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2015 (10) TMI 477 - ITAT BANGALORE

2015 (10) TMI 477 - ITAT BANGALORE - [2016] 45 ITR (Trib) 207 - Disallowance under section 40(a)(ia) - secondment of employees to the assessee in India and the reimbursement of expenses to the associated enterprise in US - CIT(a) allowed the claim - Held that:- The issues against which the Revenue has filed this appeal before us are covered in favour of the assessee by the decision of this Tribunal in assessee’s own case for the earlier assessment year. As regards the disallowance under section .....

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e not applicable. Further, it has also been held that it is also not in the nature of fees for technical services. - Decided in favour of assessee.

Disallowance under section 10A - Held that:- This issue is covered by the decision of the Jurisdictional High Court in the case of Tata Elxsi [2011 (8) TMI 782 - KARNATAKA HIGH COURT ] wherein it was held that if any item is reduced from export turnover, then the same has to be reduced from total turnover also for computation of deduction .....

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Srihari For The Assessee Mr. Chavali Narayan ORDER PER SMT. P. MADHAVI DEVI, J.M. This appeal filed by the Revenue is directed against the Order of the Ld. CIT(A)-I, Bangalore dated 31.08.2012 for the A.Y. 2008-2009 in granting relief to the assessee by deleting the disallowances made by the A.O. under section 40(a)(ia) of the Act as well as section 10A of the Act. 2. Brief facts of the case are that the assessee company, engaged in the business of development of software, filed its return of in .....

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y were in the nature of reimbursement of expenses and do not constitute income in the hands of the non-resident. The A.O. asked the assessee to explain as to why TDS was not made, as according to him, it constitutes fees for technical services . Vide letter dated 21.10.2011, the assessee company submitted that during the financial year relevant to A.Y. 2008-2009, Cerner India i.e., assessee herein, had incurred certain expenses in foreign currency aggregating to ₹ 4,09,04,600 being in the .....

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oyees of Cerner India amounting to ₹ 1,13,32,486 was inadvertently transferred to the employees of Cerner India from the bank account of Cerner Corporation instead of using the bank account of Cerner India and from May 2007 onwards, salary to Cerner India employees was paid directly from Cerner India bank account. He submitted that Cerner India reimbursed the salary cost of ₹ 1,13,32,486 to Cerner Corporation at cost basis. The assessee therefore submitted that the reimbursement of e .....

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ment made was towards fees for technical services and on this count also the payments are liable for TDS. He accordingly disallowed the entire payment made to Cerner Corporation and brought it to tax under section 40(a)(ia) of the I.T. Act. 2.1. Further, on perusal of the P & L account of the assessee, the A.O. observed that the assessee has incurred communication expenses of ₹ 1,51,52,880 and travelling expenses of ₹ 3,28,06,568. On perusal of the details of these expenses, he n .....

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the Act. Aggrieved by the above disallowance and the consequential additions, the assessee filed an appeal before the Ld. CIT(A) who granted relief to the assessee on both the issues. Against the order of the Ld. CIT(A), the Revenue is in appeal before us by raising the following grounds of appeal. 1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed to law and the facts and circumstances of the case. 2. The Ld. CIT(A) has erred in del .....

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as not justified in directing the AO to re-compute the deduction u/s.10A after reducing the telecommunication expenses of ₹ 1,49,65,548 and travelling expenses of ₹ 83,87,831 from the total turnover also. 5. The CIT(A) ought to have appreciated that there is no provision in sec 10A which requires the concerned expenses to be reduced from the total turnover. 6. The Ld. CIT(A) erred in allowing the relief, relying on the decision of the Hon'ble High Court in the case of CIT Vs Tata .....

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hat may be urged at the time of hearing of the appeal. 3. The learned D.R. supported the orders of the A.O. and submitted that the CIT(A) has granted relief to the assessee by deleting the disallowance under section 40(a)(ia) of the Act by placing reliance upon the order of this Tribunal in assessee s own case for the A.Y. 2006- 2007 even though the same has not been accepted by the department and further appeals have been filed before the Hon ble High Court under section 260A of the Act. As reg .....

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ee, on the other hand, supported the orders of the Ld. CIT(A) and submitted that this issue had arisen in assessee s own case in the earlier A.Y. 2006-2007 wherein the Tribunal had decided both issues in favour of the assessee. A copy of the said order of the Tribunal has been filed before us. 5. Having regard to the rival contentions and the material on record, we find that both the issues against which the Revenue has filed this appeal before us are covered in favour of the assessee by the dec .....

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n held that such reimbursement of expenses are not income in the hands of the non-resident and therefore, TDS provisions are not applicable. Further, it has also been held that it is also not in the nature of fees for technical services. For the sake of convenience and ready reference, the relevant paragraphs are reproduced hereunder. 11. The secondment agreement as we have already held, constitutes an independent contract of service in respect of the employment of Dr. Sundararajan with the asse .....

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ressed by Professor Klaus Voegel in his treatise on Double Taxation Conventions under the heading "International Hiring Agreements" at page 885. The view put forth by him is reproduced hereunder "The question of who is the employer arises particularly in situations in which the employee is sent abroad to work for a foreign enterprise as well In such cases, the determination of employer rests on the degree of personal and economic dependence of the employee towards the enterprises .....

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(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 s .....

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the assessee company to regulate the powers and duties of Dr. Sundararajan by passing appropriate resolutions which they have already done. Thus reading the Articles of Association as well as the second agreement together, it seems to us that Dr. Sundararajan was an employee of the assessee company, subject to the supervision and control of its Board of Directors, in addition to being the Managing Director of the assessee company. 12. For the above reasons, we hold that Dr. Sundararajan was an e .....

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lumpsum consideration for the rendering of any managerial. technical or consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries". It is not denied before us on behalf of the assessee that Dr. Sundararajan is a technical person. What is however .....

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(C) of Article IT make the seconded employee responsible and subservient to the assessee company which cannot be the case if the agreement is for providing technical services by IDS to the assessee company, Similarly clause (E) which requires the seconded employee to also act as officer or authorized signatory or nominee or in any other lawful personal capacity for the assessee company, would also be out of place in an agreement for rendering technical services as it cannot be imagined that a te .....

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which would be the case if the agreement is one for rendering technical services but also financial or accounting information, price or cost data and any other proprietary or business related information. Article VI which provides for indemnity, that is to say, the liability of the assessee company to indemnify the US company from all claims, demands, etc., consequent to any act or omission by the seconded employee is also inconsistent with the claim of the department that this is an agreement .....

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parent company was titled "Foreign Collaboration Agreement". Article 4 of the agreement obliged the Austrian company to provide all assistance and cooperation to the Indian company in its venture by providing appropriate support technology. Article 4.2 required the Austrian company to offer the services of its technical experts to the assessee for working on the project that was being executed. There was another agreement called the secondment agreement between the Indian and Austrian .....

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under the secondment agreement it is the assessee company which has control and supervision of the work of the seconded employee namely, Dr. Sundararajan. He was appointed as Managing Director by the Board of Directors of the assessee company and not by IDS. In fact, the assessee company could even terminate the services of Dr. Sundararajan as Managing Director during the period of eight months during which he was to serve the assessee company. There was no separate foreign collaboration agreeme .....

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