TaxTMI 
TaxTMI 
2025 (9) TMI 161
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....and in the circumstances of the case and in law, the CIT(A) was right in concluding that the services rendered does not fulfil the criteria of "make available" as mandated under the DTAA, hence the payment could not be considered as fee for technical services/fee for included services? 2. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in reiterating its finding in relation to the compliance of make available? 3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was correct in holding that the relationship between the secondee and the assessee is employer-employee? 4. Whether on the facts and in the circumstances of the case and in law, the CIT(A) is justified in relying on order of the Hon'ble High Court in the case of M/s. Abbey Business Services India (P) Ltd. which is distinguishable from the facts of the case of M/s. Centrica India Offshore P Ltd. ? 5. Whether on the facts and in the circumstances of the case and in law, the CIT(A) was right in ignoring the various clauses of the Agreement which signified that the overseas entity through the employees rendered tech....
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.... its claim is as under: * 'At- cost 'reimbursement does not constitute 'income' for such reimbursement to be regarded as 'sum chargeable to tax in the hands of applied inc. * Reimbursement of salary costs is not taxable as Fees for Technical Services(FTS] in the hands of Applied Inc., under the Act owing to: absence of any ' services' from Applied Inc. to the assessee and "Consideration' from the assessee to Applied Inc. * Applied India was the economic employer of the deputed employees and therefore, it at all it is only the deputed employees who have earned income in the nature of salaries from a source in India( on which the assessee has deducted and remitted applicable tax at source u/s 192 of the Act) * Reimbursement of salary costs are not taxable as Fees for Included Service [FIS] under India- US Tax treaty, since Applied Inc - has not rendered any 'service' to the assessee, did not make available any knowledge, skills, know-how, etc., to the assessee * Income once subjected to tax deduction u/s 192 of the Act cannot be once again subjected to tax deduction u/s 195 of the Act. 8. Fu....
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....the provisions of the Act, DTAA and judicial precedence with respect to the issue involved in this case. The payment made to its Overseas AE and the chargeability to tax in India is discussed herein elaborately. Payments made to the overseas AE are Taxable under Section 5/2) of the I.T.Act, 1961. 9. The Assessee company M/s. Applied Materials India Private Limited has contended that the reimbursement in subject is not income chargeable to tax in India as per the provisions of Section 195 of the Act. The taxability of the payments made to its group AE are examined as below. 10. It is known fact that India follows source based taxation system for non-residents. This is implemented in the Act through Section 5 which defines the scope of total income of a person under the Act. Section 5(2) defines the scope of total income of a non-resident as under: (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non- resident includes all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or....
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.... 11. Secondment arrangements are a special construct of the processes relating to mobility of personnel trans-border as an offshoot of the General agreement on Trade and tariff. They involve three entities - 1. the employer referred to as seconder 2. the employees referred to as as secondees 3. the company to whom such employees are seconded referred to a host company. 11.1 Since the secondment arrangements are between separate legal entities for deployment of employees (referred henceforth as secondees) therefore an arrangement is entered into by the original employer (referred henceforth as seconder and the Indian Company (referred henceforth as Host Company) entity for the individual's employment costs or pays some other type of fee or cost-plus arrangement. 11.3 The idea behind a secondment arrangement is that the secondee will remain employed by the original employer during the secondment, and will, following the termination of the secondment, "return" to the seconder. Even if the secondee does not become an employee of the host, they may be held to be the host's "worker". This concept appears in various pieces....
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.... to be paid by the overseas entities i.e. the Associated Enterprises (AE). This clearly shows that the original employer was the AE, i.e. M/s Applied Materials Inc USA, the Seconder. 11.9 Law imposes a number of liabilities on the employer and a number of rights on the employees and the social benefits etc. were not part of this arrangement and all these powers vest with the employer, AMAT Inc. 11.10 It is inherent that all liabilities are met by the seconder, like payment of social security which could not have been affected if the secondees were not on the payroll of the seconder. The arrangement generally limits to define the scope of services to be rendered by the employees of the seconder and it is only a formal arrangement which describes the rights and duties of each involved party to ensure structure in the legal arrangement. 11.11 On completion of the assignment in India, the employees of the seconder repatriate back to the seconder and there is no termination of employment since the employment rights with respect to dismissal are with the seconder. Hence, the secondees are actually transferred to the Assessee for the period of assignment only an....
