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2015 (11) TMI 271 - AT - Income TaxReimbursement of salary costs of seconded personnel made to M/s Diary Farm Co. Ltd., Hongkong - whether is in the nature of ‘fees for technical services’ u/s 9(1)(vii) and consequently liable for deduction of tax at source u/s 195 - Held that:- The concept of income includes positive as well as negative income or nil income. In the case of payment being FTS or royalty as per sec. 9(1) of the Act it is irrelevant whether any profit element in the income or not. It is not only a matter of computation of total income when the concept of profit element in payment is relevant. If the payment being FTS or royalty is made to nonresident, then the concept of total income becomes irrelevant and the provisions of sec. 44D recognize the gross payment chargeable to tax. Thus all the payment made by the assessee to non-resident on account of FTS or royalty an chargeable to tax irrespective of any profit element in the said payment or not. However, there is an exception to this Rule of charging the gross amount when the non-resident is having fixed place of business or PE in India and the amount is earned through the PE, then the expenditure incurred in the relation to the PE for earning said amount is allowable as per the provisions of sec. 44DA of the Act. Therefore, in view of the judgment of Hon’ble Delhi High Court in the case of Centrica (2014 (5) TMI 154 - DELHI HIGH COURT), the payment made to foreign company DFCL partakes the character of FTS as per the definition under explanation 2 to sec . 9(1)(vii) of the Act. The learned AR of the assessee has raised an alternative point that the secondment of employees constitute a service PE and secondly the amount would be chargeable to tax as per the provision of sec. 44DA of the Act. Admittedly there is no DTA between India and Hong Kong and under the provision of Income-tax there is no concept of service PE. The Hon’ble Apex Court in the case of DIT International Vs. Morgan Stanely and Co. Inc. [2007 (7) TMI 201 - SUPREME Court] while analyzing the definition of PE u/s 92F(iii) of the Act has observed that the intention of parliament in adopting an inclusive definition of PE covers the service PE, agency PE, Software PE, Construction PE etc. Since this plea has been taken by the assessee for the first time before this Tribunal and there is no DTA between India and Hong Kong therefore, this concept of service PE requires a proper examination of all the relevant facts as well as provisions on the point whether it constitute a service PE in India. Accordingly, the issue is remitted to the record of the AO for adjudication of the plea raised by the assessee that the secondment of the employees constitute a services PE and accordingly provisions of sec. 44DA would be applicable. Needless to say, the AO to adjudicate issue after affording an opportunity of hearing to the assessee. - Decided partly in favour of assessee for statistical purpose.
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