TMI Blog2012 (7) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... er personnel) whereas in the instant case, what was paid to Abbey National Plc. UK by the assessee was reimbursement of salary costs and other administration costs, relating to seconded personnel/staff, which was initially paid by Abbey National Plc, UK - the use of the words 'services of' in the above expression u/s.9(1)(vii) of the Act mandates the rendering of some sort of work through the act of the services of technical on other personnel, thus the assessee cannot be categorized as 'fees for technical services' u/s.9(1)(vii) - in favour of assessee. Fees for technical services falls under Article 13 of DTAA between India & U.K - Held that:- The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know how and the like. The service should be aimed at and result in transmitting technical knowledge, etc. so that the payer of the service could derive an enduring benefit and utilize the knowledge or know how on his own in future without the aid of the service provider - Unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ltd. who as per the mutually agreed terms and conditions was consistently required to provide high quality services which supports the position of M/s. Abbey National Plc, U.K. and its affiliates as being focused and efficient providers of financial and insurance services to customers in the United Kingdom. In order to ensure that high quality services were provided by M/s. Msource India Pvt Ltd., Abbey National Plc, UK entered into a consultancy agreement with the assessee on 4.2.2004 in which the description of services to be provided by the assessee are laid out and for which the assessee was to be compensated at cost plus 12% which included depreciation but excluded exchange fluctuation loss. 2.2 In order to facilitate the outsourcing agreement between Abbey National Plc, UK and Msource India Pvt Ltd, an agreement for secondment of staff was entered into between Abbey National Plc, UK and the assessee on 4.2.2004. The relevant clauses, of this agreement on the aspect of secondment of staff to the assessee are at Clauses 3.1 to 3.6 thereof which are as under : "3. Secondment of Staff to Abbey India 3.1 General In consideration of the payments to be made by Abbey Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyer and for accounting to the Inland Revenue in the United Kingdom and all other authorities for all taxes, National Insurance or similar contributions." 2.3 Clause 4 of the secondment agreement deals with payment for secondment by which the assessee agreed to reimburse the remuneration, pension contributions, expenses, statutory payments and other sums incurred by Abbey UK for each secondee during his or her period of secondment. Clause 4 reads as under : "4. Payment for Secondment 4.1 In consideration of the Secondment of Staff by Abbey UK, Abbey India shall make payments to Abbey UK (in Sterling) equivalent to the Remuneration, Pension Contributions, Expenses, Statutory Payments and any other sums incurred by Abbey UK applicable to each Secondee during his or her period of Secondment. 4.2 The payments under Clause 4.1 shall be made quarterly in arrears against detailed invoice submitted by Abbey UK." 2.4 Abbey National Plc, UK deducted income tax at source under section 192 of the Act in respect of salaries paid to secondees and the same was paid to the credit of the central government. It also issued Form No. 16 and filed statement of tax deduction at source. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and control over the seconded employees during the period of secondment. The contention of the assessee that the payment made to Abbey National Plc., UK constituted reimbursement of expenditure was not accepted by the Assessing Officer who held that since the secondees were employees of Abbey National Plc., UK and were providing managerial services to the assessee, the payment made by the assessee to Abbey National Plc., UK under the secondment agreement constituted 'Fees for technical services' under section 9(1)(vii) of the Act. In coming to this finding the Assessing Officer relied on the ruling of the AAR in 670 of 2005 in the case of AT S (I) Pvt. Ltd. v. CIT . The Assessing Officer consequently held that the assessee was liable to the deduct tax under section 195 of the Act in respect of reimbursements made to Abbey National Plc., UK under the secondment agreement and since no tax was deducted under section 195 of the Act, the entire payment made by the assessee amounting to Rs. 27,58,30,514 was disallowed by the Assessing Officer under section40(a)(i) of the Act. 3.4 Aggrieved by the order of assessment passed under section 143(3) of the Act on 15.12.2008, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs. 1,89,65,662 were incurred as per the secondment agreement. The total amount of Rs. 5,81,91,873 reimbursed under the secondment agreement were credited by the assessee to the account of Abbey National Plc., UK debited to its profit and loss account during the relevant period and claimed as a deduction in computing its income under the Act. 4.2 The assessee filed its return of income for Assessment Year 2006-07 on 27.11.2006 declaring a total income of Rs. 2,09,49,057. The return was processed under section 143(1) of the Act and was taken up for scrutiny by issue of notice under section 143(2) on 16.11.2007 which was served on the assessee. Since the value of international transactions exceeded Rs. 15 crores in the relevant period, the case was referred to the concerned Transfer Pricing Officer for determination of arms length price of international transactions. After examining the assessee's case, the TPO accepted the arms length price of the international transactions vide order dt.31.10.2009. 