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TMI Blog2023 (7) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... on, DCIT, Transfer Pricing - 1(3)(1), Bangalore passed order u/s. 92CA of Income Tax At, 1961 on 18.01.2023 vide DIN ITBA/COM/F/17/2022-23/1047114789(1) and determined relief consequent to DRP directions is NIL." 4. However, while making the computation of total income, the AO has made TP adjustment of Rs. 61,43,50,100 in spite of the fact the TPO has passed an order u/s. 92CA r.w.s. 254 of the Act clearly stating the transfer pricing adjustment to be NIL. According to the ld. AR, the AO erroneously observed that the issue of TP adjustment was remanded to the DRP, whereas in fact, the said issue was remanded to the TPO who has granted full relief by following the order of the Tribunal. 5. After hearing both the parties and perusing the material on record, we accept this contention of the ld. AR and direct the AO to pass consequential order to the TPO's order dated 18.1.2023 considering the TP adjustment at Nil. The ground of the assessee on this issue is allowed. 6. The next issue is disallowance u/s. 14A at Rs. 1,37,500. The grievance of the assessee is that the TPO made the addition u/s. 14A, though on earlier occasion, the Tribunal in its order cited supra gave full relief on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roved by Hon'ble Supreme Court in case of Chittinad Logistics Ltd (supra) is squarely applicable. Respectfully following the same we direct Ld.AO to delete addition made under section 14 a read with rule 8D for year under consideration. Accordingly this ground raised by assessee stands allowed." We found that there is no exempted income earned by the assessee company in the current financial year. We accordingly, follow the judicial precedence and direct the A.O. to delete the addition and allow the ground of appeal of the assessee." 7. After hearing both the parties, we are of the opinion that though the AO in the computation of total income has noted the relief allowed by the ITAT, yet he has retained the addition of Rs. 1,37,500. Since the addition u/s. 14A has been deleted by the Tribunal vide order cited supra, we direct the AO to pass consequential order accordingly. 8. The next issue is regarding the claim of assessee u/s. 80G of the Act at Rs. 1,12,60,750. The ld. AR submitted that the Tribunal in its order cited supra had specifically directed the AO to verify the claim of assessee with respect to satisfaction of legal requirement for deduction u/s. 80G of the Act, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation 2 to Section 37(1) of the Act inserted by the Finance Act No.2. 2014.Whereas, the assessee company has made a claim for deduction of CSR expenses u/s. 80G of the Income Tax Act,1961.But the assessing officer has rejected the assesses claim without verifying the nature of contributions and observed that it is not a donation, and was not spent voluntarily for the eligibility of claim u/s. 80G of the Act but due to legal obligation prescribed u/s. 135 r.w. Schedule VII of Companies Act, 2013.We find that the A.O has allowed deduction u/s. 80G of the Act in respect of contribution made to PM Relief Fund which is not disputed. We are of the opinion that the A.O. has not made his observations clear that no CSR expenses are eligible for deduction u/s. 80G of the Act. We consider it appropriate to refer to the Clauses (iiihk) & (iiihl) of sub- section 2 of Section 80G of the Act which are read as under : "(iiihk) the Swachh Bharat Kosh, set up by the Central Government, other than the sum spent by the assessee in pursuance of Corporate Social Responsibility under sub-section (5) of Section 135 of the Companies Act, 2013 (18 of 2013); or (iiihl) the Clean Ganga Fund, set up by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is not permissible under the provisions of the Act. The ld. AR submitted that in the assessee's own case for the very same assessment year i.e., AY 2015-16 has deleted the addition in this regard in ITA Nos. 362 to 369 & 338 to 345/Bang/2020 for the AYs 2011-12 to 2018-19. 12. The ld. DR relied on the orders of the lower authorities and submitted that the addition is to be sustained. 13. We have heard both the parties and perused the material on record. On earlier occasion, the assessee came in appeal before the Tribunal on the issue of assessee being treated as assessee in default u/s. 201(1) and for non-deduction of tax at source u/s. 195 of the Act in various AYs 2011- 12 to 2014-15 & 2015-16 to 2018-19 and the Tribunal in ITA Nos.362 to 369 & 338 to 345/Bang/2020 vide order dated 29.4.2022 has passed a speaking order on this issue as follows:- "26.1 In the above background let us analyse the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006, between the assessee before us and overseas entity, the independent employment contract between the assessee and the seconded employees and the correspondence between the employee and the assessee regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociate, by the assessee in India and that during her employment in India she would be exclusively working for the assessee in India. 4. That, during the assignment period, part of the salary after deducting grossed up income tax, under the Act, on the total salary, will be paid in India and the balance salary payable in New York, by overseas entity on behalf of assessee which shall be reimbursed by assessee to overseas entity against a debit note. 5. That, during the period of assignment with the assessee in India, all other terms and conditions as per polices of the assessee company would be applicable. 26.8 The assessee is thus required to make following payments as salary package to the seconded employees : Para No Context Description 2 Employer GSSPL (Indian company) is the employer 2.2 Exclusivity Employee works exclusively for GSSPL 4.1 Compensation Compensation is decided and fixed by GSSPL in US$, 25% of this is paid in India and 75% will be paid through the New York payroll. Overall 100% compensation responsibility is that of the Indian company and not the overseas company (as wrongly noted by CIT(A)) 4.2 Bonus Bonus amount is decided by GSSPL 4.4 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inds that the assessee in India is the economic and de facto employer of the seconded employees. It is an admitted fact that all the seconded employees are in India for more that 183 days in a 12 month period. Further all the seconded employees have PAN card as well as file their returns in India in respect of the 100 % salary, though the assessee pays only part of the salary in India. 26.12 The definition of FTS under the Act is given in Explanation 2 to sec.9(1)(vii) of the Act that reads as follows :- 'Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :-(i) 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded services" does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; or (e) to an employee of the person making 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. Likewis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centrica India Offshore (P.) Ltd. case (supra) to overseas entity as 'reimbursement' could not be determinative. It was also held that, the fact that overseas entity did not charge mark-up over and above costs of maintaining secondee could not negate nature of transaction. 29.2 Hon'ble Pune Tribunal in case of Faurecia Automotive Holding (supra) has observed as under : "4.10. We have gone through the facts of the case obtaining in Centrica India (supra). The assessee therein contended that payment to foreign party towards seconded employees was only reimbursement and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice PE. This is clear from a reading of the relevant portion of the judgment of the Hon'ble Supreme Court, which is as follows :- "As regards the question of deputation, an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with the MSCo the said company retains control over the deputationist's terms and employment. The concept of a service PE finds place in the UN Convention. It is constituted if the multinational enterprise renders services through 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is AT&S and not the seconded employees. Further contention was that AT&S is not engaged in the business of providing technical services in the ordinary course of its business is also not tenable. Therefore, payments made to AT&S by the applicant are for rendering "services of technical or other personnel" and are in the nature of fees for technical services within the meaning of Explanation 2 to sub clause (vii) of section 9(1) and article 12(4) of the relevant DTAA and are subject to deduction of tax at source under section195. 30.1 The ruling 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of HCL Infosystems Ltd. (supra) upheld the order of Hon'ble Delhi Tribunal which held that, when an Indian company had already deducted and remitted taxes under Sec.192 of the Act on salaries paid abroad to the technical personnel and when such salary is reimbursed on a cost to cost basis without any profit element, the provisions of Sec.195 of the Act cannot be applied to reimbursement of salaries made to foreign company, once again. 34. Coordinate bench of this Tribunal in case of IDS Software Solutions India (P.) 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 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring 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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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