TMI Blog2023 (4) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO in the 2nd round of proceedings is pursuant to the remand by the Tribunal and same was not pursuant to any revisionary order or order passed under reassessment proceedings and therefore was required to be confined to the directions of the Tribunal vis- -vis the subject matter of appeal before the Tribunal. It is trite that the appellant cannot be placed in a worse position as a result of filing an appeal It is also trite that the Tribunal has no power under the Act to enhance the assessment in an appeal. In Sanmar Speciality Chemicals Ltd. [ 2018 (4) TMI 745 - MADRAS HIGH COURT] held that since the Tribunal has no power under the Act to enhance the assessment in an appeal, equally, it cannot be done on an order of remand being passed by the Tribunal to the AO. What cannot be done directly cannot be done indirectly. In the present case, there was no finding of the Tribunal, while remanding the matter, as regards the Service PE of the assessee in India and the said finding was an altogether fresh conclusion reached by the AO in an order passed under section 143 (3) r/w section 254 r/w section 144C(13) of the Act, which in our consideration is beyond the direction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nel has erred in taxing the reimbursed salary amount of Rs. 1,49,96,676 received by the Appellant during the year as fees for technical services' in terms of section 9(1)(vii) of the Income-tax Act, 1961 as well as under Article 12 of the Double Taxation Avoidance Agreement entered into and subsisting between India and Canada ( India-Canada DTAA ) 2. The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, the reimbursement of salary and other related costs received by it does not fall within the purview of the term fees for technical services' either under the Income-tax Act, 1961 or under the provisions of the India-Canada DTAA and the stand taken by the Assessing Officer/ Dispute Resolution Panel in this regard is misconceived, illegal, erroneous and incorrect. 3. The Appellant submits that the Assessing Officer be directed to delete the addition of Rs. 1,49,96,676 so made and to re-compute its total income accordingly. Re: Re-adjudication beyond scope 1. The Assessing Officer/Dispute Resolution Panel erred in re-adjudicating the secondment of employee as constituting service PE of the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urer of glass. Owens Corning India Private Ltd is a company incorporated in India and is engaged in the manufacture of glass fibres in India. During the year under consideration, the assessee filed its return of income on 26/11/2013, declaring a total income of Rs. Nil. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the course of assessment proceedings, the assessee was asked to show cause as to why the reimbursement of expenses of Rs. 1,49,96,673, shown as a salary and other related costs should not be brought to tax as fees for technical services. In reply thereto, the assessee submitted that the said reimbursement is in relation to the salary paid to its employee Mr. Anindya Ghosh, who was seconded to Owens Corning India Private Ltd, and the said payment was reimbursed by Owens Corning India Private Ltd. The assessee further submitted that the services rendered by the aforesaid employee of the assessee are nature of managerial services and therefore they do not fall in the category of fees for included services as defined under Article 12(4) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of fees for technical services under the provisions of the Act and fees for included services under the provisions of the India Canada DTAA. Without prejudice, the AO also held that the assessee company has the Service Permanent Establishment ( Service PE ) in India during the year under consideration on the basis that the seconded employee was sent to India to manage the affairs of Owens Corning India Private Ltd and for all practical purposes, the employee remain a permanent employee of the assessee, even though stationed in India. The assessee filed detailed objections before the learned DRP against the findings and addition made in the draft assessment order. Vide directions dated 27/01/2022, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee and held that the reimbursement of expenses received by the assessee is in the nature of fees for included services/fees for technical services. The learned DRP also rejected the objections of the assessee regarding the AO going beyond the direction of the Tribunal in concluding that the assessee has Service PE in India. Since the AO s finding regarding fees for technical services/fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP submitted that due to services provided by the seconded employee, the Indian company and its employees carry on the business model on their own without reference to the service provider, and thus the same also satisfies the condition of make available . 7. We have considered the rival submissions and perused the material available on record. On 01/01/2012, the assessee entered into an Employee Secondment Agreement with Owens Corning India Private Ltd, whereby one of the employees of the assessee, i.e. Mr. Anindya Ghosh, was seconded to Owens Corning India Private Ltd for a limited period. As per the aforesaid Employee Secondment Agreement, the seconded employee will work under the control, direction, and supervision of Owens Corning India Private Ltd during his assignment and Owens Corning India Private Ltd shall have the right to promote/discipline/suspend/take any action in respect of the seconded employee. It is further provided that the payroll of the seconded employee shall continue with the assessee for the limited purpose of continuation of Social Security/retiral benefits and for all other purposes Owens Corning India Private Ltd shall remain his employer during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices under section 9(1)(vii) of the Act. However, while coming to the aforesaid conclusion, the AO made certain factual errors, such as the AO took into consideration the qualification of one Mr. Anil Gupta, instead of Mr. Anindya Ghosh. When the aforesaid factual anomaly was pointed out by the assessee, the coordinate bench of the Tribunal remanded the matter to the AO for re-appreciation of correct facts and re-adjudication of the matter in the light of the submissions made on behalf of the assessee. 