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TMI Blog2017 (12) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... ched by the authorities below. We, therefore, dismiss Ground Nos. 2 to 4 55,80,855/- with reference to the above documents and other material to be filed by the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... restrictive 'make available' criterion of Article 13(4) of India UK tax treaty is not satisfied. 7. On the facts, in the circumstances of the case and in law, the Ld. AO as well Ld. DRP failed to appreciate the fact that the payment of ₹ 50,79,860/- was received by the Appellant as a mere reimbursement without any income element towards salary of expatriate employee disbursed by it, as a facilitator, and therefore cannot be subject to tax as FTS. 8. On the facts, in the circumstances of the case and in law, the Ld. AO erred in levying consequential interest under section 234B of the Act on the disallowance made in the assessment order. 9. On the facts, in the circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(C) of the Act. That the above grounds of appeal are mutually exclusive and without prejudice to each other. That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. Any consequential relief to which the Appellant may be entitled under law in pursuance of the aforesaid grounds of appeal, or otherwise may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation cess) in the final assessment order, whereas Ground No. 5, 6 & 7 Relate to tax on reimbursement of salary cost of a seconded employee disbursed on behalf of Indian Associated Enterprise (AE) amounting to ₹ 50,79,860 [received from Indian AE] as Fee for Technical Services ('FTS') @ 15% in terms of Article 13(4) of India UK tax treaty. However, during the course of this appeal, assessee raised an additional ground which is to the effect that, since the source of guarantee fee, received for providing guarantee for its Associated Enterprises (AEs) to foreign banks, is outside India and cannot be held taxable in India. 4. Firstly, insofar as the additional ground i.e., Ground No 10 is concerned, it is the argument of the Ld. AR that in terms of Art. 265 of the Constitution of India, no tax shall be levied or collected except by authority of law and the Hon'ble Supreme Court of India also held that the purpose of assessment proceedings is to assess correctly the tax and consequently, the tribunal has the power to grant relief if it is found that a non-taxable item is taxed or a permissible deduction is denied and thus an assessed income can be lesser than the returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first time, so long as the relevant facts are on record in respect of that item. 6. In this matter, there is no dispute that in the return of income, the assessee had declared the receipts on account of the guarantee commission treating it as interest within the meaning of section 2(22A) of the Act and before the authorities below, the assessee placed reliance on a decision reported in Viswapriya Financial Services and Securities Limited [2002] 258 ITR 496 (Madras) and CIT vs Vijay Ship Breaking Corporation [2003] 261 ITR 113 (Gujarat). It is, therefore. Clear that there is no dispute as to the facts involved in this matter insofar as Ground Nos.2 to 4 are concerned but only question is in respect of the taxability of such a receipt in India, and if so, under what category whether interest or other source, such a receipt falls. We, therefore, find that no new facts are necessary to deal with this issue as such while respectfully following the ratio laid down in the case of NTPC (supra), we admit the additional ground, and proceed to decide the same. 7. In support of the contention that the guarantee commission received by the foreign parent pursuant to the availment of the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o applicability as income does not arise in India." 8. On this aspect, Ld. DR vehemently contended that the taxability has to be tested with reference to the domestic law u/sections 4, 5 & 9 and it is only when it passes through this threshold then the Treaty provisions have to be looked into. He submitted that Capgemeni case relates to Indo-French treaty whereas the present case has to be dealt with under the provisions of Indo-UK treaty. According to him in this matter, occasion for the rise of guarantee commission is only the Indian entity availing loan, but not merely on the foreign parent company entering into the global corporate guarantee agreement, as such consideration of the matter in the light of the provisions under section 5(2) of the Act is necessary. 