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TMI Blog2017 (3) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... ionship between the assignees and the BIAL. Further even if the assignment tenure is relatively longer that would not amount to cessation of the existing employment of the assignees with the assessee. Authorised Representative has given much stress to a particular word that the provision of services as per the definition under the DTAA has to be rendered by technical and other personnel as against the definition under Section 9(1)(vii), it is the provision and service of technical or other personnel. Thus he has emphasized that there is a difference in the language used in the DTAA. We find that the definition of Fees for Technical Services as per the first limb as provided under Section 9(1)(vii) of the IT Act as well as Article 12(4) of DTAA means payment to any kind in consideration for rendering of any managerial, technical or consultancy services and to that extent, the definition of Fees for Technical Services under IT Act as well as DTAA is identical. In this case, when the payment is considered for managerial service then it becomes irrelevant to go into second aspect of provision of service by technical or other personnel as used in Article 12(4) of the DTAA. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3) r.w.s. 144C of the Income Tax Act, 1961 (in short 'the Act') in pursuant to the directions of the Dispute Resolution Panel (in short DRP ) dt.21.09.2010; The other three appeals are directed against three separate orders of CIT (Appeals) dt.28.8.2013 for the Assessment Years 2008-09 and 2009-10 and dt.22.1.2015 for the Assessment Year 2011-12 respectively. 2. The assessee has raised common grounds in these appeals except an extra ground for the Assessment Year 2007-08 regarding the jurisdiction of DRP in enhancing the total income therefore the grounds raised for the Assessment Year 2007-08 are reproduced as under : 1 Treatment of re-imbursement of certain expenses as fees for technical services a) On the facts and in the circumstances of the case, the learned AO has erred in proposing and the Honourable DRP has further erred in confirming the treatment of certain reimbursement of expenses of ₹ 7,854,745 by Bangalore International Airport Limited ( BIAL ) to Flughafen Zurich AG ( FZA ) as fees for technical services and thus chargeable to tax. b) On the facts and in the circumstances of the case, the Honourable DRP has erred in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the provisions of Section 9(1)(vii) as well as Indo-Swiss Double Tax Avoidance Agreement ( DTAA ). 4. Before us, the learned Authorised Representative of the assessee has submitted that as per the Expatriate Remuneration Reimbursement Agreement dt.5.7.2005, the employees were asked to work for BIAL on full time exclusively during the assignment period. He has referred to the recitals of the preamble of the agreement and submitted that the purpose of secondment is to assign the employees with the BIAL on full time basis and exclusively for BIAL therefore there was a relationship of employer-employee between the BIAL and the seconded employees. The parties have understood and agreed upon that the assessee shall not be considered to have rendered any services whatsoever to BIAL by the assignment of assignees and that the assessee shall not be held responsible for any act or omission of the assignees during the assignment with BIAL. It is also understood and agreed between the parties to the agreement that in addition to any local currency remuneration paid to the assignee directly by the BIAL, the assignee would be entitled to remuneration in foreign currency delivered to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the supervision of services as per the DTAA has to be rendered by technical or other personnel whereas as per the section 9(1)(vii) it is the provision of services of technical or other personnel. In the case on hand it is not a case of the revenue that the services are rendered by technical personnel and therefore it cannot be treated as Fees for Technical Services. In support of his contention, he has relied upon the decision of Hon'ble Supreme Court in the case of National Agricultural Co-operative Marketing Federation of India Vs. Union of India dt.25.3.2013 and submitted that the Hon'ble Supreme Court has observed that the substitution of word by in Section 80P of the Act cannot be considered prior to the amendment and therefore the provision has to be read as it exists in the statute at the relevant time and nothing more can be read into. 5. On the other hand, the learned Departmental Representative has submitted that the relationship of employee and employer between the assignee and BIAL does not exists in this case as the assignee would be entitled to remuneration in foreign currency outside India by the assessee. Thus the assessee as an employer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied and expertise service of these personnel. An identical issue was considered by the co-ordinate bench of this Tribunal in the case of Intel Corporation Ltd. Vs. DDIT dt.30.9.2016 in IT(TP)A No.1486/Bang/2013 in para 7 as under : 7. We have considered the rival submissions as well as the relevant material on record. The payment in question was received by the assessee as per the agreement dt.1.4.2007. The nomenclature of the agreement is immaterial but the substance and contents of the agreement are relevant to decide the issue under consideration. The recital as well as other relevant terms and conditions of the agreement are reproduced as under : ARTICLE II - TRANSFER OF EXPATRIATES (A) ITIPL shall request Intel US to transfer Expatriates who have the expertise required by ITIPL. ITJPL shall provide Intel US with a description of the qualifications required by ITIPL. Based on the list provided by ITIPL, Intel US shall identify the people. (B) Intel US shall transfer such Expatriates to ITIPL from time to time and for such duration as may be agreed between the Parties. ARTICLE III - DUTIES AND OBLIGATIONS (A) The Expatriates shall work under direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with respect to any and all information regarding ITIPL and its business to which they may have access as a consequence of the transfer hereunder (including technical information, financial or accounting information, price or cost data and any other proprietary or business related information) and shall refrain from disclosing any of such information to any other person without the express written consent of ITIPL. The confidentiality obligations set forth in this subparagraph shall survive termination of this Agreement. ARTICLE IV - PAYMENT (A) Within 15 days following the calendar month during the transfer period, Intel US shall furnish ITIPL a statement detailing the Reimbursable Expenses due to Intel US with respect to such month. Each statement shall include a debit note that meets all of ITIPL's requirements for payment as instructed by ITIPL to Intel US. Reimbursable Expenses shall mean and include (a) all Expatriate related costs, including but not limited to base salary, bonus, Expatriate insurance, awards, conveyance, temporary living allowance, en route travel cost, discretionary allowance, non-relocating dependent allowance, gross up on taxes, goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the assessee therefore it is the nature of payment and not the quantum which is relevant. The payment in question was received by the assessee under the expartite agreement. It is not the ordinary working class people who were transferred but all the personnel are experts in their specific field and holding managerial posts. The details of the persons are as under : Details of employees transferred to Intel Technology India Private Limited (TTIPL ) Name of Assignee Designation Business Group of Expat Assignment Description of work done Anand, Sanjay Info Tech Manager Information Technology Group Sanjay was part of the Information Technology Group. He was designated as Info Tech manger and was responsible for managing the Com Systems Engineering team oflTIPL. The group works on SAP replatfomi efforts being driven by IT in ITtPL He was working in a team of 33 persons. Doshi, Gautam B Component Engineering Manager Digital Enterprise Group Gautam was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed because of expertise and managerial skills in the field. This fact is also reflected in the agreement. It is pertinent to note that the secondment agreement is between the assessee and DFCL and these secondees assigned to the assessee are not party to the agreement. Further the secondees are assigned by DFCL and there is no separate contract of employment between the assessee and the secondees. The secondees are under the legal obligation as well as employment of DFCL and assigned to the assessee only for a short period of time. In the absence of any contract between the assessee and the secondees, the parties cannot enforce any right or obligation against each other. The secondeess can claim their salary only from the parent company i.e DFCL and not from the assessee. Thus, the expatriates were performing their duties for and on behalf of the DFCL. Once it is found that the secondees were rendering the marginal and highly expertise services to the assessee the payment for such services is in the ambit of FTS defined in explanation 2 to sec. 9(1)(vii) of the Act, which read as under:- Explanation [2] For the purposes of this clause, fees for technical services means any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition provided under Explanation 2 to sec. 9(1)(vii) of the Act as well as in the Article 13(4) of the India UK DTA. Moreover the definition of FTS under sec. 9(1)(vii) Art 13(iv) of Indo UK DTA has similar except one extra word marginal deed to the definition under Income-tax Act. The Hon ble High Court while dealing with the issue as held in para 28 to 31, 37, 38 as under: 28. CIOP relies on the concept of economic employment as opposed to legal employment and submits that the formal jural or legal relationship of employer and employee as between the seconded employee and the overseas entity is of no significance. It is argued that for all practical purposes, CIOP is the real employer, because the content of the work or employment, the entire direction and supervision over the seconded employees work and the pay and emoluments are borne by it. For convenience, the pay is disbursed by the overseas entity, but that amount is reimbursed to the overseas entity. Reliance is firstly placed on the concept of Economic employer, discussed by Klaus Vogel in 'Double Taxation Conventions', especially the following extracts: - 8. International hiring out of lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July 2010) in this context, states as follows: - 8.14 Where a comparison of the nature of the services rendered by the individual with the business activities carried on by his formal employer and by the enterprise to which the services are provided points to an employment relationship that is different from the formal contractual relationship, the following additional factors may be relevant to determine whether this is really the case: Who has the authority to instruct the individual regarding the manner in which the work has to be performed. - Who controls and has responsibility for the place at which the work is performed; - Remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided (see paragraph 8.15 below) - Who puts the tools and materials necessary for the work at the individuals disposal - Who determines the number and qualifications of the individuals performing the work; - Who has the right to select the individual who will perform the work and to terminate the contractual arrangements entered into with that individual for that purpose; 29. The issue which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'technical' has not been defined in the DTAA, and must be accorded its broader dictionary meaning, unless limited by the parties to the instrument. The AAR in Intertek Testing Services India (P.) Ltd, In re [2008] 307 ITR 418/175 Taxman 375 (AAR), considered this question in detail, and rightly held that What is meant by the expression 'technical'? Should it be confined only to technology relating to engineering manufacturing or other applied sciences? We do not think so. The expression 'technical' ought not to be construed in a narrow sense. This reading was supported by the Supreme Court, in the context of Section 9(1)(iv) of the Act in Continental Construction Ltd. v. CIT [1992] 195 ITR 81/60 Taxman 429. Further, the Court notes that the distinction to be drawn by CIOP between the provision of services by the overseas entities themselves and the 'mere' secondment of employees does not make a difference, since the services provided the overseas entities is the provision of technical services through the secondees - an instance envisaged under Article 13 itself. 