TMI Blog2020 (7) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A), who has given detailed finding. DR for the Revenue has failed to controvert the said finding of the CIT(A). In the absence of the same, it cannot be said that the assessee had service PE in India. Another aspect which is to be kept in mind for the taxability of service PE is that the expenses of salary cost needs to be deducted from the business income generated by the PE in India, which in the present case would be NIL. There will be no income attributable to the PE. We find no merit in the stand of the Revenue in this regard. Taxability in the hands of the assessee company i.e. income arising on account of deputation of Mr. Vinod Mahboobani and whether the same constitute service PE - We find no merit in the stand of the Assessing Officer in this regard, i.e. existence of service PE and provision of technical services; the same cannot co-exist. In any case under Article 12 of DTAA, the clause of make available needs to be fulfilled to hold existence of PE for technical services. In the absence of fulfillment of make available clause, it is not possible to hold that there is taxability of FTS under Article 12 of the DTAA. We find no merit in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in ignoring the facts that seconded employee Mr. Mehboobani retained lien over his employment with YRAPL, that his deputation agreement did not spell out his terms of work and that YRAPL continued to disburse his salary , all pointing to existence of PE. 3. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in concluding that there is no link between the royalty income earned by YRAPL and the functions performed by Mr Mehboobani, when the stewardship activities of the employee of furthering the business of YRIPL through new equity stores, franchisees and business development contribute to increased royalty received by YRAPL and require no further evidence supporting the AO's finding of PE. 4. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred in ignoring the detailed finding given by AO in the assessment order regarding the fact that the assessee has a place of management constituting a PE in India and reimbursement of salary and other expenses made by YRIPL to the assessee YRAPL is to be characterized as FTS. 5. Whether on the facts and circumstances of the case the CIT(A) has erred in holding that Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer was of the view that the person employed by the assessee, working under the Indian entity, were seconded to India; the salary of the said person was reimbursed by the Indian entity and hence taxable in the hands of the assessee. The case of the assessee was that the said person had shifted to India and was working solely for the Indian concern whose salary was reimbursed. The Assessing Officer however, treated the salary reimbursement cost as FTS. The Assessing Officer was of the view that the furnishing of services by the seconded employee were technical in nature and taxable as FTS under Article 12 of DTAA between India and Singapore. The Assessing Officer came to a finding that Mr. Vinod Mahboobani was the employee of the assessee company and services were being provided to YRIPL by Mr. Vinod Mahboobani on behalf of the assessee company. 6. The CIT(A) after going through the clauses of Deputation Agreement concluded that Mr. Vinod Mahboobani was under the control of YRIPL and was working for it. The CIT(A) also held that he was not the employee of the assessee and hence there was no right/lien over his employment and hence, there was no service PE. He referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice PE. Coming to the ancillary clause of the Deputation Agreement, it was pointed out that the same was not the case of AO; first thing to determine was, whose employee is seconded. Referring to the DTAA between India and Singapore, our attention was drawn to Article 5(8) Article 7, it was stressed that the provisions of Article 7 of DTAA would be invoked since there was no income, as salary paid is expense. This argument was on, without prejudice basis and it was stressed that even if there was PE, no income would be attributable to it as the expenses/salary would be deducted and hence there will be NIL business income. It was further stressed that as per the DTAA, income attributable to the PE only is taxable in India. Reliance was placed on the decision of Ahmadabad Bench of Tribunal in Burt Hill Design (P.) Ltd. vs DDIT (International taxation) (Ahmedabad ITAT-164 ITD 697). 9. Now, coming to the next aspect of the issue, it was pointed out that as per Article 12 of DTAA, FTS is taxable i.e. if make available clause is fulfilled, which is not the case of the assessee. It was also pointed out that in the absence of any element of income, it is a case of cost to cost rei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the facts of the present case, salary was paid by the Indian concern, including direct costs. Further, Mr. Vinod Mahboobani acted as Director and signed all the financial statements. Further, the said person was not deputed for short period. Reference was made to the letter of deputation placed at pages 429 and other documents at pages 430 to 433 of the Paperbook. 12. The Ld.DR for the Revenue referred to clause 2.2 of the Seconded Agreement. He further pointed out that additions on account of FTS was under Article 12 of the DTAA between India and Singapore. He also placed reliance on the decision of Delhi High Court in Centrica India Offshore Pvt.Ltd. (supra). 13. We have heard the rival contentions and perused the record. The year under appeal is Assessment Year 2008-09. The assessee is a non-resident company incorporated in Singapore. It is engaged in the business of franchising KFC, Pizza Hut and Taco Bell brands for a number of territories in the Asia Pacific region (including India). It entered into TLA with YRIPL under which it licensed Technology and System , for the operation of the restaurant outlets in India. The royalty received by the assessee company under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments made towards salary, bonus and all other eligible benefits of the International Assignees in relation to the period of deputation. For this purpose, Home Country Yum! entity would produce the necessary documentary evidence supporting the payment towards salary, bonus and all other eligible benefits to the International Assignees, to YRIPL, to enable the latter to make the payment. 2.5 All other costs and expenses in India relating to the International Assignees, including without limitation, reasonable expenses relating to boarding and lodging, food and beverage, travel and other miscellaneous expenses associated with the performance of work by the International Assignees shall be borne by YRIPL. 2.6 YRIPL shall be responsible for complying with the requirements of withholding tax under the Indian tax laws, on salary and other related entitlements paid to the International Assignees. 2.7 Once the International Assignees are deputed to YRIPL, the Home Country Yum! entity shall not have the right to recall any of such deputed personnel. Home Country Yum! entity will also not be under any obligation to replace any of the deputed personnel in the event where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During period under consideration, salary was paid by the appellant to Sh. Mahboobani in Singapore and it was reimbursed by YRIPL on cost to cost basis. Thus, salary of deputed person is born by YRIPL who is also responsible for tax obligations on salary payment. YRIPL has deducted tax on source on salary paid and has also paid fringe benefit taxes as applicable. Therefore, it is clear that salary paid to Sh. Mahboobani has been brought to tax in India and YRIPL has claimed it as its business expenditure. The AO has again taxed the same amount as FTS which amounts to double taxation. All the facts and circumstance of the case and clauses of deputation agreement indicate that Sh. Mahboobani was employee of YRIPL and YRAPL had simply acted as conduit to pay salary to him in Singapore as his family was there in Singapore. 15. The Ld. DR for the Revenue has failed to controvert the said finding of the CIT(A). In the absence of the same, it cannot be said that the assessee had service PE in India. 16. Another aspect which is to be kept in mind for the taxability of service PE is that the expenses of salary cost needs to be deducted from the business income generated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short YRMPL ) was set up for undertaking AMP activities on behalf of YRIPL and its franchisees. The assessee company was not a party to this Agreement which was exclusively between the Indian concern and its marketing company. The Assessing Officer was of the view that the marketing activities also benefit the assessee company and hence DAPE. 20. The condition which needs to be fulfilled in Article 5(8) of the DTAA between India and Singapore for holding of DAPE and the same reads as under:- 8. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 9 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if- (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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