TMI Blog2018 (7) TMI 1614X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 8595/Mum/2010 And ITA No. 4365/Mum/2012 - - - Dated:- 6-7-2018 - SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM For The Assessee : Sunil M. Lala And Tushan Hathiraman, ARs For The Revenue : Saurabh Deshpande, DR ORDER PER MAHAVIR SINGH, JM : Out of these two appeals by the assessee, one appeal for AY 2007-08 in ITA No. 4365/Mum/2012 is arising out of the order of Commissioner of Income Tax (Appeals)-15, Mumbai [in short CIT(A)], in appeal No. CIT(A)-15/Curr.110/11-12 dated 3.4.2012 the other appeal for AY 2006-07 in ITA No. 8595/Mum/2010 is arising out of Objection No. 170 by Dispute Resolution Panel-II (in short DRP) vide order dated 27-09-2010. The Assessment for AY 2006-07 was framed by the Dy. Director of Income Tax (IT), 4(1) Mumbai (in short DDIT/AO ) under section 143(3) read with section 144(C) of the Income Tax Act, 1961 (hereinafter the Act ) vide dated 05-10-2010. The assessment for AY 2007-08 was framed by Dy. Director of Income Tax (IT), 4(1) Mumbai (in short DDIT/AO ) under section 143(3) read with section 144(C) of the Act vide dated 07-02-2011. 2. The only common issue in these two appeals of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (IS Treaty). In this regard, the learned CIT(A) specifically erred in: a. holding that the Appellant was rendering services to MSAS through its employee; b. such services rendered by the Appellant to MSAS were making available technical knowledge, skill, know-how, etc. which could be applied by MSAS for its own benefit. 3. Brief facts are that the assessee company was incorporated in Singapore and is a resident of Singapore for the purpose of taxation. The assessee deputed one of its Director/employee to India in earlier years and who remained in the year under consideration with the assessee to set up the business in the name and style of Morgan Stanley Advantage Services Private Limited (MSAS), an associate concern engaged in providing information technology enabled services and software development to overseas Morgan Stanley entities. The assessee, as per the terms of contract, agreed to continue paying salary of the employee in Singapore and cross charging India for the same. As per Form-16 of the expatriate an amount of ₹ 7,31,62,201/- had been paid as salary and in return, the assessee received an amount of ₹ 5,78,25,175/- as reimbursement fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eimbursement is not found to be acceptable. Further it is not the facts of the case that what has been received by the appellant is salary in its hand, Shri Nagarni who was deputed to the MSAS by the appellant was not receiving money from MSAS in his individual capacity at all. On the contrary the salary it received was from the appellant, which would be the case in respect of the any company who is rendering FTS through its employees. Such company would pay salary to its employees and charge FTS to the company to whom the services are rendered. Accordingly in the facts of the case the contention of the appellant that what was received by it was salary and therefore it is covered under -the exception given in explanation 2 1 to the section 9(1)(vii) is not found to be acceptable, Further given the facts as above the case laws relied upon by the appellant are considered to be distinguishable as in the facts of the case there is nothing like salary which the appellant has received. The appellant has only paid to its employee and has recovered payments from the company to which such employee was deputed. Such recovery in the facts of the case and as per the findings in the ground no. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the memorandum forming part of the treaty, the term has been explained by way of examples. Accordingly it cannot be said that such phrase has been defined in that treaty as well. vii. In the MOU, it is only mentioned that generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. viii. Accordingly it can be stated that in the facts of the case where payments are made by the MSAS for services rendered by Mr. Nagrani, such services which have been received by the MSAS, have been applied by the recipient for its business purposes. If such! services were not applied for the purposes of business, such payments would not be allowable u/s 37 (1) of the Act. Further if such services have been applied, then in its generality it can be stated that such services could be considered to be made available to the MSAS. ix. The expression .make available is not defined in the Income Tax Act or DTAA signed by India with various countries. In view of above, one has to look forward for Its meaning in other legal enactments or in the general dictionary to understand its meaning. It is found that the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t appeals courts end up disagreeing it may eventually make it to the Supreme Court, where we can get a final ruling on whether making available is or is not the equivalent of distribution. (Website reference http:techdirt.com/blog.php?tag=make+available) xi. Treaty with the Netherlands also uses phrase make available , but again same has not been defined in the treaty or elsewhere. The official web site belonging to the Netherlands government has also used word make available* in