TMI Blog2020 (3) TMI 959X X X X Extracts X X X X X X X X Extracts X X X X ..... greement between the Indian entity and expatriate, but in this case, even there was no such agreement also. Respectfully following the finding of the Hon ble High Court, we uphold the finding of the lower authorities on the issue of existence of PE of the assessee in India in terms of the DTAA. The ground No. 2.1 to 2.4 of the appeal accordingly dismissed. Profit attribution - HELD THAT:- This issue was raised by the assessee before the Learned DRP and learned DRP directed to verify the claim of the assessee, however, in the final assessment order, the Learned Assessing Officer considered the same amount for cost base on the ground that no such details were provided by the assessee in assessment proceedings. In our opinion, this is issue of the verification and if on verification certain expenses are not found pertaining to the seconded employees, same need to be excluded for taking cost base for profit attribution. Accordingly, we restore this issue to the file of the learned Assessing Officer for deciding after verification of each and every item of expense of ₹ 4,10,60,108/- and include only the item of the expenses pertaining to the seconded employees. The ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Even the services has been utilized by Associated Enterprises and remunerated at arm s length price to Teradata India , will not make any impact, as in the instant case the income taxable in the hands of the PE is under consideration and nothing has been brought on record that Arm s Length Price of the service transaction between PE of assessee and Indian Entity has been determined. What is relevant here is that income has to be taxed in the hands of the correct person and in the instant case income from rendering services by the PE has to be taxed in the hands of the PE and remunerating the Teradata India by other AEs at arm s-length price is not relevant. Accordingly, we reject this alternative argument of the assessee. Credit of tax deducted at source - HELD THAT:- We restore this issue to the file of the learned Assessing Officer with the direction to the assessee to produce all the evidences in support before the Assessing Officer for verification and he will then after examination of the documents/evidence and data base of the department, allow the credit of TDS in accordance with law - ITA No. 7805/Del./2017 ITA No. 2580/Del/2018 - - - Dated:- 19-3-2020 - SHRI A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Article 5 of the India-USA DTAA. 2.3 The Ld. AO/ DRP erred in holding that the Appellant constitutes a Service PE in India as per Article 5 of the India-USA DTAA. 2.4 Ld. AO/ DRP erred in perceiving, interpreting and evaluating facts and law in deciding/ relied upon cases and in reasoning towards preferred outcome by totally ignoring/ misinterpreting underlying facts as also principles laid down in such decisions and applying the same to facts. 2.5 That, Without prejudice, the Ld. AO/ DRP erred in holding and attributing profits to the alleged PE of the Appellant by considering that the total reimbursement for 'relocation expenses of ₹ 4,10,60,108/- was received by the Appellant only in relation to the secondment arrangement and thus erred in not considering that it also includes reimbursement for other employees of its AE. 2.6 The Ld. AO/ DRP erred in not taking cognizance of the additional evidence providing segregation of the relocation expenses, filed and admitted by the Appellant during the proceedings before the Ld. DRP. 2.7 That, without prejudice, the Ld. AO/ DRP erred in not allowing the cost of seconded persons while attributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs and accordingly, erroneously held that there is no mistake apparent from records in the assessment order. 4. That, in view of the facts and circumstances of the case and in law, the Ld. AO erred in not appreciating that this a mistake apparent on record and hence falls within the purview of Section 154 of the Act. 5. That, without prejudice, in any case, no addition is called for in relocation expenses, hence the same is liable to be deleted. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. 3. Briefly stated facts of the case are that the assessee is a company incorporated in and tax resident of the United States of America (USA) and a part of Teredata group. The assessee was engaged in business of providing data warehousing services in the form of their proprietary package called Teredata solution . During the year, the assessee provided certain professional services and also received royalty in respect of software license to its Associated Enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,108 Total 9,31,94,804 3.3 Before the Assessing Officer, the assessee contended that: i. The employees are seconded to Teradata India under a secondment agreement under which those employees worked as employees of Indian company. ii. The seconded employees worked under the control and supervision of Teradata India . iii. The salary of seconded employees was disbursed by the assessee in their home country (USA) for administrative convenience as those seconded employees were situated in the USA and the Teradata India reimbursed to the assessee company for the payments made in the USA on actual cost basis. 3.4 The Assessing Officer, however, did not accept the contention of the assessee. The learned Assessing Officer referred to the decision of the Hon ble Delhi High Court in the case of Centrica India Offshore Private Limited (2014) 44 taxmann.com 300. The Assessing Officer observed that in the instant case, secondment agreement regarding secondment of the employees between the foreign company (i.e. the assessee) and the Indian entity (i.e. Teradata India) and secondment/assignment agreement between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated also on account of the fact that expatriate continues to enjoy lien with the foreign company and also his account on social benefit continues in the foreign country. If it is not so, no foreign expatriate would like to be seconded.Apparently, therefore, there is control exercised by the foreign company on the seconded employee even if he shown to have been economically working with the Indian Company i.e. Teradata India. iv. It is not without significance that the agreement is for the Secondment of the personnel. That the agreement envisages Secondment of the personnel from the home entity to the host entity is by itself indicative of the fact that effectively the expatriate employees were and continue to be the employees of the home entity.The dictionary meaning of the term Secondment provides that temporary detachment of a person from their regular organization for temporary assignment elsewhere. This suggests an element of continuity of the relationship between the home entity and the expatriate deputed to render services in India. No employee who has served the employer (i.e. the home entity herein) and has earned valuable rights in the form of seniority,, qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Morgan Stanley Co (supra). 