TMI Blog2023 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Assessee : Shri Percy Pardiwala, Sr. Advocate Shri Anmol Anand, Ms. Priya Tandon Mr. Mithal Reddy, Advocates For the Revenue : Ms. Neera Malhotra, CIT-DR ORDER Per: George George K., J.M. These appeals at the instance of the assessee are directed against the two final assessment orders passed under Section 143(3) r.w.s. 147, r.w.s. 144C of the Income Tax Act, 1961 (the Act). The relevant assessment years are 2010- 11 and 2012-13. Common issues are raised in these appeals, hence they were heard together and are being disposed off by this consolidated order. 2. The assessee in both the appeals had raised several grounds. However, the solitary issue argued by the learned Sr. Counsel is that the AO/DRP erred in taxing the reimbursements of salaries of expat employees made by Google India Pvt. Ltd. (GPIL) to the assessee by characterising such reimbursements as fees for technical services (FTS) as per Explanation 2 to Section 9(1)(vii) of the Act as well as Fees for Included services (FIS) as per Article 12(4) of the DTAA between India and USA (India-US Tax Treaty). 3. The brief facts of the case are as follows: The assessee, Google LLC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments have been discussed elaborately and the following has been established; 1. There is no employer-employee relationship between GIPL and secondees seconded by assessee, rather the same continues to exists between Google LLC and such employees; 2. The services rendered/provided by the seconded employees are in the nature of technical, managerial, consultancy services. 3. The sums received by the assessee company for the previous year relevant to A.Y. 2010-11 are in the nature of Fees for Technical services under the section 9(1)(vii) of the Income Tax Act read with the article 12 of the Indi-USA DTAA. 4. Aggrieved by the draft assessment order the assessee filed objections before the DRP. The objections of the assessee were disposed off on 16.03.2021 190.06.2022 for assessment years 2010-11 and 2012-13, respectively by rejecting all the contentions raised. Pursuant to the DRP directions the impugned final assessment orders were passed on 23.03.2021 and 08.07.2022 for assessment years 2010-11 and 2012-13, respectively. 5. Aggrieved by the final assessment orders the assessee has filed these appeals before the Tribunal. The assessee has filed two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will take instructions. You are also expected to act at all times with appropriate respect for India and abide by the laws and regulations of India. Accordingly, you are required to maintain a standard of conduct that does not bring discredit upon yourself, your supervisions or upon Google India. During the period of secondment, for administrative convenience, Google shall make payment towards your salary, bonus and all other eligible benefits as per terms agreed with you (on behalf of Google India) at the time of secondment. Once you are seconded to Google India, Google shall not have the right to recall in the absence of Google India's request or consent. Termination of Secondment / Job upon return: You should understand that nothing contained herein or in the Relocation Policy shall be considered to be a guarantee of employment for the estimated duration of this Assignment and/or upon return from the Assignment. Your employment at all times remains at will and may be terminated at any time by either you or Google as is set forth in your Offer Letter. 8. From the above clauses of the assignment letter following conclusions can be drawn: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisites, etc. paid to such employees (refer pages 180 181 of PB for AY 2010-11). But for a marginal difference on account of foreign exchange there is one to one reconciliation. Therefore in the real sense the payment made by GIPL to the assessee is nothing but reimbursement of cost relating to remuneration on certain employees who were seconded to GIPL from the assessee. 10. The AO in the draft assessment order has assumed that service agreement exist between assessee and GIPL for provision of services by assessee to GIPL. There is nothing on record to suggest that assumption of AO is correct. Moreover, the assessee has strongly denied the same. Based on factual background, it is clear that the seconded employees were working solely under control and supervision of Google India (GIPL) and not on behalf of assessee during the period of secondment. The assessee s role was merely to facilitate payment of salary on behalf of Google India (GIPL), which was reimbursed by GIPL on actual. On identical facts, the Bangalore Bench of the Tribunal in the case of Biesse Manufacturing Company (P.) Ltd. by following the judgement of the Hon'ble Jurisdictional High Court in the case of F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. AR further submitted that the amount paid is only reimbursement and therefore not liable to deduct tax at source. The ld. AR submitted that the Hon ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd. v. DCIT (WP No.3619/2021) has considered the issue of TDS on reimbursement of salary cost of seconded employees in the context of issue of NIL TDS and directed that the certificate for NIL TDS be issued. It is therefore submitted that the issue under consideration being the applicability of TDS provisions on the reimbursement of salary cost of seconded employees is covered by the above decision of the jurisdictional High Court. The ld AR further relied on the decision of the coordinate bench of the Tribunal in the case of Goldman Sachs Services Pvt. Ltd. vs. DCIT [2022] 138 taxmann.com 162 (bang. Trib.). 