TaxTMI 
TaxTMI 
2026 (6) TMI 1051
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.... questions of law however they diverge on facts. ITA 424/2025 pertains to AY 2021-22 wherein the assessee filed its return of income on 22.12.2021 declaring a total income of Rs. 67,74,750/- and claimed the refund of TDS amount of Rs. 3,01,41,850/- as exempt income and offered its income to tax as per Section 115A of the Act. The Assessing Officer (AO) passed a Draft Assessment Order (DAO) proposing to make an addition of Rs. 18,28,95,723/- to the income of the assessee on account of payment received by the assessee with respect to seconded employees in India and Rs. 30,73,50,907/- on account of receipts from professional services. The AO in the DAO had bifurcated the amounts under different heads; (i) first being the amount calculated to be reimbursed as costs with respect to seconded employees being Rs. 18,28,95,723/-; and (ii) the amounts which were receipts from India based clients for services performed in and from the USA amounting to Rs. 65,20,12,778/-, which services were examined and the amount of Rs. 30,73,50,907/- was found to be not falling under the exemption clause, under Article 12(5)(e) of the India-USA Double Taxation Avoidance Agreement (DTAA). ....
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....yees. Furthermore, the AO has also made addition of Rs. 29,89,50,386/- on account of receipts for services held to be taxable as FTS. 8. ITA 760/2025 relates to AY 2022-23 wherein the AO has made addition of Rs. 13,94,26,424/- as cost to cost reimbursement on account of seconded employees and also an amount of Rs. 97,78,94,279/- on account of receipts for the services rendered in and from the USA. 9. ITA 753/2025 pertains to AY 2018-19 wherein the AO has made addition of Rs. 24,05,12,955/- on account of cost to cost reimbursement in respect of seconded employees and Rs. 3,82,22,932/- for receipts from professional services rendered from the USA held to be taxable as FTS. 10. In ITA No.715/2025 this Court had not framed any questions of law, however, based on the arguments advanced by the learned counsel for the parties, this Court admits the appeal and frames following questions of law for consideration:- A. Whether on the facts and in the circumstances of the case and in law, the ITAT is erred in holding that sum of Rs. 68,02,25,664/- as cost to cost reimbursement on account of secondment of employees should not be treated as FTS as per the provisions of section ....
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....Rs. 50,99,38,561/- as cost to cost reimbursement on account of secondment of employees should not be treated as FTS as per the provisions of section 9(1)(vii) as well as under Article 12 of the India-USA Double Taxation Avoidance Agreement(DTAA) ? B. Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in appreciating the application of "Make available" clause, in the case of assessee, which is necessary for holding Rs. 50,99,38,561/- as FTS as per Article 12 of India-USA DTAA? ITA 715/2025 arising from ITAT ITA No. 2168/Del/ 2023 against Assessment Order dated 30.05.2023 2020-21 (a) To frame the Substantial Questions of Law mentioned in Para 3 of the Memo of Appeal; (b) To frame any other Substantial Questions of Law which may arise from the impugned order dated 19.05.2025; (c) To set aside the impugned order dated 19.05.2025 of the ITAT in ITA No.2168/Del/2023. A. Whether on the facts and in the circumstances of the case and in law, the ITAT is erred in holding that sum of Rs. 68,02,25,664/- as cost to cost reimbursement on account of secondment of employees should not be treated as FTS as per the provisions of sect....
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.... the Income Tax Act, 1961 as well as under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA)? (B) Whether in the facts of this case, the amount of Rs. 97,78,94,279/- received by the assessee shall fall within the provisions of the Article 12(4) (b) or 12(5)(e) read Article 15 of the India-USA DTAA? 12. Before delving into the merits of the controversy, it is pertinent to give a brief factual background surrounding these appeals. The respondent assessee which in this case is Ernst & Young U.S. L.L.P. ('EY US' hereinafter) is based in the United States of America and is a member of the Ernst & Young (EY) network. As per the appellant there are three EY entities which operate in India (EY India entities), they are as under:- (i) EY GBS (India) Pvt Ltd.; (ii) EY Global Delivery Services India LLP (EYGDS) and; (iii) Ernst &Young LLP. SUBMISSIONS ON BEHALF OF THE APPELLANT/REVENUE 13. It is the case of the appellant/Revenue and contended by Mr. Puneet Rai, learned Senior Standing Counsel that the assessee is a limited liability partnership firm, incorporated under the laws of the USA and is engaged in the business of providing p....