same context as has been discussed earlier. It has been quoted from web site- You make available personnel in the Nether lands: If you make an employee available on the Dutch labour market you will be liable in Dutch law to make salary deductions, submit wage tax and social security declarations and probably withhold and deduct them. Whether the latter will be the case will depend on the tax law of the Netherlands, the tax treaty between the Netherlands and the country of habitual residence and on various international social security treaties such as EU Regulation 1408/11 and the European Social Charter. Please Note: Making available should be taken to mean any kind of supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient has not become expert in the technology of the computer system for controlling, lighting, heating etc. in this example, xvi. This clearly suggests that word Make available was used in treaty in above said! context. Treaty too suggest these services of technical knowledge/experience/skill etc. were offered or made accessible to the other party and it never meant that the other party should be trained or made expert in such technical knowledge etc. It will be absurd on of a person to make other person expert of its own core competency, which will result in situation that the recipients of service will not look again to him when these services are again needed in future. Teaching/educational services have been separately dealt elsewhere in the treaty. The appellant has also not argued on interpretation of word make available* in US courts. In view of above the meaning of expression Make available5 has to be read in the above context. In the present case, service provider has provided or made accessible the services of its technical knowledge/experience .... Enabled to apply phrase used in same protocol does not mean that service provider also has to teach technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and discussion here in above the contentions of the appellant in this regard are not found to be acceptable and accordingly the Sub-Ground 3.2 is dismissed. Aggrieved assessee is in second appeal before the Tribunal. 5. Before us, Ld. Counsel for the assessee argued that the contractual agreement between MSAS and assessee clearly provides that the salary is paid by the assessee on behalf of MSAS and the same is recharged by by assessee to MSAS. Accordingly, the amount received by the assessee is in the nature of reimbursement of cost incurred by the assessee on behalf of MSAS. Ld. Counsel for the assessee argued that this payment cannot be termed as FTS as defined in explanation-2 to section 9(1)(vii) of the Act. He contended that the payment by MSAS is purely in the nature of salary reimbursement on account of cost incurred by the assessee. Once the payment is in the nature of salary, the same is covered under the exception mentioned in explanation-2 to section 9(1)(vii) of the Act. Therefore, the same cannot be regarded as FTS given in the definition of the term of FTS but as salary income in the hands of the deputed employee. The relevant provision of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and accordingly, the provisions of India Singapore Treaty, which is beneficial, should be considered to determine the taxability of amount paid to assessee. Ld. Counsel for the assessee relied on Article 12 of India Singapore Treaty and contended that FTS arising in India may be taxed in India. He referred to paragraph 4 of Article 12, which defines the term FTS and clause (b) contains that such technical knowledge should be made available. He referred to the following: 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other contracting State may be taxed in that other State. [2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent.] 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(DR) relied on the India US Treaty Article 12, the definition of Royalties and fee for included services. He also relied on Article 7 of India US Treaty terming the FTS as business profits. Ld. Sr. DR relied on the decision of the coordinate bench of this Mumbai in the case of Morgan Stanley International Incorporated v. Deputy Director Income Tax (IT)(4)(1) (2015) 53 Taxmann.com 457 (Mumbai - Trib) for the proposition, wherein it is held that in regard to employees seconded by assessee constitute its service PE in India and therefore, payment made by Indian entity to assessee on account of reimbursement of salary was to be taxed under Article 7 of India US Treaty. Ld. CIT(DR) also relied on the decision of ITAT Delhi G Bench in the case of Deputy Director of Income Tax, International Taxation, Circle-3(1), New Delhi v. JC Bamford Excavators Ltd. [2014] 43 Taxmann.com 343 (Delhi - Trib.), wherein it is held that JCB India constituted the assessee s service PE in India, the AO held that it carried no the business in India and royalties/fees for technical services received from JCB India was effectively connected with such service Permanent Establishment (PE). Relying on para 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same cannot be brought within the definition of FTS as defined in explanation to section 9(1)(vii) of the Act provided in exception. The exception provided clearly stated that the income of the recipient chargeable under the head salary in view of the expenses will not be considered as falling under the definition of FTS. The payment by MSAS being a pure reimbursement of salary cost incurred by the assessee is in the nature of payment of salary which is covered under exception mentioned in explanation 2 to section 9(1)(vii) of the Act and therefore, the same cannot be regarded as FTS given in the definition of the term of FTS but as salary in the hands of the deputed employee only. For this, first we will place reliance on the decision of coordinate bench of this Tribunal in the case of Additional Director of Income Tax (IT) Vs. Mark Spencer Reliance India (P) Ltd. (2013) 38 Taxmann.com 190 (Mumbai Trib.). 