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TMI Blog2012 (7) TMI 656X X X X Extracts X X X X X X X X Extracts X X X X ..... ge etc. to Lucent. 3) WITHOUT PREJUDICE TO STATED ABOVE, On the facts and circumstances of the case and in Law, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer to tax the entire Gross receipts received by the appellant from the Lucent without reducing the amount due to the technocrats which were in the nature of pure reimbursement and such amount was diverted at source and hence never constitutes the receipts of the appellant." 2. The entire controversy here in this appeal revolves around the solitary issue, whether the receipts of Rs. 2,14,33,555/- received by the assessee which is a non-resident company from Lucent Technologies Hindustan (Pvt.) Ltd ( in short 'Lucent'), an Indian company, in lieu of services provided, is taxable in India in terms of Article 12 of the Indo-US DTAA or not. The factual matrix as culled out from the records are that the assessee, M/s Avion Systems Inc., which is a US based company is specialized in providing highly qualified technocrats and technology relating to telecom sector and higher solutions in telecom engineering services. It had entered into an agreement with Lucent , which is an In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uirements are becoming tougher to meet. Avion's ASIC design experience can provide the expertise needed to complete your ASIC/COT designs with absolute precision, while complying with strict time-line requirements. Whether it's developing synthesizable RTL or assisting in the verification of acquired IP (Intellectual Property), Avion's VLSI engineers can provide the additional bandwidth that's needed to reduce your chip's design cycle-time. Alternatively, our engineers can take your existing designs and create re-useable core components that can be leveraged to help reduce the design cycles of your next-generation initiative. Avion Systems also provides complete backend services required to take your design from 'Netlist-to-GDS'. Our physical design engineers are experienced in the layout and timing issues associated with VDSM (very Deep sub-Micron) technologies. There is an increasing need for faster, better and more reliable networks, thus increasing the need for the next generation of networking hardware and software products. Companies of all sizes are competing to develop and provide better networking solution for demanding customers. Since Avion's inception, we have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the assessee vis-à-vis Lucent company does not fall within the ambit of 'FIS' as stipulated under Article 12(4)(b). 2.3 The Assessing Officer rejected the contention of the assessee and after considering the submissions and analysis of the various clauses of the agreement reached to the following conclusions which in brief are narrated hereunder :- i) That the manpower supplied by the assessee was termed as "Temporary Worker", however, its effective control, payment responsibility, retirement benefits, deduction of tax etc. were vested with the assessee and hence, they are the employees of the assessee company working under the supervision and control of the assessee to execute the necessary contract for the Lucent; ii) The contract between the two parties is in fact not that of simply supplying of manpower but for outsourcing of contract taken by Lucent in India for commissioning of telecom equipment and technology for Reliance Telecom. This conclusion was drawn from the fact that no labour related responsibility or payment related responsibility were taken by the Lucent as per the agreement, rather it was the responsibility of the assessee; iii) The contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Lucent for its project, it would place an order to the assessee by forwarding the resumes of these personnel. Learned AR drew our attention to various correspondence and resumes on sample basis of some of the personnel engaged by the assessee for Lucent company, to demonstrate that the assessee's job was mainly to locate the required personnel and then supply them to Lucent. All the VISA, travelling formalities undertaken by the personnel were mostly done with the help of the Lucent. He further submitted that the assessee was not involved in selection or performance of such temporary personnel and even the time sheets of working hours were maintained by the Lucent. Salary of these personnel were paid to the assessee, only to reimburse them according to their working hours and what the assessee used to get in lieu of all this was 6% of charges only. He also drew our attention to sample invoices which was raised to the Lucent showing the reimbursement of payment along with mark up of 6%. He strongly relied upon certificate given by the Lucent given at page 75 of the paper book to show that the technocrats which were supplied by the assessee were actually deployed by them for thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of MOU of Indo-US DTAA for the purpose of Article 124(b). 8. We have given our anxious consideration to the rival contentions of the parties, findings given in the impugned orders and also carefully perused the materials places on record. Uncontroverted facts in this case are that the assessee, who is a US based company, does not have any permanent establishment in India, has entered into a transaction with an Indian company, Lucent, for supply of qualified technical personnel for Lucent's telecom operations in India, in pursuance of its contract with Reliance Telecom. In relation to this transaction, the assessee has opted to be governed by Indo-US (DTAA) and has took shelter under Article 12, that the payment which have been received from the Indian company is not included in 'FIS' under clause 4 of Article 12, hence, is not liable to be taxed in India. Here were are besieged with firstly, whether the technical personnel supplied by the assessee to Lucent are employees of the assessee or have been simply outsourced by the assessee for facilitating them in the employment of the Lucent as their temporary employees and secondly, if the technical personnel are considered to be em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can be further deduced that technical personnel belong to or are employees of the assessee. To say that they are not the employees of the assessee as per the contention of the learned AR will not be correct interpretation of the terms and conditions and scope of the agreement. This aspect also gets endorsed by various