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2013 (11) TMI 317 - AT - Income TaxWhether payment made to employees in india falls under the category of Fees for technical services seconded agreement - Indo-UK Treaty - The make available component - Held that - Merely providing the employees or assisting the assessee in the business and in the area of consultancy, management etc. would not constitue make available of the services of any technical or consultancy in nature Reliance has been placed on the judgment of Hon ble Karnatka High Court in the case of De Beers India Minerals (P.) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT - The Hon ble High Court has observed in para 13 that as per the definition for fee for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know-how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA - Payment in question does not fall under the term fee for technical services as per provisions of Indo-UK DTAA. TDS to be deducted by assessee for payment made of salary to its employees - Assessee company is a Joint Venture Co. between Marks & Spencer PLC and Reliance Retail Limited - The assessee paid ₹ 4,86,6187/- to Marks and Spencer PLC towards salary expenditure of 4 employees deputed to the assessee for providing assistant in the area of management of setting of the business, retail operations, property selection & evaluation, production marketing Held that - Payment towards part reimbursement of the salary expenditure which clearly shows that there is not element of profit in the said payment. This claim of the assessee is also supported by the various clauses of the agreement and seconded agreement. Further the entire amount of salary received by these personnel has been subjected to tax in India at the highest average rate of tax. Therefore, there is no question of any default on the part of the assessee. It is pertinent to mention that payment by the assessee is actually payment made to the employees deputed in India under seconded agreement but routed through Marks and Spencer PLC UK. Since the said payment to the employees is already subjected to tax in India, therefore, there is no question of treating the assessee in default for non-deduction of tax at source Decided against the Revenue.
Issues Involved:
1. Whether the part reimbursement of expenses can be considered as income deemed to accrue or arise in India and taxable as income being 'Fees for Technical Services' (FTS) under the Indo-UK DTAA. Detailed Analysis: 1. Nature of Reimbursement of Expenses: The primary issue revolves around whether the part reimbursement of expenses paid by the assessee to Marks & Spencer PLC can be categorized as 'Fees for Technical Services' (FTS) under the Indo-UK Double Taxation Avoidance Agreement (DTAA). The assessee argued that the payments were merely reimbursements for costs incurred by Marks & Spencer PLC for personnel seconded to the assessee, and thus, not taxable. The Assessing Officer (AO) contended that these payments were for services rendered and should be classified as FTS, making them taxable in India. The AO noted that the services provided by the personnel included management, property selection, retail operations, and merchandising, which fall under the definition of FTS as per Article 13(4) of the Indo-UK DTAA. 2. Definition of Fees for Technical Services (FTS): The definition of FTS under Article 13(4) of the Indo-UK DTAA includes payments for technical or consultancy services, including the provision of services of technical or other personnel. The AO argued that the services rendered by the personnel provided by Marks & Spencer PLC were technical in nature and thus taxable. However, the CIT(A) and the Tribunal found that the services provided did not meet the criteria of "making available" technical knowledge, experience, skill, know-how, or processes to the assessee. The term "make available" implies that the recipient of the service should be able to apply the technical knowledge independently in the future without the provider's assistance. 3. Precedent Cases and Tribunal Decisions: The Tribunal referred to several precedent cases, including the Special Bench decision in Mahindra & Mahindra Ltd. and the Karnataka High Court decision in De Beers India Minerals (P.) Ltd. These cases emphasized that for services to be considered FTS under the DTAA, the technical knowledge must be made available to the recipient in a manner that enables them to utilize it independently. In the present case, the Tribunal concluded that the services provided by the seconded personnel did not make available any technical knowledge or skills to the assessee. The personnel were merely assisting in the business operations without transferring any enduring technical knowledge. 4. Reimbursement of Expenses: The Tribunal also examined whether the payments were merely reimbursements of expenses. The assessee provided evidence that the amounts paid were less than the actual salaries paid to the personnel by Marks & Spencer PLC. The Tribunal found that the payments were indeed reimbursements without any profit element, supporting the assessee's claim. 5. Taxability under the Income Tax Act: Even under the Income Tax Act, if the payments are purely reimbursements, they cannot be regarded as income in the hands of the recipient. The Tribunal noted that the salaries paid to the seconded employees were already subjected to tax in India, and thus, there was no question of non-deduction of tax at source by the assessee. Conclusion: The Tribunal upheld the CIT(A)'s decision, concluding that the payments made by the assessee to Marks & Spencer PLC were not in the nature of FTS under the Indo-UK DTAA. The payments were part reimbursements of expenses without any profit element and did not involve the transfer of technical knowledge or skills. Consequently, the appeal by the revenue was dismissed.
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