TMI Blog2002 (2) TMI 320X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the assessee. Clause 10 of the LTAA stipulated conditions for deputation of HP personnel to the assessee inIndia. Later on the assessee entered into LTAA with HP, dt.30th Oct., 1992. Clause 10 of this agreement dealt with deputation of HP personnel toIndia. This agreement was amended to some extent vide agreement dt.29th Jan. 1993. Under this agreement HP shall depute its technical personnel to HPI s work inIndia. The number of such visiting personnel and duration of their stay inIndiaand other connected matters shall be such as will be mutually agreed between the parties. HP shall also depute sufficiently senior and experienced technical managers and advisors toIndiaon resident basis of upto 36 months each to help HPI set up, commission and stabilize its facilities for manufacture of the HP Transfer Products. In consideration of HP deputing its technical and advisory personnel, the assessee was to pay a lump sum technology transfer fee and recurring royalty subject to deduction of Indian income-tax. However, for the technical personnel deputed to work for the assessee inIndia, the assessee was to reimburse and pay to HP on a monthly basis the actual amount of the salaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change Control Permit and NOC from the IT Department. The assessee also deposited tax under s. 192 as employer of foreign technicians. The payment to the foreign technicians was taxable as salary inIndiaunder Art. 15 of the Indo-US Tax Treaty and not as a fee for technical services. 8. The learned counsel of the assessee further submitted that separate clauses are provided in the LTAA for the payment of fees for technical services and also for the payment of royalty. The reimbursement of salary of the technicians was made only for the convenience of these technicians who wanted their salaries to be paid in dollars in their own country. The assessee was not discharging the obligation of the HP but only discharging its own obligation under the agreement to make the payment of salaries to these technicians. In this process, HP was acting only as a conduit just like bank for the payment of salaries in dollars. In such a case, there was no reason to treat the reimbursement made to HP as fees for technical services. As stated above, the AO did not accept the contentions of the assessee and treated the assessee as in default and directed the assessee to make the payments under s. 201(1A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3rd Sept., 1992,17th Nov., 1993, and2nd March, 1994, of theDy.Spl.Range-I who was the AO. All these letters are authorisation for remission of salaries to specific employees issued on the facts given and the tax suo motu deducted by the appellant herself. None of these letters are orders under s. 195 determining the nature of remission as to whether it was fee for technical services or salary. The Dy. CIT, TDS 23(2) has correctly pointed out that the DC.Spl.Rangewas the AO of the appellant and was not the designated officer for orders under s. 195. As far as the letter of Asstt. CIT, Spl. Circle 30(1) is concerned, it is categorically mentioned that the application seeking authorising under s. 195(1) for remission of salary of Mr......... cannot be considered under s. 195. 19. The taxability of the remission for deputation of technical personnel to the appellant-company will be determined by the provisions of the DTAA betweenIndiaandUSAas HP is a resident ofUSA, read with the IT Act. Fee for technical services has been defined in art. 12(4) of the DTAA betweenIndiaandUSAart. 12(4) reads as below: "For the purposes of this article, fees for included services means payment of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the expatriates in USA on behalf of the assessee and the assessee should reimburse and pay to HP on a monthly basis the actual amount of the salaries and related employment cost incurred by HP in deputing the personnel in India. 11. Under the aforesaid LTAA agreements, four expatriates (M/s Ayee Goundan, Mason Elvin Byles, Martin K. Forster and Robert William Congdone) came from USA to work for the assessee in India on a work permit (multi-entry work visa under s. 30 of the FERA, 1973), sponsored by the assessee as employer. The expatriates were reporting to the management of the assessee. HP raised debit notes on the assessee for the salary paid by HP on behalf of the assessee to those persons. The assessee remitted salary through authorised dealers by filing Form A-2, exchange control permit and obtaining NOC s from IT Department. As those persons enjoyed Foreign Technician status (except Mr. Ayee Goundan due to his Indian citizenship) the income-tax computed under s. 192 was borne by the assessee and claimed exempt under s. 10(6)/10(5B). In case of Mr. Ayee Goundan tax was deducted under s. 192 and borne by him as he was an Indian citizen. 12. The IT Department after a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, against the column relating to the name and address of the prospective employer in India. (b) The foreign technicians were holding employment visa and the foreign technicians in their returns of income filed under the provisions of the Act, stated that they were employed with the assessee and the said returns have been accepted by the IT Department. (c) The foreign technicians were given designations/positions with the assessee. (d) The nature of duties of the foreign technicians and their responsibilities were specified by the assessee and they were to report to the assessee s management and worked under assessee s supervision and control. (e) The fact that the debit notes raised by HP on the assessee to seek reimbursement of salary paid to foreign technicians, mentioned that the salary and benefits paid to the foreign technicians by HP were on behalf of the assessee clearly shows that the said technicians were employees of the assessee and not HP. 15. The learned authorised representative further submitted that the Hon ble Supreme Court in the case of Carborandum Co. vs. CIT impliedly confirmed the finding of the Tribunal that foreign technical personnel whose ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorised