TMI Blog2012 (9) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner herein is engaged in providing services in relation to development and maintenance of telecom software, (operations and business support) solutions as well as information on technology enabled services. The petitioner states that the services rendered by it are exported to its parent company, in the U. S. It is stated by the petitioner that the entire Verizon group follows the practice of sharing employees in the various companies to ensure that operating costs are kept to a minimum and that available resources are utilised in an effective manner. It is stated that the group companies second their own employees to other legal entities within the group, who are in need of individuals, for discharge of certain immediate functions. In terms of the set up of these companies, on April 1, 2008, the petitioner herein entered into a personnel secondment agreement with GTE Overseas Corporation, U. S. A, referred to as "GTE-OC", an affiliate company of Verizon U. S. The agreement reads that the said company GTE-OC has the capability of providing services in various fields. Accordingly, GTE-OC agreed to provide services of three of its employees to the petitioner herein pursua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company had paid to the employees herein by way of salary, the assessee moved an application before the Advance Rulings Authority for a decision on the following questions of law ([2011] 337 ITR 192, 196 (AAR)) : "1. On the facts and in the circumstances of the case whether the amounts (representing salary and benefits payable by GTE-OC to expatriate employees) reimbursed by the applicant to GTE Overseas Corporation, ('GTE-OC') is 'income' accruing to GTE-OC and, therefore, whether the same is liable to deduction of tax in accordance with the provisions of section 195 of the Income tax Act, 1961 ('the Act') ? 2. If the answer to question No. 1 is in the affirmative, then whether the same is taxable as 'fees for included services' ('FIS') under the Act read with the India-USA Double Taxation Avoidance Agreement ('the DTAA') ? 3. Is there a permanent establishment of GTE-OC in India under the DTAA and if so, is the amount received by GTE-OC from the applicant in the nature of 'business profits' attributable to such permanent establishment in India under the DTAA ? 4. If the answer to question No. 3 is in the affirmative, is the amount of taxable income nil, inasmuch a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that such correlation would not justify the stand of the assessee that it was only a reimbursement of the expense. It held that two payments are distinct and different and thus taxable in the separate entities. The sums remitted to GTE-OC are taxable at its hands for the services rendered by it to the petitioner and the amount paid to the seconded employees arose on account of their employment with GTE-OC. Thus, going by the terms of the agreement, the Advance Rulings Authority came to the conclusion that the amount paid by the assessee to GTE-OC represented income at the hands of GTE-OC. Having thus answered the first question against the assessee that the amount was to be treated as income and hence liable for tax deduction at source in accordance with section 195 of the Income-tax Act, the Advance Rulings Authority considered the question as to whether the same is tax- able as "fees for included services" under the Act read with the India-USA Double Taxation Avoidance Agreement. The Advance Rulings Authority pointed out that even though the personnel secondment agreement did not give the exact details as to the nature of services to be rendered by the three seconded emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision reported in Foster's Australia Ltd., In re [2008] 219 CTR 9, Learned counsel appearing, for the petitioner touched on the width of this court's power on a writ petition filed under article 226 of the Constitution of India to interfere with the order of the Advance Rulings Authority and placed reliance on the decisions of the apex court reported in R. B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) reported in [1989] 176 ITR 16 (SC), Jyotendrasinhji v. S. I. Tripathi reported in [1993] 201 ITR 611 (SC) and Indian Airlines Ltd. v. Prabha D. Kannan reported in AIR 2007 SC 548 to submit that even though the jurisdiction of this court under article 226 of the Constitution of India is not that of an appellate authority, yet, when the order is writ with perversity or where the Authority failed to consider the questions raised in terms of the annexure, this court has every jurisdiction to interfere with such an order. She submitted that event though the assessee had approached the Advance Rulings Authority for a decision and the decision is binding on the assessee and the Department, nevertheless, in the light of the flaws in the reasoning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of the Authority holding in the concluding paragraph that the payment was by way of reimbursements she said that the Authority grossly erred in holding that the amounts are taxable as income and had to go for TDS. As far as the second issue is concerned, on the alternative submission, she pointed out that when article 12(4) of the DTAA clearly speaks about payment as regards consultancy and technical services and on facts, the Authority found that the managerial services rendered were not technical and that the seconded employees were purely in managerial service, the Authority went into a tangent