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TMI Blog2013 (11) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... y would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA - Payment in question does not fall under the term fee for technical services as per provisions of Indo-UK DTAA. TDS to be deducted by assessee for payment made of salary to its employees - Assessee company is a Joint Venture Co. between Marks & Spencer PLC and Reliance Retail Limited - The assessee paid ₹ 4,86,6187/- to Marks and Spencer PLC towards salary expenditure of 4 employees deputed to the assessee for providing assistant in the area of management of setting of the business, retail operations, property selection & evaluation, production marketing – Held that:- Payment towards part reimbursement of the salary expenditure which clearly shows that there is not element of profit in the said payment. This claim of the assessee is also supported by the various clauses of the agreement and seconded agreement. Further the entire amount of salary received by these personnel has been subjected to tax in India at the highest average rate of tax. Therefore, there is no question of any default on the part of the assessee. It is pertinent to mention that payment by the assessee is actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry out the functions in the area of management, to setting up of business, property selection and retail operation, product and merchandise selection and to setting up merchandise teem. The AO has noted in the order passed under section 201 that following personnel were provided by the Marks and Spencer PLC to the assessee: Mr. Mark Ashman- assist in overall management of setting up of business. Mr. Spencer Sheen- assistance in property selection and retail operation. Mr. Adam Colton- to lead merchandising and product selection. Ms. Emily I meson- to set up merchandising team. 4. The assessee has paid a sum of ₹ 4,83,60,187/- to Marks Spencer PLC, London on 04.12.2009. The AO noted that on this payment the assessee did not make any deduction of tax under section 195. The AO issued a notice under section 201 for holding that assessee has committed default by remitting the money without deduction of tax and accordingly liable to be held for the liability under section 201. The assessee filed its reply and explain that the payee Marks Spencer does not have a permanent establishment in India and further payments made by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, there is no question of reimbursement of expenses. These employees were paid by the UK Co. and not by the assessee. The assessee made payment on the basis of invoice raised by the UK Co. hence, the assessee was under obligation to deduct tax at source. 7. On the other hand, learned AR of the assessee has submitted that amount paid by the assessee is not an income in the hands of the payee as it is only reimbursement of cost. He has referred the details of the salary paid by the Mark and Spencer UK Co. to the personnel deputed with the assessee and reimbursement made by the assessee and submitted that the amount remitted by the assessee is less than the salary paid to the personnel. He has further submitted that even the amount paid is less than the invoice raised by the UK Co. as it was reduced after negotiation and therefore, it was a case of part reimbursement of the expenses. He has further referred the terms of the agreement between the parties and submitted that as per the terms of the service agreement the parties agreed to provide employees to the assessee and will be charged without mark up or the company shall directly compensate the seconded or engaged employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reed to provide assistance to the assessee joint venture to operate the business. The parties have set out the terms and condition of the business of the joint venture Co. as per clause 3.1 of the agreement between the share holders of the joint venture i.e. Marks Spencer Reliance who undertook to provide assistance from time to time to the assessee in the areas as provide under the clause as under: Subject to clause 3.2, M S and Reliance each under take on request to provide assistance from time to time to the Company in areas such as; (i) human resources (ii) legal and governmental liaison; (iii) tax, finance, and accounting; (iv) store design (including construction and shop(fitting); and (v) marketing, store operations. IT, and the sourcing of office space (such sorucing of office space, for the avoidance of doubt, being as M S or a Reliance Service (as the case may be) and not a Specific Service under Annex.2) (all parties agreeing that the forgoing list is not intended to be exhaustive on terms to be mutually agreed between the parties but consistent with the provisions of this clause 3.) 10. The partners of joi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the same issue by following the decision of Special Bench in case of Mahindra Mahindra Ltd.(supra) in para 4.6 to 4.11 as under: '4.6 In case of Mahindra and Mahindra Ltd. 122 TTA 577 a SPL. Bench ITAT while discussing the issue of taxability of reimbursement of expenses, for the services rendered by the companies overseas, acting a lead manager for GDR FCCB issued by Indian Co for raising the funds abroad have held, that where technical services were rendered to the Indian party, even though used by the non residents, the amount of management and commission fees is not taxable under the Indo UK treaty since make available' clause is not satisfied. Regarding reimbursement of expenses it has decided the issue in para 19-13 as under: 19.13 We have considered the nature of services rendered by the non-resident in an earlier part of this order. Such services commenced prior to the bringing out FCCB issue; and continued during the period when the issue was open for subscription and continued even after its closing. A meticulous look at the nature of such services taken note of above, clearly reveals that these are in the nature of technical, manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwriting commission' at ₹ 2.43 crores and the 'expenses reimbursed' at ₹ 1.68 crores are not income by way of fees for technical services. 19.24 We have discussed above that where DTAA has been entered into by India with another country of which the non resident is tax resident, then it has to be examined as to whether income, which is otherwise chargeable under the Act in the hands of the non-resident, can be brought to tax as per the terms of DTAA also. if the income is chargeable to tax under the regular provisions of the Act then the second question is to examine the provisions of DTAA and for the same is still taxable under DTAA then the non-resident is liable to tax In respect of such income. If however the DTAA immunes such income from tax net, then that income cannot be taxed notwithstanding the fact that the same is taxable under the general provisions of the Act. Having come to the conclusion that the management commission and selling commission are in the nature of income by way of fees for technical services under s. 9C1)(vii) now it remains to be seen whether they can be taxed under the DTAA also. 19,15 We will take up the secon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al services' is a subject-matter of art. 13. 