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....). The assessee in its reply dated 05th March 2020 clearly mentioned that Applied India had the only right to terminate the Deputation Agreement by providing a notice of 30 days to Applied Inc. It is quite clear that the AMAT India only can terminate the agreement with Applied Inc. The assessee can not terminate the seconded employees. 12.3 This issue have been dealt at length by the Hon. Delhi High Court in the case of Centrica India Offshore Private Limited wherein it was pronounced that "the real employer of the seconded continues to be overseas entity concerned." Reimbursement made on cost to cost basis, there is no profit element: 13. Though the term reimbursement is used by the Assessee, the nature of payments under the arrangement has to satisfy the characteristic of reimbursement and that the term reimbursement will not be determinative of the nature of payments. The term 'reimbursement' is not a technical word or a word of art In Oxford English Dictionary, to reimburse means to repay a person who has spent or lost money and accordingly reimbursement means to make good the amount spent or lost. The arrangement generally is required to comp....
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....on 204 of the IT Act where person responsible for paying in the context of TDS is defined. The expression" person responsible for paying" means - "in the case of payments of income changeable under the head salary, other than payments by the Central government or the Government of state the employer himself or if the employer is a company, the company itself, including the principal officer thereof". 14. Given the facts AMAT India is not making any payment to the seconded employees and the responsibility of paying as per the above provisions squarely lies with the principal employer who is the payer in the existing situation hence rightfully AMAT Inc. has made the payment to its seconded employees and was under the statutory obligation to deduct TDS. In contrast, the statutory obligation is to deduct TDS under section 195 on the payments made to overseas entity towards "Fee for technical services". 15. In the case of Danfoss Industries P Ltd (2004) 268 ITR 1, the Hon'ble AAR held as follows: "The thrust of the argument of the applicant is that there is no income element in the service fee payable by the applicant and that it is only reimbursement of t....
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....s referred to in para. 4.2 of the secondment agreement form part of the compensation. The premise of the question that the payments are only in the nature of reimbursement of actual expenditure incurred by AT&S Austria is not tenable for reasons more than one. First it is not supported by any evidence as no material (except the debit notes of salaries of seconded personnel) is placed before us to show what actual expenditure was incurred by AT&S Austria and what is being claimed as reimbursement; secondly, assuming for the sake of argument that the debit notes represent the quantum of compensation as the actual expenditure it would make no difference as the same is payable to the AT&S Austria under the secondment agreement for services provided by it. It would, therefore, be not only unrealistic but also contrary to the terms of the agreement to treat payments under the said agreement as mere reimbursement of salaries of the seconded employees who are said to be the employees of the applicant" 17. Where the cost of services is charged and recovered by way of reimbursement, even without any profit element TDS will be applicable as ruled in the case of Arthur Andersen & Co b....
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....annot be called upon to pay tax once again u/s 195 of the Act. Here, there are two types of payment involved; 1. One is the salary payable by the seconder to the secondees 2. Second one is the payment made to seconder for the services rendered by the seconder through seconded employees in India. 22.1 Section 192 and section 195 of Income Tax Act have separate independent existence and operations wrongly deducting under one section do not obviate the need to deduct correctly under the appropriate section, Let us understand this analogy with an example where both the payer and the payee are residents. Resident company 'A' takes technical manpower from resident company 'B'. 'A' makes payment to 'B' and is obliged to deduct tax at source under section 194J of the Income Tax Act. In the second stage company 'B' makes payment to deduct tax at source under section 192. Thus, both the section 192 and 194J come into operation together. The situation currently under adjudication is similar, the income in the hands of the seconded employees ( based on the duration of stay) in any case is taxable in India under section 5 read w....
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....he areas of expertise/specialization of the seconded employee i.e Mr. Aninda Moitra, it is noticed that the he is chemical engineer and is responsible for -" Ensuring alignment, coordination and execution of all product development, business and operational activities, India region engineering and software development, developing business unit, group or corporate function policies and strategise plans which are consistent with corporate policy etc". The AE has assigned certain employees because of their expertise and managerial/consultancy skills which are required by AMAT India for its business development/improvement/growth. 25. Hence, it is an undisputed fact that the seconded employees rendered high expertise in technical or managerial, consultancy services to AMAT India. Therefore, the payment towards such services fall within the ambit of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. The same is reproduced as under; Explanation 2: for the purposes of this clause, 'fee for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (includi....