31. The issue of Article 12 of the India-Canada treaty involves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondment agreement entered into by the applicant with AT S Austria, the payment to be made by the applicant to AT S Austria, towards reimbursement of salary cost incurred by AT S Austria in respect of seconded personnel, would be subject to withholding tax under Section 195 of the IT Act, in view of the facts that (1) the payments are only in the nature of reimbursement of actual expenditure incurred by AT S Austria. (2) AT S Austria is not engaged in the business of providing technical services in the ordinary course of its business, (3) AT S Austria is not charging the applicant any separate fee for the secondment and (4) the seconded personnel work under the direct control and supervision of the applicant? In holding that the obligation under Section 195 would be triggered, the AAR held as follows: 'From the above analysis of both the agreements it is clear that pursuant to the obligation under the FCA, the AT S Austria has offered the services of technical experts to the applicant on the latter's request and the terms and conditions for providing services of technical experts are contained in the secondment agreement which we have referred to above in great ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployee is noted as the remuneration, perquisites and other entitlements as detailed in Appendix-A. However, Appendix-A does not specify any amount. All that it says, is that the salary will be as fixed and agreed between the employee and the company from time to time and that such salary may be paid either in India or outside India but the total salary shall not exceed the salary fixed as above, but no fixed salary is mentioned in the employment agreement. Other perquisites and entitlements are : travel expenses, transport, boarding, lodging; and annual leave of 30 days per year; and home leave which the employee will be entitled to once. The applicant shall have to organize an economic class return flight tickets to go on home leave. The employment agreement also provides that the employee will be responsible for meeting all requirements under Indian tax laws including tax compliance and filing of returns and the applicant is authorized to deduct taxes from the compensation and benefits payable.' 38. The mere fact that CIOP, and the secondment agreement, phrases the payment made from CIOP to the overseas entity as 'reimbursement' cannot be determinative. Neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. However, there is an exception to this Rule of charging the gross amount when the non-resident is having fixed place of business or PE in India and the amount is earned through the PE, then the expenditure incurred in the relation to the PE for earning said amount is allowable as per the provisions of sec. 44DA of the Act. Therefore, in view of the judgment of Hon ble Delhi High Court in the case of Centrica (Supra), the payment made to foreign company DFCL partakes the character of FTS as per the definition under explanation 2 to sec . 9(1)(vii) of the Act. The decisions relied upon by the assessee in the case of IDS Software Solutions (Supra) and Abbey Business Solution (Supra) would not help the case of the assessee when there is a direct judgment of Hon ble Delhi High Court on this point. We find that the ratio of the decisions of Hon'ble Delhi High Court in the case of Centrica India Pvt. Ltd. Vs. CIT (supra) as well as the decision of the co-ordinate bench of this Tribunal in the case of Foodworld Supermarkets Ltd. Vs. DCIT (supra) 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 sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India or for the purposes of making or earning any income from any source outside India ; or ( c ) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : [ Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.] [ Explanation 1. -For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] Explanation [ 2 ] . -For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 2012 w.e.f. 1.4.2009, the DRP had no jurisdiction or power to enhance the assessment. In support of his contention, he has relied upon the Hon ble jurisdictional High Court in the case of Wipro Ltd. 338 ITR 411. 11. On the other hand, the learned Departmental Representative has submitted that the DRP while deciding the objections raised by the assesse has directed the A.O. to consider the entire payment as FTS instead of a part of the payment was considered by the A.O. while passing the draft assessment order. He has referred to the relevant part of the DRP direction and submitted that when this was the subject matter of the objections filed by the assesse before the DRP then the jurisdiction of DRP cannot be challenged. 12. We have considered the rival submissions as well as relevant material on record. The assesse has challenged the jurisdiction of DRP in enhancing the total income when the A.O. has not considered the entire payment in foreign currency as FTS. We find that while challenging the draft order the assesse filed objections before the DRP which are reproduced in para 2 of the DRP as under : 2. Objections to the Draft assessment order before the D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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