581 (this corresponds to the US$ 130.000 as total compensation indicated in the local employm....
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....on (including any lump sum 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". 26.13. The definition of FTS under the Act excludes "consideration which would be income of the recipient chargeable under the head salaries." If the seconded employee is regarded as employee of the assessee in India, then the reimbursement to overseas entity, by the assessee in India would not be in the nature of FTS, but would be in the nature of salary', and therefore, the reimbursements cannot be chargeable to tax in the hands of overseas entity, and therefore there would be no obligation to deduct tax at source at the time of making payment u/s. 195 of the Act. 26.14. Article 12(4)-(5) of India USA, DTAA deals with "Fees for technical services, as under: "4. For purposes of this Article, "fees for included services" means payments of any kind to any person in....
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....ices). The payments made by the Indian entity to the overseas entity is towards reimbursement of salary paid by the overseas entity to the seconded personnel. As discussed in para 14.2 to 14.7 above, for the purpose of Article 15 of the OECD Model Commentary (corresponding to Article 16 of the DTAA between India and US), the seconded personnel are employees of the Indian entity, being the economic employer. It is to be noted that the understanding as to who is the 'employee' in order to be excluded from. "fees for technical services", cannot be inconsistent with the understanding of employee for the purpose of Article 15 on income from employment, especially when Article 15 is an anti-abuse provision. 29. The Ld. DCIT placed reliance on the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. reported (2014) 44 taxmann.com 300 concluded that the reimbursement was FTS and that services provided make available technical skill or knowledge for use by the assessee. 29.1. In case of the decision of Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt.Ltd vs. CIT(supra) dealt with identical cas....
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....ecovered the same from the Indian entity without any mark-up. There can be no question of the assessee receiving money in its own independent right. Rather, it is a case of discharge by the Indian entity of its own liability towards salary payable to Mr. Franck. It is thus manifest that this decision has no application to the facts of the instant case." 29.3 We also note that, reliance is placed on the decision of Hon'ble Madras High Court in case of Verizon Data Services India (P) Ltd. v. AAR and Ors(supra), wherein it is held that, the reimbursement of salary of expatriates to foreign co by Indian company results in taxable income in the hands of the foreign company. Hon'ble High Court also upheld the observations of AAR, wherein it characterized the secondment of personnel as provision of managerial services. However, the Hon 'be Court set aside the ruling of Hon'ble AAR, wherein it held that, the reimbursement of salary of expatriates constitutes fees for included services in terms of Article 12(4) of India USA DTAA. Therefore, reliance placed on this decision is of no assistance to revenue. 29.4 There is another decision of Hon'ble Supreme....
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.... is no infirmity in the ruling of the AAR on this aspect. In the above situation, MSCo is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a service PE in India (MSAS)." 29.6 Per contra, in the present facts of the case there is no finding, of their existing PE, in any form by the revenue and therefore is of no assistance to the revenue. 29.7 As far as the decision of Hon'ble AAR in the case of AT & S (supra) is concerned, the facts of the said case were that AT&S, a company incorporated in Austria, offered services of technical experts to applicant, a resident company, pursuant to a foreign collaboration agreement on the terms and conditions contained in secondment agreement. Under the secondment agreement the applicant is required to compensate AT&S for all costs directly or indirectly arising from the secondment of the personnel, and the compensation is not limited to salary, bonus, benefits, personal travel, etc. but also includes other items. On the above facts. Hon'ble AAR ruled that the Contention that the payments are only in the nature of reimbursemen....
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....in Cholamandalam MS General Insurance Co. Ltd., reported in 309 ITR 356, took the view that, merely supplying technical, managerial or personnel with managerial skills cannot be regarded as rendering technical services by the person supply such personnel. The following were the relevant observations of Hon'ble AAR- "It is debatable whether the bracketted words "including provision of services of technical or other personnel" is independent of preceding terminology - "managerial, technical or consultancy services" or whether the bracketted words are to be regarded as integral part of managerial, technical or consultancy services undertaken by the payee of fee. In other words, is the bracketted clause a stand alone provision or is it inextricably connected with the said services? HMFICL itself does not render any service of the nature of managerial, technical or consultancy to the applicant and it has not deputed its employee to carry out such services on its behalf. There is no agreement for rendering such 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 inter....
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....on the above detailed analysis of various contrary decisions on the issue, we are of the view that the decisions relied by revenue are distinguishable with the present facts of the case. Further, in the present facts we note that, the concept of make-available is not satisfied in the instant case. As per para 4(b) of Article 12 of the India- US DTAA on 'Royalties and fees for included services: "4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services a & b.** make available technical knowledge, experience, skill, know-how, or skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design." Thus, even if the rendering of service by the seconded personnel constitutes a contract for service, in the absence of making available any technical knowledge or skill to the Indian entity, the same shall not constitute fees for technical services. In support we refer to the....
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.... CESTAT, Bangalore, held that employer- employee relationship exist between the seconded employee and the assessee in India in para 14 of the order passed by Hon'ble CESTAT, Bangalore. The Hon'ble CESTAT, Bangalore, further held that, there is no manpower supply services since assessee in India is the real employer by reason of the employment contract. Service tax demand was deleted. The relevant extracts are below- 6. Submitting on the demand of Service Tax under the category "Manpower Recruitment & Supply Agency Service", the learned counsel states 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 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 r....
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....zam Sugar Factory case (supra). We find that the argument is acceptable and for this reason, the second SCN is liable to be set aside ab initio..... 16. In view of the above, Appeal No. ST/25566/2013 & Appeal No.ST/21705/ 2016 are allowed. Thus, the above decision of Hon'ble CESTST Tribunal further strengthens assessee's case. We therefore, hold that, the amount reimbursed by the assessee to the overseas entity cannot be subjected to tax in India as there does not involve any element of income embedded in it. 37. Respectfully following the above views expressed by Hon'ble Karnataka High Court in DIT vs. Abbey Business Services India (P)Ltd.(supra), Hon'ble AAR in Cholamandalam MS General Insurance Co. Ltd. (supra), Hon'ble Bombay High Court in case of Marks & Spencer Reliance India Pvt. Ltd. vs. DIT (supra). Hon'ble Delhi High Court in the case of DIT Vs. HCL Infosystems Ltd. (supra). Coordinate bench of this Tribunal in case of IDS Software 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) (....