TaxTMI 
TaxTMI 
2024 (5) TMI 1605
X X X X Extracts X X X X
X X X X Extracts X X X X
....9;Fees for Technical Services' (FTS) as per the Double Taxation Avoidance Agreement ('DTAA') between India and France. 2.1 On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP, have grossly erred in rejecting the import of the definition of 'make available' and its interpretations to read into the DTAA between India and France by virtue of the Protocol. 3. On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in holding that Corporate Guarantee Fee amounting to Rs. 54,14,600 is taxable as Fee for Technical Services' under Article 13 of India France DTAA and section 9(1)(vii) of the Act on extraneous and vague reasons. 3.1 On the facts and in the circumstances of the case and in law, the Ld. DRP grossly erred in holding that corporate guarantee granted by the Appellant in relation to the money borrowed by JCD India from foreign banks are services of a managerial, technical and consultancy nature. 3.2 On the facts and in the circumstances of the case and in law, the Ld. AO and Ld. DRP, grossly erred in holding that corporate guarantee fee was taxable as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under the laws of France and is a tax resident of France. Tax Residency Report filed before the authorities. The assessee, which is the holding company of JCDecaux Group, is engaged in the field of outdoor advertising and is the owner of all intellectual property rights including all copyrights in drawings and models, trademarks, patents, domain names and know-how developed and used by the JCD group across the globe. 4. During the year under consideration, the assessee had entered into various transactions with its Associate Enterprise ('AE') i.e., JCD Advertising India Private Limited (JCD India') which are as under: S. No. Nature of Receipts Amount (INR) Tax Treatment 1. Royalty receivable from JCD India, for the use of trademarks and know-how 2,25,49,536 Offered to tax as Royalty' 2. Management fee receivable from JCD India 2,39,09,103 Not taxable 3. Corporate Guarantee Fee receivable from JCD India 54,14,600 Not taxable 4. Reimbursement of Social Security Contribution expenses incurred on behalf of JCD India 44,61,538 Not taxable 5. Reimbursement of other expenses by JCD India 18,86,478 N....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rized the receipts as FTS. An appeal then was filed by the assessee before this Tribunal. However, before the appeal could be concluded, the matter was settled under VSV to reduce litigation. Accordingly, it was submitted that the impugned issue needs to be decided afresh after examining the documents placed on record in this AY. 8. On the merits of the issue, it was submitted that during the year under consideration, the assessee rendered certain functional and HR services to JCD India pursuant to GSA and Services Agreement entered between them. Details of the services rendered by the Appellant under GSA has been extracted at para 6 at page 20 to 22 of the Appeal Set. The Appellant provided assistance to JCD India with respect to management of human resources, the details of which are provided under Article 1 of the under the Services Agreement available at page 23 to 24 of the Paper Book. In lieu of rendition of such services, management fee amounting to Rs.2,39,09,103/- was paid to the assessee. Copies of the GSA and Services agreement were enclosed at page 11 to 21 and 22 to 27 of the Paper Book. It was submitted that the impugned services are in the nature of the management....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deduct tax at source from payment for the managerial services, would not arise. It is, therefore, not necessary for the Court to further examine the second part of the definition, viz, whether any of the services envisaged under Article 13(4) of the Indo-UK DTAA are "made available" to the Petitioner by the DTAA with France." (Emphasis Supplied) 10. The ld. AR argued that the Hon'ble Delhi High Court granted the benefit of the MFN clause and held that the beneficial provisions of the India-UK DTAA will be applicable to the assessee. It was further held that the services in question were managerial services and hence didn't fall within the definition of FTS as envisaged under Article 13(4) of the IndoUK DTAA. It was submitted that the assessee's case is squarely covered by Steria (India) Ltd. (supra) and hence the impugned addition is liable to be deleted. 11. The ld. AR relied on the following case laws: * SCA Hygiene Products AB vs. Dy. CIT (IT) [2021] 123 taxmann.com 152/187 ITD 419 (Mum. - Tirb.) * Qutotec OYJ vs. Dy. DIT (IT) [2016] 76 taxmann.com 33/[2017] 162 ITD 541 (Kol. - Trib.) * Nestle SA vs. ACIT [2019] 108 taxmann.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aw. (b) The fact that a stipulation in a DTAA or a Protocol with one nation, requires same treatment in respect to a matter covered by its terms, subsequent to its being entered into when another nation (which is member of a multilateral organization such as OECD), is given better treatment, does not automatically lead to integration of such term extending the same benefit in regard to a matter covered in the DTAA of the first nation, which entered into DTAA with India. In such event, the terms of the earlier DTAA require to be amended through a separate notification under Section 90. (c) The interpretation of the expression "is" has present signification. Therefore, for a party to claim benefit of a "same treatment" clause, based on entry of DTAA between India and another state which is member of OECD, the relevant date is entering into treaty with India, and not a later date, when, after entering into DTAA with India, such country becomes an OECD member, in terms of India's practice." 14. In the result, the appeal of the assessee on this ground is dismissed. Corporate Guarantees: 15. During the relevant assessment year, the assessee has provided corpora....