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....not satisfied. He states that the AO and DRP on this issue have given concurrent findings and this Court ought to refer to these findings and uphold the same. 18. In other words, the submission of Mr. Rai, is that the AO had rightly made additions on account of payments received by the assessee from the EY India entities since the services rendered by the assessee to the EY India entities is covered by Article 12(4)(b) of the DTAA and therefore, should be deemed to be taxable as FTS. 19. According to him, the AO as well as the DRP have given concurrent findings of fact that the employment offered by the EY India entities is for a limited period of time of 2-3 years, and on completion of their tenure, the said employees were repatriated back to the assessee company. He has reinforced his argument that the employment with EY India entities comes with a lien marked on the employment with the parent company which is the assessee in the present case. The seconded employees are not free to move anywhere but they must go back to the parent company i.e., back to the assessee, on the expiry of the said tenure, which means that the seconded employees never ceased to be the employees of....
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....he overseas entities were providing technical services to the Indian entity which would make the case fall within the scope of Article 12 of the India-Canada DTAA. 21. He would also contend that the decision in Centrica India Offshore (P) Limited (supra) has attained finality since the Special Leave Petition against the said decision has been dismissed by the Supreme Court. 22. According to Mr. Rai, since there is a concurrence of facts in Centrica India Offshore (P) Limited (supra) and the present case, the ITAT erred in holding that the amount received by the assessee is not taxable in India solely on the basis that the seconded employees have offered tax on the amount received by them. The tax paid by the seconded employee cannot decide the taxability of the assessee in India, if the services provided by them through their employees in India is covered under the scope of FTS within the meaning of Article 12 of the DTAA. 23. On the issue of professional receipts added as FTS, he has stated that the AO had rightly treated the amounts received by the assessee on account of services as fees for inclusive services as per Article 12(4)(b) of the DTAA because the said services....
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....India entities under which certain personnel of EY US were seconded to the three EY India entities. In this regard he has referred to certain clauses of the Deputation Agreement which we reproduce as under:- "AND WHEREAS EY US has personnel who possess the requisite qualification and experience and who are agreeable to be assigned to EYGDSINDIA and who were selected by EY GDS India to be acceptable to it. AND WHEREAS EYUS has agreed to relieve such personnel (hereinafter EYGDS India Employee) so that he can work in employment with EYGDS INDIA on the terms and conditions as agreed between EYGDS INDIA and Employee; AND WHEREAS the personnel shall be released from their work at EYUS and shall be integrated in EYGDS INDIA for the period of employment with EYGDS INDIA. xxx xxx xxx "Assign" shall mean employment by EYGDS INDIA of an International Assignee released by EYUS (and "Assigned" shall be construed accordingly). "Assignment" shall mean release of personnel of EY US to and who is to be in employment by EYGDS India for period of employment under the terms and conditions agreed by EYGDS India and employee. xxx xxx xxx ....
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....DS INDIA. EYGDS INDIA shall also undertake necessary steps for the International Assignees to comply with regulatory formalities like procuring visas, work permits meet any other regulatory requirements. 3.6 During the Period of Assignment, EYGDS INDIA shall have a right to undertake performance appraisal of the International Assignees in accordance with policy of EYGDS INDIA. 3.7 EY LLP shall have a right to terminate the Assignment of an International Assignee. 3.8 During the Period of Assignment, EYUS shall not save a right to recall any International Assignee without the approval of EYGDS INDIA, EYUS will also not be under any obligation to replace any of the Assigned personnel in the event where employment of any personnel is terminated with EYGDS INDIA for any reason. 3.9 During the Period of Assignment, International Assignees shall not act tor and on behalf of EVUS nor make any representations or warranties on behalf of EVUS. Likewise, International Assignees shall not assume any obligations in the name of or on account of EYUS nor has authority to create any obligations in favor or on third parties with regard to EVUS. 3.10 Duri....