4.3 In the course of assessment proceedings, the Assessing Officer sought the assessee's explanation as to why no tax was deducted under section 195 in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - UK DTAA. The remaining amount of Rs. 1,27,94,180 was held to be not liable for TDS. Considering the findings in the order under section 201 dt.19.1.2010, the learned CIT(A) allowed relief in respect of reimbursement to the extent of Rs. 1,27,94,180 and consequently sustained the disallowance on account of reimbursement to the extent of Rs. 4,53,97,693. 4.5 Aggrieved, the assessee is in appeal before us. However, Revenue has not filed an appeal against the relief allowed by the learned CIT(A). 5.1 The grounds of appeal raised in respect of the appeals in ITA No. 1141/Bang/2010 for Assessment Year 2005-06 and ITA No. 41/Bang/2011 for Assessment Year 2006-07 are similar and are therefore the grounds raised for Assessment Year 2005-06 are reproduced hereunder : 1. The Honourable Commissioner of Income tax (Appeals) I (hereinafter referred to as 'CIT(A)) erred in law and on facts while passing the order. 2. The Honourable CIT(A) erred in holding payments proposed to be made by the appellant as 'fees for technical services' under section 9(1)(vii) of the Income tax Act, 1961 (hereinafter referred to as 'Act') 3. The Honourable CIT(A) has failed to appreciate that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal raised at S. No. 1 and 10 are general in nature and therefore no adjudication is called for thereon. In the grounds raised at S. No. 2, it is contended that the payments under the secondment agreement are not in the nature of 'fees for technical services' under section 9(1)(vii) of the Act. Grounds at S. No. 3 5 raise the contention that the impugned payments were in the nature of reimbursement of actual expenditure and were consequently not liable for TDS under section 195. Grounds at S.Nos. 6 to 9 relate to the argument that the impugned payments were not 'fees for technical services' under the India - UK DTAA. 6. ITA No. 42/Bang/2011 (A.Y. 2006-07) 6.1 Facts of the case For Assessment Year 2006-07, the assessee filed an application under section 195(2) of the Act on 19.2.2006 seeking authorization to reimburse salary and other administrative costs to Abbey National Plc., UK without deduction of tax at source under section 195. The ITO vide order dt.12.3.2007 under section 195(2) held that since the application under section 195(2) had been filed after the date of credit of the same to the account of Abbey National Plc., UK in the books of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds any services rendered by Abbey National PLC, UK. 6. The Hon'ble CIT(A) has erred in upholding the AO's order that the expatriates are employees of ANP and ANP is involved in providing technical service to MSource on behalf of Abbey India. 7. The Hon'ble CIT(A) has failed to appreciate that as per the secondment agreement for all practical purposes, the expatriates are employees of the appellant as they function under the control, direction and supervision of appellant and in accordance with the policies, rules and guidance applicable to appellant's employees. The salary was paid by ANP to the expatriates and the payroll was maintained by ANP only for administrative convenience. 8. The Hon'ble CIT(A) ought to have appreciated that there is an employer-employee relationship between the Appellant and the expatriates and that the proposed remittances are towards the reimbursement of actual administrative costs of the expatriates as incurred by ANP. 9. The principle of determining employment relationship through the "economic criteria" is also supported by the OECD Commentary on the Model Convention. The Commentary supports the concept of "economic employer" (rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order of the Hon'ble CIT(A) be set aside. 