9911796707
TMI Blog2012 (9) TMI 466X X X X Extracts X X X X X X X X Extracts X X X X ..... eed of individuals, for discharge of certain immediate functions. In terms of the set up of these companies, on April 1, 2008, the petitioner herein entered into a personnel secondment agreement with GTE Overseas Corporation, U. S. A, referred to as "GTE-OC", an affiliate company of Verizon U. S. The agreement reads that the said company GTE-OC has the capability of providing services in various fields. Accordingly, GTE-OC agreed to provide services of three of its employees to the petitioner herein pursuant to certain terms and conditions. These employees were identified keeping in mind the specific function to be performed for the petitioner. Thus, Mr.Rahul Saxena, Mohan Moghe and Ms. Satya Datle were rendered to discharge specific problem. While Rahul Saxena was taken on board as managing director, Mohan Maghe and Satya Datla provided supervision and direction as regards the manner in which the activities of the petitioner-company should be carried on and to liaise between the petitioner and Verizon Data Services L. L. C., a U. S. affiliate of the Verizon group. The agreement specifically stated in clause 2 that the employee seconded shall at all times remain employees o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmative, then whether the same is taxable as 'fees for included services' ('FIS') under the Act read with the India-USA Double Taxation Avoidance Agreement ('the DTAA') ? 3. Is there a permanent establishment of GTE-OC in India under the DTAA and if so, is the amount received by GTE-OC from the applicant in the nature of 'business profits' attributable to such permanent establishment in India under the DTAA ? 4. If the answer to question No. 3 is in the affirmative, is the amount of taxable income nil, inasmuch as the reimbursements are at actual ? 5. If the answer to question No. 1 is in the affirmative, then what is the rate at which tax is to be deducted at source on the payments made by the applicant to GTE-OC ?" The assessee took the plea that having regard to the nature of services rendered by the seconded employees and the amount paid by the employer had also been reimbursed by the assessee and the salaries and emoluments of the employees are also subjected to tax in India by way of TDS under section 192 of the Income-tax Act, the question of deducting TDS under section 195 of the Income-tax Act in respect of reimbursement of the expenditure to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that the amount was to be treated as income and hence liable for tax deduction at source in accordance with section 195 of the Income-tax Act, the Advance Rulings Authority considered the question as to whether the same is tax- able as "fees for included services" under the Act read with the India-USA Double Taxation Avoidance Agreement. The Advance Rulings Authority pointed out that even though the personnel secondment agreement did not give the exact details as to the nature of services to be rendered by the three seconded employees, yet, annexure II to the application filed before the Authority indicated the nature of services to be rendered. It pointed out that while one of the seconded employees was to perform the function as managing director and other two were to supervise and provide directions and the manner through which the activities of the applicant are to be carried out, the Authority agreed with the assessee that the managerial services are not technical in nature. However, it went on to consider as to whether the managerial services could be consultancy services to satisfy the requirement under article 12(4) of the DTAA. The assessee took the stand that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the jurisdiction of this court under article 226 of the Constitution of India is not that of an appellate authority, yet, when the order is writ with perversity or where the Authority failed to consider the questions raised in terms of the annexure, this court has every jurisdiction to interfere with such an order. She submitted that event though the assessee had approached the Advance Rulings Authority for a decision and the decision is binding on the assessee and the Department, nevertheless, in the light of the flaws in the reasoning of the first respondent, which involve substantial questions of law, the writ petition is maintainable. While agreeing with the contention of the Revenue that on the factual findings rendered, this court does not sit as a court of appeal, yet, she is quick enough to submit that when the findings ignore or overlook the vital clauses in the agreement the findings thus suffer a perversity. Thus, seen in the background of the above facts, she placed reliance on the decision of the Delhi High Court reported in U. A. E. Exchange Centre Ltd. v. Union of India reported in [2009] 313 ITR 94 (Delhi) for the proposition that courts have the power to issue a wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(4) of the DTAA stood attracted to the facts of the case. She pointed out to the inconsistencies in the reasoning of the Authority that having held that the seconded employees are only in managerial service, the Advance Rulings Authority committed serious error in holding that the payment would nevertheless fall under "fees for included services" as stated under article 12(4) of the DTAA and that the payments would also be considered under "fees for technical services" as defined in Explanation 2 to section 9(1)(vi) of the Act. She further contended that