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TMI Blog2023 (3) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by characterising such reimbursements as fees for "technical services" (FTS) as per Explanation 2 to Section 9(1)(vii) of the Act as well as "Fees for Included services" (FIS) as per Article 12(4) of the DTAA between India and USA (India-US Tax Treaty). 3. The brief facts of the case are as follows: - The assessee, Google LLC (hereinafter referred as "the assessee") is a foreign company incorporated in USA. For the assessment years 2010-11 and 2012-13 the AO issued notices under Section 148 of the Act. The reason for issue of notice under Section 148 of the Act was the assessee had received certain payments from GIPL and returns of income were not filed. During the course of reassessment proceedings the matter was referred to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP) of the payments received by the assessee. The TPO held that the international transactions with the Associated Enterprises (AE) were at ALP and hence no adjustment is required. However, the AO observed that the assessee company received payments from GIPL for seconding its employees to GIPL. The AO after analysing the arrangements between GIPL and the assessee, observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the contentions raised. Pursuant to the DRP directions the impugned final assessment orders were passed on 23.03.2021 and 08.07.2022 for assessment years 2010-11 and 2012-13, respectively. 5. Aggrieved by the final assessment orders the assessee has filed these appeals before the Tribunal. The assessee has filed two sets of paper books (serially numbered comprising of 776 pages) enclosing therein the contentions raised before the AO and the DRP, sample copies of the assignment letters issued by the assessee to its seconded employees, sample copies of Form 16 demonstrating tax has been deducted at source under Section 192 of the Act by GIPL on salaries of the seconded employees, etc. The learned Sr. Counsel submitted that the issues raised are covered by the judgement of the Hon'ble Jurisdictional High Court in the case of Flipkart Internet (P.) Ltd. vs. DCIT reported in 488 ITE 268/139 taxmann.com 595/288 Taxman 699. The learned Sr. Counsel submitted that the above judgment has been followed by the coordinate bench of the Bangalore Tribunal in the case of Biesse Manufacturing Company (P.) Ltd. vs. ACIT reported in (2023) 146 taxmann.com 242 (Bang. Trib.) and Goldman Sachs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Assignment and/or upon return from the Assignment. Your employment at all times remains "at will" and may be terminated at any time by either you or Google as is set forth in your Offer Letter." 8. From the above clauses of the assignment letter following conclusions can be drawn: "- The seconded employees should work only for Google India and not for Google LLC in any manner. Hence, the services provided by the seconded employees are solely for the benefit of Google India. - The employees were required to report to Google India and given that the seconded employees were working under the supervision and control solely of Google India being an employer, salary of such employees was ultimately incurred by Google India. - From an administrative convenience standpoint, Google LLC had agreed to make payment for the salaries of such seconded employees in their overseas bank accounts on behalf of Google India and getting reimbursement of the same from Google India on a cost-tocost basis. - Google LLC shall not be responsible and shall not assume any risk for the work undertaken by the seconded employees for GIPL. - Once seconded employees moved out of the US on sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary on behalf of Google India (GIPL), which was reimbursed by GIPL on actual. On identical facts, the Bangalore Bench of the Tribunal in the case of Biesse Manufacturing Company (P.) Ltd. by following the judgement of the Hon'ble Jurisdictional High Court in the case of Flipkart Internet (P.) Ltd. (supra) and the Bangalore Bench of the Tribunal in the case Goldman Sachs Services (P.) Ltd. (supra) had decided the issue in favour of the assessee. The contentions raised and the findings of the Tribunal in the assessee of Biesse Manufacturing Company (P.) Ltd. (supra) reads as follows: - "17. During the course of assessment proceedings, the AO noticed that the assessee has made payment to M/s. Biesse Spa, Italy towards secondment of employees deputed to India during the year under consideration for an amount of Rs.1,39,07,427. The AO also noticed that no tax was deducted at source on these amounts paid to the AE and issued a show cause notice to the assessee as to why the amount should not be disallowed u/s. 40(a)(i). The assessee submitted that these were salaries paid to Italian employees working in India. The payment was made to the employees in Italy and the same was reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions and perused the material on record. We notice that the Hon'ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd (supra) while considering the issue of NIL TDS certificate towards reimbursement of salary cost held as follows:- "33. In the present case, the stand taken on the material available is on the construction of legal position. As pointed out in the discussion earlier that the understanding of the legal position being erroneous, the only conclusion that could be arrived at is to allow the application. 