9. At the outset, it is needless to say that while according to Section 4 of the Act income-tax shall be charged in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of the Act in respect of the total income of the previous year of every person, Section 5(2) of the Act says that, the total income of any previous year of a person who is a non-resident shall incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be chargeable to tax in India. However, out of utmost caution, the Appellant has offered the guarantee fee to tax as Interest in terms of the provisions of the Act and Article 12(5) of the India UK Tax Treaty. He objected authorities below placing reliance on the US - MTC Technical Explanation 2006 on the ground that even the US Tax Court has not supported the view given in US MTC 2006 for a ruling given in the context of US, as such the same certainly not be applied in the case of the Appellant, which is a resident of the UK. He submits that the term Interest has been defined under Article 12(5) of India UK tax treaty to include debt-claims of every kind, which is exhaustive and covers all kinds of income regarded as "interest" in domestic law, whereas under the domestic law Section 2(28A) of the Income Tax Act, 1961 (the Act) defines "interest" to include any moneys borrowed or debt incurred including a deposit, claim or other similar right or obligation and also any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised." 12. He also placed reliance on a decision of Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of section 9(i)(vi) of the Act, as the same is of wider connotation, inasmuch as the term FTS, defined under the Act includes any payment received for providing any managerial or consultancy services, but such receipt cannot certainly be treated as Income from Other Sources. For these reasons he prayed that the orders of the authorities below may not be sustained. 15. For better appreciation of facts on this issue, Article 12(5) of the India U.K. DTAA and section 2(28A) of the Act needs to be referred:- Article 12(5) of India UK reads as follows: 5. The term "interest" as used in this Article means income from debtclaims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures but, subject to the provisions of paragraph 9 of this Article, shall not include any item which is treated as a distribution under the provisions of Article 11 (Dividends) of this Convention. Section 2(28A) of the Income- Tax Act, 1961 reads as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by the receiver of some amount, pursuant to a loan transaction. Loan transaction is also a species of contract. Art 12(5) of the DTAA and Section 2(28A) of the Act extend the scope of such payments. However, payment or re-payment pursuant to any loan to be qualified as "interest", necessarily have to be within the context of loan and shall relate to the parties to the privity of contract. In this context only, the expressions "claims of any kind", "service fee or other charge" have to be understood. So also the expression "whether or not there is the relationship of creditor-debtor or lender-borrower exists". It is only in the context and privity of contract, the payments covered by Article 12(5) of the India U.K. treaty or 2(28A) of the Act would be qualified to be treated as interest, even if there is no semblance of relationship between the parties like that of creditor-debtor exists. However, it does not take into its fold any payments made to stranger to the privity of loan transactions, though such payments have to be made incidentally in relation to such loan. Undoubtedly, assessee is a stranger to the privity of loan transactions inasmuch as the contract of loan is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this contention is also devoid of any merit inasmuch as this payment does not relate to the tendering of any technical or consultancy service and the question of making available any knowledge, experience, skill know-how or process or consist of any development or transfer of a technical plan or a technical design. At the same time, it does not also meet the requirement of explanation to section 9(1)(vii) of the Act. We, therefore, are not inclined to place this guarantee recharge amount in the category of FTS. 20. Having examined the issue of corporate/bank guarantee recharge with reference to Article 12(5) of the Indo U.K. Treaty and Section 2(28A) of the Act, we are of the considered opinion that the authorities below are perfectly justified in concluding that this payment does not fall within the expression of interest and in view of Clause 3 of Article 23 of the Treaty, in the absence of any specific provision dealing with corporate/bank guarantee recharge, the same has to be taxed in India as per the provisions of the Income tax Act, 1961. We do not find any illegality or irregularity in the reasoning given or conclusions reached by the authorities below. We, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted tax at source on salary paid to Mr. Dhananjay Tapasvi, thus the income is chargeable to tax in India as salary income of the individual by virtue of section 9(1)(ii) of the Act and could not fall under section 9(1)(vii) of the Act i.e. Fees for Technical Services or equivalent to Article 13(4) of the DTAA. In support of this contention, reliance is placed on the decision of Burt Hill Design (P.) Ltd. v. DDIT (International Taxation), Ahmedabad [2017] 79 taxmann.com 459 (Ahmedabad - Trib.), wherein it was held that, - "Whether the seconded employees continue to be in employment of the foreign enterprise or not is wholly irrelevant for this purpose. What is relevant is that the income embedded in these payments in question is taxable in India under the head 'Salaries' and if that be so, there are no tax withholding obligations under section 195." In view of the above decision, it is submitted that the sum received by the Appellant could not be brought to tax separately in the hands of Appellant under the deeming provisions of 9(1)(vii) i.e. FTS. Thus, the action of the Ld. AO / Ld. DRP taxing the same as FTS is erroneous and deserves to be quashed on this point alone. 