the findings given in paragraph 17 does not fit in with the description or "fees for included services" under article 12(4) of the DTAA. She also submitted that in the light of the patent illegality in the order of the Advance Rulings Authority both on account of treating the reimbursement as income, which is contrary to the decisions of the various other High Courts and the ultimate finding as regards question No. 2 that the managerial services would fit in with the consultancy services as given under article 12(4) of the DTAA the order of the Advance Rulings Authority has to be quashed. She also pointed out that the failure to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for the Revenue. As far as the scope of interference of this court is concerned, the provisions of the Act, which enable the assessee to go before the Advance Rulings Authority, need to be seen. Chapter XIX-B of the Income-tax Act is a separate Chapter to deal with cases, wherein the assessee, who has undertaken a transaction with a nonresident moves the Authority constituted under section 245-O of the Income-tax Act for an early determination on a question of law and fact. An applicant desirous of obtaining an advance ruling under this Chapter has to make an application as provided under section 245-O of the Income-tax Act and on such, application made, after giving an opportunity to the Revenue, the Authority passes its ruling, section 245S of the Income- tax Act touches on the effect of the order passed by the Advance Rulings Authority, viz., (i) that the ruling shall be binding only on the applicant who had sought it, (ii) in respect of the transaction in relation to which the ruling had been sought, and (iii) on the Commissioner, and the income-tax authorities subordinate to him, in respect of the applicant and the said transaction. Sub-section (2) to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the court under article 226 or 136 can interfere in the writ petition is whether the order of the commission is contrary to the provisions of the Act and that such contravention had prejudiced the appellant. In the light of the above, the Supreme Court held that even though there was no necessity to get into the correctness of the interpretation placed on the deeds, for the sake of completeness the apex court got into the correctness of the order passed, making a wrong interpretation of law on the provisions of the trust deed. Thus, the decisions cited by the assessee in respect of the scope of interference by the court under article 226 of the Constitution of India clearly show that as far as the merits of the order passed by the Commission is concerned, the court has a limited judicial review and restricted to such of those instances where there is violation of the principles of natural justice or where the order does not carry any reasoning to support its conclusion, thereby introducing an element of perversity, or in the alternative, where the order is patently contrary to the provisions of the Act to cause serious prejudice to the party. The decisions cited a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The question as to whether the receipt is really an income or reimbursement is a pure question of fact, which has to be arrived at based on the various clauses in the agreement between the parties. In the context of the discussion in paragraph 13 of the order of the Advance Rulings Authority, we have no hesitation in rejecting the plea of the assessee. The fact that we have rejected the claim of the assessee in this regard, does not, however, tie our hands. As regards the view held on the second question, we hold that considering the findings given by the Advance Rulings Authority that the assessee had only rendered managerial services, the further conclusion, in paragraph 17 of the order, however, does not go well with the reasons given in the preceding paragraph. Learned counsel appearing for the assessee pointed out that having agreed with the assessee that the services rendered by the three personnel were not technical and they were purely managerial in nature, the Authority should have taken the reasoning further on lines of what is provided for under article 12(4) of the DTAA to consider whether the transactions would not fall for consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice should make available the technical knowledge and skill also to the company purchasing the service, within the meaning of article 12(4)(b) of the DTAA. Thus, going by the memorandum and the DTAA, the Authority should have considered the nature of services rendered by the assessee, which are earlier characterised as purely managerial services to find out whether the same would fit in with paragraph (4)(b) of article 12 of the DTAA. As already noted, article 12(4) specifies the services that it seeks to consider as falling within the meaning of included services. If the nature of managerial services rendered are to fall under (a) or (b) of article 12(4), then the same should have been tested with reference to the qualification prescribed under article 12(4)(b). However, without considering the same, the Advance Rulings Authority pointed out that the services provided by the seconded employees are in the nature of managerial services hence, were covered under "fees for included services" under article 12(4)(b) of the DTAA. We feel that given the scope of article 12, the Advance Rulings Authority should have adverted to the various categorisation under article 12, vis-a- ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
