TMI Blog2009 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... to have restricted the holding of statutory agent of the appellant of the first named person, assuming that the notice was applicable to Mr. Jacques Dussau. 2. The learned CIT(A) erred in law and on facts by upholding the order of the AO holding the appellant as statutory agent of named personnel without fulfilling the required precondition to assume jurisdiction under s. 163(1) of the IT Act, 1961. 3. The learned CIT(A) erred in law in upholding the order of the AO when the grounds for assuming jurisdiction as per show-cause notice and the order passed under s. 163 are different. 4. The learned CIT(A) erred in law in upholding the order of the AO under s. 163(1) on the subjective and arbitrary presumption that the appellant was the deemed employer, when the named personnel were neither the employees of, nor any remuneration was paid to them by the appellant under any agreement, whether directly, or indirectly. 5. The learned CIT(A) erred in law in upholding the order of the AO under s. 163(1) holding the appellant as agent of the named personnel, when no tax was leviable on the personnel as per arts. 16(1) and (2) of the DTAA between India and France and therefore, the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amer as an agent of the expatriate employees/personnel and made assessment under s. 163 of the Act vide order dt. 29th March, 2005. 4. By virtue of a notice under s. 148 of the Act, Pride Foramer was put to explain as to why it be not treated as an agent of the expatriate personnel. Pride Foramer submitted that there was no nexus between it and the personnel, nor had any payment been made by Pride Foramer to them; that as per the DTAA between India and France, all the personnel whose stay in India did not exceed 183 days, were exempt from payment of tax; that therefore, s. 163(1) of the Act could not be invoked, since it was not applicable; and that this had also been held by the Hon'ble Allahabad High Court for asst. yr. 1984-85. 5. The AO, however, did not agree with the aforesaid contentions of Pride Foramer. It was observed that as per s. 163(1) of the Act, an 'agent', in relation to a non-resident, includes any person in India who is employed by or on behalf of the non-resident, or has any business connection with the non-resident, or from or through whom the non-resident is in receipt of any income, whether directly, or indirectly, or who is the trustee of the non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding, in the aggregate, 183 days in the relevant financial year; and the remuneration is paid by, or on behalf, an employer who is not a resident of the other Contacting State, and the remuneration is not borne by a PE or a fixed base which the employer has in the other Contracting State; that as in Pride Foramer's case, the reimbursement was being paid out of the PE of Pride Foramer, the income of the expatriates/deployed personnel, deputed to India, was liable to be taxed; that the decision of the Tribunal in the case of Sedco Forex International Drilling Inc. Ors. vs. Asstt. CIT (1998) 60 TTJ (Del) 373 : (1996) 58 ITD 177 (Del) supported this proposition; and that therefore, the income of all the technicians/employees/deployed personnel was liable to be brought to tax in India. Thus, observing that Pride Foramer was liable to be taxed on the income of such technicians/employees/deployed personnel and to file their IT returns, the AO held Pride Foramer as an agent of all the expatriate employees/personnel under s. 163(1) of the Act. 6. By virtue of the impugned order, the CIT(A) dismissed the appeal filed by Pride Foramer. It was held that as per s. 163(1)(c) of the Act, ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonnel, whereas these personnel were neither the employees of Pride Foramer, nor was any remuneration paid to them by Pride Foramer. Attention has been drawn to pp. 1 and 2 of the Pride Foramer's paper book, which is a copy of the show-cause notice dt. 3rd March, 2005 issued by the AO. It has been contended that it was by way of an erroneous assumption that the AO concluded that the expatriate personnel were Pride Foramer's employees and that Pride Foramer had paid them salary. Attention has been drawn to paper book 3, which is a copy of the notice issued under s. 148 of the Act, regarding 27 personnel. It has been contended that this notice is not valid; and that the AO, under the law, ought to have issued separate notices to all the personnel. Taking us through paper book 4, which is a copy of Pride Foramer's letter dt. 28th April, 2005 to the AO, it has been pointed out that the reasons recorded for the reopening were specifically requested for. Attention has then been drawn to paper book 5 and 6, which is a copy of the reasons recorded for initiating the reopening proceedings. It has been pleaded that the reasons are nothing but mere assumptions; that Pride Foramer was wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raced to him; that further, the ground taken by the AO in the show-cause notice is not the same as the one on which the assessment order was passed; that the CIT(A), on the other hand, made out an entirely new case while invoking the provisions of s. 163(1)(c) of the Act; that in case no tax is payable, there is no case for agency; that in IT Appeal Nos. 4069, 4080, 4070, 4071 and 4078, no tax is payable, having been deleted by the learned CIT(A), though conditionally, such condition not being as per the Indo-French DTAA; and that in 14 cases, the income was assessed at nil, showing that no tax was payable. The learned counsel for Pride Foramer has thus requested that the order of the CIT(A) be cancelled in view of these facts and circumstances of the case. 9. On the other hand, the learned Departmental Representative has staunchly supported the impugned order. Besides the oral submissions, written submissions have been placed on record. It has been contended on behalf of the Department that in Hazoora Singh vs. CIT (1986) 52 CTR (P H) 351 : (1986) 160 ITR 746 (P H), even the extreme case of receipt of money from undisclosed sources was held to be taxable under s. 160/163 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offered its income under s. 44BB of the Act and it had also been assessed under s. 44BB of the Act; that therefore, the employer of the expatriate personnel, in substance, was Pride Foramer, who was rightly held as agent of the expatriate personnel; that thus, the salary was taxable in India and rightly taxed by the AO under s. 163(2) r/w s. 148 of the Act; that it is the actual user which is determinative of the issue as to who the employer is; that ONGC cannot be the employer as per the undertaking given in the contract by the contractor/Pride Foramer; that as per the terms of the agreement, the