AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 975
X X X X Extracts X X X X
X X X X Extracts X X X X
....-aside/DRP-1/BNG/2022-23. Consequent to DRP's direction, DCIT, Transfer Pricing - 1(3)(1), Bangalore passed order u/s. 92CA of Income Tax At, 1961 on 18.01.2023 vide DIN ITBA/COM/F/17/2022-23/1047114789(1) and determined relief consequent to DRP directions is NIL." 4. However, while making the computation of total income, the AO has made TP adjustment of Rs. 61,43,50,100 in spite of the fact the TPO has passed an order u/s. 92CA r.w.s. 254 of the Act clearly stating the transfer pricing adjustment to be NIL. According to the ld. AR, the AO erroneously observed that the issue of TP adjustment was remanded to the DRP, whereas in fact, the said issue was remanded to the TPO who has granted full relief by following the order of the Tribunal. 5. After hearing both the parties and perusing the material on record, we accept this contention of the ld. AR and direct the AO to pass consequential order to the TPO's order dated 18.1.2023 considering the TP adjustment at Nil. The ground of the assessee on this issue is allowed. 6. The next issue is disallowance u/s. 14A at Rs. 1,37,500. The grievance of the assessee is that the TPO made the addition u/s. 14A, though on earlier occasion....
X X X X Extracts X X X X
X X X X Extracts X X X X
....such circumstances, ratio of Hon'ble Madras High Court which has been approved by Hon'ble Supreme Court in case of Chittinad Logistics Ltd (supra) is squarely applicable. Respectfully following the same we direct Ld.AO to delete addition made under section 14 a read with rule 8D for year under consideration. Accordingly this ground raised by assessee stands allowed." We found that there is no exempted income earned by the assessee company in the current financial year. We accordingly, follow the judicial precedence and direct the A.O. to delete the addition and allow the ground of appeal of the assessee." 7. After hearing both the parties, we are of the opinion that though the AO in the computation of total income has noted the relief allowed by the ITAT, yet he has retained the addition of Rs. 1,37,500. Since the addition u/s. 14A has been deleted by the Tribunal vide order cited supra, we direct the AO to pass consequential order accordingly. 8. The next issue is regarding the claim of assessee u/s. 80G of the Act at Rs. 1,12,60,750. The ld. AR submitted that the Tribunal in its order cited supra had specifically directed the AO to verify the claim of assessee with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deduction u/s. 37(1) of the Act, is not available fromAssessment Year 2015-16 as per the Explanation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014.Whereas, the assessee company has made a claim for deduction of CSR expenses u/s. 80G of the Income Tax Act,1961.But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s. 80G of the Act but due to legal obligation prescribed u/s. 135 r.w. Schedule VII of Companies Act, 2013.We find that the A.O has allowed deduction u/s. 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s. 80G of the Act. We consider it appropriate to refer to the Clauses (iiihk) & (iiihl) of sub- section 2 of Section 80G of the Act which are read as under : "(iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u/s. 195 despite the fact that the salary payments have already suffered TDS u/s. 192 of the Act and double taxation is not permissible under the provisions of the Act. The ld. AR submitted that in the assessee's own case for the very same assessment year i.e., AY 2015-16 has deleted the addition in this regard in ITA Nos. 362 to 369 & 338 to 345/Bang/2020 for the AYs 2011-12 to 2018-19. 12. The ld. DR relied on the orders of the lower authorities and submitted that the addition is to be sustained. 13. We have heard both the parties and perused the material on record. On earlier occasion, the assessee came in appeal before the Tribunal on the issue of assessee being treated as assessee in default u/s. 201(1) and for non-deduction of tax at source u/s. 195 of the Act in various AYs 2011- 12 to 2014-15 & 2015-16 to 2018-19 and the Tribunal in ITA Nos.362 to 369 & 338 to 345/Bang/2020 vide order dated 29.4.2022 has passed a speaking order on this issue as follows:- "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 contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lities with overseas entity will remain suspended. 2. That, she will be under the control and supervision of the assessee in India. 3. That, she was appointed as an Associate, by the assessee in India and that during her employment in India she would be exclusively working for the assessee in India. 4. That, during the assignment period, part of the salary after deducting grossed up income tax, under the Act, on the total salary, will be paid in India and the balance salary payable in New York, by overseas 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% w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....balance 75% outside India * TDS done is Rs. 2,834,300/-, which translates to 30.8% of Rs. 9,761,58 * Employee also contributes to Indian provident fund Rs. 2,57,885/- 26.11 From conjoint reading of article 15 of the OECD Model Convention and the articled referred to herein above, there is no doubt in our minds that the assessee in India is the economic and de facto 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ical or other personnel) if such 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 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 servic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oyees, 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 Offshore (P.) Ltd. case (supra) 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 Faurecia Automotive 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 Ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 (P.) Ltd., In re [2006] 157 Taxman 198/ 287 ITR 421. 29.5 The observations of the Hon'ble Supreme Court in the case of Morgan Stanley & Co. (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'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 fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 clause (vii) of section 9(1) and article 12(4) of the relevant DTAA and are subject to deduction of tax at source under section195. 30.1 The ruling of Hon'ble AAR is on the factual finding that payments we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dependent of it, does not fall within the ambit of S.9(1)(vii)." 32. Hon'ble Mumbai Tribunal in case of Mark & Spencer Reliance India (P.) Ltd., (supra) 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 HCL Infosystems Ltd. (supra) 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 India (P.) Ltd. (supra), Abbey B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lable', 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 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 pers....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome-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 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; th....