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TMI Blog2023 (7) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s. 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification. TDS u/s 195 - Disallowance u/s. 40(a)(ia) - secondment of employees - HELD THAT:- Respectfully following the views expressed in Abbey Business Services India (P.) Ltd. s case [ 2020 (12) TMI 570 - KARNATAKA HIGH COURT] , Cholamandalam MS General Insurance Co. Ltd. s case [ 2009 (1) TMI 19 - AUTHORITY FOR ADVANCE RULINGS] , Mark Spencer Reliance India (P.) Ltd. [ 2013 (11) TMI 317 - ITAT MUMBAI] , Faurecia Automotive Holding [ 2019 (7) TMI 402 - ITAT PUNE] , 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 Since the Tribunal on an earlier occasion for the AYs 2011-12 to 2014-15 2015-16 to 2018-19 has held that there is no violation of provision of section 195, assessee cannot be held to be an assessee in default u/s. 201(1) of the Act, there is no que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has disclosed investment of Rs. 1,44,00,000/-. Since these investments need a potential Advisor to earn exempted income, the Ao computed disallowance under Rule 8D(2)(iii) of Rs. 1,37,500 based on the disclosures in the Balance Sheet. But the assessee company has not yielded any exempted income nor dividend income in the financial year and the LdAr referred to the disclosures in the Paper Book, financial statements at page 20 Schedule 3.17, were there is no dividend nor exempted income received as per profit and loss account. Further similar disallowance was deleted in assessee own case for the Assessment Year 2014-15 as no dividend income has been earned on investments. The learned Authorized Representative relied on the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT 378 ITR 33 (Del) where the Hon'ble High Court has held that unless and until exempted income is received for the concerned assessment year, the provisions of Section 14A of the Act are not applicable.we find the co-ordinate Bench of the Tribunal in assessee own case in IT(TP)ANo.3244/Bang/2018 for the Assessment Year 2014-15 has dealt at pages 46 & 47 para 8 of the order as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the material on record. The Tribunal vide order dated 15.6.2020 on this issue has held as under:- "16. The last ground of appeal argued by the learned Authorized Representative in respect of disallowance of deduction under Section 80G of the Act. In the financial year 2014-15, the assessee has incurred expenditure of Rs. 4,72,00,024/- to meet the CSR (Corporate Social Responsibility) as per Policy formulated under Section 135 of the Companies Act, 2013. Out of the said amount, a sum of Rs. 2,25,21,500 qualified for deduction under Section 80G of the Act and therefore the assessee claimed of 50% of amount being Rs. 1,12,60,750/- as deduction under Section 80G of the Act. The TPO/A.O. has disallowed substantial portion of donation under Section 80G of the Act on the ground that donations were not in the nature of voluntary contribution as required under CSR Policy. Further the Assessing Officer has allowed the contribution to PM National Relief Fund under Section 80G of the Act as it was a direct contribution to the Government. No other inferences were raised by the TPO/A.O. in respect of other donations which are equally eligible for deduction under Section 80G of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Companies Act, 2013) (18 of 2013)." Where these two exceptions are provided in Section 80G of the Act, it can be inferred that the other contributions made u/s. 135(5) of the Companies Act are also eligible for deduction u/s. 80G of Income Tax Act subject to assessee satisfying the requisite conditions prescribed for deduction u/s. 80G of the Act. In the present case the A.O. has not dealt on these aspects, prima facie, considered the contributions as not voluntary but a legal obligation and has accepted the genuineness of the contributions. We are of the opinion, that the matter has to be considered for examination and verification of facts subject to the assessee satisfying the requirements of claim u/s. 80G of the Act. Accordingly, we restore the entire disputed issues to the file of A.O. for fresh examination and verification as discussed above and the assessee should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes." 10. After hearing both the parties, we direct the AO to pass the consequential order in compliance of the direction of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid agreement is reproduced herein above. 26.2 From the recitals to the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006 between the assessee and overseas entity, it is clear that, the process of secondment of employees by overseas entity to the assessee in India is initiated, when the assessee in India, requires services of seconded employees of overseas entities, for its business projects by the assessee in India. The assessee in India then enters into an agreement for seconded with such employees. By way of illustration, we may take the case of one Laura May, who is a American national and who is on the rolls of overseas entity. 26.3 Article 3.3 of the 'India Recharge and Cost Allocation" Agreement', dated 03/03/2006 between the assessee and overseas entity imposes obligation of compliance with tax deduction at source as per the Act, on salaries paid to the seconded employees on the assessee in India. 26.4 A reading of article 2, of the Agreement between the assessee and Laura May, shows that the control and supervision of the seconded employee is with the assessee in India. 26.5 As per article 4 of the Agreement between the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as per GSSPL's local policy 9.1 Notice period Either the employee or GSSPL can give notice (mutual) to end the employment with one month's notice 9.2 Termination Firm has right to terminate the employment for a cause ("firm" is defined as GSSPL at para 2.1 and hence it is GSSPL which has the right to terminate the employment) 11 Discipline and Grievance Employee is bound by the Employee Handbook of GSSPL (and not of overseas companies as noted by CIT(A) at para 23 of his order) 16 Miscellaneous The contract is governed by the laws of India 17 Signatures The contract of employment is signed both by the expatriate employee and GSSPL 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical 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 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 ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an 'employee' of the enterprise since services rendered under employment are covered by article 16 on Dependent Personal Services. 