X X X X Extracts X X X X
X X X X Extracts X X X X
....12-13,where in it was held that the corporate guarantees don't fall under the head FTS, the appeal of the assessee on this ground is allowed. Reimbursement of expenses: 19. At the outset, the ld. AR submitted that in support of its contention that the impugned receipt is in the nature of reimbursement, it has placed on record, the following documents: i) Social Security Contribution Recharge Agreement ii) Break up of Social Security Contribution iii) Copies of invoices raised by the Assessee w.r.t. such expenses iv) Appointment Letter issued by JCD India to its French employee i.e., Olivier Heroguelle v) Form 16 issued by the Assessee to its French employee, Olivier Heroguelle 20. It was submitted that JCD India has French nationals as its employees. In terms of the employment agreement entered into between the assessee and the employees and as part of the benefits provided by the Assessee to these employees (in addition to their salary), JCD India is required to contribute towards their social security coverage in France and such employees of JCD India are not the employees of the assessee. 21. In order to meet the expenses ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wherein it has been mentioned in clear and unequivocal terms that the Benefits to be provided to the employee is in addition to the salary. It is to be noted that social security coverage in France is a benefit provided by the Indian AE to its French employee. 2 This is a pure case of secondment. This is not a case of secondment. There is no Secondment Agreement between the two entities. In the instant case, the Indian AE i.e., JCD India has directly entered into employment agreements with the French national without any intervention of the Appellant. Your Honors would note that such Appointment Letters carves out all the terms and conditions of such employment. 3 The obligation to pay the salary was of the Foreign Company. Indian Company was merely reimbursing the salary paid by Foreign Company. Seconded employees had no right against Indian Company in case of failure of payment of salary. The Indian AE is solely responsible for payment of all the costs viz. salary, bonus, etc. and benefits to its French employees which is clearly spelt out in the aforesaid Appointment Letter. 24. The ld. AR argued that in terms of Article 3 of the Appointment Letter, the Indi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AT&S India. These individuals were to work for AT&S India and receive compensation substantially similar to what they would have received as employees of AT&S Austria. They were engaged by AT&S India on a full time basis. The question before the AAR was identical to this case: "Whether pursuant to the secondment agreement entered into by the applicant with AT&S Austria, the payment to be made by the applicant to AT&S Austria, towards reimbursement of salary cost incurred by AT&S Austria in respect of seconded personnel, would be subject to withholding tax under Section 195 of the IT Act, in view of the facts that (1) the payments are only in the nature of reimbursement of actual expenditure incurred by AT&S Austria. (2) AT&S Austria is not engaged in the business of providing technical services in the ordinary course of its business, (3) AT&S Austria is not charging the applicant any separate fee for the secondment and (4) the seconded personnel work under the direct control and supervision of the applicant?" In holding that the obligation under Section 195 would be triggered, the AAR held as follows: WP(C) No.6807/2012 Page 44 "From the above analysis o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd the seconded employees and also the certificate of deduction of tax at source on their global salary. All the employment agreements are similarly worded. We have carefully gone through the employment agreement between the applicant and Mr. Markus Stoinkellner. The duration of the employment is from 1st Sept., 2005 till 30th Aug., 2008. In Article 3 thereof salary of the employee is noted as the remuneration, perquisites and other entitlements as detailed in Appendix-A. However, Appendix-A does not specify any amount. All that it says, is that the salary will be as fixed and agreed between the employee and the company from time to time and that such salary may be paid either in India or outside India but the total salary shall not exceed the salary fixed as above, but no fixed salary is mentioned in the employment agreement. Other perquisites and entitlements are: travel expenses, transport, boarding, lodging; and annual leave of 30 days per year; and home leave which the employee will be entitled to once. The applicant shall have to organize an economic class return flight tickets to go on home leave. The employment agreement also provides that the employee will be responsible f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llings/monthly jobs to third party vendors in WP(C) No.6807/2012 Page 47 India. The seconded employees in the present case, oversee quality control of the work of such vendors. This work cannot be characterized as mere stewardship. What could have been left to CIOP to do is in fact being done through the seconded employees, whose expertise and training lends quality and content to the Indian entity. Therefore, it is held that the real employer of these seconded employees continues to be the overseas entity concerned. 40. The final issue concerns the „diversion of income by overriding title‟. Here, CIOP argues that the payment made to the overseas entity is not income that accrues to the overseas entity, but rather, money that it is obligated to pass on to the secondees. In other words, this money is overridden by the obligation to pay the secondees, and thus, is not „income‟. This is insubstantial for two reasons. One, in view of the above findings that: (a) the payment is not in the nature of reimbursement, but rather, payment for services rendered, (b) the employment relationship between the overseas entities and CIOP - from which the former's ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd No. 5 in both assessment year is thus allowed." (Emphasis Supplied) (refer para 8.5 of the ITAT Order at page 200 of the Paper Book) 31. In order to decide the applicability of surcharge and cess on income offered to tax at special rate under the India-France DTAA, it may be relevant to refer to Article 2 and Article 3 of the Treaty which is reproduced hereinbelow: "Article 2 - Taxes Covered 1. The taxes to which this Convention shall apply are : (a) in India : (i) the income-tax including any surcharge thereon; (hereinafter referred to as "Indian tax"). 2. The Convention shall also apply to any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Convention in addition to, or in place of, the taxes referred to in paragraph 1. The competent authorities of the Contracting States shall notify each other of any substantial changes which are made in their respective taxation laws. Article 3 -General Definitions 1. In this Convention, unless the context otherwise requires : (k) the term "tax" means Indian tax or Fren....