2012 (7) TMI 1118 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee can be regarded as the real and economic employer of the employees seconded to the assessee under the secondment agreement?
2. Whether the payments made by the assessee to Abbey National Plc., UK were pure reimbursement of expenses and if so whether the said reimbursements constituted income in the hands of Abbey National Plc., UK?
3. Whether the payments made by the assessee to Abbey National Plc., UK constitute 'fees for technical services' under section 9(1)(vii) of the Income Tax Act, 1961?
4. Whether the payments made by the assessee to Abbey National Plc., UK constitute 'fees for technical services' under Article 13(4) of the DTAA between India & UK?
5. Whether the payments made by the assessee to Abbey National Plc., UK were liable for TDS under section 195 of the Act?
6. Whether the payments made by the assessee to Abbey National Plc., UK were liable for disallowance under section 40(a)(i) of the Act?

Summary:

1. Real and Economic Employer:
The Tribunal held that the assessee should be considered as the real and economic employer of the secondees. The employees were under the direct management, supervision, and control of the assessee during the period of secondment. The assessee had the authority to instruct, accept or reject employees for secondment, and was responsible for any loss or damage occasioned by the secondees' work. This was in line with the principles laid down by the Hon'ble Apex Court and other judicial decisions.

2. Reimbursement of Expenses:
The Tribunal found that the payments made by the assessee to Abbey National Plc., UK were pure reimbursements of expenses without any profit element. The reimbursement included remuneration, pension contributions, expenses, statutory payments, and other sums incurred by Abbey National Plc., UK applicable to each secondee. This was substantiated by the notes to accounts and other documentary evidence provided by the assessee.

3. Fees for Technical Services under the Act:
The Tribunal held that the reimbursement of salary costs and other administrative expenses made by the assessee to Abbey National Plc., UK did not constitute 'fees for technical services' u/s 9(1)(vii) of the Act. The agreement was for the secondment of staff and not for rendering any services. The payments were reimbursements of expenses without any profit element and did not result in any gain or income to Abbey National Plc., UK.

4. Fees for Technical Services under DTAA:
The Tribunal held that the payments made by the assessee to Abbey National Plc., UK did not constitute 'fees for technical services' under Article 13(4) of the India-UK DTAA. The payments were reimbursements for seconded personnel and did not involve the rendering of any services or the 'make available' of technical knowledge, experience, skill, know-how, or processes to the assessee.

5. TDS under Section 195:
The Tribunal concluded that the reimbursement of salary and other expenses made by the assessee to Abbey National Plc., UK under the secondment agreement were not liable for TDS u/s 195 of the Act. Since the payments were pure reimbursements without any profit element, they did not constitute income chargeable to tax in the hands of Abbey National Plc., UK.

6. Disallowance under Section 40(a)(i):
Consequently, the Tribunal held that the payments made by the assessee to Abbey National Plc., UK were not liable for disallowance u/s 40(a)(i) of the Act. The reimbursements were not liable for TDS, and therefore, the disallowance under section 40(a)(i) was not warranted.

Conclusion:
The appeals of the assessee were allowed, and the Tribunal ruled in favor of the assessee on all issues involved. The reimbursements made to Abbey National Plc., UK were not considered taxable income and were not subject to TDS or disallowance under the Income Tax Act.