TaxTMI 
TaxTMI 
2024 (8) TMI 1568
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.... assessing the income of the Appellant for the relevant assessment year at INR 49,70,21,380 as against the returned income of INR 67,74,750 is bad in law and liable to be quashed. Ground 1.2: That on the facts and in the circumstances of the case and in law, the impugned order passed by Ld. AO/ DRP is contrary to correct reading and interpretation of relevant statutory provisions and therefore, the impugned order is bad in law and liable to be set aside. Grounds challenging addition on account of reimbursement of secondment charges Ground 2.1: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has erred in treating mere cost to cost reimbursements on account of secondment of employees amounting to INR 18,28,95,723 to be Fees for Technical Services ("FTS") as defined under Article 12 of India-USA Double Tax Avoidance Agreement ("DTAA") where such payments were made by Appellant for and on behalf of Indian Entities which is directly contrary to the recent judgment of the Honorable Delhi ITAT in Appellant's own case dated 20 June 2023. A copy of the said judgment is being filed along with the present appeal. It is respectfully submitted that th....
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....e subjected to tax twice, firstly in the hands of the seconded employees working in India and, secondly, again in the hands of the Appellant. Ground 2.7: That on the facts and in the circumstances of the case and in law, the Ld. A.O / DRP also failed to appreciate that, similarly, the same amounts could not be subjected twice to deduction of tax at source. Grounds challenging addition on account of income from professional services governed by Article 15 of the DTAA as "Fees for Included Services" under Article 12 of the DTAA Ground 3.1: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP have completely failed to appreciate the crucial factor that Article 15 of the DTAA is not confined to Professional Services rendered in India. The Ld. AO/ DRP failed to appreciate that Article 15 squarely covers Professional Services rendered from abroad to entities located in India. Hence, the interpretation placed by the Ld. AO / DRP on Article 15 of the DTAA constitutes a complete rewriting of Article 15 of the DTAA, which is illegal and impermissible. Ground 3.2: That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP has ....
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....led to appreciate that this issue is irrelevant and immaterial as no income with respect to training service(s) was earned by the Appellant under the specified contract in the subject year. Ground 3.4: That on the facts and in the circumstances of the case and in law, the Ld. AO / DRP has erred in applying the facts of one agreement having training services as part of the overall scope of work to all other independent agreements without appreciating that the services under other agreements are different and findings related to one agreement cannot be applied to all agreements unanimously. Ground 3.5: Without prejudice to any of the above arguments, on the facts and in the circumstances of the case and in law, even assuming, without conceding, that the taxability of the services performed by EY US is not governed by Article 15 of the DTAA, the Ld. AO / DRP failed to appreciate that in any event be taxed in India because it is undisputed position that the Appellant does not have a Permanent Establishment in India. Other grounds Ground 4: That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating the penalty proceedings under sect....
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.... show cause as to why the payments received by the assessee on account seconded employees amounting to Rs. 4,50,99,38,561/- should not be taxed as FTS/Independent Personal Services [IPS] as per the treaty provisions. 9. The assessee filed detailed reply alongwith documentary evidences pursuant to which, the Assessing Officer framed draft assessment proceedings proposing to make the following valuations to the returned income of the assessee: Total income as declared by the assessee : Rs. 32,73,620/- Add: Secondment cost taxable as FTS Under the provision of DTAA : Rs. 50,99,38,561/- Total proposed assessed income : Rs. 51,32,12,181/- 10. The assessee raised objections before the DRP but without any success. 11. Before us, the ld. counsel for the assessee vehemently stated that the personnel, after receiving approval from EY India member firms, were seconded by the assessee to EY India member firms and were released/discharged from all the obligations and rights of employment in their home country, USA and were subsequently employed by EY India member firms for their business and as employees of such India member firms. 12. Referring to the deputation ag....
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....dgment has to be read in the context in which it is delivered and in the words of the Hon'ble Supreme Court, the judgment was delivered for: "48. The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided - in that context - by the overseas group company to the assessee." 20. The Hon'ble Supreme Court, in the above context, observed as under: "33. The issue which this court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, 24 provide it manpower services, for the discharge of its functions through seconded employees. 34. The contemporary global economy has witnessed rapid cross border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the la....