7.2 Ground Nos.1, 15 16 are general in nature and therefore no adjudication is called for thereon. Ground Nos.2,4 and 5 are contentions of the assessee that the payments made were in the nature of reimbursement of expenses and therefore not liable for TDS. Grounds 8 and 11 to 14 contend that the payments to Abbey National Plc., UK do not constitute 'fees for technical services' under section 9(1)(vii) of the Act and Article 13 of the India - UK DTAA. Grounds 6 to 9 contend that the assessee was the real economic employer of the secondee. Ground No. 10 has the contention that the assessee was not liable to deduct tax at source under section 195 in respect of payments made to Abbey National Plc., UK. In ground No. 14, the assessee challenges the charging of interest under section 201(1A) of the Act. 8.1 The learned counsel for the assessee put forth both written submissions and oral explanation as to why the payments by the assessee under the secondment agreement cannot be treated as 'fees for technical services.' It was submitted that the secondment agreement dt.4.2.2004 was an agreement for secondment of staff from Abbey Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant, a rough and ready test is whether under the terms of employment, the employer exercises a supervisory control in respect of the work entrusted to him. The learned counsel for the assessee also submitted that since Abbey National Plc., UK did not assume any risk for the performance by the secondees nor exercised any control, direction or supervision over them while on assignment with the assessee. Abbey National Plc., UK cannot be regarded as the economic employer of the secondees. 8.2 As per clause 3.6 of the secondment agreement (reproduced supra), (i) the secondees do not constitute employees of the assessee but shall remain employees of Abbey National Plc, UK ; (ii) the secondees shall not be entitled to any remuneration nor employment benefits from the assessee but Abbey National Plc, UK, as employer of the secondees, shall be responsible for the remuneration, employment benefits, pension contributions, for accounting to the Inland Revenue in the United Kingdom (U.K.) and all other authorities for taxes, national insurance etc. The learned counsel for the assessee submitted that this clause was designed in accordance with U K Laws to protect the individual's pension a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore up to the Contracting States to agree on the situations in which the intermediary does not fulfil the conditions required for him to be considered as the employer within the meaning of paragraph 2. In settling this question, the competent authorities may refer not only to the above mentioned indications but to a number of circumstances enabling them to establish that the real employer is the user of the labour (and not the foreign intermediary) : - the hirer does not bear the responsibility or risk for the results produced by the employee's work ; - the authority to instruct the worker lies with the user, - the work is performed at a place which is under the control and responsibility of the user, - the remuneration to the hirer is calculated on the basis of the time utilized, or there is in other ways a connection between this remuneration and wages received by the employee; - tools and materials are essentially put at the employee's disposal by the user, - the number and qualifications of the employees are not solely determined by the hirer." 8.4 In support of his contention that the person under whose control and supervisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that consequently such reimbursement does not result in any profit or income in the hands of the payee is not liable for TDS. In support of this contention, the assessee has relied on the following judicial decisions : 1. CIT v. Tejali Farsaram Kharawalla Ltd (61 ITR 95) (SC) 2. CIT v. Telco (245 ITR 823) (Bom) 3. CIT v. Indian Engineering Projects Pvt Ltd (202 ITR 1014) (Del) 4. Clifford Chance UK v. DCIT (82 ITD 106) (Mum) 5. Raymond Ltd v. DCIT [2003] 86 ITD 791 (Mum SB) 6. CIT v. Dunlop Rubber Co Ltd [1983] 142 ITR 493 (Cal) 7. HNS India VSAT Inc v. DDIT (95 ITD 157) (Del) 8. Gujarat Ambuja Cements Ltd v. DCIT [2005] 2 SOT 784 (Mum) 9. MSEB v. DCIT [2004] 90 ITD 793 (Mum) 10. Saipem SPA v. DCIT [2004] 88 ITD 213 (Delhi) (TM) 11. Sedco Forex International Drilling inc v. DCIT [2000] 72 ITD 415. 12. Pilcom v. ITO [2001] 77 ITD 218 (Cal) 13. DECTA 237 ITR 190 AAR. 14. Coca Cola India Inc v. ACIT [2006] 7 SOT 224 (ITAT - Del) 15. United Hotels Ltd v. ITO (93 TTJ 822) (ITAT Del) 16. ITO v. Dr. Willmar Schwabe India (P) Ltd (95 TTJ 53) (ITAT Del) 17. Expeditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing. The learned counsel for the assessee submitted that the remuneration and other administrative costs relating to seconded personnel was initially paid by Abbey National Plc, UK and these sums were subsequently reimbursed by the assessee. It was also submitted that this arrangement was made out of social security and other reasons such as business exigencies and commercial expediency and did not contain any mark up resulting in any profit or income from it and therefore cannot be treated as 'consideration' as per the definition of the term 'fees for technical services u/s.9(1)(vii) of the Act. The learned counsel for the assessee submitted that as per the facts of the case it was clear that Abbey National Plc. UK did not render any services to the assessee. It only deputed secondees to the assessee as per the secondment agreement and therefore contended that the expression "provision of services of technical or other personnel" as appearing in the definition of 'fees for technical services' was not satisfied. It was also submitted by the learned counsel for the assessee that neither the Assessing Officer nor the learned CIT(A) had brought out any material on record to substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. CESC Ltd v. DCIT 80 TTJ 765 (Kol) 5. National Organic Chemical Industries Ltd. v. DCIT 96 TTJ 765 6. NQA Quality System Registrar Limited v. DCIT 92 TTJ 946 (Del) 7. Cushman Wakefield Pvt Ltd v. DIT [2008] 305 ITR 208 (AAR) 8. Sheraton International Inc. v. DDIT [2007] 106 TTJ (Del) 620. 