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TMI Blog2024 (4) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to be deleted. 2. That in facts and circumstances of the case, the Ld. AO erred in law in making addition of Rs. 1,83,71,951/- by applying provisions of section 7(3) of DTAA between India and Spain which is devoid of facts and merits of the case, hence hit addition made is liable to be deleted. 3. That in facts and circumstances of the case, the findings arrived at by the AO is perverse and based on erroneous assumptions, the Ld. AO failed to appreciate that the appellant company is working since 2009 as Branch Office in India, no special services being provided by the expatriates and there is no increase in revenue on YOY basis, the assessment order passed on the basis of pre-determined mind set of the Ld. AO and the same is not sustainable under law. 4. That in facts and circumstances of the case, the Ld. AO erred in law in considering the services between head office and Branch office as fees for Technical Services without appreciating that the condition of Make Available clause is not satisfied in transaction between head office and Branch office which is a pre-condition of Double Tax Avoidance Agreement between India and Spain read with protocol of Most Favored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n making addition of Rs. 2,53,00,714/ by applying provisions of section 7(3) of DTAA between India and Spain which is devoid of facts and merits of the case, hence addition made is liable to be deleted. 4. That in facts and circumstances of the case, the findings arrived at by the AO is perverse and based on erroneous assumptions, the Ld. AO failed to appreciate that the appellant company is working since 2009 as Branch Office in India, no special services being provided by the expatriates and there is no increase in revenue on YOY basis, the assessment order passed on the basis of pre-determined mind set of the Ld. AO and the same is not sustainable under law. 5. That in facts and circumstances of the case, the Ld. AO erred in law in considering the services between head office and Branch office as fees for Technical Services without appreciating that the condition of Make Available clause is not satisfied in transaction between head office and Branch office which is a pre-condition of Double Tax Avoidance Agreement between India and Spain read with protocol of Most Favored Nation (MFN), hence such transaction cannot be considered as Fees for Technical Services. 6. That in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 proposing to disallow the amount of Rs. 1,83,71,951/- and Rs. 2,53,00,714/- respectively under Article 7(3) of the India-Spain Double Taxation Avoidance Agreement ("India-Spain DTAA") considering such amount(s) as fees for technical services ("FTS"). The impugned amount(s) pertained to the amount paid by Head Office to the expats as part of their salary which was later on reimbursed by branch Office to Head Office. The assessee was asked to explain as to why expense of Rs. 1,83,71,951/- and Rs. 2,53,00,714/- be not disallowed under section 40(a)(i) of the Act. Vide response dated 22.03.2022 and 08.12.2022 the assessee contended that the above payments were on cost to cost basis reimbursement and the same were allowable under Article 7(3) of India- Spain DTAA and that disallowance under section 40(a)(i) is unwarranted for the following reasons:- (i) that salary of expats was reimbursed on cost to cost basis; (ii) that no income arise for the Head Office in India; (iii) that the assessee has a PE in India and income from such PE is liable to tax as Business Profits in India; (iv) that technical employees were deputed, however no technical services were rendered by the Head Office; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead Office. Since the assessee did not deduct tax on such payments the same are liable to be disallowed under section 40(a)(i) of the Act. 4. Aggrieved, the assessee is in appeal before the Tribunal and all the grounds of appeal relates thereto. 5. Ld. AR submitted that some of the expats who are national of Spain were working in the Branch Office in India during the relevant AYs. Major part of the salary of these expats was paid by the Branch Office in India and only some part of the salary was paid by the Head Office in Spain which was subsequently reimbursed by Branch Office to Head Office on cost to cost basis i.e without any mark-up. Copy of employment contracts and appointment letters of expats are placed on record by way of additional evidence at pages 4-22. 6. The Ld. AR submitted that these expats were working for the clients and contracts of Branch Office in India under complete supervision of Branch Office. These expats are residing in India since many years and are resident of India by virtue of Section 6 of the Act. Branch Office has accounted for the entire salary (salary paid in India as well as in Spain) to the expats as salary expense in its P&L account. Branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as before us that Branch Office is the real and economic employer of expats which is evident from the employment contract entered into between the Branch Office and the expats. The Branch Office is responsible for payment of salary to the expats in India as well as outside India. These expats are working for the Branch Office under its complete supervision since many years and have become resident of India by virtue of their continuous stay for many years in India. The expats are paid salary by the Branch Office after deduction of applicable TDS thereon which is duly reflected in Form- 16 and IT returns filed by the expats in India. This factual position on record also remains uncontroverted by the Revenue. 9. The moot question before us is whether provisions of section 40(a)(i) of the Act can be invoked to disallow an expense in respect of which due taxes have been withheld and deposited into the Govt. Account within the prescribed time period. We have perused the decision of the Co-ordinate Bench of Delhi Tribunal in the case of Serco India Pvt. Ltd. (supra) wherein the ITAT on similar set of facts held that where the assessee has deducted the tax at source under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 286 (Bangalore - Trib.) where it was held that the Assessee was real and economic employer of employees seconded from UK Company and reimbursement of salary cost etc. to UK company was without any profit element, it could not be regarded as income chargeable in hands of the UK company and therefore, reimbursement made by the Assessee to UK company was not liable for TDS u/s 195 of the Act. In the appeal filed by the Revenue, the Hon'ble ITAT, after referring to the decisions in the cases of CIT vs. S. K. Tekriwal [2014] 46 taxmann.com 444 (Calcutta) and CIT, Manglore vs. Kishore Rao & Others (HUF) [2017] 79 taxmann.com 357 (Karnataka), observed that no disallowance u/s 40(a)(i) of the Act can be made as the Assessee has deducted tax at source u/s 192 of the Act as it is not a case of non-deduction of tax. The Hon'ble ITAT concluded as under: "22. We have given a careful consideration to rival submissions. It is not disputed by the revenue that in respect of the payments made to Aon Services Corporation, USA towards reimbursement of salary expenses the Assessee has duly deducted tax at source u/s 192 of the Act. In fact, in the letter dated 2-03- 2015 the Assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014] 46 taxmann.com 444 (Calcutta) (PB-688 to 689) is relevant on this issue, which has been subsequently followed by Hon'ble high Court of Delhi in the case of Pr. CIT vs. Future First Info. Services Private Limited [2022] 447 ITR 299 (Del.) [PB 815 to 819]. 21.4 Coming to the arguments made by the Ld. DR by making emphasis on the decision of High Court of Kerala in the case of CIT1, Kochi v. P V S Memorial Hospital Ltd. [2015] 60 taxmann.com 69 (Kerala)to the effects that deduction under a wrong provision of law will not save an Assessee from the rigors of section 40(a)(ia) of the Act, we observe that admittedly there are contrary judgments on this issue and it is also admitted fact after the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC)it is not res-intergra that when two views are possible in respect of an issue from different High Courts, then view which is in favour of the Assessee needs to be followed. Hence we are of the considered view that in this case on this count as well, no disallowance u/s 40(a)(i) is warranted." 10. In light of the factual matrix and legal position set out above and respectfully followi ..... 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