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....27.1 It should be noted that any consideration paid for rendering of a managerial, technical or consultancy services which include provision of services of technical or other personnel, falls within the meaning of fees for technical services subject to one exception that is when the consideration would be income of the recipient chargeable under the head "Salaries". 27.3 It has been discussed herein above that AMAT India is not the real employer of the seconded employees. The subject-matter of payments is not merely the salaries of such employees, which have suffered tax, but compensation which, as noted above, takes in its ambit other items also which the SECONDER is entitled to receive from the Assessee under the arrangement. And further the recipient of the consideration of compensation is the SECONDER and not the seconded employees and the compensation is not the income of the SECONDER chargeable under the head "Salaries". The fact that the employees of the SECONDER have received their salaries from the SECONDER and have paid tax under the head "Salaries" is of no consequence. From the above discussion, it follows that the payments made to the SECONDER by AMAT India, a....
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....ome from Fees for Technical Services. Taxation under the DTAA between India and USA: 30. As stated earlier, the Assessee company is an Indian company and the payee is a foreign entity based in USA, with their residential status being that of resident [AMAT India] and non-resident [AMAT Inc] [associated enterprises], respectively. The payment made by the Assessee company, was made to associate enterprise situated in USA. The India US DTAA has a stricter definition of FTS/FIS. The taxability of payment is discussed in accordance of Double Taxation Avoidance Agreement ("DTAA" or "Treaty") between India and USA as below. 30.1 The reimbursement of salary costs is primarily made to M/s Applied Materials Inc USA. Hence, the term "fees for included services" as defined in clause (4) of article 12 of the Double Taxation Avoidance Agreement between India - USA is discussed herein below. whether any tax liability of the overseas AE arises for the provision of services to AMAT India, such that the trigger in the DTAA comes into play. This must necessarily depend on the phrasing of each DTAA, construed on its own terms, in light of general principles as deter....
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....ts made to the AE will fall under the second category. Here, the provision of services to AMAT India had been done through technical or other personnel i.e., seconded employees of the AE. 30.9 Therefore, to qualify as FIS it is not mandatory that the services should be rendered by the person who is receiving the consideration. Even, if the services are rendered through other personnel, it will qualify as FIS in a situation where the consideration received by a person by assigning technical persons to render services. The consideration received by the seconder, overseas AE for the services rendered through seconded employees will qualify as FIS as per the definition of Article 12(4) of Indo- US tax treaty. 31. In this case, the overseas AE have, through the seconded employees, undoubtedly provided "technical" services to M/s. Applied Materials India Private Ltd, especially since that expression expressly includes the provision of the services of personnel. The seconded employees, who work, so to say, for AMAT India are provided by the AE and the work conducted by them thus, i.e. business development or assisting the project of AMAT India is by providing technical s....
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....ce provided by the secondees is to be viewed in the context in which their secondment or deputation was necessitated. 34. AMAT India needed capabilities and hence, it initiated for the secondment arrangement with the overseas AE. This is for those fields and projects for the development/growth/ to acquire capabilities in certain areas, experienced/skilled employees to lead in India. AMAT India required personnel with the necessary technical knowledge/managerial/consultancy and expertise in the requisite fields, and thus, the arrangement was preferred to get the expertise from within the group entities. Issue of 'make available' clause of DTAAs: 35. The issue that is to be considered now is whether the transaction involving providing of technical services falls under the category of Fees for Included Services/FTS. In this connection, we have to consider the real nature of transaction as available from the submissions made by the Assessee, which is primarily engaged in the business of software development and engineering services including technical product and design services and information technology consulting services. The very nature of its bu....
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....India. Merely because that the technical knowledge imparted by the SECONDEES have not been utilized after the SECONDEES have left India will not come to the rescue of AMAT India that make-available clause is not triggered. 36.4 The activity of the SECONDEES is thus to transfer their technical ability to ensure smooth expansion and upgrading the business activities of AMAT India to group standards or in other words, "make available their know-how of the field to AMAT INDIA for its business. The SECONDMENT, if viewed from this angle, actually leads to a benefit that transmits the knowledge possessed by the SECONDEES to the regular employees. Indeed, any other reading would unduly restrict the Article 12 of the DTAA, which contemplates not only a formal transfer of intellectual property, but also other techniques and skills ("soft" intellectual property, if it can be called as such) required for the operation of a business. 36.5 Indeed, it is an undisputed fact that the Assessee is engaged in the business of software development and engineering services including technical product and design services and information technology consulting services in India, and for th....