other clauses of the agreement which are narrated in brief for the sake of ready reference and appreciation :- (i) Clause 6 defines "temporary worker" which shall mean the persons or persons employed by AVION and provided by AVION to the Lucent to carry out tasks required by the Lucent in execution of various projects undertaken by the Lucent, all under the terms of this Contract. "Work" shall mean the job(s) for which the Temporary Worker(s) is required by the Lucent. (ii) Clause 8 provides that order placed by the Lucent shall contain certain information like date of joining of the temporary worker, names, address etc., pursuant to which temporary workers will report to Lucent manager during the course of work. (iii) Clause 9 provides for compensation that Lucent shall pay to AVION for the services of Temporary Workers requested by the Lucent at the rates s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstand that any problems or complaints I may have regarding the work assignment must be directed to my AVION Supervisor and not to the Lucent. 3. I understand that my rate of pay from AVION may be greater or less than that received by other individuals who are performing similar services for Lucent, regardless of whether they are employees of Lucent or other agencies. 4. I understand that there have been and will be no representations as to any assurance or possibility of being hired as a regular employee of Lucent, and that since I am not an employee of Lucent, no promotions or other forms of advancement or transfer by Lucent are available now or in the future. 5. I understand that my work assignment is contingent upon execution of the Agreement Regarding Intellectual Property and Confidential Information and I have read and signed the same." (iv) Clause 10 provides that AVION will have full and exclusive liability for the payment of any and all taxes, duties etc. in respect of providing temporary workers to lucent, in connection with wages, salaries, compensation, statutory dues and it shall be responsible for compliance with applications and restrictions imposed by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign all the intellectual property rights and provides terms and conditions to be signed by the employee with regard to creation of intellectual property rights, which would belong to Lucent only. 10. From the covenants given in the agreement clearly shows that firstly, temporary workers are not the employees of the Lucent; secondly, Lucent will not take any kind of responsibility of any temporary worker provided by Avion; thirdly, Avion will be responsible for all the personnel deployed to the Lucent and all the compliance of laws relating to employer-employee relationship, registration, payment of salary etc., will be undertaken by Avion, fourthly, Attachment II categorically stipulates that all the temporary worker/personnel are employees of Avion who have to give undertaking as employees of Avion and lastly, the payments for the personnel deployed shall be given to the Avion by the Lucent as per the work sheet along with the fee of 6% of the invoice value. 10.1 During the course of the hearing, learned AR has referred to various extracts of email correspondences between Lucent and the assessee to demonstrate that it is only Lucent who makes requisition for particular personne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 11.1. Application of clause 4(a) is ruled out in the instant case. However, we have to examine whether the assessee's case falls within the clause (b) of Article 12(4), which states that the payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under clause 4(b) it is sine qua non that services must result into making available technical knowledge, experience, skill, know-how of processes. As referred in earlier part of the order, the Assessing Officer noted the profile of the assessee's company from the website that the assessee is in Telecom Technology business and provides technology and higher solutions to various telecom industries, to which learned AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to telecom sector. The Lucent, an Indian company wants technical experts, who have experience and skill, which here in this case undoubtedly belongs to the assessee, for its purpose of contract for commissioning and supply of telecom equipments in India. These services clearly fall within the illustration given in the Example 3 and, hence, the services rendered by the assessee falls within the clause 4(b) of Article 12 of the Treaty. Therefore, we hold that the payment received by the assessee from Lucent is taxable in India under Article 12 as fees for included services. 12. Learned AR during the course of argument has referred and relied upon various cases, however, only following cases which can be said to be of little relevance are discussed herein in below :- i) DDIT Vs Tekmark Global Solutions, [(2010) 38 SOT 7 (Mum)]- In this case, the Tribunal had occasion to deal with Article 5(2)(1) of Indo-US DTAA and not Article 12. One Tekmark Global Solutions, US based company had sent two persons to India for the employment with Indian company and the Indian company had all control and the rights to remove the deputed persons from the services. In lieu of providing these t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the case, it was held that fee paid to him did not fall within the ambit of the fee for technical services as per definition given under Article 13(4)(c) of DTAA between the India and UK. vi) DDIT Vs. Scientific Atlanta Inc. [(2009) 33 SOT 220 (Mum)];-Here in this case, the assessee put up a categorical claim before the Assessing Officer that these services were provided overseas to facilitate terminal requisition of the project and no part of the services was made available to TDCL and such a specific contention before the Assessing Officer was not controverted by him. Further in this case, the assessee had PE in India and no part of services rendered at overseas was linked with the PE in India. It was in this context, the judgment was rendered. vii) Mahindra & Mahindra Ltd. Vs. DCIT, [(2009) 122 TTJ (Mum)(SB) 577].- The Hon'ble Special Bench was besieged with the issue whether 201(1) applies in the case of non-resident of tax at source. Whether any time limit is prescribed for passing of order under Section 201(1) and nature and proceedings of under Section 201 and reasonable time for passing of order. The issues involved in the Special Bench have no direct co-relati ..... 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