28. The relevant portion of para 5(e) of Article 12 of the DTAA between India and US reads as follows : -- "Fees for included services does not include payments made - to an 'employee' of the person making the payment or - to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services)." The payments made by the Indian entity to the overseas entity is towards reimbursement of salary paid by the overseas entity to the seconded personnel. As discussed in para 14.2 to 14.7 above, for 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 employme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas entity, which may or may not apply it for payment to secondees, based on its contractual relationship with them.' It is perceptible that in that case money paid by the Indian entity accrued to overseas entities only, which could or could not have been paid to the secondees depending upon the terms of contract. Per contra, we are confronted with a situation wherein the money never accrued to the assessee. It initially paid money to Mr. Franck in advance and then M/s.Faurecia Automotive Holding recovered the same from the Indian entity without any mark-up. There can be no question of the assessee receiving money in its own independent right. Rather, it is a case of discharge by the Indian entity of its own liability towards salary payable to Mr. Franck. It is thus 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. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. Generally, occasions do arise when MSAS needs the expertise of the staff of MSCo. In such circumstances, generally, MSAS makes a request to MSCo. A deputationist under such circumstances is expected to be experienced in banking and finance. On completion of his tenure he is repatriated to his parent job. He retains his lien when he comes to India. He lends his experience to MSAS in India as an employee of MSCo as he retains his lien and in that sense there is a service PE (MSAS) under art 5(2)(l). There is no infirmity in the ruling of the AAR on this aspect. In the above situation, MSCo is rendering services through its employees to MSAS. Therefore, the Department is right in its contention that under the above situation there exists a service PE in India (MSAS)." 29.6 Per contra, in the present facts of the case there 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 India (P.) Ltd. (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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obligation to deduct tax source u/s 195 : (i) Payment of fees by an enterprise (Indian entity) to foreign entity for seconding employees; (ii) Reimbursement of salaries to the entity seconding the employees (foreign entity) from the entity to whom employees have been seconded (Indian entity). 31. Payment for supplying skilled manpower cannot be regarded as payment towards managerial, technical and consultancy services as per dictionary meanings of these terms. Hon'ble AAR in Cholamandalam MS General Insurance Co. Ltd.'s case (supra), took the view that, merely supplying technical, managerial or personnel with managerial skills cannot be regarded as rendering technical services by the person supply such personnel. The following were the relevant observations of Hon'ble AAR :-- "It is debatable whether the bracketted words - "including provision 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness Services India (P.) Ltd.'s case (supra). 35. Hon'ble Ahmedabad Tribunal in the case of Burt Hill Design (P) Ltd. v. Dy. DIT(IT) [2017] 79 taxmann.com 459/164 ITD 697, on identical facts, as in the case of the present assessee before us, took the view that, there was no liability to deduct tax at source u/s. 195 when payments were made by way of reimbursement. Based on the above detailed analysis of various contrary decisions on the issue, we are of the view that the decisions relied by revenue are distinguishable with the present facts of the case. Further, in the present facts we note that, the concept of make- available is not satisfied in the instant case. As per para 4(b) of Article 12 of the India-US DTAA on 'Royalties and fees for included services': "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 or other personnel) if such services a. …. b. make available technical knowledge, experience, skill, know-how, or processes, or consist of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before this Tribunal a decision rendered by Hon'ble CESTAT, Bangalore, wherein the Hon'ble CESTAT was deciding, whether the assessee in India, was required to pay service tax demand (on reverse charge basis) on the secondment reimbursements, on the basis that the same amounts to "manpower recruitment & supply agency services", placed at page 66-86. The Hon'ble CESTAT, Bangalore, held that employer-employee relationship exist between the seconded employee and the assessee in India in para 14 of the order passed by Hon'ble CESTAT, Bangalore. The Hon'ble CESTAT, Bangalore, further held that, there is no manpower supply services since assessee in India is the real employer by reason of the employment contract. Service tax demand was deleted. The relevant extracts are below -- 6. Submitting on the demand of Service Tax under the category "Manpower Recruitment & Supply Agency Service", the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sbursement of salary cannot determine the nature of transaction. 15. The learned Counsel for the appellants submits that the Department was fully aware of the facts when the SCN dated 27- 10-2009 was issued and therefore no suppression of facts with an intent to evade payment of duty can be alleged in the subsequent SCN dated 15-4-2013. He relies upon Nizam Sugar Factory case (supra). We find that the argument is acceptable and for this reason, the second SCN is liable to be set aside ab initio….. 16. In view of the above, Appeal No. ST/25566/2013 & Appeal No. ST/21705/2016 are allowed. Thus, the above decision of Hon'ble CESTST Tribunal further strengthens assessee's case. We therefore, hold that, the amount reimbursed by the assessee to the overseas entity cannot be subjected to tax in India as there does not involve any element of income embedded in it. 37. Respectfully following the above views expressed by Hon'ble Karnataka High Court in Abbey Business Services India (P.) Ltd.'s case (supra), Hon'ble AAR in Cholamandalam MS General Insurance Co. Ltd.'s case (supra), Hon'ble Bombay High Court in case of Mark & Spencer Reliance India (P ..... X X X X Extracts X X X X X X X X Extracts X X X X
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