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....ided by the overseas entities and the work conducted by them thus, i.e. assistance in conducting the business of COIP of quality control and management is through the overseas entities. The nature of the services - cast as "business support services" by CIOP - as also clearly within the hold technical or consultancy". These services envisage the provision of quality service by vendors to the overseas entities, which CIOP, and the secondees, are to oversee. This requires the secondees to draw from their technical knowledge, and falls within the scope of the term. The reading of "technical" services do not limit itself only to technological services, but rather, extends to knowhow, techniques and technical knowledge. This is supported by clause 4 of Article 12 itself, which lists these various sub- categories. Indeed, the term „technical" has not been defined in the DTAA, and must be accorded its broader dictionary meaning, unless limited by the parties to the instrument. The AAR in Intertek Testing Services India Put. Ltd. v. CIT X, (2008) 220 CTR (AAR) 540, considered this question in detail, and rightly held that "What is meant by the expression „technical"? Should it ....
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....ice is not an "included service" that triggers tax liability. Instead, the enterprise must „make available" the skill behind that service to the other party, i.e the Indian recipient. The definition, as it appears, is more restricted that in the India-UK DTAA. The question is whether the higher threshold, is met in this case. The service provided by the secondees is to be viewed in the context in which their secondment or deputation was necessitated. The overseas entities required the Indian subsidiary, CIOP, to ensure quality control and management of their vendors of outsourced activity. For this activity to be carried out, CIOP required personnel with the necessary technical knowledge and expertise in the field, and thus, the secondment agreement was signed since CIOP - as a newly formed company - did not have the necessary human resource. The secondees are not only providing services to CIOP, but rather tiding CIOP through the initial period, and ensuring that going forward, the skill set of CIOP's other employees is built and these services may be continued by them without assistance. In essence, the secondees are imparting their technical expertise and know-how onto....
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.....5 Thus the main reason for secondment is that the Assessee was in need of sufficiently qualified people with necessary expertise in the field necessary for development. As already discussed, the SECONDER is the real employer having the ultimate rights over the payment of salary which is only being reimbursed by AMAT India. The SECONDEES being the employees of the SECONDER, did not have any right to claim salary in case of non- payment of any salary. 38.6 In view of the above, the decision of CENTRICA (supra) is squarely applicable in the present case of AMAT India. 39. In the case of M/s Foodworld Supermarkets Ltd. Vs DDIT, Hon'ble ITAT Bangalore has ruled that the reimbursements made by the Indian company to its parent company for receiving the services of the technical personnel seconded to the Indian company as FTS and hence the provisions of section 195 are applicable. 40. Facts of the case are as follows. 1. The Assessee (Indian company) is in the business of ownership and operation of supermarket chain in India . 2. It entered into agreement with a Hong kong based company in identical business activity to assign employees. ....
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....ations, we have no hesitation in concluding that AT&S Austria and not the applicant is the real employer of the seconded employees whose services have been lent to the applicant on the terms and conditions settled between the applicant and AT&S Austria even though while working under the applicant they would have to abide by the employment agreement .. " 43. The assessee in the subject proceedings has relied on the Delhi ITAT order in the case of AT and T Communication Services Vs DCIT (2018) ITA No 354/Del/2017 and ITA No 1653/Del/2016 (Delhi ITAT) and stated that facts of the said case is similar to the assessee's case and the judgement need to be applied here. The Hon'ble High Court in the said judgement has made the following observation: In our considered view, the reliance on the decision of the Hon'ble High court of Delhi in the case of Centrica (supra) by the Assessing Officer is misplaced in as much as the seconded employees of AWPS were not taking forward the business of AWPS in India, but, were effectively working under the control and supervision of the assessee company and by no means can be said to rendering services on behalf of AWPS. Wh....