9. McKinsey And Co., Inc (Philippines) v. ACIT (International Taxation) 284 ITR 227 (AT)(Mum) 10. ITO v. De Beers India Minerals (P) Ltd. [2008] 113 TTJ (Bang) 101. 11. DCIT v. Boston Consulting Group Pte. Ltd. [2005] 93 TTJ (Mum) 293. 12. ACIT v. Paradigm Geophysical (P) Ltd [2008] 117 TTJ (Del) 812. 13. ICICI Bank Ltd v. DCIT [2008] 20 SOT 453 (Mum) 14. Bharat Petroleum Corpn. Ltd. v. JDIT [2007] 14 SOT 307 (Mum) 15. Guy Carpenter Co. Ltd. v. ADIT in ITA No. 2443/Del/2011 Dt.30.9.2011. 8.10 The learned counsel for the assessee also submitted a copy of the decision of the jurisdictional High Court in the case of CIT v. De Beers India Minerals Ltd in ITA No. 549 of 2007 dt.15.3.2012 in support of the contention that unless the person making the payment is equipped with technical knowledge, ski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore it was held that the India company cannot be considered as the real employer. In the instant case, it is submitted that the right to control, supervise and instruct the secondees were exercised by the assessee who was entitled to terminate the secondment of any secondee. It was also submitted that the above ruling of the AAR did not discuss the taxability of the reimbursements under the Treaty nor was there any discussion on the 'make available' clause. It was therefore argued that the ruling in the case of A T S India P. Ltd. ( supra ) does not apply to the assessee's case. 8.12 In view of the above arguments and submissions, the learned counsel for the assessee prayed that the disallowance of reimbursement of other administrative expenditure u/s. 40(a)(i) as confirmed by the learned CIT(A) be deleted and the assessee's appeals for Assessment Years 2005-06 and 2006-07 be allowed. 9. Per contra, the learned Departmental Representative argued the matter in detail and placed reliance on the orders passed by the learned CIT(A). In written submission filed, the learned Departmental Representative explained as to how the facts in the case of IDS Software Solutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments made by the assessee were pure reimbursement of expenses without any profit or income element. 11.1 We have heard both parties and have carefully perused and considered the grounds of appeal raised, arguments put forth and submissions made by both parties and the material on record. In this regard, the following issues/questions arise for our consideration. ( i ) Whether the assessee can be regarded as the real and economic employer of the employees seconded to the assessee under the secondment agreement ? ( ii ) Whether the payments made by the assessee to Abbey National Plc., UK were pure reimbursement of expenses and if so whether the said reimbursements constituted income in the hands of Abbey National Plc., UK ? ( iii ) Whether the payments made by the assessee to Abbey National Plc., UK constitute 'fees for technical services' under section 9(1)(vii) of the Income Tax Act, 1961 ? ( iv ) Whether the payments made by the assessee to Abbey National Plc., UK constitute 'fees for technical services' under Article 13(4) of the DTAA between India UK ? ( v ) Whether the payments made by the assessee to Abbey National Plc., UK were liable for TDS unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement and in consideration of the payments to be made by the assessee in accordance with clause 4 of the agreement. As per clause 3.2, the parties thereto undertook to sign and date a secondment term sheet in respect of each employee to be seconded to the assessee for the duration to be specified therein or as otherwise agreed between the parties. As per clause 3.3.2, Abbey National Plc. UK was to immediately withdraw any secondee from secondment at the written request of the assessee. Abbey National Plc., UK may also terminate a particular secondment prematurely at any time where deemed desirable or necessary by them for any reason. As per clause 3.3.3, a particular secondment will come to an end if terminated by the secondee through leaving the employment of the secondee for any reason. Clause 3.5 of the agreement which deals with the supervision and control of the secondees is as under : "The parties agree that the Secondees shall be under the direct management, supervision and control of Abbey India during the applicable Periods of Secondment. It is further agreed that : ( a ) Abbey UK shall not be responsible for and shall not be liable for any loss or damage occas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wajina-Harima Heavy Industries Ltd v. DCIT [2007] 288 ITR 406 held that "in construing a contract, the terms and conditions are to be read as a whole. A content must be construed keeping in view the intention of the parties. No doubt the applicability of the tax laws would depend on the nature of the contract but the same should not be construed keeping in view the taxing provisions." The jurisdictional High Court in the case of CIT v. Gogte Minerals [1996] 220 ITR 29 held that the court cannot look at the matter from a narrow angle, but interpret the contract as a whole with reference to the statute. In the instant case, the secondees worked under the supervision and control of the assessee who had the authority to instruct them as to the manner and place in which the work was to be carried out. Abbey National Plc., UK was not responsible and liable for any loss or damage caused by the secondees work. Nevertheless, in clause 3.6 the secondment agreement, it is agreed that Abbey National Plc., UK shall be the employer of the secondees. But the intention and purpose of this is ascertainable if the entire clause is read as a whole. Clause 3.6 provides that Abbey National Plc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the user. In this context, substance should prevail over form, i.e. each case should be examined to see whether the functions of employer were exercised mainly by the intermediary or by the user. It is therefore up to the Contracting States to agree on the situations in which the intermediary does not fulfil the conditions required for him to be considered as the employer within the meaning of paragraph 2. In settling this question, the competent authorities may refer not only to the above-mentioned indications but to a number of circumstances enabling them to establish that the real employer is the user of the labour (and not the foreign intermediary): - the hirer does not bear the responsibility or risk for the results produced by the employee's work; - the authority to instruct the worker lies with the user; - the work is performed at a place which is under the control and responsibility of the user; - the remuneration to the hirer is calculated on the basis of the time utilised, or there is in other ways a connection between this remuneration and wages received by the employee; - tools and materials are essentially put at the employee's dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee instructions regarding his work, or places tools, etc., at his disposals (of Hinnekens. L. Interfax 331 (1988). The situation is different if the employee works exclusively for the enterprise in the State of employment and was released for the period in question by the enterprise in his State of residence (BFH 114 (1986) re Germany's DTC with Spain)." If this view is applied to the present case, the assessee company can be considered as the economic employer because the services are rendered by Dr. Sundararajan to it, the salary is met or borne by it. Be that as it may, the person who actually controls the services of Dr. Sundararajan is the assessee company. Under the secondment agreement he is to act in accordance with the reasonable requests, instructions and directions of the assessee company. He shall devote the whole of his time, attention and skills to the assessee company. He is reportable and responsible to the assessee company. He can be rejected by the assessee company in which case the US company is bound to replace him. Under clause 86 of the Articles of Association of the assessee company, which we have already noticed, the assessee company may remove Dr. Sunda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was reportable and responsible to the assessee company and was required to devote the whole of his time, attention and skills to the duties required by the secondment arrangement. Clause 3.5 - Supervision and Control - The parties agree that the secondees shall be under the direct management, supervision and control of Abbey India during the applicable periods of secondment. It is further agreed that ( a ) Abbey UK shall not be responsible for and shall not be liable for any loss or damage occasioned by the secondees' work . ( b ) The authority to instruct the secondees shall lie with Abbey India and ( c ) The secondees work shall be performed at such place as Abbey India may instruct. 5. Clause (D) of the article stipulated that the assessee shall have the right at any time to approve or reject the employee chosen for secondment and if necessary, to request IDS to replace the employee if he is not, in the opinion of the assessee, qualified or meet the requirements of the secondment arrangement. Clause 3.3.2 - Abbey UK shall at the written reasonable request of Abbey India from time to time immediately withdraw any secondee from secondment as Abbey ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e jurisdiction of the English Courts. 