TMI Blog2023 (7) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and verification of facts subject to the assessee satisfying the requirements of claim u/s. 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification. TDS u/s 195 - Disallowance u/s. 40(a)(ia) - secondment of employees - HELD THAT:- Respectfully following the views expressed in Abbey Business Services India (P.) Ltd.'s case [ 2020 (12) TMI 570 - KARNATAKA HIGH COURT] , Cholamandalam MS General Insurance Co. Ltd.'s case [ 2009 (1) TMI 19 - AUTHORITY FOR ADVANCE RULINGS] , Mark Spencer Reliance India (P.) Ltd. [ 2013 (11) TMI 317 - ITAT MUMBAI] , Faurecia Automotive Holding [ 2019 (7) TMI 402 - ITAT PUNE] , 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 Since the Tribunal on an earlier occasion for the AYs 2011-12 to 2014-15 2015-16 to 2018-19 has held that there is no violation of provision of section 195, assessee cannot be held to be an assessee in default u/s. 201(1) of the Act, there is no question of disallowance of any expenditure u/s. 40(a)(ia) of the Act. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the assessee has disclosed investment of Rs. 1,44,00,000/-. Since these investments need a potential Advisor to earn exempted income, the Ao computed disallowance under Rule 8D(2)(iii) of Rs. 1,37,500 based on the disclosures in the Balance Sheet. But the assessee company has not yielded any exempted income nor dividend income in the financial year and the LdAr referred to the disclosures in the Paper Book, financial statements at page 20 Schedule 3.17, were there is no dividend nor exempted income received as per profit and loss account. Further similar disallowance was deleted in assessee own case for the Assessment Year 2014-15 as no dividend income has been earned on investments. The learned Authorized Representative relied on the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT 378 ITR 33 (Del) where the Hon'ble High Court has held that unless and until exempted income is received for the concerned assessment year, the provisions of Section 14A of the Act are not applicable.we find the co-ordinate Bench of the Tribunal in assessee own case in IT(TP)ANo.3244/Bang/2018 for the Assessment Year 2014-15 has dealt at pages 46 47 para 8 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd both the parties and perused the material on record. The Tribunal vide order dated 15.6.2020 on this issue has held as under:- 16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the financial year 2014-15, the assessee has incurred expenditure of Rs. 4,72,00,024/- to meet the CSR (Corporate Social Responsibility) as per Policy formulated under Section 135 of the Companies Act, 2013. Out of the said amount, a sum of Rs. 2,25,21,500 qualified for deduction under Section 80G of the Act and therefore the assessee claimed of 50% of amount being Rs. 1,12,60,750/- as deduction under Section 80G of the Act. The TPO/A.O. has disallowed substantial portion of donation under Section 80G of the Act on the ground that donations were not in the nature of voluntary contribution as required under CSR Policy. Further the Assessing Officer has allowed the contribution to PM National Relief Fund under Section 80G of the Act as it was a direct contribution to the Government. No other inferences were raised by the TPO/A.O. in respect of other donations which are equally eligible for deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (5) of Section 135 of the Companies Act, 2013) (18 of 2013). Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s. 80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s. 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the assessee should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes. 10. After hearing both the parties, we direct the AO to pass the consequential order in compliance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and Mr. Christopher. The said agreement is reproduced herein above. 26.2 From the recitals to the 'India Recharge and Cost Allocation Agreement', dated 03/03/2006 between the assessee and overseas entity, it is clear that, the process of secondment of employees by overseas entity to the assessee in India is initiated, when the assessee in India, requires services of seconded employees of overseas entities, for its business projects by the assessee in India. The assessee in India then enters into an agreement for seconded with such employees. By way of illustration, we may take the case of one Laura May, who is a American national and who is on the rolls of overseas entity. 26.3 Article 3.3 of the 'India Recharge and Cost Allocation Agreement', dated 03/03/2006 between the assessee and overseas entity imposes obligation of compliance with tax deduction at source as per the Act, on salaries paid to the seconded employees on the assessee in India. 26.4 A reading of article 2, of the Agreement between the assessee and Laura May, shows that the control and supervision of the seconded employee is with the assessee in India. 26.5 As per article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y noted by CIT(A)) 4.2 Bonus Bonus amount is decided by GSSPL 4.4 Increment Increments and bonus entitlements are decided by GSSPL, in its sole discretion 5.1 Place of Work Place of work is in Bangalore (India) 7 Leave policy Leave is decided as per GSSPL's local policy 9.1 Notice period Either the employee or GSSPL can give notice (mutual) to end the employment with one month's notice 9.2 Termination Firm has right to terminate the employment for a cause ( firm is defined as GSSPL at para 2.1 and hence it is GSSPL which has the right to terminate the employment) 11 Discipline and Grievance Employee is bound by the Employee Handbook of GSSPL (and not of overseas companies as noted by CIT(A) at para 23 of his order) 16 Miscellaneous The contract is governed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to (vi) (vii) income by way of fees for technical services payable by (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from 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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payments or to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services). 27. Rendering of managerial, technical and consultancy services is governed by Article 12 on 'Fees for included services' of the Double Tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, no income was chargeable to tax in its hands. The Authority for Advance Ruling (AAR) held that payment made by the petitioner to the overseas entity was in the nature of income in view of the existence of Service Permanent establishment (PE) in India and hence liable for tax withholding. Overturning the view of the AAR that Service PE was constituted, the Hon'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 Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entail 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble AAR is on the factual finding that payments were not only reimbursement of actual salary, bonus etc., but was also included other sums. 30.2 Per contra in the present facts of the case, it is not at all the contention of the revenue that, something over and above what was paid as salary, bonus etc. 30.3 Liability under section 195 to deduct tax at source when making payment to a non-resident arises, only if, sum paid is chargeable 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 Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. (supra), Abbey Business Services India (P.) Ltd.'s case ( supra ), took the view that expats are deputed to work under the control and supervision of the Indian company and that the oversees entity is not responsible for the actions of the expatriate employees. Thus, oversees entity does not render any technical service to the Indian company, since 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 Business Services India (P.) Ltd ( supra ), has been upheald by Hon'ble Karnataka High Court in Abbey Business Services India (P.) Ltd.'s case (supra). 35. Hon'ble Ahmedabad Tribunal in the case of Burt Hill Design (P) Ltd . v. Dy. DIT ( IT ) [2017] 79 taxmann.com 459/164 ITD 697 , 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 reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, 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 employer-employee relationship exist between the seconded employee and the assessee in India in para 14 of the order passed by Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required under the Income-tax Act, 1961. We find that the issue is no longer res integra and is covered by decision of Volkswagen India (P.) Ltd. v. CCE, Pune-I, 2014 (34) STR 135 (Tri. Mumbai) [maintained by Apex Court in 2016 (42) S.T.R. J145 (S.C.)] wherein it was held that : 5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are 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 15-4-2013. 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 Ap ..... 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