19.16 It is settled legal position that the specific provisions override the general provision. The legal maxim 'Generalia specialibus non-derogant' means that the general things do not derogate from special. In other words, it implies that the special provisions override the general provision. If there are two conflicting provisions in the same section or clause, the special provision will prevail as the same is excluded from the general provision. To put it in simple words, if a specific provision is made on a certain subject-matter, that matter is excluded from the general provision. The Hon'ble jurisdictional High Court in the case of Forbes Forbes Campbell Co. Ltd. v. CIT [1994]129 CTR (Born) 319 : [1994] 206 ITR 495 (Born) has quoted the above maxim with approval. It has also been applied by the Hon'ble Madras High Court in the case of CIT v. Copes Vulcan Inc. [1986] 57 CTR (Mad) 244 : [1987] 167 ITR 884 (Mad), in which case it was held that s. 9(1)(i) is general in nature and s. 9(1)(vii) refers to a particular type of income and is a special provision dealing with even for technical services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arameters of fees for technical services it is of paramount importance that the technical knowledge, experience or skill etc. is made available to it. Referring to the order passed by the Tribunal in Raymond Ltd. (supra) the learned Authorised Representative stated that the Mumbai Bench also considered the DTAA with UK and held that the technical services rendered by the lead managers in connection with the GDR issue must be mq4. available so as to be covered under art. 13. He submitted that the Tribunal held that since the services were riot made available hence the management and selling commission could not be taxed in the hands of the payee. He argued that the facts and circumstances considered in Raymond Ltd. are identical to those under consideration inasmuch as in that case also GDR issue was brought out and lead managers were appointed who were paid for similar services, in the similar manner. He also referred to certain cases in which the order in the case of Raymond Ltd. (supra) has been followed by different Benches of the Tribunal taking the similar view. 19.18 We have considered the rival submissions in the light of material placed before us and precedents reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4). Rendering of service and making use of service go together. They are two sides of the same coin. But cl. (c) of art. 13(4) does not stop at that. it carves out a (qualification thereto by employing the words 'which make available technical experience, skill, know-how or processes'. Rendering technical or consultancy service is followed by a relative pronoun 'which' and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that 'make available' to the recipient technical knowledge, know- how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own Without the aid of the service provider. By making available the technical skills or know-how, the recipient of the service will get equipped With that knowledge Or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills, etc., must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come earned. It is a settled legal position and also clearly borne out from the language of art. 7 that the profits of an enterprise which carries on business in the other State shall be taxed only to the extent which is attributable to its PE. The assessee argued before the AO that the nonresident had no PE in India, which has not been contradicted by the AO. Nowhere from the assessment order it comes up that the AO had treated any place as PE of the non-resident. In the absence of any PE of the non-resident in India, in our considered opinion, the 'business profits' under art. 7 cannot be charged to tax and hence underwriting commission would also be outside the ambit of tax as per DTAA. Thus the entire amount paid by the assessee in relation to the FCCB issue, viz., management, selling and underwriting commission along with the reimbursement of expenses cannot be taxed in the hands of the non-resident and resultantly there can be no obligation on the assessee to deduct tax at Source under s. 195. Resultantly the assessee cannot be treated as assessee in default under s. 201(1) of the LT. Act. 4.7 The present case is a case of part reimbursement of expenses and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . It is not denied before us on behalf of the assessee that Dr.Sundarajan is a technical person. What is however submitted is that arts 11 and VI of the secondment agreement would be out of place in a contract for providing technical services. Article II as we have already seen contains eight clauses outlining the duties and obligations of the seconded employee. Article VI provides for indemnification which has also been earlier noticed by us. We are inclined to agree with the submission that these two articles are out of place in a contract for providing technical services. For example, Cls. (A) to (C) of art II make the seconded employee responsible and subservient to the assessee company which cannot be the case if the agreement is for providing technical services by IDS act as officer or authorized signatory or nominee or in any other lawful personal capacity for the assessee company, would also be out of place in the agreement for rendering technical services as it cannot be imagined that a technical person would also be required to act in non-technical capacities u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Technical Services as per DTAA between India and U.K.' 13. It is clear from the order of the learned CIT(A) that it has followed the decision of Special Bench of this Tribunal in case of Mahindra Mahindra Ltd. (supra) and held that the payment are not in the nature of Fees for Technical Services (FTS). Thus in the absence of make available technical knowledge, expertise, skill, know-how or process etc. it cannot be held that the payment is FTS as per article 13(4) of Indo UK DTAA. The term fee for technical service has been defined under par 4 of article 13 of Indo-UK DTAA as under: 4. for the purposes of paragraphs 2 of this Article, and subject of paragraph 5 of this Article, the terms fees for technical services means payment of any king of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which; (a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or (b) are ancillary and subsidiary to the enjoyment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 15. Thus, merely providing the employees or assisting the assessee in the business and in the area of consultancy, management etc. would not constitue make available of the services of any technical or consultancy in nature. The Hon'ble High Court has observed in para 13 that as per the definition for fee for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know-how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA. Accordingly, in view the decision of Hon'ble Karnataka High Court in case of De Beers India Minerals (P.) Ltd. (supra) and Special Bench decision in case of Mahindra and Mahindra Ltd. (supra), we hold that the payment in question does not fall under the term fee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Jt. Employees claimed by final Amount re-charged to MSRIPL for 2008-09. Particulars Amount Claimed Amount Waived Amount Recharged A Joint Employer Cost 241,146 19,179 221,967 Mark 234971 234971 27,181 207,790 Spencer 135,905 135,905 15,485 120,420 Adam 73,913 73,913 16,834 57,079 Emily Sub-total 685,935 78,679 607,256 18. There is no dispute about the facts as record by the CIT(A) that the assessee has made the payment towards part reimbursement of the salary expenditure which clearly shows that there is not element of profit in the said payment. This claim of the assessee is also supported by the various clauses of the agreement and seconded agreement as referred by us in the forgoing paras. Further the entire amount of salary received by these personnel h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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