TMI Blog2023 (6) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees working in India and secondly again the hands of the assessee. AO is accordingly, directed to delete the impugned addition. - ITA No. 2332/DEL/2022 - - - Dated:- 20-6-2023 - Shri Saktijit Dey, Judicial Member, And Shri N.K. Billaiya, Accountant Member For the Assessee : Shri S. Ganesh, Sr. Adv For the Department : Shri Vizay B. Vasanta, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order dated 27.07.2022 framed u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 [the Act, for short] pertaining to Assessment Year 2019-20. 2. The grievance of the assessee is two-fold firstly, the assessee is aggrieved by the validity of notice u/s 143(2) of the Act and secondly, the assessee is aggrieved by the disallowance of Rs. 50,99,38,561/- being cost-to-cost reimbursements on account of secondment of employees. 3. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Before us, the ld. counsel for the assessee vehemently stated that the personnel, after receiving approval from EY India member firms, were seconded by the assessee to EY India member firms and were released/discharged from all the obligations and rights of employment in their home country, USA and were subsequently employed by EY India member firms for their business and as employees of such India member firms. 12. Referring to the deputation agreement between the assessee and the seconded personnel, the ld. counsel for the assessee pointed out that EY India member firms shall be solely responsible to pay salary and other costs of the personnel during the period of assignment and shall have the right to undertake performance appraisal of the personnel in accordance with the policies of EY India member firms. 13. The three EY India entities to whom employees were seconded were: i) EYGBS [India] Pvt Ltd ii) EY Global Delivery Services India LLP [EYGDS] iii) Ernst Young LLP 14. It is the say of the ld. counsel for the assessee that pursuant to the agreement, seconded personnel were employees of the Indian member firms and, accordingly, invoices raised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of its functions through seconded employees. 34. The contemporary global economy has witnessed rapid cross-border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the latter s request to meet its specific needs and requirements of the Indian associate. During the arrangement, the secondees work under the control and supervision of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. A perusal of the judgment of the Hon'ble Supreme Court [supra] shows that it was in the context of manpower recruitment and supply of services for which the assessee was recipient of services and was liable to pay service tax. As mentioned elsewhere, this judgment was delivered to discern the true nature of relationship between the seconded employees and the assessee and nature of services provided in that context by oversees group companies to the assessee. 23. The Hon'ble High Court of Karnataka in the case of Flipkart Internet [P] Ltd 448 ITR 268 had the occasion to consider the aforementioned judgment of the Hon'ble Supreme Court relied upon by the ld. DR and the Hon'ble High Court, inter alia, held as under: viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. S.T.-Bangalore (Adjudication) etc. v. M/s. Northern Operating Systems Pvt. Ltd.12 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Period of Assignment. EY LLP INDIA shall decide the nature of work of the International Assignees and EY LLP INDIA shall be solely responsible for the work of International Assignees during the Period of Assignment. 3.2 EYUS shall not be responsible for the work of the International Assignees or assume any risk for the results produced from the work performed by the International Assignees during the period. The International Assignees shall not be regarded as employees of EYUS and shall not in any way be subject to any kind of instructions or control of EYUS during the Period of Assignees. 3.3 EYUS shall not have any obligation towards EY LLP INDIA regarding the performance of international Assignees. The privity and lien of EYUS would cease during the period of employment with EY LLP India on entering of employment contract by international assignee with EY LLP India. 26. It can be seen from the above that EY LLP India is alone responsible for complying with the requirement of withholding of tax under the Indian Tax Laws and the same has been verified from the Sample Form No. 16 Exhibited at pages 96 to 98 of the assessee paper book. 27. The co-ordinate be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as expenditure. 33. We have also perused the TDS certificates, Forms 15CA and 15CB, tax deducted by the assessee and all these documents are part of the paper book. There is no dispute that the assessee has deducted tax at source u/s 192 of the Act. On the given facts of the case, we are of the considered opinion that the provisions of Section 195 of the Act do not apply. Considering the facts of the case in totality, in light of judicial decisions referred to hereinabove, we do not find any merit in 22 the disallowance made by the Assessing Officer/DRP. We, accordingly, direct for deletion of addition of Rs. 56.58 crores. 28. Affirming the order of the co-ordinate bench in ITA No. 71/2022 dated 11.10.2022, the Hon'ble High Court held as under: 11. As far as disallowance under Section 40(a)(ia) of the Act is concerned, this Court finds that there is no dispute that the assessee has deducted tax at source under Section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application once the nature of payment is determined as salary and deduction has been made under Section 192 of the Act. 12. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the parent company and its employees. Mr. Peter Lazer on the basis of which he was purportedly deputed to the Indian Company was produced, this amount should be treated as payment towards technical fee. xxx xxx xxx 3. Learned counsel for the respondent-assessee has pointed out that this was not the first year in which such a claim was made. He stated that the Indian Company was incorporated during the Assessment year 1998-99 and for the establishment of this company which is subsidiary to the aforesaid foreign company. Mr. Peter Laser was deputed, the amount paid from the Assessment year 1998-99 onwards were always treated as salary and accepted as such. Learned counsel for the respondent has produced the copy of the orders dated 15.06.2005 passed by the ITAT, which relates to the Assessment year 1998-99, i.e. the first year of the incorporation of the respondent-company. Perusal of this orders shows that this very issue is decided and the following findings were arrived at by the Tribunal holding that the aforesaid payment would be treated as salary to Mr. Peter Laser. 10. The foreign company had deputed one of its employees to look after the affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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