4.7 The present case is a case of part reimbursement of expenses and therefore there is no income element present in part reimbursement. The services rendered by the four persons deputed to the appellant are assistance in management and set up of business, assistance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted is that arts 11 and VI of the secondment agreement would be out of place in a contract for providing technical services. Article II as we have already seen contains eight clauses outlining the duties and obligations of the seconded employee. Article VI provides for indemnification which has also been earlier noticed by us. We are inclined to agree with the submission that these two articles are out of place in a contract for providing technical services. For example, Cls. (A) to (C) of art II 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 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 the agreement for rendering technical services as it cannot be imagined that a technical person would also be required to act in non-technical capacities under an agreement for rendering technical services. Clause (H) on which considerable reliance was placed by the Department to contend that the agreement is one for rendering technical services, is merely a clause ensuring secrec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the payment are not in the nature of Fees for Technical Services (FTS). Thus in the absence of make available technical knowledge, expertise, skill, know-how or process etc. it cannot be held that the payment is FTS as per article 13(4) of Indo UK DTAA. The term fee for technical service has been defined under par 4 of article 13 of Indo-UK DTAA as under: 4. for the purposes of paragraphs 2 of this Article, and subject of paragraph 5 of this Article, the terms fees for technical services means payment of any king of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which; (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3 (b) of this Article is received; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke available of the services o any technical or consultancy in nature. The Hon ble High Court has observed in para 13 that as per the definition for fee for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know-how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA. Accordingly, in view the decision of Hon ble Karnataka High Couirt in case of De Beers India Minerals (P) Ltd. (supra) and Special Bench decision in case of Mahindra and Mahindra Ltd. (supra), we hold that the payment in question does not fall under the term fee for technical services as per provisions of Indo-UK DTAA. 18. There is no dispute about the facts as record by the CIT(A) that the assessee has made the payment towards part reimbursement of the salary expenditure which clearly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Special Bench of this Tribunal in case of Mahendra Mahendra and held that the payment are not in the nature of Fees for Technical Services (FTS). Thus in the absence of make available technical knowledge, expertise, skill, know-how or process etc. it cannot be held that the payment is FTS as per article 13(4) of Indo UK DTAA. The term fee ITA No. 905/M/2012 Marks and Spencer Reliance India for technical service has been defined under par 4 of article 13 of Indo-UK DTAA as under: 4. for the purposes of paragraphs 2 of this Article, and subject of paragraph 5 of this Article, the terms fees for technical services means payment of any king of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which; (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or (c) make available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at the same time is satisfied. 15. Thus, merely providing the employees or assisting the assessee in the business and in the area of consultancy, management etc. would not constitue make available of the services of any technical or consultancy in nature. The Hon ble High Court has observed in para 13 that as per the definition for fee for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know-how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA. Accordingly, in view the decision of Hon ble Karnataka High Court in case of CIT vs. De Beers India Minerals (P.) Ltd. (supra) and Special Bench decision in case of Mahendra and Mahendra (supra), we hold that the ITA No. 905/M/2012 Marks and Spencer Reliance India payment in question does not fall under the term fee for technical services as per provisions of Indo-U ..... X X X X Extracts X X X X X X X X Extracts X X X X
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