10. Article III - Duties and obligations of the assessee during the secondment period. Clause 3.5 - Supervision and Control ( b ) the authority to instruct the secondees shall lie with Abbey India; and ( c ) the secondees' work shall be performed at such place as Abbey India may instruct. 11. Para 3 of the decision - (a) Dr. Sunderarajan was being offered employment with IDS Group Inc. as Executive Vice President, Worldwide Engineering and Managing Director of the assessee company; Para 11 of the decision - It may be true that IDS, the US company is the employer of Dr. Sundararajan in a legal sense but since his services have been seconded to the assessee company under the secondment agreement and further since the assessee company is to reimburse the emoluments paid by IDS to Dr. Sundararajan, it is the assessee company which for all practical purposes is to be lookedupon as the employer of Dr. Sundararajan during the relevant period." Clause 3.6 - Responsibility for employment liabilities This agreement is not intended to and nothing in this agreement shall have the effect of constituting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten submissions filed by the learned DR The contention that the appellant's role to exercise supervision and control over the secondees and as such the secondment is general in nature is incorrect. The de facto control, supervision and management of employees seconded were with the appellant. Clause 3.5 of the secondment agreement is clear in this regard. 2. Clause (F) of secondment agreement provided that during the currency of the secondment agreement, the employee ceased to be the employee of IDS Inc, the obligation of IDS to second such employee would also cease. In the case of Abbey India secondees would be and remain employees of Abbey UK during secondment. The secondees shall not be entitled to any remunerations nor employment benefit from Abbey India and it was Abbey Uk shall as employer of secondees, be responsible for all such remuneration and benefits. (kindly refer para 3.6 of secondment agreement) The contention of the learned DR that, in IDS's case, as per clause (F) of the secondment agreement, during the currency of the secondment agreement, the employee ceased to be the employee of IDS Inc, is incorrect. As provided in Point no. 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement, payments equivalent to the remuneration, pension contributions, expenses, statutory payments and any other sums incurred by Abbey UK applicable to each secondee during his or her period of secondment were made by the appellant. Notes to accounts for the year ended 31st March 2006 [page 17 of DR submissions] stated, "The Company reimburses all expenses incurred by Abbey National plc including payroll costs for the employees who are on secondment for the Company's activities." Point No. 9 of notes to accounts for the year ended 31st March 2006 [page 18 of DR submissions] stated, "The Company has not yet made any remittance towards the reimbursement of secondment and other administrative costs .... " Page no. 20 of the DR submissions contains a list of expenses reimbursed under secondment arrangement. The narration below the journal entries in the ledger 'administration and general expenses' [page 21 of DR submissions] states that the invoice raised by Abbey UK was towards the cost of secondees. 4. Salary cost is borne by IDS India, however received cross charges partly from IDS Inc. Salary cost is borne by Abbey India, the same was claimed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ANP for Rs. 27,58,30,514/- However, tax deducted at source only on Rs. 16,62,04,340/- which has been allowed by the CIT(A). and the balance Rs. 10,96,26,174/- the Abbey India had not deducted tax and considered disallowable u/s 40(a)(i) of the Act. The difference as pointed out by the learned DR is not at all germane to the issue on hand. Further, if salary costs reimbursed is held as not liable for disallowance under section 40(a)(i), the reimbursement of expenses should also be held as not liable for disallowance under section 40(a)(i). 12.9 We have heard both parties and have carefully perused and considered the contention and submissions of both the parties and the material on record and are of the considered opinion that the contentions of the learned Departmental Representative cannot be accepted as the quantum of payments or the number of employees seconded is not relevant criteria. The conclusion of the Tribunal in the case of IDS Software Solutions P Ltd ( supra ) that the Indian Company should be regarded as the economic employer of secondees was not based on the number of employees seconded or the quantum of reimbursements but was based on the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il that the impugned payments were pure reimbursements of expenses and therefore did not constitute income in the hands of Abbey National Plc., UK so as to warrant deduction of tax at source thereon. The learned Departmental Representative, on the other hand, has contended that there is no