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....Ns. However, the invocation of the extended period of limitation, in this court's opinion, was unjustified and unreasonable. Resultantly, the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands therefore, shall be recovered from the assessee. 67. The impugned common order of the CESTAT is accordingly set aside. The commissioner's orders in original are accordingly restored, except to the extent they seek to recover amounts for the extended period of limitation. The demand against the assessee, for the two separate periods, shall now be modified, excluding any liability for the extended period of limitation." 22. A perusal of the judgment of the Hon'ble Supreme Court [supra] shows that it was in the context of manpower recruitment and supply of services for which the assessee was recipient of services and was liable to pay service tax. As mentioned elsewhere, this judgment was delivered to discern the true nature of relationship between the seconded employees and the assessee and nature of services provided in that context by oversees group companies to the assessee. ....
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....nt as under: "Assignment' shall mean release of personnel by EYUS to and who is to be in employment by EYGDS India for the period of employment under the terms and conditions agreed by EYGDS and employee." 25. Under the head "General Terms and Conditions of Secondment": "3.1 During the Period of Assignment, the International Assignees shall function solely under the control, direction and supervision of EY LLP INDIA and in accordance with all rules, regulations, policies, guidelines and other practices, generally applicable to the employees of EY LLP INDIA. International Assignees shall work exclusively for EY LLP INDIA and shall be solely responsible to EY LLP INDIA for their work during the Period of Assignment. EY LLP INDIA shall decide the nature of work of the International Assignees and EY LLP INDIA shall be solely responsible for the work of International Assignees during the Period of Assignment. 3.2 EYUS shall not be responsible for the work of the International Assignees or assume any risk for the results produced from the work performed by the International Assignees during the period. The International Assignees shall not be regarded as employees of EYUS and....
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....ted withholding tax on 21 substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment. 31. The DRP has affirmed the decision of the AO by holding that the assessee has deducted withholding tax on substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment. 32. The Special Auditors in their Audit Report have worked out particulars of payments in respect of which no TDS was deducted u/s 40(a)(ia) of the Act. Consequently, an amount of Rs. 54,06,328/- was not to be allowed as expenditure." 33. We have also perused the TDS certificates, Forms 15CA and 15CB, tax deducted by the assessee and all these documents are part of the paper book. There is no dispute that the assessee has deducted tax at source u/s 192 of the Act. On the given facts of the case, we are of the considered opinion that the provisions of Section 195 of the Act do not apply. Considering the facts of the case in totality, in light of judicial decisions referred to hereinabove, we do not find any m....
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....08 decided on 13th September, 2010 has held as under:- 1. This appeal pertains to the Assessment Year 2001-02. The issue relates to the treatment which is to be given to the amount of Rs. 6,59,416 paid by the assessee to its parent foreign company, i.e., Karl Storz Vertriebs GMBH & Company. The assessee had claimed that he parent company had deputed one of the employees, viz., Mr. Peter Laser to the Indian Company/assessee and the aforesaid amount represented reimbursement of the salary, which was payable to Mr. Peter Laser. The Assessing Officer (AO), however, was of the opinion that since no agreement between the assessee and the parent company was produced and even the agreement between the parent company and its employees. Mr. Peter Lazer on the basis of which he was purportedly deputed to the Indian Company was produced, this amount should be treated as payment towards technical fee. xxx xxx xxx 3. Learned counsel for the respondent-assessee has pointed out that this was not the first year in which such a claim was made. He 17 stated that the Indian Company was incorporated during the Assessment year 1998-99 and for the establishment of this company which is subs....
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....ted under Section 192 of the Act." 4. Learned counsel also submitted that thereafter in the Assessment Year 1990-00 as well as 2000-01, the amounts reimbursed in identical manner were treated as "salary" to Mr. Laser. He further states that no appeal was filed against the aforesaid order of the Tribunal by the Revenue." 15. Consequently, this Court is of the view that the issues of 'receivables' as well as 'disallowance' under Section 40(a)(ia) of the Act are essentially questions of fact, which give rise to no substantial questions of law especially when the findings of the ITAT are not perverse." 29. Considering the facts of the case in totality, in light of the deputation agreement, we are of the considered view that cost to cost reimbursement on account of secondment of employees cannot be treated as FTS as defined under Article 12 of India USA-DTAA and seconded personnel are employees of EY India firms whose income has been taxed as salary in their respective hands. Therefore, the very same amount could not, in law, be subjected twice - firstly in the hands of the seconded employees working in India and secondly again the hands of the assessee. The Assessing Officer i....
