TMI Blog2012 (7) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered by the assessee falls within the clause 4(b) of Article 12 of the Treaty. Therefore, we hold that the payment received by the assessee from Lucent is taxable in India under Article 12 as fees for included services. - ITA No. 1745 /Mum/2009 - - - Dated:- 30-5-2012 - R. S. Syal And Amit Shukla , JJ. ORDER Per Amit Shukla (J.M.) : The present appeal has been preferred by the assessee against the order dated 18-12-2008, passed by the CIT(A)-XXXI, Mumbai for the quantum of assessment for the assessment year 2003-2004 on the following grounds :- i. On the facts and circumstances of the case and in Law, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in taxing the Fees received by the appellant for locating the technocrats and deputed to Lucent Hindustan Technologies Limited (hereinafter referred to as Lucent)as Fees for Included Services in terms of Article 12 of the India US treaty. 2) On the facts and circumstances of the case and in Law, the learned Commissioner of Income Tax (Appeals) erred in holding that the Fees received as Fees for Technical servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... augmentation to fully outsourced turnkey projects in order to help customers minimize cost and mitigate risk In Telecom, Avion has played a critical role in helping to implement network infrastructures worldwide for companies such as Spirit, Nortel, Lucent, Nokia and Motorola. Avion Systems will continue to play an important role by helping companies and nations to deploy emerging Third Generation (3G) technologies such as GPRS and UMTS. x x x x x x x x x x x x In today s ever-changing telecommunications industry, the demand for highly trained specialized people is essential for your company to successfully compete in the Telecom Sector. We take pride with our ability to match highly qualified staff with our client s requirements, both in the domestic and international arenas. Avion Systems offers a wide range of Telecom business solutions including our expertise in Network Deployment that encompasses network design through final acceptance for both Wireline Networks and Wireless Networks. x x x x x x x x x x x x Whether you need to augment your current engineering staff or have your Telecom projects managed and executed in an outsourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com engineering who has a full fledged qualified engineers, who can deliver higher solutions in the related technology in the field of telecom sector. 2.1 It was in pursuant of such a profile of the assessee company that the Lucent had entered into agreement for supplying of highly qualified technocrats for its telecom project which it had received under a contract from Reliance Telecom. In the assessment order, extensive reference has been made to the various clauses of the agreement to deduce that the assessee had in fact made available technology and technical personnel to the Lucent and, hence, the payment received by the Lucent falls within the ambit of FIS . 2.2 Before the Assessing Officer the main contentions of the assessee were that, the scope of contract vested to the assessee by Lucent was limited to locate the technocrats outside India and provide these technical persons to the Lucent, who would then work under supervision and control of Lucent. The assessee also relied upon various clauses of the agreement and submitted that the entire agreement is for providing technical manpower without having any responsibility or control over these persons. The sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India under Article 12 of Indo-Us DTAA. 3. In the first appeal, the CIT(A) confirmed the findings and the conclusions drawn by the Assessing Officer. He also extensively referred to various clauses of the agreement and also arrived at the independent conclusion that payment received by the assessee from Lucent is in the nature of FIS only, which is taxable under Article 12. Learned CIT(A) relied upon the examples 3 7 of Memorandum Of Understanding concerning fees for included service under Article 12 as given in Indo-US Treaty and held that the same are applicable on the assessee and, therefore, it is taxable under Article 12(4)(b). 4. Learned AR on behalf of the assessee made extensive argument and tried to rebut the findings and conclusion drawn by the Assessing Officer as well as CIT(A). His preliminary contentions were that the assessee s main business activity is supply of manpower, I.T. staffing and consultancy. The agreement between the assessee and the Lucent was on principal to principal basis and was mainly for sourcing experts and technical personnel located outside India and deputing them for temporary employment to Lucent for its operation in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy of providing technical services to the Lucent as stipulated in Article 12(4) of Indo-US DTAA. In support of his contentions, he has relied upon the following judgments :- i) DDIT Vs Tekmark Global Solutions, [(2010) 38 SOT 7 (Mum)]; ii) DIT Vs. HCL Infosystems Ltd., [(2005) 274 ITR 261 (Delhi)] iii) IDS Software Solutions Ltd. Vs.ITO, [(2009) 122 TTJ 410 (Bang)]; iv) Intertek Testing Services India Pvt. Ltd. [(2008) 307 ITR 418 (AAR); v) Worleyparsons Services Pty.Ltd., [(2008 301 ITR 54 (AAR); vi) Raymond Ltd. v/s DCIT [(2003) 86 ITD 791 (Mum)]; vii) CESC Ltd. Vs. DCIT, [(2003) 87 ITD 653 (Kol)]; viii) DDIT Vs. Scientific Atlanta Inc. [(2009) 33 SOT 220 (Mum)]; ix) ADIT vs. Bureau Veritas, [(2010) 131 TTJ (Mum) 29] x) Mahindra Mahindra Ltd. Vs. DCIT, [(2009) 122 TTJ (Mum)(SB) 577]. 7. Per Contra, learned CIT DR took us to the various observations and the findings of the Assessing Officer as well as CIT (A) and also extensively referred to the various clauses of the agreement that has been relied upon by the Assessing Officer as well as CIT(A) and submitted that these technical personnel were employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e the assessee company) has represented that they are having requisite experience personnel and can provide such services to Lucent for performing its contractual obligations upon this offer. The Lucent is thus willing to acquire such personnel/services from Avion as per the terms and conditions. The scope of the contract has been given in Clause 4, wherein it has been provided that :- 4. SCOPE OF CONTRACT 4.1 Under this Contract, AVION shall provide to Lucent personnel /services of desired experience and expertise in accordance with the provisions of the Contract necessary for perfuming services. 4.2 AVION shall provide to Lucent the personnel of expertise and experience required by Lucent. 