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2009 (1) TMI 363 - ITAT BANGALORE-ATDS u/s 195 - requirement of deduction of tax from the amount representing reimbursement of the salary or not - Payment To Non-Residents - fees for technical services - relationship between the assessee company and Dr. Sundararajan - employer-employee relationship or not - business of software development - 100 per cent Indian subsidiary of M/s International Decisions Systems of USA ( "IDS" or the "US company") - agreement for securing the services of certain personnel from IDS (secondment agreement). HELD THAT:- We are inclined to view the secondment agreement as a contract governing the relationship between the assessee company and Dr. Sundararajan, though the contract as such is between the assessee company and IDS. In our humble opinion, the special contract need not be between the assessee company and Dr. Sundararajan; so long as the relationship between them is defined in a contract, provided that contract is between connected and relevant parties, that should suffice. It has to be remembered that the services of Dr. Sundararajan, who was appointed as executive vice president of Worldwide Engineering and managing director of the assessee company, were seconded by IDS to the assessee company and his appointment as managing director of the assessee company is traceable only to the relationship between the assessee company and its parent company in USA. The secondment agreement, as we have already held, constitutes an independent contract of service in respect of the employment of Dr. Sundararajan with the assessee company. It may be true that IDS, the US company is the employer of Dr. Sundararajan in a legal sense but since his services have been seconded to the assessee company under the secondment agreement and further since the assessee company is to reimburse the emoluments paid by IDS to Dr. "Sundararajan, it is the assessee company which for all practical purposes is to be looked upon as the employer of Dr. Sundararajan during the relevant period. Therefore, we hold that Dr. Sundararajan was an employee of the assessee company during the relevant time and the amount payable to him was not to suffer tax deducted at source at the time of remittance to IDS since the tax has been deducted and paid to the Indian IT authorities. Whether the amount can be considered as fees for technical services within the meaning of Expln. 2 below s. 9(1)(vii) - Under this Explanation fees for technical services means any consideration including lump sum consideration for the rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". It is not denied before us on behalf of the assessee that Dr. Sundararajan is a technical person. Arts. II and VI of the secondment agreement would be out of place in a contract for providing technical services. We are inclined to agree with the submission that these two articles are out of place in a contract for providing technical services. For example, cls. (A) to (C) of art. II make the seconded employee responsible and subservient to the assessee company which cannot be the case if the agreement is for providing technical services by IDS to the assessee company. Similarly cl. (E) which requires the seconded employee to also act as officer or authorised signatory or nominee UP in any other lawful personal capacity for the assessee company, would also be out of place in an agreement for rendering technical services as it cannot be imagined that a technical person would also be required to act in non-technical capacities under an agreement for rendering technical services. Therefore, we are also not able to hold that the payment to IDS represented fees for technical services. Hence, we hold that the assessee was not liable to deduct tax from the amount representing reimbursement of the salary paid by IDS to Dr. Sundararajan while remitting the same to IDS u/s. 195. The salary paid by the assessee to Dr. Sundararajan has been made the subject of TDS and the same has been remitted to the Indian IT authorities.
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