TMI Blog2012 (8) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... s compensation or fees paid by the applicant to the US Principal for making available to it the services of the employees of the Principal. Therefore, the same is income in hands of US Principal subject to withholding of taxes u/s 195 Payroll processing charges - Held that:- It is seen that the employees seconded to the applicant are required to have a particular level of expertise in their respective roles. Neither the agreements nor the application, specified what are the duties to be performed by the seconded employees in India. In the absence of adequate material, it will be hazardous to give a ruling, hence this question is left open for a decision by the assessing authorities as and when called upon to do so. - A.A.R. NO. 851 OF 2009 - - - Dated:- 16-8-2012 - JUSTICE P.K. BALASUBRAMANYAN, J. RULING 1. The applicant is a company incorporated in India. It is a fully owned subsidiary of a company incorporated in the United States of America (U.S.A). It entered into an agreement with its U.S. principal on 10.6.2007, to be effective from 1.4.2006, for seconding certain of the employees of the principal to the applicant subject to certain terms and conditions. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs on the following questions: Secondment Charge 1. Whether on the facts and circumstances of the case, the amount reimbursed or reimbursable by the applicant to Target Corporation, USA, under the terms of the secondment agreement dated 10.6.2007 is in the nature of income accruing to Target in respect of which, tax is liable to be deducted at source by the applicant under the provisions of Income-tax Act, 1961? 2. If the answer to the first question is in the affirmative, what is the rate at which tax is required to be deducted at source by the applicant? Payroll processing charge 1. On the facts and in the circumstances of the case whether the payment proposed to be made by the applicant towards payroll processing charges is taxable as per the provisions of Double Taxation Avoidance Agreement ("DTAA") entered into between India and USA ? 2. On the facts and circumstances of the case whether the applicant is liable to withhold tax at source under section 195 of the Act ("the Act") on the payments proposed to be made by the applicant towards payroll processing charges? 4. The applicant contends that what it pays to its US Principal under the Agreement i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees are sent to the applicant based on the principal's global mobility policy. The agreement specifically says that what is to be paid to it by the applicant is all remuneration of the employees paid by the principal. The right of dismissal rests or continues to rest with the US Principal. The relationship of the employees with the US Principal never ceased so as to enable them to claim that they have become the employees of the applicant. 7 . A sure test to find out whether there exists the relationship of employer and employees is to see whether the applicant has the right to terminate the employment of the seconded employees. The agreements relied on do not show the existence of any such power. The right to terminate the secondment is not the right to terminate the employment. The employees were admittedly employed by the US Principal and they were being paid their salaries by the US Principal. They are continuing to be paid their salaries and other service benefits by the US Principal even after secondment. Before the applicant can claim to establish that the employees have become its employees, it has first to show that the employees ceased to be the employees of the US P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Principal in respect of which tax is liable to be deducted at source under the Act. Except arguing that since it is reimbursement, it is not chargeable to tax under the Act and hence no withholding under section 195 of the Act is called for, the applicant has not set out any other submission. In this situation, I can only rule that the payment received by Target, the US Principal from the applicant is income in the hands of Target and while paying the amounts the applicant has the obligation to withhold taxes under section 195 of the Act. 11. There are no arguments raised in the application on the second question relating to the rate of tax to be withheld in respect of the secondment charge. The fact that no question has been raised in the alternative as to the nature of the amounts paid by the applicant to the US Principal, it does not appear to be proper to render a Ruling on that question. That question can be decided now only by the authorities under the Act in the usual stream. Hence, on question no. 2 regarding secondment charge it can only be ruled that the withholding or deduction of tax has to be at the rate prescribed by the Act subject to the right of the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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