TaxTMI 
TaxTMI 
2023 (2) TMI 1259
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....During the year, the assessee had entered into several specified domestic transactions and international transactions with its AEs. Therefore a reference was made to the TPO to determine the arm's length price (ALP) of the transactions enteed into by the assessee. The TPO made the following adjustments:- 1. Manufacturing segment Rs.32,07,44,000 2. Global sales & marketing fees Rs.1,43,33,706 3. Management fees Rs.74,51,000 4. Interest on receivables Rs.4,64,76,798 4. The assessee filed its objections before the DRP. The DRP gave partial relief to the assessee in terms of deleting adjustments made towards Global Sales & Marketing fees and Management fees. The TPO passed the OGE dated 11.10.2019 wherein the TP adjustment in the manufacturing segment was revised to Rs.30,26,25,000 and in the said order the TPO had mentioned that interest on delayed receivables will be revised as per DRP directions after receiving the relevant details from the assessee. The AO passed the final assessment order dated 25.10.2019 after incorporating the revised TP adjustment as per OGE dated 11.10.2019. Subsequently, the TPO passed the second OGE 5.3.2020 revising th....
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.... 1 Purchase of raw materials and components Manufacturing 79,30,64,893 TNMM 2 Sale of systems Manufacturing 7,23,13,482 TNMM 3 Purchase of fixed assets Manufacturing 46,08,129 TNMM 4 Payment of engineering service fees Manufacturing 82,35,000 TNMM 5 Payment towards After Sales Services Manufacturing 1,56,94,000 TNMM 6 Rendering of systems related services Manufacturing 7,64,89,970 TNMM 7 Purchase, of traded Trading 1,38,52,15,544 TNMM 8 Goods Purchase of fixed assets Trading 21,70,533 TNMM 9 Sale of traded goods Trading 5,16,33,056 TNMM 0 Commission received Trading 2,54,24,392 TNMM 11 Income from rendering of engineering services Engineering 1,43,66,82,295 TNMM 12 Payment of CEC support fees Engineering 2,90,80,000 TNMM ....
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....rivate Limited;" 14. Out of the above, the ld. AR presented arguments relating to exclusion of only Concord United Pvt. Ltd. and Sharpline Automation Pvt. Ltd during the course of hearing. Concord United Pvt. Ltd. 15. The ld. AR submitted that the company is functionally different. The ld. AR drew our attention to the profile of Concord (page 965 of PB) wherein it is stated that the company is engaged in designing and manufacturing high processed computer controlled wire cut machines and also deals with electronic toys. The ld. AR submitted that the company is majorly dealing with CMC wire cut EDM and EDM drilling. The ld AR also submitted that the company being a private limited company, the information available in the web is not sufficient for proper analysis and that the financial data with regard to the segmental information is not available. The ld AR therefore prayed for exclusion of the said companies. 16. The ld. DR relied on the orders of lower authorities. 17. We have heard the rival submissions and perused the material on record. We notice that the DRP has upheld the inclusion of the company by stating that assessee is functionally comparable since assess....
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....g functionally different cannot be comparable with assessee and accordingly we direct the AO to exclude the company from the list of comparables. 23. Through ground No.6 which reads as follows, the assessee is contending the treatment of provision for expected loss and the reversal as being non-operative in nature. "6. The learned AO/TPO has erred in not following the direction of DRP by not considering provision for expected losses as non-operating in nature in the case of the Appellant." 24. In this regard, the ld. AR submitted that the assessee has debited the profit & loss account towards provision for estimated loss on construction contract and the reversal of excess provision is credited to the profit & loss account. The ld AR further submitted that the TPO while considering the margins of the assessee, has excluded reversal from the operating income of the assessee whereas the provision made debited to the P&L account is not given the same treatment. this from the operating cost and the revenue. The ld. AR drew our attention in this regard to the directions of the DRP in para 3.9.3 in page 19 of DRP order where the direction is given for parity of treatment fo....
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.... (P) Ltd. [Civil Appeal No.2289 to 2293 of 2021) dated 19.5.2022. 29. We have heard the rival submissions and perused the material on record. We notice that the The Hon'ble Karnataka 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 Cour....
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....s the petitioner's application dated 15-1-2020." 30. We also notice that the coordinate bench of the Tribunal in the case Goldman Sachs Services Pvt. Ltd.(supra) has considered 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 - * Emplo....
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....ved by the Central Government before that date. Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (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 "Fe....
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.... - to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services). 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 t....
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....o the assessee. It initially paid money to Mr. Franck in advance and then M/s.Faurecia Automotive Holding recovered 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'ble 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 ....
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....and in that sense there is a service PE (MSAS) under art 5(2)(l). There 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 Cont....
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....s per dictionary meanings of these terms. Hon'ble AAR 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 p....
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....mbursement. Based 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, knowhow, 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 decision of Hon'ble Karnataka ....
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....yee 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 remits the salary payable to the Seconded Personnel in his hom....
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....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) (supra), we are of the view that the reimbursement made by the assessee in India to overseas ent....