material on record to substantiate that the payments were in the nature of reimbursement of expenses. On being asked by the bench as to how the payments to Abbey National Plc., UK were pure reimbursement of expenses without any mark up or profit element, the learned counsel for the assessee drew our attention to the notes to accounts for the year ending 31.3.2006, break up of the reimbursements made during F.Y. 2005-06; copy of the ledger for 'administration and general expenses' in the books of the assessee for the relevant period and clause 4.1 of the secondment agreement which states that in consideration for secondment of staff by Abbey National Plc., UK, the assessee shall make payments equivalent to the remuneration, pension contribution, expenses, statutory payments and any other sums incurred by Abbey National Plc., UK applicable to each secondee during his or her period of secondment. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative) - "The Company has not yet made any remittance towards the reimbursement of secondment and other administrative costs to Abbey National Plc pending receipt of permission from the Income Tax authorities under section 195(2) for remittance of such amounts without withholding taxes. The provision for tax has been computed assuming that such permission will be received and no withholding tax maybe required. Reliance has been placed in part on judicial precedents." 13.4 The break up of reimbursements agreed to be made by the assessee are given on page 20 of the submissions of learned DR. Page 21 of the submissions of the learned Departmental Representative contains a copy of the ledger 'administration and general expenses' in the books of the assessee for the period 1.11.2005 to 31.3.2006. The narration below the entries wherein Abbey National Plc., UK: account was credited states that the invoice raised by Abbey National Plc. UK was towards cost of secondees and states that the amount is payable for 'recharge of staff costs (including travel and subsistence) and other Abbey Business Services (India) Limited related expenses for the period.' The 'report on factual findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2009] 308 ITR 297 held that reimbursement of expenditure incurred towards accommodation and conveyance of employees of non-resident consultant companies is not liable for TDS under section 195 of the Act. 14.6 The Special Bench of the ITAT, Mumbai in the case of Mahindra Mahindra Ltd. v. DCIT [2009] 313 ITR (AT) 263 held "when a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under section 9(1)(vii), should be or have atleast some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be described as income in the hands of the recipient. In other words the component of income must be present in the total amount of fees paid for technical services to constitute as an item falling under section 9(1)(vii). When the expenditure incurred is reimbursed as such without having any element of income in the hands of the recipient, it cannot assume the character of income deemed to accrue or arise in India." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for technical services u/s.9(1)(vii) of the Act. 15.2 In the instant case, the agreement entered into by the assessee with Abbey National Plc, UK was for secondment of staff and the consideration paid was for this purpose only and not for the rendering of any services. Therefore, in the instant case, the secondment of staff/personnel would not be tantamount to rendering of technical, professional or consultancy services. 15.3 Section 9(1)(vii) of the Act is attracted if there is a rendering of service for which a consideration should follow. In the instant case, it was specifically agreed by the parties that Abbey National Plc, UK would only second staff to the assessee as per the secondment agreement. No services were rendered by it to the assessee. 'Fees for technical services' as per section 9(1)(vii) means any 'consideration' for rendering of managerial, technical or consultancy services (including the provision of services of technical or other personnel). Consideration means something given in return for obtaining OR getting a thing. In the instant case, what was paid to Abbey National Plc. UK by the assessee was reimbursement of salary costs and other administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Article 13 of DTAA between India U.K. ? 16.1 In this order, we have held that the reimbursement of salary costs and other related administration expenses made by the assessee to Abbey National Plc, UK, cannot be regarded as income chargeable to tax in the hands of Abbey National Plc, UK. We have also held that such payments do not constitute 'fees for technical services' u/s.9(1)(vii) of the Act. When a payment made to a non-resident is not regarded as 'fees for technical services' u/s.9(1)(vii) nor income chargeable to tax in its hands, the question, whether such payments constitute fees for technical services' under Article 13 of the Treaty between India - U.K., does not survive. This is because Treaties cannot impose tax which is not contemplated or levied under the provisions of the Act. This position is confirmed by the decision of the Hon'ble Apex Court in the case of UOI v. Azadi Bachao Andolan Another [2003] 263 ITR 706. The assessee has raised grounds of appeal contending the non-taxability of the reimbursements made under Article 13 of the DTAA between India U.K. and has made written submissions in this regard. Per contra, the learned Departmental Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 13 of the India-U.K. Treaty. 