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....es, including without limitation, reasonable expenses relating to boarding & lodging, food & beverage, travel and other miscellaneous expenses associated with the performance of work by the International Assignees shall be borne by EYGDS INDIA. In addition EYGDS INDIA may also make an additional payment by way of a special allowance to the International Assignees as agreed in the Employment contracts. 5. Taxation EYGDS INDIA shall alone be responsible for complying with the complying of withholding tax under the Indian tax laws, salary and other costs paid to the International Assignees." 29. According to Mr. Ganesh the above results in the following:- a) The secondees cease to be employees of EY US during the period of deputation and become employees of the EY India entities. b) The EY India entities discharge their obligations in respect of deduction of tax at source under Section 192 of the Act to pay taxes to the Indian Authorities, resulting in the issuance of the requisite TDS certificate to the employees. c) The money which is paid by EY US to its employees in USA is on behalf of the EY India entities. The same is only for the ....
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.... the seconded personnel are employees of the EY India entities. The ITAT has also held that the amounts paid by the EY India entities to EY US have been taxed as salary at the hands of the seconded employees and further the amounts paid by EY India entities to EY US is a cost to cost reimbursement of the amount paid by EY US for and on behalf of EY India entities. The amounts having already been taxed at the hands of their seconded employees employed in India, the same cannot be subject to double taxation again through the assessee company i.e., EY US. He stated that the Supreme Court has clearly laid down two conditions which have to be fulfilled in order to make a tenable challenge to a finding of fact given by the ITAT. Firstly, raising a specific question of law which records an express issue of perversity of a finding of fact; and secondly, establishing the perversity by showing that such a finding is not based on any evidence or material on record or rather the same is inconsistent with the material or evidence on record. In this present case, the appellant has not challenged the said findings in the manner which has been laid down by the Supreme Court in K. Ravindranathan Na....
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....the law on cost to cost reimbursement. This principle is not in any way dependent on the object or the purpose of the payment or even the person to whom the payment is made and whether this payment was obligatory or mandatory. Even if the payment is partly or wholly towards social security dues, it does not in any way detract from the fact that it is a cost to cost reimbursement, which by itself is conclusive that the matter does not give rise to any taxable income. 37. In this regard, he has relied upon the order of the ITAT for the AY 2020-21 which followed the order for AY 2021-22 in which the ITAT has categorically found that the services rendered by the assessee do not fulfill the 'make available' requirement under Article 12(4)(b) of the DTAA. 38. The second question of law which has been raised in these appeals are in respect of the fees received by EY US from various Indian establishments for the professional services which have been rendered by EY US. It is his case that the contention of the Revenue that these amounts are taxable in India as the fees for Included Services which are FTS under Article 12 of the India-USA DTAA, is unmerited. The provisions under Articl....
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....stated that a plain reading of Article 15 along with Article 12(5)(e) would show that such an interpretation is wrongful in law. Article 15(2) of the DTAA reads as under:- "(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. 41. Section 194J of the Act, which has been referred to by Mr. Ganesh reads as under:- "(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 44A or of this section." 42. Mr. Ganesh further stated that Section 44AA of the Act also treats the same activities as professional services and authorises the Central Board of Direct Taxes to notify other professionals. The Board has issued notifications and has declared, artists, actors, directors, editors and computer experts as professio....
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....ces rendered to Indian establishments in and from USA. The employees were posted in EY India entities in terms of the deputation agreement executed between the assessee and the EY India entities. One of the questions is whether the payment received by the assessee company on account of secondment of its employees in the EY India entities would be taxable as FTS. 48. It may be stated here that the first appeal which was decided by the Tribunal was ITA No.2332/Del/2022 pertaining to AY 2019-20, which has been challenged in ITA No.423/2025. The assessment order dated 27.07.2022, which was subject matter of the appeal before the Tribunal was preceded by the DRP order dated 24.05.2022. In the assessment order dated 27.07.2022, the AO has inter alia, stated as under:- "8. The arguments of the assessee have been considered but are found to be untenable due to the following reasons: * The case of employment with EY Indian entities is, unlike an independent employment comes with a lien marked on the employment with the parent and the employee is not at a free will to move anywhere but only to go back to the parent on expiry of their tenure; * The employees neve....