20. The ld DR relied on the order of the lower authorities. 21. We have heard the rival submissions and perused the material on record. We notice that the Hon ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd (supra) while considering the issue of NIL TDS certificate towards reimbursement of salary cost held as follows:- 33. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 174 (Kar.), it is also pertinent to note that the Secondment Agreement constitutes an independent contract of services in respect of employment with assessee Hence, the DCIT in the impugned order has missed this aspect of the matter and has proceeded to consider the aspect of rendering of service as to whether it was 'FIS' 38. In light of setting aside of the impugned order in the context of legal position as noticed, the only order that can now be passed is of one granting 'nil tax deduction at source'. 39. Accordingly, in light of the above discussion, the impugned order at Annexure-A dated 1-5-2020 is set aside and the respondent No.1 is directed to issue a Certificate under section 195(2) of IT. Act to the effect of 'Nil Tax education at Source' as regards the petitioner's application dated 15-1- 2020. 22. We also notice that the coordinate bench of the Tribunal in the case Goldman Sachs Services Pvt. Ltd.(supra) has considered a similar issued and held that 26.9. Admittedly, the assessee deducted tax at source u/s.192 of the Act, on the 100% salary paid to the seconded employees, and paid the same to the credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1. For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum 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 rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Avoidance Agreement, between India and US. Payments made to individual or firm of individuals for service rendered by them in independent professional capacity are specifically excluded since they are covered by Article 15 on Independent Personal Services. Likewise, Article 12 specifically excludes payments made towards services rendered by an employee of the enterprise since services rendered under employment are covered by Article 16 on Dependent Personal Services. 28. The relevant portion of para 5(e) of Article 12 of the DTAA between India and US reads as follows: - Fees for included services does not include payments made - to an employee of the person making the payment or - to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services). The payments made by the Indian entity to the overseas entity is towards reimbursement of salary paid by the overseas entity to the seconded personnel. As discussed in para 14.2 to 14.7 above, for the purpose of Article 15 of the OECD Model Commentary (corresponding to Article 16 of the DTAA between India and US), the seconded person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble High Court held that the payment to AE was in the nature of `fees for technical services' and not reimbursement of expenses and further laid down that the nomenclature of reimbursement was not decisive. It noted that: 'Money paid by assessee to overseas entity accrues to overseas entity, which may or may not apply it for payment to secondees, based on its contractual relationship with them.' It is perceptible that in that case money paid by the Indian entity accrued to overseas entities only, which could or could not have been paid to the secondees depending upon the terms of contract. Per contra, we are confronted with a situation wherein the money never accrued to the assessee. It initially paid money to Mr. Franck in advance and then M/s.Faurecia Automotive Holding recovered the same from the Indian entity without any mark-up. There can be no question of the assessee receiving money in its own independent right. Rather, it is a case of discharge by the Indian entity of its own liability towards salary payable to Mr. Franck. It is thus manifest that this decision has no application to the facts of the instant case. 29.3 We also note that, reliance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e multinational enterprise, a service PE can emerge. Applying the above tests to the facts of this case, it is found that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally, MSAS makes a request to MSCo. 