3.10 The Assessing Officer held that the reimbursement in the hands of the assessee is a business income as those payments have been on account of services rendered by the assessee through its employees in India and, therefore, the profit generated on the amount of activities carried out by the employee in India is liable to tax in India as business income of foreign entity under Article 7 of the DTAA read with section 9(1) of the Act. 3.11 As regard the quantification of the income of the PE, the learned Assessing Officer taken the cost of salary and relatable expenses paid by Teradata India in respect of the employees under reference and profit markup on such reimbursement @ 25% (in absence of global profitability data and audited global accounts). The relevant part of the assessment order is reproduced as under: 10.3 The above amounts towards salary and relatable expenses has been directly / indirectly met by / paid by Teradata India in respect of employees working for the assessee company i.e. rendering services in India. The aforesaid amounts results in income to the assessee and shall be considered to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of reasonable attribution as desired by the A itself. In view of the same, the AO is directed to once again verify whether the global profitability of the A is readily available and use the same for attribution of profit. If not, the attribution as per rule 10 is upheld. xvi Further, the A has mentioned that the relocation expenses of ₹ 4,10,60,108/- include the expenses both for the seconded employees and the other employees of the AE. The AO is directed to verify if any such segregation has been provided by the A during the assessment proceeding and to exclude the sum which represents reimbursement towards Relocation Expenses in relation with the other employees of TIPL while quantifying the profits attributable to the PE of the Assessee in India. 3.14 In the impugned final Assessment order, the Assessing Officer has claimed to have complied the direction of the Learned DRP as under: 18.1 The Perusal of assessment record shows that the assessee company has not provided the information in respect of its Global Profitability. The same is not readily available for calculation of profit for attribution to the PE of the assessee in India. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portant. He submitted that relevant clauses of the seconded agreement established beyond doubt the fact that seconded persons were working under the employment of Teredata India and had no responsibility towards the assessee. Though the Ld. Counsel objected to the existence of PE of the assessee in India, but could controvert that issue in dispute in the instant case is covered by the decision in the case of Centrica India Offshore Private Limited (supra), and he focused his arguments on no profit attribution. He submitted that no profit element was involved in reimbursement of costs incurred by the assessee in relation to salary and other expenses of seconded employees. 6.1 As far as the decision in the case of Centrica India Offshore Private Limited (supra) is concerned, we find that in that case Centrica, UK outsourced some of their back office support functions to third parties vendors in India. The Centrica UK set up Centrica India to act as an interface between the third party vendors in India and the overseas entities. The Centrica India provided services to overseas entities in terms of a service agreement under cost-plus arrangement. The Centrica India, in order to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their salary- no obligation is spelt out vis- -vis the Petitioner. All direct costs of such seconded employee's basic salary and other compensation, cost of participation in overseas entities' retirement and social security plans and other benefits in accordance with its applicable policies and other costs were ultimately paid by the overseas entity. Whilst CIOP was given the right to terminate the secondment, (in its agreement with the overseas entities) the services of the secondee vis- -vis the overseas entities - the original and subsisting employment relationship - could not be terminated. Rather, that employment relationship remained independent, and beyond the control of COIP. 35. The concept of a legal and economic employer, as considered by Vogel (relied upon by CIOP), is when a local employer wishing to employ foreign labour for one or more periods of less than 183 days recruits through an intermediary established abroad who purports to be the employer and hires the labour out to the employer. In this case, the temporal element of the three-way employment relationship is crucial. The secondees were - originally - employees of the overseas entities. They we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of deputation, we are of the view that an employee of MSCO when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCO. As long as the lien remains with the MSCO the said company retains control over the deputationist's terms and employment. ... It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge. ... A deputationist under such circumstances is expected to be experienced in banking and finance. On completion of his tenure he is repatriated to his parent job. He retains his lien when he comes to India. He lends his experience to MSAS in India as an employee of MSCO as he retains his