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....rn income declared in ITR - 32,73,620/- Secondment cost taxable as FTS Under the provision of DTAA - 50,99,38,561 Total Income - 51,32,12,181/- 11. Proposed to be Assessed at Rs.51,32,12,181/-. Necessary forms are being issued with this order. Credit for all pre-paid taxes are to be given after due verification. Charge interest u/s234A,234B,234Cand 234D of the Income Tax Act. Penalty proceedings u/s 270A of the IT Act are to be initiated separately for mis-reporting of income. Necessary forms are being issued with this order. Credit for all pre-paid taxes are to be given after due verification. Charge interest u/s234A,234B, 234C and234 D of the Income Tax Act. 12. Penalty proceedings u/s 270A of the IT Act are to be initiated separately for under-reporting of income." 49. The question of law (A) that requires examination is concerned with the terms agreed by the assessee and EY India entities which have a bearing on the nature of services undertaken by the secondees. Some of the stipulations in the deputation agreement dated 04.10.2017 have already been quoted in the submissions advanced on behalf of the assessee. 50. We may at th....
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.... for the performance of the Services. The Project Plan may be amended by the parties in writing. The Project Plan, once effective, will supersede all prior Project Plans for this SOW. 5.16 Further, scope of such service also include provision for training to be rendered by EY to the customer. Relevant part of same is reproduced below: 2. Scope of Services EY will have responsibility for the oversight and delivery of OCM and training services, in collaboration with the Company designated OCM and Training resources, defined in this scope of work. For non OCM and training services to be performed by EY, EY will be assigned specific tasks and will work under Infosys direction. EY will provide resources for the following terms; Similar clause for training to be rendered by EY employees to end customer is also mentioned in clause 6 of said agreement where clearly role played by EY with regard to same service is elaborated. Relevant part of said agreement is reproduced below: EY Personnel EY Role Responsibilities Scott Brown Engagement Partner -Provide Project with senior leadership and guidance where needed -Resolve any escalated risk....
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....d - Responsible for oversight of stakeholder engagement activities - Conduct and coordinate change impact analysis / plans - Develop Business Readiness Strategy - Develop Change Advisory Council Materials and Deployment - Collaborate with identified business process owners to develop Change Management Metrics Dashboard 5.17 Thus, it is clear that scope of above said service includes training also. It is well established that rendering training basically provides enduring benefits to recipient and thereby it qualifies Make Available Test. Moreover, scope of above said service clearly is of nature of technical in nature as well as involves consultancy elements also." 51. The AO came to the conclusion that the scope of the above services includes training and rendering training shall mean providing enduring benefits to the recipient to qualify 'make available' test, and as such the payments made are FTS as stipulated in Article 12of the DTAA. We reproduce Article 12 and 15 of the DTAA as under:- "ARTICLE 12 - Royalties and fees for included services - 1. Royalties and fees for included services arising in a Contracting State and paid to a r....
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....payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 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) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equi....
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....ial relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for included services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention. xxx xxx xxx ARTICLE 15 - INDEPENDENT PERSONAL SERVICES 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of t....
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.... vi) EY US is merely releasing its personnel for assignment with EY India and EY US is not acting as provider of manpower supply to EY India (clause 9.2) vii) EY US agreed not to charge any fees from EY India for assignment of its personnel (clause 9.3) viii) EY India shall neither solicit nor hire any international assignee for the period of 6 months after the period of assignment without obtaining the prior written consent of EY US (clause 14) 5.5 From the above agreement, read in entirety it transpires that the assessee company EY US is the actual employer of the secondees as not only the alleged salary payment and other costs are paid by it but also the secondees returned to the assessee company after completion of the period of secondment. Further, secondees are always on the roll of the assessee company and for that matter even if they are on a secondment tenure then also they are paid by the assessee company. So, there is no employee employer relationship between the EY India and the secondees. Further, as it is categorically mentioned in the deputation agreement that EY India is engaged in the business of providing consultancy service and ne....