16.5 Additionally, the requirement of 'make available' is to be satisfied for a payment to fall under Article 13 of the India-U.K. Treaty. The meaning of the term 'make available' under the Treaty has been elaborately dealt with in the decision of the Hon'ble jurisdictional High Court in the case of De Beers India Minerals Ltd ( supra ). The relevant portions of the said decision at paras 13, 14, 22, 26 and 27 are extracted hereunder : "13. Under the Act if the consideration paid for rendering technical services constitutes income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only. If such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know-how or process is not made available by the service provider, who has rendered technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and undertake such survey independently excluding Fugro in future. The Fugro has not made available the aforesaid technology with the aid of which they were able to collect the data, which was passed onto the assessees as a technical service. In other words, Fugro has rendered technical service to the assessee. They have not made available the technical knowledge with which they rendered technical service. There is no transmission of technical knowledge, expertise, skill, etc. from Fugro along with technical services rendered by them. The assessees are completely kept in dark about the process and the technologies which the Fugro adopted in arriving at the information / data which is passed on to the assessees as technical service. The assessee is unable to make use of the said technical knowledge by itself in its business or for its own benefit without recourse to Fugro. In fact, the question whether along with rendering technical services, whether the technical knowledge with which that services was rendered was also made available to the assessees/customers is purely a question of fact which is to be gathered from the terms of the contract, the nature of services undertaken an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperience etc. by Abbey National Plc, UK to the assessee. The payments made by the assessee to Abbey National Plc, UK is reimbursement of salaries, costs, etc of seconded staff and not for rendering of any services. As a result of the said payments, the assessee, is not equipped with transfer of technology, processes, skills, etc by Abbey National Plc, UK to the assessee. Therefore, the reimbursement of salary and other costs by the assessee to Abbey National Plc, UK cannot be regarded as 'fees for technical services' under Article 13 of the India-UK Treaty. 16.7 The learned Departmental Representative has placed reliance on certain decisions in support of the contention that the payments made by the assessee to Abbey National Plc, UK constituted 'fees for technical services' under the provisions of the Act and the Treaty which are as under : ( i ) Cochin Refineries Ltd. v. CIT [1996] 222 ITR 354 (Ker) In this case, the amount paid to the US Company to evaluate whether coke produced from a blend of vacuum bottoms and clarified oil from Bombay High Crude is suitable for making anode for the aluminum industry was held to be fees for technical services u/s.9(1)(vii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imbursement of salary costs and other expenses made for secondment of personnel by Abbey National Plc, UK and not for the rendering of any service. Thus, the decision relied on by the learned Departmental Representative is distinguishable. 16.8 Further, in the instant case, the learned CIT(A) has allowed relief in respect of reimbursement of salary costs and confirmed the disallowance of reimbursement of other administration expenses. Revenue has not filed any appeal against the relief granted by the learned CIT(A). The reimbursement of other administration expenses under the secondment arrangement was inseparable and inextricably linked to reimbursement of salary costs. We have already held that reimbursement of salary costs and other administration expenses under the secondment agreement were without any profit element. Thus, if reimbursement of salary costs were held to be not liable for disallowance, by the same yardstick the reimbursement of other expenditure under the secondment agreement should also be held as not liable for disallowance. We hold accordingly. 17. Whether the payments made by the assessee to Abbey National Plc, UK were liable for TDS u/s.195 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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