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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 ..... the circumstances of the case and in law, the learned CIT(A) has erred in deleting the demand raised by the Assessing Officer as 201(1) and u/s 201(A) of the IT. Act 1961 amounting to Rs. 2,71,82,318/- (ii) On the facts and the circumstances of the case and in law, the learned CIT(A) has creed in holding that the assessee has not committed any default for non-deduction of tax at source u/s 194J and u/s 195 of the IT. Act with regard to payment by way of reimbursement to member companies, allowances paid to resident and non-resident personnel and payment to foreign agents The learned CIT(A) further erred in holding that the assessee cannot be held to be "deemed to be in default" u/s 201(1) and u/s 201(1A) of the IT. Act, ignoring the following facts (a) That the reimbursement of Indian Salary and benefits to members company is termed as fees for technical services as per explanation 2 to Sec. 9(1)(vii) of the IT. Act. The tax is, thus, deductible at source therefrom u/s 194J of I.T. Act (b) That the payment made to secondees by the assessee, who are resident, the tax is deductible at source as per Sec. 194J of the I.T. Act. (c) That the payment made to secondees by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d contribution, gratuity etc. continued to be deducted by the member companies and after such deduction the member companies continue paying salaries to the seconded personnel in discharge of their obligation to its employees during the period of secondment. The foreign allowance and the food and out of pocket expenses to be paid to the employees are also specified in the letter of assignment issued by the member employer company. For the secondment of such employee by the member/employer company PII is to compensate the member employer company for all expenses incurred by it towards the Indian salary and other benefits of such employees during the period of secondment. 4. During his tenure abroad the secondee continues to draw his present salary from member companies where he is employee and the member companies credits secondee's Indian bank account with the amount of salary in Indian Rupees. But over and above this secondee is entitled to foreign allowance and living allowance in foreign exchange which is directly paid to him by the assessee but no TDS is deducted on the plea that there is no employer employee relationship between the payer i.e. PII and the payee i.e. secondee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault under section 201(1) of the Act to the tune of Rs. 2,54,10,239/-, 2,28,76,323/-, 2,40,00,619/- for A.Y. 1995-96, 1996-97 & 1997-98 respectively 7. The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has deleted the demand by accepting the appeal. Feeling aggrieved with the impugned orders passed by the Ld. CIT(A) the Revenue has come up before the Tribunal by way of filing present appeals. 8. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 9. Undisputedly member companies have provided expert personnel to PII/assessee for rendering technical services for which the assessee is also making payment to the member companies. It is also not in dispute that the AO by invoking the provisions contained under section 9(1) of the Act, explanation 2 treated the same as fee for technical services. It is also not in dispute that as per agreement between PII and overseas clients PII is receivable for providing technical services to the overseas client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the overseas industrial unit. Considering the arrangement between the member company as a whole, it appears that the member companies have agreed as a part of their obligation under the MOU to place at the disposal of the appellant on a no profit basis employees required by the appellant to fulfil its contractual obligation to the overseas clients. The member company obviously would not like to be out-of-pocket for providing this service and, accordingly, are to get fully reimbursed by the PII. In view of the facts mentioned above, it is not correct to say that member-companies are rendering technical services to PII. This finding is contrary to all the facts on records. 7.3. Now let us discuss the provisions of section 9(1)(vii) which deals with income by way of fees for technical services and section 194J 'fees for technical services'. As per Clause (b) to the Explanation below section 194J, read with Explanation (2) below section 9(1)(vii) of the Act means any consideration for the rendering of any managerial, technical or consultancy services including the provision of services of technical or other personnel. The member company does not render any managerial, tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onded personnel continues. It has also to be mentioned here that member- company in its books does not consider the reimbursement by PII as an item of income but the same is credited to the salary account. 7.4. Keeping in view all the facts of the case and discussion above, I am of the opinion that Income-tax officer was not correct in law in holding that the reimbursement of Indian salary and other benefits to member- companies by PII concerning all seconded personnel, technical as well as managerial whether posted in India or overseas, is fees for technical services within the meaning of ambit of the definition of the said expression in Explanation 2 to section 9(1)(vii). The appellant, therefore, cannot be held to be an assesses in default for this purpose. 8. PAYMENT TO RESIDENT SECONDEES:- The I.T.O. in his order under appeal has contended that 'payments made to secondees who are resident, the tax should be deducted at source as per section 194J of the I.T. Act'. 8.2. At the outset, it must be mentioned that the scope of PII operations as per the MOU is only outside India. Reference of payment to resident secondees has, therefore, to be understood as payment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as the person responsible for paying. 