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....eading the clauses of contract in totality in important. Substance over form is a fundamental concept in tax law, aimed at ensuring that tax liability is based on the actual economic substance of transactions rather than merely their legal or contractual form. Courts and tax authorities have used this principle to prevent tax avoidance schemes structured solely to exploit tax benefits, treating transactions according to their real purpose and substance rather than their labels. Assessee cannot escape the consequences of law merely by describing an agreement in a particular form though in essence and in substance, it may be a different transaction. It is imperative to disregard the labels used in contracts and instead focus on the true economic purpose of the transaction. Here it is abundantly clear that the structure of a transaction was not designed to achieve genuine business purposes but merely to avoid taxes through contractual language. 5.8 Hon'ble SC in the decision of M/s Northern Operating System Pvt Ltd (NOSPL) [2022-TIOL-48-SC-ST-LB] also intends to drive home the same point. Further, It has been laid out by the Hon'ble Supreme Court in the case of CIT Vs. Panipa....
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....y completion of their tenure or when the same is ended by either of the contracting parties, the seconded employees join back the assessee company; (iii) the employees never cease to be employees of the overseas entity; (iv) the secondees have come to India to imbibe the culture of the group and ensure the application of EY group policies /processes and other quality standards in EY India entities. 55. In effect, the AO's conclusion is that the services rendered by the secondees satisfied the "make available" test in terms of Article 12(4) (b) of the DTAA read with the judgment of the Karnataka High Court in the case of CIT v. De Beers India Minerals Pvt Limited : (2012) 346 ITR 467 (Karn.) which has held as under:- "21. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the servi....
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....ere is an element of transfer of technical knowledge, experience, skill, or know-how. In view of the scope of work set out in the agreement, which was reproduced and analysed in detail by the AO in the assessment order, we fail to see how the ITAT could have reached a conclusion that the 'make available' test is not satisfied. 58. Further, as noted by the AO, even the authority to terminate such employees is not with the EY India entities in as much as EY India entities only can terminate the secondment prior to the agreed period by relieving the secondees from EY India entities to enable the secondees to join back the assessee company. EY India entities have no power whatsoever to sever the relationship between the seconded employees and EY US, which would resume at the end of the deputation agreement. This makes it adequately clear that EY US has a lien on those employees or conversely, the employees have the lien on their employment with EY US. 59. Having said that, we shall now deal with the judgments referred to by Mr. Ganesh in the case of Bio-Rad Laboratories (Singapore) Pte Ltd (supra) the facts were that the Revenue assailed the order of the ITAT which had concluded ....
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....ued or arisen in India as per Section 9 of the Act. The Court held that similar is the position in respect of Article 12 of the DTAA wherein the difference must be noted between a transfer of a copyright and the mere grant of the right to use and take advantage of copyrighted material. The Court after perusing the subscription agreement, was of the view that neither the subscription agreement nor the advantages accorded to a subscriber can possibly be considered in law to be a transfer of a copyright since the copyright remains with the assessee at all times. The judgment has no applicability to the facts of this case, since the issue involved in RELX Inc. (supra) did not concern seconded employees but the services provided were merely a license to use the software and not a transfer of any rights in it, which is not an issue here. 61. In so far as the judgment in the case of Aecom Technical Services Inc. (supra) is concerned, the challenge in the writ petition was to an order passed by the AO whereby the petitioner's application for 'nil' withholding tax was rejected. The petitioner company being a tax resident of the USA entered into an agreement with its two associated enterp....
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....gment relied upon by Mr. Rai, in the case of Centrica India Offshore Pvt. Ltd. (supra) wherein this Court was concerned with the following facts:- A. Centrica India Offshore Private Limited (CIOP) is a wholly owned subsidiary of Centrica Plc., a company incorporated in the United Kingdom (UK). CIOP was incorporated in India. British Gas Trading Ltd. (BSTL) and Director Energy Marketing Limited, Canada (DEML) were the subsidiaries of Centrica Plc. These three entities were in the business of supplying gas and electricity to consumers across the UK and Canada. The overseas entities outsourced their back office support functions, for instance, debt collections/consumers' billings/monthly jobs to third party vendors in countries including India. To ensure that the Indian vendors comply with quality guidelines, CIOP was established in India on 11.03.2008. It was also to act as service provider to these three entities. CIOP entered into service agreements with overseas entities to provide interface between those overseas entities and Indian vendors. The scope and range of services so provided in terms of those agreements/understanding are: (a) management assistance for outsource....