4.3 Resources provided by AVION shall undergo skill/expertise evaluation by Lucent Project Director. 4.4 Lucent shall issue an Order requisitioning the services of such Personnel in terms of this agreement. 4.5 This contract is for supplying personnel/Services for Project and Lucent interpretation will be binding and final in even of any ambiguity. 9. From the preamble and scope of contract, it is inferred that the Lucent which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be directly paid for. Avion temporary employees will be paid once per month in US dollars on the 15th day of each month for services rendered for the prior month. Avion will invoice Lucent for services and expenses on the 1st day of each month for services rendered from the prior month. A contractor time sheet will be submitted with the invoice. Upon approval by Lucent, timesheets can be in the form of manual with Lucent manager signature or an electronic printed timesheet with Lucent manager authorization. Lucent will remit payment to Avion at its US headquarters in US dollars no later than the 12th day of each month against invoices along with Time Sheets approved by Lucent managers and other documents required for making the payment such as Passport/VISA copies etc. submitted by AVION for payment on the 1st day of each month. All invoices remaining unpaid after 30th day of each month will be assessed interest at the rate of 12% per annum. Lucent shall pay withholding tax in India until such time as the application for the waiver of this tax is made and an exemption is granted by the Income Tax Authorities in India. Any taxes refunded to Avion shall accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) In clause 12 provisions of Invoicing have been provided wherein AVION shall submit monthly invoices for all the services/temporary workers provided under this contract. Certified invoices from Lucent shall be submitted at the end of each month upon the information given by AVION about services provided, man-days or man-hours performed etc. (vi) Clause 13 provides for terms of payment made to Avion. (vii) Clause 20 provides that compliance of laws which has to be complied by Avion and that all the persons provided by Avion shall comply at their own expenses with all applicable laws and regulations etc. and Avion shall comply with all the labour laws in respect of discharging obligation for its contract and will get registered as an employer with appropriate authority for the purpose of payment of salary, wages, bonus, gratuity, provident fund, etc. (vii) Clause 31 provides for quality assurance of the temporary workers by the Avion to ensure consistent level of quality in the contract work. (viii) Clause 36 gives the meaning of Avion employees which means anyone performing the services/work furnished by AVION under this contract and Lucent shall not exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire year to Lucent and how the records have been maintained for the payment of salary/wages paid to such employees during the course of the employment of the workers in India. One or two fray incidents of preference of technocrats by Lucent will not lead to a conclusion that these technical persons were not the employees of the assessee or were under the control of Lucent. The entire gamut of transaction and terms of agreement has to be seen which herein in this case clearly goes against the contention of the assessee put forth by the learned AR. The assessee has not been able to produce the records to show the total number of employees employed with Lucent, amount of salary paid and the terms and conditions between the employees and the assessee. In absence of any details, we do not find any merit on this aspect of the matter that technical personnel supplied by the assessee are not its employees, especially in the light of the agreement as have been referred to above which clearly negates the contention of the assessee. 11. Now, coming to the second aspect of the matter whether services provided by the assessee comes within the purview of fees for included services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh solutions in telecom related technology. Lucent which for the purpose of its contract in India required the expertise of technical personnel which were made available by the assessee company. From the various clauses of the agreement, also it is evident that it was a contract with Lucent for providing technical personnel and making available the expertise of the assessee in this field also for the purpose of Lucent s contract of setting off and commissioning of telecom related technology for Reliance Infocom. 11.2 Illustrations of making available technical knowledge or experience, skill etc. has been given in various examples to Memorandum Of Understanding concerning fees for included services for the purpose of Article 12 of Indo-US Treaty, wherein Example 3 clearly clinches the issue in this case, which for ready reference and better understanding is incorporated herein below :- Example 3 Facts: A U.S. manufacturer has experience in the use of a process for manufacturing wallboard for interior walls of houses which is more durable than the standard products of its type. An Indian builder wishes to product for its own use. It rents a plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues are quite different. ii) IDS Software Solutions Ltd. Vs.ITO, [(2009) 122 TTJ 410 (Bang)];- In this case, the issue related to TDS on payment to non-resident on account of reimbursement of salary paid by the US company under an agreement. In this case the salary paid by the US company under second agreement to Managing Director was paid by the US company and seconded to its Indian territory having already suffered tax at source. In such a situation, ITAT held that reimbursement of salary by assessee to IDS need not suffered tax at source. Hence, this case is not applicable at all. iii) Intertek Testing Services India Pvt. Ltd. [(2008) 307 ITR 418 (AA)- Here in this case, the crux of the conclusion drawn by he Authority was that as per Article 13(4) of DTAA between India and UK, to fit into terminology make available the technical knowledge, skill etc. must remain with the person receiving the services even after particular contract comes to an end and the recipient of knowledge etc. should be able to use of it, in the future, independent of the service provider. In this case, the court held that in the absence of details of services received by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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