9. Before parting with this issue, I would like to mention Gujarat High court decision in CIT vs. Link 244 ITR 93 wherein it has been held that the living allowance paid to employee is not a personal advantage and therefore does not constitute Perquisite which can be subjected to tax. 10. The appellant, therefore, cannot be held to be an assessee in default for its failure to deduct tax from the payment to resident secondees. 11. PAYMENT TO NON-RESIDENT SECONDEES- The I.T.O. in his order under appeal has contended that on payment made to the secondees who are non-resident, tax should be deducted at source as per section 195 since the payment is chargeable to Income-tax under the charging section 5(2)(b) of the Income-tax Act, 1961. According to the I.T.O., the income has accrued to the secondees as a result of offer made in India by the Indian concern (member company) and accepted by the secondees in India and the payment has also been made by a concern situated in India. The I.T.O., has also claimed that the appellant acquires the right to receive the income hence without actual receipt of the same, the income can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. It follows from the Explanation that where the service is rendered outside India, the salary would not be regarded as accruing or deemed to accrue in India. As the amount does not accrue or arise nor is received in India and is also not deemed to accrue or arise or to be received in India, it would not constitute a sum chargeable under the provisions of the Act, and, accordingly, section 195 of the Act will not apply. 11.5. In the submissions made by the appellant and in the affidavit filed by the Executive Chairman of PII, it has been stated that payment towards living allowance/foreign allowance on behalf of the member companies, to the secondee is towards reimbursement of living expenses, while fulfilling the duties of their assignment while on secondment oversees. It has also been submitted that average reimbursement paid to the secondees on a daily basis does not exceed US$ 75, which is well within the guidelines of R.B.I. and Ministry of External Affairs. This reimbursement, therefore, cannot be viewed as an income or perquisite or a payment amounting to personal advantage. (CIT. H. LINK (supra). 11.6. Even assuming that this reimbursement was indeed an income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements attracts the provisions of section 195 and the appellant should have deducted x tax at source. The question which is to be decided here is whether the amount receivable by the agent would be chargeable to tax in India. The agents are performing their services wholly outside India and the services which give rise to the earning or remuneration by them are performed in their respective foreign countries. A perusal of all the agreements makes it very clear that foreign agents do not perform any operation within India. No part of the said payment, therefore, can be regarded as chargeable to tax in India. Section 9(1)(i) of the Act deems income accruing or arising through or from any business connection in India to be income accruing or arising in India. Clause (a) of the Explanation clarifies that in the case of a business of which all the operations are not carried out in India, the income of the business deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. In the case of the appellant, it cannot be said that there is any business connection in India between the agent and the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for making payment is the employer. The said decision, in fact, supports the case of the appellant as the appellant is not an employer of a secondee. Here, I would like to mention the decision of the Kerala High Court in the case of CIT Vs. G. Eroppino Giovanni (196 ITR 618). In this decision it has been held that there was no employer- exployee relationship between the payer and payee and, therefore, the payee being the third party could not enforce his right against the payer. As already diseased, seconded personnel cannot enforce their right regarding the foreign allowance against the appellant since their entitlement to the foreign allowance arises from the secondment letter issued to them by their employer member companies who undertook the obligation to pay the foreign allowance to the seconded personnel. 13.3. Before I part with the care, I would like to make a mention of the affidavit and letter dated 29-8-2000 from the Executive Chatman of PII. In addition to various issue this letter has thrown light on the issue of reimbursed expenses to employees deputed outside India by various Indian Companion. It has been stated that many Indian companies e.g. Tata Infotech, Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see/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. 16. 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. 17. Moreover, 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 statutory deduction like PF, tax, ESI from his salary paid by the member company. Since expert employees continued to get the salary from the member companies during the period of secondment their employer employee relationship continues even during the period of secondment. Moreover, member company in its books of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. Because there was no employer employee relationship between PII and secondees and that the services in respect of which allowances in question paid were rendered by the non-resident employee outside India. So we find no ground to interfere into the findings returned by the Ld. CIT(A). 22. So far as question of making payment to foreign agents subjected to TDS under section 195 of the Act by the AO is concerned, the Ld. CIT(A) has rightly reached the conclusion that tax was not required to be deducted by the assessee under section 194J of the Act in respect of 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. The Ld. 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 Infotec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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