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2014 (12) TMI 761 - AT - Income TaxReimbursement of salary cost treated as fees for technical services – Royalty u/s 9(1)(vii) – Article 12 of Indo-US DTAA - Whether the payment received by the assessee on account of reimbursement of cost of salary paid to the Seconded employee, constitutes fees for included services (FIS) within the meaning of Article 12(4) of India-US DTAA, that is, it is taxable in India and hence TDS u/s 195 of the Act was required to be deducted - Held that:- The assessee is a tax resident of USA and is providing support services to various Indian companies, who are subsidiaries - the salary paid to the seconded employees by the parent company, the TDS has been already been deducted u/s 192 of the Act, which has been credited to the Government of India account – revenue relied upon M/s. Centrica India Offshore Pvt. Ltd. Versus Commissioner of Income Tax-I & Others [2014 (5) TMI 154 - DELHI HIGH COURT] wherein it has been held that reimbursement of costs or re-payment, is ‘fees for technical services’. If there is a PE, then Royalty or FIS cannot be taxed under Article 12, albeit only under Article 7 of the DTAA - DTAA benefit has been availed by the assessee and therefore, treaty benefit has to be given to the assessee for granting relief - the seconded employees will constitute Service PE of the assessee in India and in that case any payment received on account of rendering of service of such employees will have to be governed under Article 7 as per unequivocal terms of para 6 of Article 12 - Thus, the ratio laid down in the decision of M/s. Centrica India Offshore Pvt. Ltd. Versus Commissioner of Income Tax-I & Others [2014 (5) TMI 154 - DELHI HIGH COURT] Hon’ble Delhi High Court, will not help the case of the revenue, in any manner because under the concept of PE, FIS cannot be taxed under Article 12, but only as a business profit under Article 7 – thus, the payment made by the Indian entity to the assessee on account of reimbursement of salary cost of the seconded employees will have to be seen and examined under Article 7 only, that is, while computing the profits under Article 7, payment received by the assessee is to be treated as revenue receipt and any cost incurred has to be allowed as deduction because salary is a cost to the assessee which is to be allowed – thus, the AO is directed to compute the payment strictly under terms of Article 7 and not under Article 12 of the DTAA – Decided in favour of assessee.
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