9. In pursuance of the directions of the coordinate bench of the Tribunal, the AO issued a fresh show cause notice. In the 2nd round, the AO after considering the qualification of the seconded employee, Mr. Anindya Ghosh, and his rank in the organisation as mentioned in his LinkedIn profile came to the conclusion that services rendered by the seconded employee are in the nature of fees for included service/fees for technical services. In addition to the aforesaid conclusion, the AO also held that since the assessee has sent a seconded employee to manage the affairs of Owens Corning India Private Ltd and for all practical purposes, the employee remains a permanent employee of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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). 11. In the aforesaid decision, the coordinate bench of the Tribunal noted that the tax at source under section 192 of the Act against the salary and other allowances paid/payable to the seconded employees were deducted by the Indian company. The coordinate bench further noted that the salaries of such seconded employees were deposited in their overseas bank accounts, which were reimbursed by the Indian entity on a cost-to-cost basis and the seconded employees were working solely under the control and supervision of the Indian entity. Accordingly, the coordinate bench of the Tribunal decided the aforesaid issue in favour of the taxpayer by observing as under:- 9. Further the GIPL had duly deducted tax at source under Section 192 of the Act against salary and other allowances paid/payable to such seconded employees and deposited the same with the Government of India. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Bangalore Bench of the Tribunal in the case Goldman Sachs Services (P) Ltd. (supra) had decided the issue in favour of the assessee. The contentions raised and the findings of the Tribunal in the assessee of Biesse Manufacturing Company (P.) Ltd. (supra) reads as follows: - 17. During the course of assessment proceedings, the AO noticed that the assessee has made payment to M/s. Biesse Spa, Italy towards secondment of employees deputed to India during the year under consideration for an amount of Rs. 1.39.07,427. The AO also noticed that no tax was deducted at source on these amounts paid to the AE and issued a show cause notice to the assessee as to why the amount should not be disallowed us. 40(a)(i). The assessee submitted that these were salaries paid to Italian employees working in India. The payment was made to the employees in Italy and the same was reimbursed by the assessee. The assessee also submitted that the seconded employees was under the payroll of the assessee and part of salary was paid in Italy for which the AE periodically raised invoice for reimbursement. The assessee also submitted that tax has been duly deducted us. 192B on the salary paid in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the material available is on the construction of legal position. As pointed out in the discussion earlier that the understanding of the legal position being erroneous, the only conclusion that could be arrived at is to allow the application. 34. Though the Revenue has raised numerous contentions that further information is required to record a detailed finding, such stand is taken up for the first time in the present proceedings A perusal of the file of the Department does not make out any instance where the Department had sought for further information which was not furnished On the contrary, the petitioner has made out detailed representation on the legal position and record does not reflect any requisition for further information remaining unanswered In fact, the Apex Court in GE India Technology Centre (P) Ltd. (supra) has rightly observed at para-16 as follows: 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all... 35. Further, it must be noticed that the finding as regards deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbursed part of the salary cost of the seconded employee to overseas entity that has already subjected to TDS under section 192 of the Act. And therefore, at the time of making such reimbursement, to overseas entity, no taxes were deducted at source by the assessee in respect of reimbursements made as, according to the assessee, it was in the nature of cost-to-cost reimbursement, and, no element of income was involved. 26.10. The assessee in India does the TDS on 100% salaries u/s 192 and pay the same to the credit of the Central Government. Form 16 at page 228-230 issued to Christopher Roberts of PB Vol I, by the assessee in Indian, Certificate under section 203 of TDS having deducted at source and further indicates the following- Employee has a PAN number in India Total taxable salary is Rs 9,761,581 (this corresponds to the US$ 130.000 as total compensation indicated in the local employment contract at para 4 The Indian company does full TDS on 100% of the salaries, although 25% is paid in India and balance 75% outside India TDS done is Rs 2,834,300/-, which translates to 30.8% of Rs 9,761,58 Employee also contributes to Indian provident fund Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t chargeable under the head Salaries . 26.13. The definition of FTS under the Act excludes consideration which would be income of the recipient chargeable under the head salaries. If the seconded employee is regarded as employee of the assessee in India, then the reimbursement to overseas entity, by the assessee in India would not be in the nature of FTS, but would be in the nature of salary', and therefore, the reimbursements cannot be chargeable to tax in the hands of overseas entity, and therefore there would be no obligation to deduct tax at source at the time of making payment u/s. 195 of the Act. 26.14. Article 12(4)-(5) of India USA, DTAA deals with Fees for technical services, as under: 4. For purposes of this Article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right. property or information for which a payment described in paragraph 3 is received; or (b) make available tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yer. It is to be noted that the understanding as to who is the 'employee' in order to be excluded from. fees for technical services , cannot be inconsistent with the understanding of employee for the purpose of Article 15 on income from employment, especially when Article 15 is an anti-abuse provision. 29. The Ld. DCIT placed reliance on the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. reported (2014) 44 taxmann.com 300 concluded that the reimbursement was FTS and that services provided make available technical skill or knowledge for use by the assessee. 