2016 (12) TMI 943 - AT - Income Tax

TDS u/s 192 - secondment agreement - Addition of payment/reimbursement of amount on account of salary, relocation and other related costs of expatriate employees - Held that - Hon ble Delhi High Court in the case of Centrica India Pvt. Ltd. Vs. CIT (2014 (5) TMI 154 - DELHI HIGH COURT ) as well as the decision of the co-ordinate bench of this Tribunal in the case of Foodworld Supermarkets Ltd. Vs. DCIT (2015 (11) TMI 271 - ITAT BANGALORE) is applicable to the facts of the case on hand. The decisions relied upon by the ld. AR are on the point of double deduction of tax at source under Section 192 and further under Section 195 of the Act whereas the issue in the case of the assessee is taxability of the income in the regular assessment and not in the proceedings under Section 201(1) & 201(1A) of the Act. Therefore the TDS deducted by the ITIPL would not change the nature of the payment and chargeability of the same to tax in India. In view of the above facts and circumstances, the decisions of the Hon ble Delhi High Court as well as co-ordinate bench of this Tribunal, we do not find any error or illegality in the order of authorities below. Receipt on account of transfer of assets assessed as royalty - Held that - Some of the assets are only power supply equipment of Vanguard and testers. Similarly the servers of IBM and HP are not assessee s own products for captive use but these are products available in the market. Therefore these used products transferred by the assessee to the subsidiary would not constitute transfer of any technology or know how or any other process to bring the same under the definition of royalty as per the provisions of section 9(1)(vii) or as per the provisions of Article XII of the DTAA. There is nothing in the transaction like transfer of any information technical, industrial, commercialor scientific knowledge or use or right to use any industrial, commercial or scientific equipments but it is only the used assets / computer equipments were transferred by the assessee to ITIPL. It is not the case of the Assessing Officer that these equipments / servers have been specifically programmed by the assessee and not available in the market. Therefore in the facts and circumstances of the case, we are of the considered view that the action of the Assessing Officer in treating the payment as royalty is contrary to the facts as well as the provisions of the Act and the DTAA. Accordingly, we delete the addition made by the Assessing Officer on this count. Transfer of testing boards - Held that - These testing boards are not the equipments developed by the assessee but these are third party products therefore there is no transfer of any right or right to use in respect of any process or technology know how along with these testing boards. Accordingly in view of our finding on the issue of receipt on transfer of other assets like servers the addition made by the Assessing Officer is deleted. Miscellaneous receipts - Held that - We find that the Assessing Officer specifically asked the assessee to file the details of receipts in question. In response the assessee submitted that these are reimbursement of expenses. However there was no supporting evidence or complete details regarding the amount in question claimed as miscellaneous reimbursement of expenses. The assessee has not filed any details in support of the claim. In the absence of the requisite details or supportive evidence, we do not find any reason to interfere with the orders of the authorities below. Accordingly, this ground is dismissed.

Summary

Issues Involved:
1. Classification of reimbursement of salary, relocation, and other related costs as Fee for Technical Services (FTS) or Fee for Included Services (FIS).
2. Treatment of consideration for the sale of fixed assets as 'royalty'.
3. Classification of payments towards servers and testers as 'royalty'.
4. Classification of consideration towards boards as 'royalty'.
5. Treatment of miscellaneous receipts as 'Income from Other Sources'.

Detailed Analysis:

1. Classification of Reimbursement of Salary, Relocation, and Other Related Costs as Fee for Technical Services (FTS) or Fee for Included Services (FIS):
The primary issue was whether the reimbursement of salary, relocation, and other related costs amounting to ?30,17,13,220 received by the assessee from its Indian subsidiary should be classified as FTS/FIS. The Assessing Officer (A.O.) concluded that the payments were in the nature of FTS within the meaning of Explanation 2 to Section 9(1)(vii) of the Income Tax Act, 1961, and the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The A.O. observed that the seconded employees remained under the control of the assessee and continued to receive social security benefits as per US law, indicating they were still employees of the assessee. The CIT (Appeals) upheld this view.

The assessee contended that the reimbursement was on a cost-to-cost basis without any profit element and that the seconded employees were under the control and supervision of the Indian subsidiary (ITIPL). The assessee cited various judicial precedents, including the case of HCL Infosystems Ltd. v. DCIT, where it was held that such reimbursements should not be taxed as FTS if the Indian company had already deducted tax under Section 192.

The Tribunal, however, found that the seconded employees were providing managerial and highly specialized services, and thus, the payment received by the assessee partook the character of FTS. The Tribunal relied on the Delhi High Court's decision in Centrica India Pvt. Ltd. Vs. CIT, where similar payments were held to be FTS.

2. Treatment of Consideration for the Sale of Fixed Assets as 'Royalty':
The A.O. treated the consideration received for the sale of fixed assets, including servers and testers, as 'royalty'. The assessee argued that these were third-party products transferred at Written Down Value (WDV) and did not involve any transfer of technology or know-how.

The Tribunal observed that the assets in question were standard products available in the market and not developed by the assessee. There was no transfer of any industrial, commercial, or scientific knowledge or process. Therefore, the Tribunal held that the payments for these transfers did not constitute 'royalty' under Section 9(1)(vii) or the DTAA, and the addition made by the A.O. was deleted.

3. Classification of Payments Towards Servers and Testers as 'Royalty':
This issue was similar to the second issue. The A.O. had treated the payments for servers and testers as 'royalty'. The Tribunal, however, found that these were standard third-party products and not developed by the assessee. There was no transfer of any technology or know-how. Hence, the Tribunal deleted the addition, holding that these payments did not qualify as 'royalty'.

4. Classification of Consideration Towards Boards as 'Royalty':
The A.O. treated the consideration for the boards supplied to ITIPL as 'royalty'. The assessee argued that these were third-party products and did not involve any transfer of technology or know-how.

The Tribunal found that the testing boards were also third-party products and not developed by the assessee. There was no transfer of any right to use any process or technology. Therefore, the Tribunal deleted the addition, holding that the payments for these boards did not constitute 'royalty'.

5. Treatment of Miscellaneous Receipts as 'Income from Other Sources':
The A.O. added the miscellaneous receipts amounting to ?1,46,06,825 as 'Income from Other Sources' due to the lack of evidence supporting the assessee's claim that these were reimbursements of expenses.

The Tribunal upheld the A.O.'s decision, noting that the assessee failed to provide any supporting evidence or details to substantiate the claim that these were reimbursements. Consequently, the addition was confirmed.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the classification of reimbursement of salary, relocation, and other costs as FTS. However, it deleted the additions made on account of the transfer of fixed assets, servers, testers, and boards, holding that these did not constitute 'royalty'. The addition of miscellaneous receipts as 'Income from Other Sources' was also upheld due to the lack of supporting evidence.