TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 212
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.... record. In these appeals following issues are involved for our consideration. (a) taxability of reimbursement of salary expenses vis-a-vis secondment employees deployed in India. (b) Taxability of amounts received by assessee for rendering professional services within the meaning of Article 15(2) of the US /India treaty. 6. We are taking AY 2018-19 as lead year and discussing the facts of that year only for the sake of brevity. Brief facts of the case are that the assessee is a limited liability partnership (LLP) firm and tax resident of United States of America (USA). It has filed its return of income for Assessment Year 2018-19 on 31.03.2019 u/s 139(4). During the course of assessment proceedings, the Ld. Assessing Officer observed that exemption claimed by assessee vis-à-vis reimbursement of costs with respect to secondment employees is not correct. Similarly, the Assessing Officer observed that the professional services rendered by the assessee are in the nature of FIS and not professional services and accordingly not covered by the provisions of Article-15 of India USA DTAA. The Assessing Officer for arriving at this conclusion relied the orders of Assessment Year....
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....on of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed." XXXXX 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid-and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their ....
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....ment of the Hon'ble Supreme Court relied upon by the ld. DR and the Hon'ble High Court, inter alia, held as under: "viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T.-Bangalore (Adjudication) etc. v. M/s. Northern Operating Systems Pvt. Ltd. 12 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a contract whereby employees were seconded to the assessee by foreign group of Companies, had upheld the demand for service tax holding that in a secondment arrangement, a secondee would continue to be employed by the original employer. (ix) The Apex Court in the particular facts of the case had held that the Overseas Co., had a pool of highly skilled employees and having regard to their expertise were seconded to the assessee and upon cessation of the term of secondment would return to their overseas employees, while returning Civil Appeal Nos.2289-2293/2021 such finding on facts, the assessee was held liable to pay se....
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....Y LLP INDIA regarding the performance of international Assignees. The privity and lien of EYUS would cease during the period of employment with EY LLP India on entering of employment contract by international assignee with EY LLP India." 26. It can be seen from the above that EY LLP India is alone responsible for complying with the requirement of withholding of tax under the Indian Tax Laws and the same has been verified from the Sample Form No. 16 Exhibited at pages 96 to 98 of the assessee paper book. 27. The co-ordinate bench in the case of Boeing India [P] Ltd 121 Taxmann.com 276 which has been affirmed by the Hon'ble High Court of Delhi, had the occasion to consider an identical issue and held as under: "30. We have given thoughtful consideration to the orders of the authorities below. We have also carefully perused the salary reimbursement agreement, which is placed at pages 296 onwards of the paper book, and as per clause 1.1, it is provided that the secondees have expressed their willingness to be deputed to BIPICL [the 20 appellant] and TBC [AE] have agreed to release these employees to BIPICL. It is provided that TBC will facilitate payment of salaries in second....
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....ch in ITA No. 71/2022 dated 11.10.2022, the Hon'ble High Court held as under: "11. As far as disallowance under Section 40(a)(ia) of the Act is concerned, this Court finds that there is no dispute that the assessee has deducted tax at source under Section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application once the nature of payment is determined as salary and deduction has been made under Section 192 of the Act. 12. This Court is further of the view that the judgment in Centrica India Offshore Pvt. Ltd (supra) has no application to the present case as the ITAT has returned a finding that the real employer of the seconded employees continues to be the Indian entity and not the overseas entity. 13. In Director of Income Tax (IT)-1 vs. A.P. Moller Maersk A S, the Supreme Court in Civil Appeal No.8040/2015 decided on 17th February, 2017 has held as under:- "11. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as free for technical ser....
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....oduced the copy of the orders dated 15.06.2005 passed by the ITAT, which relates to the Assessment year 1998-99, i.e. the first year of the incorporation of the respondent-company. Perusal of this orders shows that this very issue is decided and the following findings were arrived at by the Tribunal holding that the aforesaid payment would be treated as salary to Mr. Peter Laser. "10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to reimburse this salary at cost, i.e. without any mark-up. Thus, it was merely the question of payment of salary to Mr. Peter Laser. There is no question of any technical fees being paid to the foreign company. Assuming for the sake of argument that it was in the nature of technical fees paid to the foreign company; then, as rightly pointed out by the learned ITA No.71/2022 Page 8 of 9 counsel, Article 12.4 was applicable and not Article 13.4 as contended by the learned DR. Even if Article 12.4 was applicable, the said Article specifically excludes payments mentioned in Article 15. Article 15 states t....
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....he nature of professional services and hence, these receipts were Fees for Included Services (FIS) covered by Article 12(4) of the DTAA and that the "make available" test is satisfied. 15. We further find that the reason alluded by the DRP and the A.O. for holding that these receipts are taxable as Fees for Included Services under Article 12(4) and not Professional Services covered by Article 15(2) is that economists, engineers, MBA graduates, diploma holders and other trained technical personnel do not belong to a professional body which governs the profession, such as the Medical Council of India, Bar Council of India and Institute of Chartered Accountants of India. 16. It is relevant therefore to analyse the provisions of the DTAA for adjudicating the issue. Article 15(2) of the DTAA defines "professional services" as under- "15.2 The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants." 12.5 Notwithstanding paragraph 4, "fees for included services does not Include amounts paid: (e) to a....
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....payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). 28. To conclude, the case of the assessee has been covered by the benefits of provisions of Article 12(4) (b) of DTAA as the "make available" criteria is not satisfied. The appeal of the assessee on this ground is allowed. 18. We are further of the view that the term 'professional services' as defined in Article 15(2) of the DTAA are supported by the definitions in the Explanation (a) to section 194J which specifically refers to "engineering profession' and also to "profession of technical, consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or section 194J. These activities are thus regarded by the statute as professions though they have no governing professional body. We also find that the ITAT drew assistance from the notification dated 12/01/1977 5.0 18(E) and also the notification no 385(E) dated 4/5/2001 which include in the description of "professionals" all kinds of film personalities such as actors, directors, editors....