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Johnson Matthey India Pvt Ltd (the subsidiary), as such it amounts that the revenue clearly admitted the position that Mr. Dhananjay Tapasvi was appointed as an employee of Indian AE in its capacity of MD. Referring to the stand of the Revenue that Mr. Tapasvi (Seconded employee) has been seconded to India to oversee the Emission Control Technology Plant of the subsidiary, that he is an employee of the Assessee and accordingly the services rendered by him are FTS and the Ld. DR's placing reliance on the decision the case of Centrica India Offshore (P) Ltd. V. Commissioner of Income-tax-I, New Delhi [2014] 364 ITR 336 (Del) in support of their contention that there was no real employer employee relationship between the Indian subsidiary and Mr. Tapasvi, it is the submission of the Ld. AR that the person being MD / employee of the Indian AE exercised his employment with the Indian AE and it cannot be construed that the Assessee was providing services to Indian AE by appointing MD of Indian AE. According to the Ld. DR, the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore (P.) Ltd vs CIT [2014] 44 taxmann.com 300 (Delhi) is very fact specific, for the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 7 payments received by the Assessee is to be treated as revenue receipt and any cost incurred has to be allowed as deduction because salary is a cost for the Assessee which is to be allowed, as such, on account of the aforesaid there can be no sum chargeable to taxable in India. In this regard, reliance is placed in the decision of Mumbai Tribunal in the case of Morgan Stanley International Incorporated v. Deputy Director of Income-tax, (IT) (4)(1) [2015] 53 Taxmann.com 457 (Mum. Trib), which has duly considered the case of DIT(A) v. Morgan Stanley & Co. [2007] 292 ITR 416 (SC) and Centrica India Offshore (P.) Ltd. v. CIT [2014] 364 ITR 336 (Delhi HC). 26. While enumerating the services performed by the said seconded employee as mentioned in Page No.118 of the Paper Book, Ld.AR submitted that the nature of such activities make it evident that the MD was working as an employee of the Indian subsidiary, managing and overseeing the overall operations, as expected from the role of a MD for the India subsidiary and the AO has grossly erred in taxing the same as FTS relying on decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore (P.) Ltd vs CIT [2014] 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 29. It is, therefore, clear that while admitting the receipt of ₹ 55,80,855/- from JMIPL on account of the charges received for the services rendered by senior management employee seconded by the assessee to India, the assessee pleads that it is only the reimbursement of the salary payable by the Indian entity to Mr. Dhanjay Tapaswi but remitted to his account by the assessee only for administrative convenience, as such there is no element of income involved in this transaction and consequently is not liable to any tax. 30. We are in agreement with the submission of the Ld.AR that applicability or otherwise of the ratio of the Hon'ble Jurisdictional High Court in the case of Centrica (supra), is a fact specific question to be determined with reference to the functions performed and the conduct of the duty of the seconded employee with reference to the business of the assessee and the Indian entity. As a matter of fact, Ld.DRP in his order stated that in order to test the case of the assessee on the touchstone of the principles laid down by the Hon'ble Jurisdictional High Court in the case of Centrica (supra), the secondment agreement was required to be examined by the DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract and salary reimbursement agreement are not made available by the assessee. Statement of Ld. DR that the assessee failed to furnish these documents before the authorities below, by forcing them to consider only such documents as are produced by the assessee and referred to in the order of the AO at page No.17, stood uncontroverted. No administrative convenience or inconvenience is proved before us with reference to any evidence whatsoever. The need of assessee remitting the amounts to the account of the employee is not brought out. It is not known whether it is the regular practice with the assessee to remit the salaries of the seconded employees to their overseas accounts and to claim reimbursements. However, record does not reveal that either the Ld. AO or the Ld. DRP directed the production of these documents and in spite of such direction the assessee failed to produce the same, thereby permitting the authorities to draw an adverse inference against the case of the assessee. However, we feel that in order to appreciate the contention of the Ld. AR as to the nature of this particular receipt in the hands of the assessee on account of the services rendered by the seconded em ..... X X X X Extracts X X X X X X X X Extracts X X X X
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