to ultimately hold that article 12(4) of the DTAA stood attracted to the facts of the case. She pointed out to the inconsistencies in the reasoning of the Authority that having held that the seconded employees are only in managerial service, the Advance Rulings Authority committed serious error in holding that the payment would nevertheless fall under "fees for included services" as stated under article 12(4) of the DTAA and that the payments would also be considered under "fees for technical services" as defined in Explanation 2 to section 9(1)(vi) of the Act. She further conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ican company are in the nature of managerial services to fit in with what is provided for as "fees for included services", to come under article 12(4) of the DTAA. In the light of the answers given to the first two questions, rightly, the Advance Rulings Authority held that the other two questions are academic. Thus, he submitted that the binding character of the order of the Advance Rulings Authority cannot, in any manner, be disturbed by this court under article 226 of the Constitution of India, as though it is an appeal court. Heard the learned counsel appearing for the assessee-petitioner and the learned standing counsel appearing for the Revenue. As far as the scope of interference of this court is concerned, the provisions of the Act, which enable the assessee to go before the Advance Rulings Authority, need to be seen. Chapter XIX-B of the Income-tax Act is a separate Chapter to deal with cases, wherein the assessee, who has undertaken a transaction with a nonresident moves the Authority constituted under section 245-O of the Income-tax Act for an early determination on a question of law and fact. An applicant desirous of obtaining an advance ruling under this Chap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of this court in R. B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) [1989] 176 ITR 169 (SC), which too was an appeal against the orders of the Settlement Com- mission. Sabyasachi Mukharji J., speaking for the Bench comprising him- self and S. R. Pandian J., observed that in such a case this court is 'concerned with the legality of procedure followed and not with the validity of the order.' The learned judge added 'judicial review is concerned not with the decision but with the decision making process'". Thus, the Supreme Court pointed out that the only ground on which the court under article 226 or 136 can interfere in the writ petition is whether the order of the commission is contrary to the provisions of the Act and that such contravention had prejudiced the appellant. In the light of the above, the Supreme Court held that even though there was no necessity to get into the correctness of the interpretation placed on the deeds, for the sake of completeness the apex court got into the correctness of the order passed, making a wrong interpretation of law on the provisions of the trust deed. Thus, the decisions cited by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find that there could be any ground for this court to substitute its view on the reasoning of the Advance Rulings Authority. Given the fact that the Advance Rulings Authority had considered the contentions therein with regard to the agreement we do not find there exists a case for this court to substitute its own reasoning, however good it may be, over that of the Advance Rulings Authority. As already pointed out, since the decision on the first question raised is on the terms of the agreement there is no reason to hold that the decision of the Advance Rulings Authority had gone against the provisions of the Act. The question as to whether the receipt is really an income or reimbursement is a pure question of fact, which has to be arrived at based on the various clauses in the agreement between the parties. In the context of the discussion in paragraph 13 of the order of the Advance Rulings Authority, we have no hesitation in rejecting the plea of the assessee. The fact that we have rejected the claim of the assessee in this regard, does not, however, tie our hands. As regards the view held on the second question, we hold that considering the findings given by the Advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consist of the development and transfer of a technical plan or technical design." In the context of the above, the Advance Rulings Authority came to the conclusion that the managerial services also fit in with technical services to fall under Explanation 2 to section 9(1)(vii) of the Act. A reading of the memorandums of understanding, which has been extracted in the order shows that even though the provision of services may require technical input by the person providing the services, it, however, does not, per se, mean that the person giving the consultancy service should make available the technical knowledge and skill also to the company purchasing the service, within the meaning of article 12(4)(b) of the DTAA. Thus, going by the memorandum and the DTAA, the Authority should have considered the nature of services rendered by the assessee, which are earlier characterised as purely managerial services to find out whether the same would fit in with paragraph (4)(b) of article 12 of the DTAA. As already noted, article 12(4) specifies the services that it seeks to consider as falling within the meaning of included services. If the nature of managerial services rendered ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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