34. Though the Revenue has raised numerous contentions that further information is required to record a detailed finding, such stand is taken up for the first time in the present proceedings A perusal of the file of the Department does not make out any instance where the Department had sought for further information which was not furnished On the contrary, the petitioner has made out detailed representation on the legal position and record does not reflect any requisition for further information remaining unanswered In fact, the Apex Court in GE India Technology Centre (P.) Ltd. (supra) has rightly observed at para-16 as follows: "16. The fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Pvt. Ltd.(supra) has considered a similar issued and held that - "26.9. Admittedly, the assessee deducted tax at source u/s.192 of the Act, on the 100% salary paid to the seconded employees, and paid the same to the credit of the Central Government. The assessee only reimbursed part of the salary cost of the seconded employee to overseas entity that has already subjected to TDS under section 192 of the Act. And therefore, at the time of making such reimbursement, to overseas entity, no taxes were deducted at source by the assessee in respect of reimbursements made as, according to the assessee, it was in the nature of cost-to-cost reimbursement, and, no element of income was involved. 26.10. The assessee in India does the TDS on 100% salaries u/s 192 and pay the same to the credit of the Central Government. Form 16 at page 228- 230 issued to Christopher Roberts of PB Vol I, by the assessee in Indian, Certificate under section 203 of TDS having deducted at source and further indicates the following - * Employee has a PAN number in India * Total taxable salary is Rs 9,761,581 (this corresponds to the US$ 130,000 as total compensation indicated in the local employment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". 26.13. The definition of FTS under the Act excludes "consideration which would be income of the recipient chargeable under the head salaries." If the seconded employee is regarded as employee of the assessee in India, then the reimbursement to overseas entity, by the assessee in India would not be in the nature of FTS, but would be in the nature of 'salary', and therefore, the reimbursements cannot be chargeable to tax in the hands of overseas entity, and therefore there would be no obligation to deduct tax at source at the time of making payment u/s.195 of the Act. 26.14. Article 12(4)-(5) of India USA, DTAA deals with "Fees for technical services', as under: "4. For purposes of this Article, "fees for included services" means payments 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of Article 15 of the OECD Model Commentary (corresponding to Article 16 of the DTAA between India and US), the seconded personnel are employees of the Indian entity, being the economic employer. It is to be noted that the understanding as to who is the 'employee' in order to be excluded from, "fees for technical services", cannot be inconsistent with the understanding of employee for the purpose of Article 15 on income from employment, especially when Article 15 is an anti-abuse provision. 29. The Ld. DCIT placed reliance on the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. reported (2014) 44 taxmann.com 300 concluded that the reimbursement was FTS and that services provided make available technical skill or knowledge for use by the assessee. 29.1. In case of the decision of Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt.Ltd vs. CIT(supra) dealt with identical case of reimbursement of salaries paid to expatriate employees. The Hon'ble Court held that, overseas entities had, through seconded employees, undoubtedly provided 'technical' services to Centrica India and that, the expression rendering tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus manifest that this decision has no application to the facts of the instant case." 29.3 We also note that, reliance is placed on the decision of Hon'ble Madras High Court in case of Verizon Data Services India (P) Ltd. v. AAR and Ors(supra), wherein it is held that, the reimbursement of salary of expatriates to foreign co by Indian company results in taxable income in the hands of the foreign company. Hon'ble High Court also upheld the observations of AAR, wherein it characterized the secondment of personnel as provision of managerial services. However, the Hon'be Court set aside the ruling of Hon'ble AAR, wherein it held that, the reimbursement of salary of expatriates constitutes fees for included services in terms of Article 12(4) of India USA DTAA. Therefore, reliance placed on this decision is of no assistance to revenue. 