lien and in that sense there is a service PE (MSAS) under Article 5(2)(1). We find no infirmity in the ruling of the ARR on this aspect. In the above situation, MSCO is rendering services through its employees to MSAS. Therefore, the Department is right in its contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... request and the terms and conditions for providing services of technical experts are contained in the secondment agreement which we have referred to above in great details. Though the term reimbursement is used in the agreements, the nature of payments under the secondment agreement has to satisfy the characteristic of reimbursement and that the term reimbursement in the agreement will not be determinative of nature of payments. The term reimbursement is not a technical word or a word of Article In Oxford English Dictionary, to reimburse means--to repay a person who has spent or lost money--and accordingly reimbursement means to make good the amount spent or lost. However, under the secondment agreement the applicant is required to compensate AT S Austria for all costs directly or indirectly arisen from the secondment of personnel and that the compensation is not limited to salary, bonus, benefits, personal travel, etc. though salary, bonus, etc. and the amounts referred to in para 4.2 of the secondment agreement form part of compensation. The premise of the question that the payments are only in the nature of reimbursement of actual expenditure incurred by AT S Austria is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that CIOP, and the secondment agreement, phrases the payment made from CIOP to the overseas entity as reimbursement‟ cannot be determinative. Neither is the fact that the overseas does not charge a mark-up over and above the costs of maintaining the secondee relevant in itself, since the absence to mark- up (subject to an independent transfer pricing exercise) cannot negate the nature of the transaction. It would lead to an absurd conclusion if, WP(C) No.6807/2012 Page 46 all else constant, the fact that no payment is demanded negates accrual of income to the overseas entity. Instead, the various factors concerning the determination of the real employment link continue to operate, and the consequent finding that provision of employees to CIOP was the provision of services to CIOP by the overseas entities triggers the DTAAs. The nomenclature or lesser-than-expected amount charged for such services cannot change the nature of the services. Indeed, once it is established, as in this case, that there was a provision of services, the payment made may indeed be payment for services - which may be deducted in accordance with law - or reimbursement for costs incurred. This, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit attribution, the Learned Counsel has made several arguments/ submissions in support of the Ground Nos. raised from 2.5 to 2.8 of the appeal. 7.1 The first submission which has been made is that relocation expenses of ₹ 4,10,60,108/- does not only relate to the secondment arrangement and were also paid for the other employees of the TIPL. The Assessing Officer is of the view that the entire amount was incurred towards VISA charges and other travel cost of seconded employees, which paid by the assessee company and reimbursed to it by the Teradata India . According to the assessee, out of the total relocation expenses, expenses of ₹ 3,70,77,547/- related to employee other than seconded employees. This issue was raised by the assessee before the Learned DRP and learned DRP directed to verify the claim of the assessee, however, in the final assessment order, the Learned Assessing Officer considered the same amount for cost base on the ground that no such details were provided by the assessee in assessment proceedings. In our opinion, this is issue of the verification and if on verification certain expenses are not found pertaining to the seconded employees, same ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for the business of PE. 3.1.2 In the instant case this cost is the amount expended towards the salary and other benefit paid to the seconded persons. It is also submitted that as the reimbursements were on a case to cost basis, no profit element would be left and therefore there would be no taxable income in India. 3.1.3 In the instant case, attribution of profits to the alleged PE in India under the provisions of the DTAA would stand as under: Particulars Amount (INR) Reimbursements received from TIPL for the seconded persons 5,21,34,696 Less: Salary cost paid by the Appellant (as reimbursements are on cost-to-cost basis) 5,21,34,696 Taxable Income NIL 9.3 From the above submission, what we find that the assessee is proposing that out of the reimbursement amount received from Teradata India , first the cost base should be deducted and then markup should be charged on the remaining amount, which will be nil in this case. We do not agree with this proposition of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arm s-length price is not relevant. Accordingly, we reject this alternative argument of the assessee. 10. The ground No. 3 of the appeal is premature at this stage and the dismissed as infructuous. 11. The ground No. 4 is consequential and, therefore, accordingly dismissed as infructuous. 12. In ground no. 5, the assessee has sought credit of tax deducted at source for amount of ₹ 22,721/-. This is issue of verification by the Assessing Officer from the records of the assessee as well as from the record of the Department and therefore, accordingly, we restore this issue to the file of the learned Assessing Officer with the direction to the assessee to produce all the evidences in support before the Assessing Officer for verification and he will then after examination of the documents/evidence and data base of the department, allow the credit of TDS in accordance with law. 13. The assessee has also raised additional ground No. 6 and 7 as under: 6. That, in view of the facts and circumstances of the case and in law, the learned AO has erred in ignoring the settled position of law that proceedings before the Dispute Resolution Panel ( DRP ) are part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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