2012 (7) TMI 702 - ITAT BANGALORE

Liability for TDS u/s.195 - secondment agreement - India-U.K. Treaty - Disallowance u/s.40(a)(i) - an agreement of UK based company with M/s. Msource (India) Pvt. Ltd. to outsource the provision of certain process and call centres - Held that:- The assessee was the real and economic employer of the secondees under the secondment agreement entered into between Abbey National Plc, UK and the assessee.

Fees for technical services - Payments to Abbey National Plc., UK falls under section 9(1)(vii) - UK DTAA - Held that:- Section 9(1)(vii) is attracted if there is a rendering of service for which a consideration should follow. In the instant case, it was specifically agreed by the parties that Abbey National Plc, UK would only second staff to the assessee as per the secondment agreement. No services were rendered by it to the assessee. 'Fees for technical services' as per section 9(1)(vii) means any 'consideration' for rendering of managerial, technical or consultancy services (including the provision of services of technical or other personnel) whereas in the instant case, what was paid to Abbey National Plc. UK by the assessee was reimbursement of salary costs and other administration costs, relating to seconded personnel/staff, which was initially paid by Abbey National Plc, UK - the use of the words 'services of' in the above expression u/s.9(1)(vii) of the Act mandates the rendering of some sort of work through the act of the services of technical on other personnel, thus the assessee cannot be categorized as 'fees for technical services' u/s.9(1)(vii) - in favour of assessee.

Fees for technical services falls under Article 13 of DTAA between India & U.K - Held that:- 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 service provider - Unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted - the reimbursement of salary and other costs by the assessee to Abbey National Plc, UK cannot be regarded as 'fees for technical services' under Article 13 of the India-UK Treaty.

This Agreement shall have the effect of constituting the Secondees as employees of Abbey India and the Secondees shall be and remain employees of Abbey UK during Secondment. The Secondees shall not be entitled to any remuneration nor employment benefits from Abbey India and it is agreed that Abbey UK shall, as employer of the Secondees, be responsible for all such remuneration and benefits (including without limitation Pension Contributions) and all other liabilities as employer and for accounting to the Inland Revenue in the United Kingdom and all other authorities for all taxes, National Insurance or similar contributions - the reimbursement of salary costs and other expenditure was without any profit element and hence cannot be regarded as income chargeable in the hands of Abbey National Plc, UK under Article 13 of the India-U.K. Treaty - questions are answered in favour of the assessee and against revenue as the reimbursement of salary and other expenditure made by the assessee to Abbey National Plc, UK under the secondment agreement were not liable for TDS u/s. 195 and consequently the said payments are not liable for disallowance u/s.40(a)(i) - appeal decided in favour of assessee.