29.1. In case of the decision of Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt.Ltd vs. CIT(supra) dealt with identical case of reimbursement of salaries paid to expatriate employees. The Hon'ble Court held that, overseas entities had, through seconded employees, undoubtedly provided technical' services to Centrica India and that, the expression rendering technical services expressly includes provision of services of personnel. The Hon'ble Court held that the Seconded employees, were provided by overseas entities and work conduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court in case of Verizon Data Services India (P) Ltd. v. AAR and Ors(supra), wherein it is held that, the reimbursement of salary of expatriates to foreign co by Indian company results in taxable income in the hands of the foreign company. Hon'ble High Court also upheld the observations of AAR, wherein it characterized the secondment of personnel as provision of managerial services. However, the Hon 'be Court set aside the ruling of Hon'ble AAR, wherein it held that, the reimbursement of salary of expatriates constitutes fees for included services in terms of Article 12(4) of India USA DTAA. Therefore, reliance placed on this decision is of no assistance to revenue. 29.4 There is another decision of Hon'ble Supreme Court in case of DIT v Morgan Stanley reported in (2007) 162 Taxman 165, wherein, it is held that, in case of deputation, the entity to whom the employees have been deputed cannot be regarded as employer of such employees as the employees continue to have lien on his employment with the entity which deputes him. Entity seconding the employee is the employer as it retained the right over seconded employee is also held by Hon 'ble A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.7 As far as the decision of Hon'ble AAR in the case of AT S (supra) is concerned, the facts of the said case were that AT S, a company incorporated in Austria, offered services of technical experts to applicant, a resident company, pursuant to a foreign collaboration agreement on the terms and conditions contained in secondment agreement. Under the secondment agreement the applicant is required to compensate AT S for all costs directly or indirectly arising from the secondment of the personnel, and the compensation is not limited to salary, bonus, benefits, personal travel, etc. but also includes other items. On the above facts. Hon'ble AAR ruled that the Contention that the payments are only in the nature of reimbursement of actual expenditure is not supported by any evidence and there is no material to show what actual expenditure was incurred by AT S and what was claimed as reimbursement. A part of the salary of seconded personnel is paid by the applicant in Indian rupees and the remaining part is paid by the applicant to AT S in Euro. While working with the applicant, the seconded personnel are required to comply with the regulations of the applicant, but they wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managerial, technical or consultancy services or whether the bracketted words are to be regarded as integral part of managerial, technical or consultancy services undertaken by the payee of fee. In other words, is the bracketted clause a stand alone provision or is it inextricably connected with the said services? HMFICL itself does not render any service of the nature of managerial, technical or consultancy to the applicant and it has not deputed its employee to carry out such services on its behalf. There is no agreement for rendering such services. In this factual situation, it is possible to contend that merely providing the service of a technical person for a specified period in mutual business interest not as a part of technical or consultancy service package but independent of it, does not fall within the ambit of S.9(1)(vii). 32. Hon'ble Bombay High Court in case of Marks Spencer Reliance India Pvt.Ltd. VS. DIT reported in (2013) 38 taxmann.cm 190, upheld the view of Hon'ble Mumbai Tribunal which held that, payment towards reimbursement of salary expenditure without any element of profit, would not be taxable under the provisions of the Act. Hon'ble C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services a b.** make available technical knowledge, experience, skill, know-how, or skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, even if the rendering of service by the seconded personnel constitutes a contract for service, in the absence of making available any technical knowledge or skill to the Indian entity, the same shall not constitute fees for technical services. In support we refer to the decision of Hon'ble Karnataka High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. reported in (2012) 21 taxmann.com 214. on the concept of 'make available, observed and held as under: What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agency Service , the learned counsel states that the employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant: In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country: for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company: the Seconded Personnel, as required under the Income Tax Act, 1961, files their respective returns under Section 139 of Income Tax Act, 1961 and shows the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon...... 14. Coming to the third issue of payment of salary, allowances and expenses of the personnel drawn from di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the above views expressed by Hon'ble Karnataka High Court in DIT vs. Abbey Business Services India (P)Ltd.(supra), Hon'ble AAR in Cholamandalam MS General Insurance Co. Ltd. (supra), Hon'ble Bombay High Court in case of Marks Spencer Reliance India Pvt. Ltd. vs. DIT (supra). Hon'ble Delhi High Court in the case of DIT Vs. HCL Infosystems Ltd. (supra). Coordinate bench of this Tribunal in case of IDS Software Solutions vs. ITO (supra), Hon'ble Pune Tribunal in case of M/s. Faurecia Automative Holding(supra). Hon 'ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (supra), we are of the view that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as Fee For technical Services Once there is no violation of provision of section 195, assessee cannot be held to be an assessee in default under section 201(1) of the Act for all the years under consideration. We therefore direct the Ld.AO to delete the interest levied under section 201(LA) of the Act for all the years under consideration. 23. In assessee's case on perusal of records it is noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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