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....words it withheld taxes under Section 192 of the Act with respect to the salary paid or payable to the seconded employees. Likewise, service income received by the petitioner from overseas entities in terms of the service agreement was offered by it to tax under the Act. As the challenge in the said petition was to the decision of the Authority for Advance Ruling (AAR), two questions were framed by the AAR in the following manner:- "(i) Whether on the facts and in the circumstances of the case, the reimbursements made by the Petitioner to overseas entities of the actual costs of expenses incurred under Secondment Agreement is in nature of income accruing to the overseas entities? (ii) If the answer to question No. 1 above is affirmative, whether tax is liable to be deducted at source by the petitioner under the provisions of Section 195 of the Income-tax Act, 1961?" E. The CIOP urged before the AAR that in tune with the recognized international principles, it is the real and economic employer of the seconded employees, even though their legal employer was the overseas entities. It was also urged that in terms of the secondment agreement, the overseas enti....
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.... (d) Tax is liable to be deducted at source under Section 195 of the Act on amount paid/payable by the assessee to the overseas entities under the secondment agreement. H. The issue which fell for consideration before this Court in Centrica India Offshore Pvt. Ltd. (supra) was whether the secondment of the employees by BSTL and DEML, the overseas entities, falls within Article 12 of the India-Canada and Article 13 of the India-UK DTAAs, which embody the concept of a service permanent establishment. In terms of those articles, the Court must bear whether the overseas entities rendered "technical services" under Article 13 of the India-UK DTAA and "included services" under Article 12 of the India-Canada DTAA. In essence, the inquiry is whether any tax liability of the overseas entities arises for the provision of services to CIOP in India, such that the rigours in the DTAAs come into play. 64. This Court in paragraphs 30 to 40 held as under:- "30. The India-UK DTAA defines 'fees for technical services' as "payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a techni....
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....s or consultancy service" under clause 4, it states that 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 make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design." This second qualification for the technical knowledge etc to be 'made available' is an essential, and additional, requirement under the India-Canada DTAA. This phrasing also finds mention in Article 13 of the India-UK DTAA, this requirement is disjunctive from the rest of the provision, unlike in the India-Canada DTAA. The India-UK DTAA states that 'fees for technical services" "means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which or make available technical knowledge experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." In order....
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....d to ensure that the task entrusted to CIOP quality control is carried on diligently certainly falls within the broad ambit of Article 12. 33. This Court is also mindful of the broader context of a service PE in which this case operates. In that regard, COIP has advanced several arguments to negate any liability to deduct income tax under Section 195 of the Act. (1) there is no service PE, since CIOP is the Section 1995 of the Act there is no service, since for is the employers, (2) the payment made by CIOP to the overseas entities is only by way of reimbursement, which does not form part of the income of those entities, and in any case, (3) that payment is not the income of the overseas entities on account of the doctrine of "diversion of income by overriding title'. The Court will address these arguments in turn. 34. To determine the existence of a service PE, CIOP argues that the Court must look towards the substance of the employment relationship and not the form. This is correct. In the present case, the seconded employees are to be integrated into CIOP, for the agreed period and are subject to its supervision and control. The rules....
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....d abroad who purports to be the employer and hires the labour out to the employer." In this case, the temporal element of the three-way employment relationship is crucial. The secondees were originally employees of the overseas entities. They were not hired by that entity as a false façade. whose productivity is to be ultimately traced to CIOP. Rather, the secondees were regular employees of the overseas entities. There is no dispute with this fact. They have only been seconded or transferred for a limited period of time to another organization, CIOP, in order to utilize their technical expertise in the latter. The secondment agreement between CIOP and the overseas entity, and the agreement between CIOP and the employees, envisages an end to this exception, and a return to the usual state of affairs, when the secondees return to the overseas entities. The employment relationship between the secondee and the overseas organization is at no point terminated, nor is CIOP given any authority to even modify that relationship. The attachment of the secondees to the overseas organization is not fraudulent or even fleeting, but rather, permanent, especially in comparison to CIOP, whi....
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....nfirmity in the ruling of the ARR 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) Accordingly, the civil appeal filed by the Department stands partly allowed. In fact, even the OECD Commentary on Article 15 of the Model Convention, which learned counsel for CIOP has placed great reliance, interestingly notes that "[the situation is different if the employee works exclusively for the enterprise in the state of employment and was released for the period in question by the enterprise in his state of residence." This was clearly, and critically. not done in this case. 37. This brings the Court to the next issue, concerning reimbursement and the doctrine of diversion of income by overriding title. This Court notices that a case with almost identical circumstances, in In Re: AT and S India (P) Ltd., MANU/AR/0016/2006, also came up before the AAR. There, an agreement between AT&S India and its parent, AT& Austria was entered into, by which AT&S Austria undertook to assign or cause its subsidiaries t....