representative further submitted that under no circumstances, the assessee can be said to be under the obligation to deduct tax at source in respect of the same amount both under ss. 192 and 195 of the Act. The Central Board of Direct Taxes has, vide Circular No. 720, dt.30th Aug., 1995, clarified that each section relating to tax deduction at source under Chapter XVII of the Act deals with a particular kind of payment to the exclusion of all other sections in that Chapter and that the payment of any sum shall be liable for deduction of tax only under one section. In this connection it is pertinent to note that in response to the application dt.5th Jan., 1995, before Asstt. CIT, Spl. Circle 30(1),New Delhi, seeking authorisation under s. 195(1) of the Act to remit US $ 80,000 to HP being salary of Martin K. Forstar, for the period1st Aug., 1994to31st Dec., 1994, the Asstt. CIT informed, vide his letter dt.16th Jan., 1995, that income chargeable under the head salaries is not covered by the provisions of s. 195 of the Act. The rejection of the assessee s application dt.5th Jan., 1995, moved under s. 195 by the Asstt. CIT clearly shows that deduction under s. 192 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 256(2) of the Act against the aforesaid order of the Tribunal has been dismissed by the Delhi High Court. 2. Oil and Natural Gas Corpn. Ltd. vs. CIT (1998) 60 TTJ (Ahd) 408; 3. Senior Accounts Officer, Thermal Power Project vs. Asstt. CIT (2000) 66 TTJ (All) 529 : (2000) 107 Taxman 40 (All) (Mag) 4. AirFrancevs. ITO [ITA No. 671/Del/91] 5. Eicher Goodearth Ltd. vs. ITO (1998) 98 Taxman 229 (Del) (Mag) 21. On the other hand, learned senior Departmental Representative Shri V.S. Kapoor, vehemently supported the order of the learned CIT(A). According to him the AO and the CIT(A) closely analysed the provisions of the agreement. Under the agreement, the HP was to provide technicians to provide technical assistance to the assessee. Since the basic purpose and objective of the assessee is to make and sell HP products in India and it was part of the agreement to provide technicians to enable the assessee to establish itself, it is part and parcel of the agreement and, therefore, the payment directly made to the technicians will also form part of the consideration for the transfer of technical know-how. According to the learned CIT(A), the deputed technicians continues to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), dt.16th April, 1990, entered into between HP and HPI was novated in favour of the assessee. Later the assessee entered into LTAA with HP on30th Oct., 1992. The purpose of the agreements being the provision of technical know-how by HP to the assessee to make and sell certain products of HP inIndia. As per the agreement which was novated on10th July,1992, the consideration for the transfer and supply of know-how and rendering of technical assistance were provided for in arts. 12 and 13 of the agreement. The assessee was to pay a lump sum technology transfer fee in consideration of the services and privileges provided by HP and in consideration of the transfer of know-how by HP to HPI in relation to the HP transfer products and in consideration for the manufacture right on the HP transfer products, HPI was to pay 13,00,000 dollars in 3 equal instalments. Over and above the assessee was to pay recurring royalty in relation to HPI s manufacture of the HP 9000 model 822 and 832 computers from the commencement of commercial production. 23. Another part of the agreement was that HP was to depute certain technical personal to work for assessee inIndia. This part of the agreement was pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the provisions of s. 9(1)(i) to (vii). 26. From the above facts, there appears to be considerable confusion in the minds of the Department. Firstly, the competent authority informed the assessee vide letter dt.16th Jan., 1995, that income chargeable under the head salary is not covered by the provisions of s. 195 of the Act. The assessee, therefore, deducted tax at source under s. 192 of the Act and remitted the reimbursement to HP. According to the assessee, there is no default on its part as the assessee sincerely believed that the assessee was not liable to deduct tax from the said payment under s. 195 of the Act. The learned counsel of the assessee relied on the decision of the Hon ble Supreme Court in the case of Carborandum Co. vs. CIT wherein it confirmed the finding of the Tribunal that foreign technical personnel whose services were made available to the Indian company outside India and who were employed by the Indian company on the basis of the agreement between the foreign company and the Indian company and were under the latter s control were employees of the Indian company. Since these technicians were placed at the disposal of the assessee and their serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emain with the assessee and the technicians and, therefore, the payment has been rightly treated as salary borne by the assessee on which tax had been correctly deducted at source. This view is also directly supported by the circular of the CBDT referred to above. The Asstt. CIT, Spl. Cir. 30(1), Mayur Bhavan,New Delhi, also informed the assessee that income chargeable under the head salary is not covered by the provisions of s. 195 of the Act. In such a case, there is no reason to impute default on the part of the assessee for failure to deduct tax under s. 195 of the Act. 28. Even assuming that the above reimbursement of salary form part of the fee for technical services received by HP, even then the assessee may not be liable to deduct tax at source in view of the exceptions provided under s. 195 itself. As stated above, HP has already received whatever sum receivable in the form of lump-sum payment and royalty, etc. The salary of the technicians reimbursed by the assessee is cost to cost and, there is no element of profit. Therefore, under the provisions of sub-s. (2) of s. 195, the assessee could have made an application to the AO to determine the appropriate proportion of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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