2020 (11) TMI 1090 - AT - Income Tax

TDS u/s 192 or 195 - expatriate employees seconded to the taxpayer have worked as employees of the taxpayer company - reimbursement of salaries and other expenses as fees for technical services ('ITS') under section 9(1)(vii) of the Act and Fees for Included Services ('FIS')/Royalty under relevant Articles of Indo-USA and Indo- Australia Tax Treaties - Applicability of fee for technical services - HELD THAT - As following the decisions rendered by the coordinate Bench of the Tribunal in taxpayer s own case for AY 2015-16 2020 (8) TMI 410 - ITAT DELHI in the identical facts and circumstances and by following the decisions rendered in the cases of Centrica India Offshore P. Ltd. 2014 (5) TMI 154 - DELHI HIGH COURT , HCL Infosystems Ltd. 2004 (1) TMI 16 - DELHI HIGH COURT , Marks Spencer Reliance India Pvt. Ltd 2017 (5) TMI 1638 - BOMBAY HIGH COURT AT T Communication Services (India) P. Ltd. 2018 (11) TMI 130 - ITAT DELHI when relationship of employer and employees between expatriate employees and the taxpayer have been established in view of the Secondment Agreement duly discussed in order passed in taxpayer s own case for AY 2015-16 (supra) and that taxpayer has duly deducted full tax u/s 192 of the Act being on the income chargeable under the head salaries , section 195 of the Act has no applicability. Moreover, when expatriate employees seconded to the taxpayer have worked as employees of the taxpayer company, their salary has been rightly subjected to section 192 of the Act and Explanation to section 9(1)(vii) of the Act which apparently makes it clear that salary would not fall within the expression fee for technical services has no applicability to the facts and circumstances of the case. Consequently, addition made by the AO and confirmed by the ld. CIT (A) on account of disallowance under section 40(a)(i) of the Act is not sustainable in the eyes of law and hence ordered to be deleted. Grounds determined in favour of the taxpayer. Adjustment u/s 92CA of the Act on account of outstanding receivables from AEs - HELD THAT - When undisputedly identical issue has already been decided by the TPO in favour of the taxpayer by not imputing any interest on outstanding receivables, the TPO in the instant case has no option except to follow the rule of consistency, as has been held by the Hon ble Supreme Court in case of CIT vs. Shiv Sagar Estate 2002 (7) TMI 103 - SC ORDER that when the Revenue has accepted the contention of the applicant in the earlier year, it would not be entitled to challenge that contention in subsequent years. We are of the considered view that when AO/TPO have not brought on record any distinguishable fact they are required to follow the rule of consistency by not imputing any interest to the outstanding receivables. So, this issue is remitted back to the TPO/AO to decide afresh by following the rule of consistency. Ground determined in favour of the taxpayer for statistical purposes.

Summary

Issues Involved:
1. Disallowance under section 40(a)(i) of the Income Tax Act for non-withholding of taxes on reimbursement of salaries and other expenses.
2. Determination of Arm’s Length Price (ALP) for outstanding receivables from Associated Enterprises (AEs).

Issue 1: Disallowance under section 40(a)(i) of the Income Tax Act

The appellant, M/s. Boeing India Pvt. Ltd. (the taxpayer), challenged the disallowance made by the Assessing Officer (AO) under section 40(a)(i) of the Income Tax Act, 1961, for not withholding taxes on reimbursement of salaries and other expenses. The AO treated these reimbursements as fees for technical services (FTS) under section 9(1)(vii) of the Act and as Fees for Included Services (FIS)/Royalty under relevant Articles of Indo-USA and Indo-Australia Tax Treaties.

The taxpayer argued that the payments were not chargeable to tax in India as they pertained to seconded employees of AEs working under its control and supervision, and taxes were duly withheld under section 192 of the Act on salaries paid to these employees. The taxpayer cited a previous decision in its favor for Assessment Year (AY) 2015-16, where the Tribunal had distinguished the decision of the Hon’ble Delhi High Court in Centrica India Offshore P. Ltd. vs. CIT.

The Tribunal noted that the taxpayer was liable to pay the salary to expatriate employees employed in India, who were under its control, creating an employer-employee relationship. The salary was accounted for as an expense under "Salaries & Wages" and taxes were deducted under section 192. The Tribunal found that reimbursing the amount to AEs, who disbursed salaries on behalf of the taxpayer, did not change the nature of the salary paid. The Tribunal relied on decisions from the Hon’ble Delhi High Court and other cases, concluding that the salary payments did not fall under the expression 'fee for technical services' and thus section 195 did not apply. Consequently, the disallowance under section 40(a)(i) was not sustainable and was ordered to be deleted.

Issue 2: Determination of Arm’s Length Price (ALP) for outstanding receivables from AEs

The taxpayer challenged the adjustment made by the Transfer Pricing Officer (TPO) on account of outstanding receivables from AEs, arguing that the outstanding receivables and payables were in accordance with the arm’s length standard and that interest on receivables was not a separate international transaction as it was already built into the price charged for services rendered. The taxpayer also contended that in AY 2011-12, the TPO did not impute any interest on outstanding receivables, hence the principle of consistency should be followed.

The Tribunal noted that the TPO had previously not imputed any interest on outstanding receivables in an identical issue for AY 2011-12. The Tribunal emphasized the principle of consistency, as established by the Hon’ble Supreme Court in cases like CIT vs. Shivsagar Estate and Union of India vs. Kaumudini Narayan Dalal, which mandates that the Revenue should not challenge a point in subsequent years if it has accepted it in earlier years without just cause. Consequently, the Tribunal remitted the issue back to the TPO/AO to decide afresh by following the rule of consistency.

Both appeals for AYs 2012-13 and 2013-14 were allowed for statistical purposes.

Order pronounced in open court on this 27th day of November, 2020.