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.... referred to in para 4.2 of the secondment agreement form part of 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 To show that the real employer of such employees is the applicant and not the AT&S Austria, Mr. Chaitanya invited our attention to various employment agreements entered into between the applicant a....
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.... provision of services, the payment made may indeed be payment for services which may be deducted in accordance with law reimbursement for costs incurred. This, however, cannot be used to claim that the entire amount is in the nature of reimbursement, for which the tax liability is not triggered in the first place. This would mean that in any circumstance where services are provided between related parties, the demand of only as much money as has been spent in providing the service would remove the tax liability altogether. This is clearly an incorrect reasoning that conflates liability to tax with subsequent deductions that may be claimed. 39. So far as the decision in M/s. E-Funds IT Solution, goes, the judgment notes the distinction between stewardship activities of employees and deputationists, which had been highlighted in Morgan Stanley. The Division Bench in E-Funds highlighted that the nature of activity undertaken by the employee is determinative of whether it constitutes a service. In the present case, the overseas entities outsource their back office support functions like debt collections/consumers billings/monthly jobs to third party vendors in India. The seco....
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....lation in the agreement with the seconded employees meant; (i) the seconded employees retained their entitlement to participate in the overseas entities, retirement and social security plans and other benefits in terms of its applicable policies, and the salary was properly payable by the overseas entities, which claimed the money from CIOP; (ii) The agreement did not reveal that CIOP can terminate the seconded agreement; (iii) There is no entitlement or obligation, spelt out, whereby CIOP has to bear the salary / cost of these employees; (iv) The secondees cannot in fact sue CIOP for default in payment of their salary; (v) All direct costs of such seconded employee's basic salary and other compensation, cost of participation in overseas entities' retirement and social security plans and other benefits in accordance with its applicable policies and other costs were ultimately paid by the overseas entities; (vi) CIOP was given the right to terminate the secondment. The services of the secondee vis-à-vis the overseas entities - the original and subsisting employment relationship - could not be terminated; (vii) The....
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....ibed as deputation agreement as different from a letter of appointment or transfer. During deputation, the employee continues to maintain on their employment lien with the leading entity (assessee herein), unless a secondee is absorbed in the foreign entity (EY India entities).Additionally, EY India entities could not have terminated the services of the secondees, and they only have the right to undertake legal or disciplinary action against misconduct, fraud, willful negligence or any illegal action of any international assignee and terminate the secondment, prior to the agreed period and relieve them from EY India entities to enable them join EY US. This goes to show that the secondees never ceased to be the employees of EY US and that EY US retains an overarching control over them. 68. Suffice it to state, the facts in the case before us are similar to that in Centrica India Offshore Pvt. Ltd. (supra). As such, the findings of the coordinate Bench of this Court in the said case are squarely applicable to the case in hand. We have been informed that the judgment in Centrica India Offshore Pvt. Ltd. (supra) has been upheld by the Supreme Court in Special Leave to Appeal (C) No.....
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.... meeting the requirement of "make available" technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design" clause under Article 12(4)(b) of DTAA. Further, we have gone through the Article 12(5)(e) which states that the FIS does not include the amounts paid to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services)." (emphasis supplied) 70. Having examined the impugned orders of the ITAT, we find that apart from stating that, ongoing through the services, it was found that they do not meet the requirement of 'make-available', the ITAT has not given any cogent reasoning for it to deviate from the decision taken by the AO and the DRP. Applying the principles laid down in Centrica India Offshore Pvt. Ltd. (supra), we must uphold the findings of the DRP and the AO. It is important to note that the ITAT in the impugned orders, has made no reference to the binding precedent of this Court in Centrica India Offshore Pvt. Ltd. (supra), save for references ma....