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.... to provide services to the overseas entity to ensure that the services to be rendered to the overseas entities by the Indian vendor are properly coordinated. In view of the above discussion, the order of the Delhi ITAT cannot be applied in the instant proceedings. 44. The assessee has also relied upon the Pune ITAT order in the case of Faurecia Automotive holdings Vs. DCIT(ITA No. 784/Pun/2015 date 8th July 2019 and stated that facts of the said case is similar to the assessee's case and the judgement need to be applied here. The Hon'ble High Court in the said judgement has made the following observation: "The seconded employee was not under the control, supervision or direction of the overseas entity. In our considered opinion the sum of Rs. Received by the non-resident assessee from the Indian entity is not changeable to tax in it s hands as the same is in the nature of reimbursement of cast and does not fall within the purview of " Fees for technical services" u/s 9(1)(vii) of the Act". 44.1 The Hon'ble Delhi High Court in the case of Centrica India Offshore Private Limited(348 ITR 45)2014 held the similar issue of reimbursement made to no....
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....16 Applied Materials Inc. US July 2012 47,11,532 4,94,994 93 4,60,344 9,55,338 Applied Materials Inc. US Oct 2012 68,65,096 7,21,247 91 6,56,335 13,77,582 Applied Materials Inc. US March 2013 1,44,35,263 15,16,569 86 13,04,249 28,20,818 Applied Materials Inc. US March 2013 5,79,278 60,859 86 52,339 1,13,198 Total 2,83,21,149 29,75,421 26,45,931 56,21,352 7. The assessee aggrieved with the above order preferred appeal before the ld. CIT(A), who passed the order on 29.4.2024. Before the ld. CIT(A), it was contested that this issue is covered in favour of assessee by the order of the coordinate Bench of ITAT in its own case for AY 2015-16, 2017-18 in which the ITAT has restored the matter back to the file of ld. AO to consider the issue afresh, in view of the decision of Hon'ble jurisdictional High Court in the case of Flipkart Internet P. Ltd. v. DCIT. The AO was further directed to examine whether the assessee has deducted tax at source u/s. 192 of the Act on salary paid to the seconded employees in its entirety. If the assessee is able to prove that it had d....
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....er 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 Court in GE India Technology Centre (P.) Ltd. (supra) has rightly observed at para-16 as follows :- "16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all ... " 35. Further, it must be noticed that the finding as regards deduction of tax at source under section 195 of the IT Act is tentative insofar as the Revenue is concerned Even if the Revenue orders that there was no obligation to make deduction under section 195, the question of liability of the recipient still remains to be decided subsequently Accordingly, the questio....
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....ayment of reimbursement of salary to Applied Materials Inc., USA is not in the nature of Fees for Technical Services (FTS) and having made TOS u/s 192 on salary payment, the requirement of making TOS on FTS does not arise. Consequently, any interest levied for such default is also not sustained. 9. The ld. AO aggrieved by the order of the CIT(A) is in appeal before us. Though several grounds were raised, but the ld. DR could not point out any infirmity in the order of the ld. CIT(A) when the issue is covered in favour of assessee by the decision of coordinate Bench in assessee's own case for 3 assessment years. 10. The ld. AR supported the order of the ld. CIT(A) and submitted that when the ld. CIT(A) has followed the order of the coordinate Bench in assessee's own case as well as the decision of the Hon'ble jurisdictional High Court, there is no infirmity therein. 11. We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The ld. CIT(A) has followed the decision of the coordinate Bench in assessee's own case and held that no tax is required to be deducted at source on reimbursement of salary on seconded employee....
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....of agreement and assignment makes it clear that the salary is first paid by the overseas entity and thereafter an invoice is raised in the form of a commercial debit note and the transaction is made good by means of a zoumackeral settlement towards the usage of technically competent specializacedeputed personnel. At the point of time when AMAT India pays NA INCOL Document 5 13.1. Once it is held that the employees seconded are the employee of AEs, they the salaries and other emoluments paid to them are out of the alainhering in it as the employer. As AMAT India is having no ficouany pay the salaries, what the Seconder collects from the Assessee TOONA Document 6 18. The Fees for Technical Services is taxable on Gross basis in terms of DTAA as well as Section 115A of the Income tax Act 1961. Therefore there astasecope to argue that, in order to bring the sum to tax, there need to be apeleent of profit. NCOME LA Document 7 21. Hence in the instant case, the amounts paid by AMAT India being reimbursement of Salary Costs of seconded employees form an integral part Showers for Technical Services" and they are not just reimbursements. Document 8 22.3 There is no d....