29.4 There is another decision of Hon'ble Supreme Court in case of DIT v. Morgan Stanley reported in (2007) 162 Taxman 165, wherein, it is held that, in case of deputation, the entity to whom the employees have been deputed cannot be regarded as employer of such employees as the employees continue to have lien on his employment with the entity which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no finding, of their existing PE, in any form by the revenue and therefore is of no assistance to the revenue. 29.7 As far as the decision of Hon'ble AAR in the case of AT & S (supra) is concerned, the facts of the said case were that AT&S, a company incorporated in Austria, offered services of technical experts to applicant, a resident company, pursuant to a foreign collaboration agreement on the terms and conditions contained in secondment agreement. Under the secondment agreement the applicant is required to compensate AT&S for all costs directly or indirectly arising from the secondment of the personnel, and the compensation is not limited to salary, bonus, benefits, personal travel, etc. but also includes other items. On the above facts, Hon'ble AAR ruled that the Contention that the payments are only in the nature of reimbursement of actual expenditure is not supported by any evidence and there is no material to show what actual expenditure was incurred by AT&S and what was claimed as reimbursement. A part of the salary of seconded personnel is paid by the applicant in Indian rupees and the remaining part is paid by the applicant to AT&S in Euro. While working with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services of technical or other personnel" is independent of preceding terminology - "managerial, technical or consultancy services" or whether the bracketted words are to be regarded as integral part of managerial, technical or consultancy services undertaken by the payee of fee. In other words, is the bracketted clause a stand alone provision or is it inextricably connected with the said services? HMFICL itself does not render any service of the nature of managerial, technical or consultancy to the applicant and it has not deputed its employee to carry out such services on its behalf. There is no agreement for rendering such services. In this factual situation, it is possible to contend that merely providing the service of a technical person for a specified period in mutual business interest not as a part of technical or consultancy service package but independent of it, does not fall within the ambit of S.9(1)(vii)." 32. Hon'ble Bombay High Court in case of Marks & Spencer Reliance India Pvt.Ltd. VS. DIT reported in (2013) 38 taxmann.cm 190, upheld the view of Hon'ble Mumbai Tribunal which held that, payment towards reimbursement of salary expenditure without any element o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded services" means payments 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 a & 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." Thus, even if, the rendering of service by the seconded personnel constitutes a contract for service, in the absence of making available any technical knowledge or skill to the Indian entity, the same shall not constitute fees for technical services. In support we refer to the decision of Hon'ble Karnataka High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. reported in (2012) 21 taxmann.com 214, on the concept of 'make available', observed and held as under: "What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel states that the employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961, files their respective returns under Section 139 of Income Tax Act, 1961 and shows the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon..... 14. Coming to the third issue of payment of salary, allowances and expenses of the personnel drawn from different global entities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Karnataka High Court in DIT vs. Abbey Business Services India (P.)Ltd.(supra), Hon'ble AAR in Cholamandalam MS General Insurance Co. Ltd. (supra), Hon'ble Bombay High Court in case of Marks & Spencer Reliance India Pvt. Ltd. vs. DIT (supra), Hon'ble Delhi High Court in the case of DIT Vs. HCL Infosystems Ltd. (supra), Coordinate bench of this Tribunal in case of IDS Software Solutions vs. ITO (supra), Hon'ble Pune Tribunal in case of M/s.Faurecia Automative Holding(supra), Hon'ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (supra), we are of the view that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as "Fee For technical Services" Once there is no violation of provision of section 195, assessee cannot be held to be an assessee in default under section 201(1) of the Act for all the years under consideration. We therefore direct the Ld.AO to delete the interest levied under section 201(1A) of the Act for all the years under consideration." 23. In assessee's case on perusal of records it is noticed that the seconded employee is in the payroll of the assessee and tax has duly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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