contractor shall be responsible for paying all taxes and filing returns; that the terms of agreement between Pride Foramer and ONGC lead to the inevitable conclusion that it is Pride Foramer who is the employer, since Pride Foramer has itself undertaken and agreed to perform all the functions of a statutory agent of ONGC, as envisaged under s. 163 of the Act; that the expatriate personnel working with Pride Foramer cannot be said to be employees of ONGC and they are eligible for exemption under s. 10(6)(viia) of the Act; that besides, the personnel were working for the foreign company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with ONGC; that it was as a result of this contract, that ONGC was making payment to Pride Foramer, Pride Foramer was making payment to Pride Forasol, its sister concern and Pride Forasol was making payments to the expatriates; that the expatriate personnel were rendering services in India and were under the direct control of Pride Foramer; that the tax of these personnel was to be borne by the company employing them; that the personnel were working for and were under the direct supervision and control of Pride Foramer; that Pride Foramer was making payment to Pride Forasol in the form of technical fee; that it was, therefore, that the easiest course for the AO to recover the tax of the expatriate personnel was to treat Pride Foramer as agent of these personnel; that if any tax liability of these personnel arose in India, Pride Foramer could withhold the same from the payments to be made to Pride Forasol; that therefore, the AO had the discretion to choose either ONGC or pride Foramer as agent of these personnel and the AO had correctly exercised this discretion in treating Pride Foramer as such agent of the expatriate personnel. 12. We do not find ourselves in agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and payable to the deployed expatriates by Pride Forasol." 13. Thus, the assessee never had any lien on the personnel, as per the terms of technical assistance agreement. 14. It has been held out by the Department that the personnel working with Pride Foramer cannot be said to be the employees of the ONGC, that they are also not eligible for exemption under s. 10(6)(viia) of the Act and that since they were working for the foreign company in a project in India, they are covered by s. 9(1)(ii) of the Act. In fact, there is no dispute to this proposition. As rightly put on behalf of Pride Foramer, if ONGC cannot be held as agent of the expatriate personnel working with ONGC under the technical assistance agreement, the personnel working under the technical assistance agreement, obviously, cannot be held to be the employees of Pride Foramer. 15. Apropos the Department's contention that the terms of the contract between ONGC and Pride Foramer show that Pride Foramer was contractually liable and it indemnified ONGC against payment of all taxes by their sub-contractors and their employees and by such act, Pride Foramer accepted the position of agent of the personnel, firstly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form the job allotted to them in a diligent, skillful and workman like manner, or if their deployment or performance is not approved by their client, such personnel shall be deported to Pride Forasol at their risk and cost. Pride Foramer has not been established to have exercised any control on the engagement or dismissal of the personnel provided by Pride Forasol. In fact, in case of unsatisfactory performance by such personnel, Pride Foramer could only make a request for deporting them back to their employer, Pride Forasol, for taking appropriate action. In terms of art. 13 of the Indo-French DTAA, Pride Forasol was assessed to tax on the fees for technical services @ 10 per cent on the gross receipt. No personnel of Pride Forasol overstayed the statutory limit of 183 days in India. As such, in terms of art. 16 of the Indo-French DTAA, they were not liable to tax in India. When in financial years 2002-03 and 2003-04, two personnel of Pride Forasol stayed in India beyond the statutory period of 183 days, their tax was deducted/paid by Pride Forasol and their tax returns were filed accompanied by salary certificate issued by Pride Forasol. The annual returns of the personnel who ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that the expatriate personnel were not privy to the contract between Pride Foramer and Pride Forasol. Had they been privy to such contract, on the other hand, the situation would have been otherwise. 17. Now, coming to the case laws cited on behalf of the Department for the proposition that it is Pride Foramer and not Pride Forasol, who is the actual employer of the expatriate personnel, the Department has sought to rely on AT S India (P) Ltd., In re (2006) 206 CTR (AAR) 315 : (2006) 287 ITR 421 (AAR) wherein, in the facts of that case it was held that under the agreement, the assessee was required to compensate AT S Austine for all costs which had directly or indirectly arisen from secondment of personnel and that compensation was not limited to salary, bonus, benefits, personal travel, etc.; that the payments under the agreement were not a mere reimbursement of the salaries of the seconded employees; and that the order of AT S Austine was not that of a mere employment agent; and that in effect, the seconded personnel remained the employees of AT S Austine and the assessee was not their employer. The facts herein, as discussed above, are entirely dissimilar. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foramer has, at every stage, disputed being treated as an agent of the expatriate personnel, rather than it being that in the agreement itself, Pride Foramer accepted the position as agent of the personnel. The Department seeks to draw aid from the indemnification clause between Pride Foramer and the ONGC, which clause, as deliberated upon in the preceding portion of this order, does not enable the Department to treat Pride Foramer as such agent. 21. The Department has also sought to rely on Gujarat State Fertilizers Co. Ltd. vs. ITO (1988) 27 ITD 252 (Ahd). There, a foreign company lent the services of their employees to the assessee during the period of their stay in India. Living allowance by way of daily allowance was paid by the assessee, who also agreed to bear the taxes. The employees executed a power of attorney in favour of the assessee to appear, represent and settle all taxes and assessments. The IT returns were filed by the assessee on behalf of the employees. In these facts, the assessee was held to be the agent of the non-resident. Once again, these are not the facts before us and, therefore, this case is also not applicable here. 22. The Department has, for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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