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 art 5(2)(l). There is no infirmity in the ruling of the AAR on this aspect. In the above situation, MSCo is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a service PE in India (MSAS). 29.6 Per contra, in the present facts of the case there is no finding, of their existing PE, in any form by the revenue and therefore is of no assistance to the revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to tax in India. Payment of salaries is not covered under section 195. Thus, it is necessary to take into consideration following aspect to determine Payments to enterprise seconding employees, the Indian entity has an obligation to deduct tax source u/s 195: (i) Payment of fees by an enterprise (Indian entity) to foreign entity for seconding employees; (ii) Reimbursement of salaries to the entity seconding the employees (foreign entity) from the entity to whom employees have been seconded (Indian entity). 31. Payment for supplying skilled manpower cannot be regarded as payment towards managerial, technical and consultancy services as per dictionary meanings of these terms. Hon ble AAR in Cholamandalam MS General Insurance Co. Ltd., reported in 309 ITR 356, took the view that, merely supplying technical, managerial or personnel with managerial skills cannot be regarded as rendering technical services by the person supply such personnel. The following were the relevant observations of Hon ble AAR:- It is debatable whether the bracketted words - including provision of services of technical or other personnel is independent of preceding terminology - mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such payment are towards reimbursement of salary cost borne by oversees entity, and that, no income can be said to accrue to oversees entity in India. The decision of this Tribunal in case of Abbey(supra) has been upheld by Hon ble Karnataka High Court in DIT vs. Abbey Business Services India (P.)Ltd., reported in (2020) 122 taxmann.com 174. 35. Hon ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (2017) 79 taxmann.com 459, on identical facts, as in the case of the present assessee before us, took the view that, there was no liability to deduct tax at source u/s.195 when payments were made by way of reimbursement. Based on the above detailed analysis of various contrary decisions on the issue, we are of the view that the decisions relied by revenue are distinguishable with the present facts of the case. Further, in the present facts we note that, the concept of make-available is not satisfied in the instant case. As per para 4(b) of Article 12 of the India- US DTAA on Royalties and fees for included services : 4. For purposes of this Article, fees for included services means payments of any kind to any person in consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 36. The Ld.AR has placed before this Tribunal a decision rendered by Hon ble CESTAT, Bangalore, wherein the Hon ble CESTAT was deciding, whether the assessee in India, was required to pay service tax demand (on reverse charge basis) on the secondment reimbursements, on the basis that the same amounts to manpower recruitment supply agency services , placed at page 66-86. The Hon ble CESTAT, Bangalore, held that employeremployee relationship exist between the seconded employee and the assessee in India in para 14 of the order passed by Hon ble CESTAT, Bangalore. The Hon ble CESTAT, Bangalore, further held that, there is no manpower supply services since assessee in India is the real employer by reason of the employment contract. Service tax demand was deleted. The relevant extracts are below 6. Submitting on the demand of Service Tax under the category Manpower Recruitment Supply Agency Service , the learned counsel states that the employer-employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working as their employees and having employee employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement of salary cannot determine the nature of transaction. 15. The learned Counsel for the appellants submits that the Department was fully aware of the facts when the SCN dated 27.10.2009 was issued and therefore no suppression of facts with an intent to evade payment of duty can be alleged in the subsequent SCN dated 15.04.2013. He relies upon Nizam Sugar Factory case (supra). We find that the argument is acceptable and for this reason, the second SCN is liable to be set aside ab initio .. 16. In view of the above, Appeal No. ST/25566/2013 Appeal No. ST/21705/2016 are allowed. Thus, the above decision of Hon ble CESTST Tribunal further strengthens assessee s case. We therefore, hold that, the amount reimbursed by the assessee to the overseas entity cannot be subjected to tax in India as there does not involve any element of income embedded in it. 37. Respectfully following the above views expressed by Hon ble Karnataka High Court in DIT vs. Abb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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