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TMI Blog2023 (8) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding expert personnel of member company to PII for rendering technical services TDS was deductable u/s 194J of the Act by relying upon the provisions contained in the Explanation 2 of section 9(1) by treating the same as fee for technical services on the ground that as per agreement on record between PII and overseas clients it is assessee/PII who is responsible for providing the technical services to the overseas clients and there is no privity of contract between member employer company and the overseas industrial units. Moreover under MOU member companies have placed its employee at the disposal of PII on a net profit basis and employee to fulfill its contractual obligation to the overseas clients. Moreover, member companies have not incurred anything out of pocket for providing these services rather they are fully reimbursed by PII. So we are in agreement with the Ld. CIT(A) that member companies are not rendering technical services to the PII. Member employer company deducts tax at source under section 192 of the Act from the Indian salary of such employee as they continue to get their salary from his employer member companies. Member companies have also continued to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the payment made to foreign agents on the ground inter-alia that there was no business connection in India between the agents and the assessee nor the agent has performed any job/operation in India; that there was no employer employee relationship between the payer and the payees and therefore payee being the third party cannot enforce his right against the payer. CIT(A) has also taken into consideration affidavit dated 28.08.2000 executed by executive chairman of PII wherein it is duly discussed the issue as to reimbursed expenses to employees deputed outside India by various Indian companies eg. Tata Infotech, State Bank of India, Systime, Bank of Baroda, Engineers India Limited, Tata Consultancy Services etc. who are paying such allowances to the employee deputed outside India but are not deducting tax at source on allowance paid in foreign currency to their personnel and all those personnel who are sent to overseas also draw an Indian salary component as a whole. CIT(A) has rightly held the assessee not in default u/s 201(1) r.w.s. 201(1A) of the Act, hence aforesaid appeals filed by the Revenue are hereby dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the IT. Act. Therefore, TDS is deductible on such payments u/s 195 of the IT. Act. (iii) The Appellant prays that the order of the CTT(A) on the above grounds be set aside and that of the Assessing Officer restored. (iv) The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 3. Briefly stated facts necessary for consideration and adjudication of the issues at hand are: assessee M/s. Petroleum India International (PII) is a consortium of 10 public sector companies under the auspices of Ministry of Petroleum and Natural Gas, Government of India, being into the business of petroleum, petro chemicals and allied petroleum business activities. PII is an Association Of Persons (AOP) and is assessed as such having main object and activity is to provide technical expertise in the field of oil exploration and refinery. PII has been rendering the aforesaid services by marketing its capabilities through various foreign agents and through direct marketing efforts and when receives enquiries from foreign clients for rendering technical/consultancy services and training it approaches its member companies for locating expert technical pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable under the provisions of Income Tax Act, 1961 (for short 'the Act') which at the time of credit to the same account of the payee at the time of payment whichever is earlier, deduct income tax thereon at the rate in force. The AO has taken the view that even if we accept the assessee's plea that the said payment does not fall under the head "salary" TDS has to be deducted under section 195 of the Act. Because the said amount is definitely chargeable to income tax under the charging provisions under section 5(2)(b) of the Act. The AO also relied upon one CBDT circular 152 dated 27.11.1974. The AO also observed that where a person responsible for paying any sum to a non-resident considered that the whole amount thereof would not be income chargeable under Income Tax Act in the case of recipient non-resident he may make an application under section 195(2) to the ITO for determination of the proper operation of such payment which would be taxable under the Act. Since the assessee has failed to deduct TDS under section 195 of the Act he is deemed to be an assessee in default under section 201(1) of the Act in respect of the sum specified in annexure-1, annexed with common order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are fully reimbursed by PII. It is also not in dispute that member employer company deducts tax at source under section 192 of the Act from the Indian salary and benefits paid by it to the employee and the employees have continued to get their salaries from his employer member companies. It is also not in dispute that statutory deductions like PF, tax, ESI and all other deductions are made from their salaries paid by the member companies, so during the period of secondment, no employer employee relationship between the member companies and the seconded personnel continues. It is also not in dispute that member company in its books of account does not consider reimbursement by PII as an item of income but the same is credited to the salary account. 10. We have perused the impugned order passed by the Ld. CIT(A) who has duly thrashed the issues raised and decided by the AO against the assessee in the light of the statutory provisions and law applicable thereto by returning following findings: "After due consideration of all the material on record, I would like to take up each relevant issue one by one. (I) PAYMENT TO MEMBER-COMPANIES:- 7. The I.T.O. has stated that since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment with the foreign organisation. Here, I would like to state that I agree with the opinion of Shri Sohrab E. Dastur at page-9 of his opinion. I agree that the reference to including the provision of service of technical or other personnel means the provision of service of technical personnel which results in the rendering of service by the member company to the appellant. what Explanation 2 to section 9(1)(vii) provides is that one of the modes of rendering technical service is to provide the services of technical or other personnel. It must be as a part of rendering service that service of technical personnel is provided. It is not something independent of rendering of technical services because, then, instead of the word 'including' the word 'and' would have been, used, i.e., the provision of the services of technical personnel is an independent item and not related to the rendering of technical services. If, for example, a third party has agreed with the PII to render technical services by providing to PII the services of technical personnel for which it is to receive a fee it would come within the ambit of 'Fees for Technical Services but not where a member o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant with the overseas industrial unit. Payment of such allowances falls in two groups, the first group is payment of such allowances to persons who were resident in India as per section 6(1) of the Act, but were working abroad. These would be cases of persons who went abroad for work but during the relevant previous year were resident in India on account of their having met the prescribed condition of residence in India. According to the I.T.O. tax ought to have been deducted u/s. 194J of the Act in respect of such allowance paid by the appellant pursuant to the deputation letter issued by the member-employer company to the employee. The only difference between this payment and what has already been discussed earlier, namely, reimbursement to the member employer company of the salaries paid by them to the employee, is that in the earlier case there is a reimbursement to the member-employer company and in the latter care there is a direct payment to the employee instead of the payment by the member employer company to the employee and the subsequent reimbursement thereof. For the reasons discussed above in relation to the first issue, it has to be held that provision of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) chargeable under the provision of the Income-tax Act, to deduct income tax at the rates in force, unless he is himself liable to pay income tax thereon as an agent. He, accordingly, concluded that since the appellant has failed to deduct tax under section 195 of the Act, he is deemed to be an assessee in default u/s. 201 (1) of the I.T. Act in respect of such sums. 11.2. We have already discussed the question of payment of foreign and living allowances to the employees who at the relevant time of payment were resident in India. The only difference is that in those cases the allowances were paid to the employees when they satisfied the condition of being resident in India and in the present case we have to consider where the employee is non-resident. 11.3 Section 195 applies where the sum in question is chargeable under the provision of the Act. In other words, the recipient must be liable to be taxed in respect of the sum so received. Under section 5(2) of the Act, a non-resident is chargeable to tax under the Act in respect of the income received or deemed to be received in India and income which accrues or arises or is deemed to accrue or arise in India during the year. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the member employer seconding the employee and it is only the obligation of the employer member company which is being discharged by the appellant. It may be stated here that income chargeable under the head 'salaries has specifically been excluded from the provision of section 195. 11.7. Even at the risk of repetition it has to be mentioned that as the allowances in question could have only been considered as part of salary, the issue of 'person responsible for paying has to be considered. As already discussed, there was no employer employee relationship between PII and secondees and, therefore, PII cannot be considered as the person responsible for paying. 11.8. It has, therefore, to be held that I.T.O. is not correct in law in holding that the foreign allowances, food and out-of- pocket expenses paid to non-resident secondée was chargeable to tax in India u/s. 5(2)(b) of the I.T. Act. The appellant, therefore, cannot be held to be an assessee in default for this purpose. 12. PAYMENTS TO FOREIGN AGENTS:- I.T.O. in his order has stated as under- "The assessee is also making payment to various foreign agencies for getting various services as pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments. 12.3. Appellant's reliance on the C.B.D.T's Circular No. 786 dated February 7, 2000, even though issued subsequently, appears to be correct. The said circular clearly clarifies that T.D.S. should not be deducted on payment of commission to foreign agent who do not have any permanent establishment in India. The said circular clearly mentions that "where the non-resident agent operates outside the country, no part of his income arises in India." In the facts and circumstances of the case mentioned above, it has, therefore, to be held that no tax was deductible under sec. 195 from the payment made to foreign agents and the appellant, therefore, cannot be held to be an assessee in default for its failure to deduct tax. 13. I would now like to discuss some of the case laws relied upon by the I.T.O. He has mentioned the decision of the Madras I.T.A.T. in the case of Florind Shoes Ltd. Va. I.T.O. (40 ITD 28) by only reproducing an extract from the decision, without showing how the same would apply to the appellant's case. A correct reading of the Gujarat High Court judgment in H. Link's case would show that there was no personal advantage to the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these cases all the personnel who are sent to overseas also draw an Indian salary component as well. 13.4. To sum up, in the facts and circumstances of the case discussed above, I am of the opinion that the appellant has not committed any default of non-deduction of tax at source u/s. 194J and 195 with regard to payments made to enter companies, payment of allowances in foreign exchange towards living expenses to seconded employees, whether resident or non-resident, and payment to foreign agents. The appellant, therefore, succeeds on all grounds. It, therefore, cannot be held to be deemed to be an assessees in default under section 201 (1) read with section 291 (1A) of the I.T. Act. 14. In the result, appeal is allowed." 13. In the light of the aforesaid undisputed facts the Ld. CIT(A) reached the conclusion that reimbursement of Indian salary and other benefits to the member companies by PII pertaining to all seconded personnel, technical personnel whether posted in India or overseas is not fee for technical services within the ambit of definition of explanation 2 to section 9(1)(vii) of the Act and as such the assessee is not in default for that purpose. 14. Similarly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment made to secondees who are residents, the AO reached the conclusion that the tax should be deducted at source under section 194J of the Act. It is undisputed fact that the assessee directly paid foreign and living allowances directly to the employees of the member employer company who were deputed for carrying out the contract entered into between the assessee with overseas industrial units. 19. The Ld. CIT(A) decided this issue by taking into consideration the fact that such secondees to whom payment was made remained abroad for less than 182 days and the Ld. CIT(A) has rightly analysed the payment in two parts. (1) payment of such allowances made to employees who were residents in India as per section 6(1) of the Act but were working abroad and the payment made to them at the most can be considered as part of the salary and when there is no employee employer relationship between PII and secondees, PII cannot be held responsible for making payment by virtue of section 204 of the Act. The Ld. CIT(A) has also rightly relied upon the decision rendered by Hon'ble Gujarat High Court in case of CIT vs. H Link (supra) that living allowance paid to the employees is a personal adva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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