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.... para 5.15, the receipts for sessions, other than professional services, i.e. Rs. 29,89,50,386/- are in respect of the services which are technical as well as consultancy in nature. Since, the services provided through other professionals (not strictly qualifying to be 'professional services' within the meaning of Article 15(2)), are technical in nature, Article 12 of India US DTAA, is attracted in the instant case. Further as evidenced by the service agreement, these services also include rendering training to the customers of the assesses which provides enduring benefits to the sections of the service. Consequently, the "make available" criteria as laid down in Article 12 DTAA stands satisfied. In view of the above, the panel finds no ground to interfere with the conclusions of the AO, and accordingly, the objections raised in Ground Number 3 are rejected. 4.3.7 In the DAO, the AO has mentioned that of the total sum of Rs. 103,63,94,946/- claimed as exempt under Article 15 of the DTAA receipts amounting to Rs. 29,89,50,386/- do not pertain to professional services but full within FTS under Article 12 of India US DTAA. The AO is directed to spell out the brea....
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....has expanded the scope of professional services with regard to Section 194-J and argued that the scope of term of "professional services" is much more wider than the Article 15 in Section 194-J and hence the services rendered by the assessee shall be considered to be the nature of professional services but not in the nature of inclusive services or technical services. The crux of the argument of ld. AR was that the professional services would stand on a wider platform than consultancy and technical service and the work executed by the assessee company was by qualified professionals and hence should treated as professional services as per Article 15. 12. The ld. DR argued that the Article 15 of India-USA DTAA is attracted if only such services rendered in India. The ld. DR submitted that the assessee rendered these services from outside India. Therefore, the transactions undertaken by the assessee cannot be covered by Article 15 of the DTAA. The ld. DR argued that the services rendered by the assessee for Indian clients by staying in USA, hence do not fall under Article 15 of DTAA. The ld. DR argued that under Article 12 of the DTAA, FIS do not include, amounts paid to an employee ....
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.... change management. The assessee shall provide resources for project management, organizational change management and training, business work streaming, technical infrastructure and data conversion. The assessee was supposed to provide input and feedback to the clients with regard to the performance of the services. As per the details given at paper book page 84 to 91, the nature of the services rendered consists of expatriate tax services, TP documentation, tax services & advisory, talent management & leadership development, merger & amalgamation advisory services, HR performance improvement services, technology implementation support, valuation of tangibles for purpose of purchase consideration, payroll services, SAP implementation, customer relationship & billing. For the sake of ready reference, some of the services provided by the assessee are mentioned below: 17. In the background of these services, the provisions of the Income Tax Act and Articles of the DTAA are examined. 18. The provisions of Section 194J reads as under: "Fees for professional or technical services. 194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for pay....
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....onal purposes of such individual or any member of Hindu undivided family: Provided also that the provisions of this section shall have effect, as if for the words "ten per cent", the words "two per cent" had been substituted in the case of a payee, engaged only in the business of operation of call centre. (2) [***] (3) [***] Explanation.- For the purposes of this section,- (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediti....
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....(a) in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article [other than services described in subparagraph (b) of this paragraph] : (i) during the first five taxable years for which this Convention has effect, (a) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political sub-division or a public sector company ; and (b) 20 per cent of the gross amount of the royalties or fees for included services in all other cases ; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services ; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term "royalties" as used in this Article means : (a) paymen....
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....2 shall not apply if the beneficial owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be shall apply. 7. (a) Royalties and fees for included services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for include....
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....ifications of the engagement partners and principal responsible for engagement, we find that these consultants are having qualifications in business management, business administration, masters of science and doctorate in economics or maths, commerce & finance. 26. We have also examined the various orders of the Tribunal namely, MSEV Vs. DCIT (83 TTJ 325), EC Group India Pvt. Ltd. (84 taxmann 108) and the Hon'ble Apex Court in Union of India Vs. India Fisheries Pvt. Ltd. (57 ITR 331). The Hon'ble Apex Court held that if there is an apparent conflict between two independent provisions of law, the special provision must prevail. Respectfully, we hold that there are no two calms about the principle laid down by the Hon'ble Apex Court, there has to be two independent provisions which are in conflict between each other. In the instant case, there are two Article of DTAA which are totally different with different explanation neither overlapping nor in conflict in each other. These two Articles of DTAA operate in fundamentally different arenas and the area of operations and definitions are clear and easily discernable. With regard to the provisions of interpretation of the clause include....