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....g tax which is sought to be levied. Needless to state, this judgment does not help the case of the assessee herein, as the instant secondees work at the Indian establishments and are responsible for implementing EY group policies and maintaining quality standards, as different from AT & T Communication Services India Pvt Limited (supra). Further, the said judgment of the ITAT has been challenged as ITA 915/2019 before a coordinate Bench of this Court and the said appeal is pending adjudication. 75. The judgment in the case of Industrial Engineering Projects (P) Ltd (supra) relied upon by the learned Senior Counsel for the assessee to state that reimbursement of expenses does not amount to income, is not applicable to the facts at hand as the Court therein was not concerned with the issue of FTS, but reimbursement of entertainment and travelling expenses. 76. Now, to decide the issue relatable is question (B) in ITA 753/2025, ITA 715/2025, ITA 424/2025 and ITA 760/ 2025 and (C) in ITA 715/2025 whether the ITAT was justified in holding that the receipts of the assessee from Indian clients for services rendered by it in and from the USA, fall within the meaning of Article 12(5)(....
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....eement, these services also include rendering training to the customers of the assessee which provides enduring benefits to the recipients of the service. Consequently, the "make available" criteria as laid down in Article 12 of the 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. 1,03,63,94,946/-claimed as exempt under Article 15 of the DTAA receipts amounting to Rs. 29,89,50,386/- do not pertain to professional services but fall within FTS under Article12 of India US DTAA. The AO is directed to spell out the breakup of the receipts claimed as exempt from professional services in the final order, so as to clearly distinguish the receipts as professional services from those categorized as FTS. Ground number 3 along with all sub grounds are accordingly disposed of." 77. The AO has passed the assessment order complying with the directions of the DRP. 78. However, the ITAT disagreed with the AO and in paragraphs no. 15 to 19 of the order for AY 2020-21, by stating as....
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....AA is not satisfied. The ITAT held as follows: "25. We have also examined the qualifications 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. *** *** *** 27. The assessee has given the party wise breakup of services rendered to India based clients from USA at page no. 161 to 165 of the paper book which was to the tune of Rs.65.20 Cr. which includes E&Y LLP, SR Batliboi & Company LLP, Honeywell International Inc. The details of the services extended have already been discussed at length above. On going through the services, we find that they cannot be said to be meeting the requirement "make of available "technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design" clause under Article 12(4)(b) of DTAA. Further, we have gone through the Article 12(5)(e) which states that the FIS does not include the amounts paid to an employee of the person making the payments or to any ind....
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....and the scope of the work, returned a finding of fact that the services of the assessee are technical and in the nature of consultancy. As seen from the above, the ITAT in the orders for AY 2020-21 and AY 2021-22, has set aside the conclusion of the AO by stating that the "make available" test is not satisfied and further that the definition of "professional services" given in Article 15(2) is inclusive and not exhaustive, and the same cannot be circumscribed by including only those people belonging to any governing professional body. 80. In effect, the conclusion of the ITAT is based on two aspects: (i) The services provided by the assessee do not satisfy the "make available" test; (ii) The services of the assessee would fall under the ambit of professional services as defined in Article 15(2) of the DTAA. 81. Insofar as the issue of "make available" test is concerned, we note that the AO, in the assessment order dated 30.05.2023 for AY 2020-21, relevant part of which we have already reproduced in paragraph 50 of this order, had examined in detail the engagement letter of the services and their scope of including the provision for training to be rendered by....
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....the AO to spell out the breakup of the receipts claimed as exempt from professional services in the final order, so as to clearly distinguish the receipts from professional services as against those categorised as FTS. The AO, in the final assessment order, in compliance of the said direction, gave the following break-up: Particulars Amount (INR) Remarks Total amount of services rendered by categories of personnel (Economists, Engineers, MBA Graduates, diploma holders and other trained technical personnel) mentioned by your good self 36,46,27,627 Services of various trained personnel which are governed by various professional bodies, as specifically required by your good self to fall within the definition of professional services 5,62,07,006 (Refer Annexure IV) Specifically covered by various professional bodies such as Uniform Standards of Professional Appraisal Practice, Public Company Accounting Oversight Board, AICPA Code of Conduct, Human Resources Standards Institute etc. Services of Engineer/ Independent Scientific activities (Masters in Biochemical Engineering and Biotechnology) and BSc (Computer Science) 94,70,235 (Refer Annexure ....