9911796707
TMI Blog2023 (5) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... mation given is engaged in manufacturing of control panels for machines and installation, erection of machines. In the profit and loss account, the revenue from operations are from sale of products and sale of services. It is nowhere into manufacturing of any automation equipments / instruments as has been observed by the DRP. It also do not provide any automation solutions for industrial plants. The assessee before us is into manufacturing of control systems, industrial automation instruments and equipments and electrical measuring instruments. The product that is developed by the comparable company is a small element manufactured by the assessee. The manufacturing activities carried out by the assessee in the varied products cannot be compared with that of the comparable and therefore deserves to be excluded. Abak Elcerofab Engg Pvt. Ltd - As rightly pointed out by the Ld.DR, the revenue has been recognised by this company to be as manufacturing sales. From the annual report, it is not discernible what is the manufacturing activity carried out by this company. We therefore remand this company back to the Ld.AO/TPO to carry out necessary verification and to find out what is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analysis is estimation and not an exact science. One has to see that, reasonable adjustment must be made where ever it is needed, so as to bring both comparable and test party on same footing. In present facts of case, DRP may be correct in denying working adjustment due to unavailability required data, however there is no merit in observations of DRP/TPO as supported by Ld.CIR DR, in denying working capital adjustment due to absence of details for working out adjustments in comparable companies chosen. Regarding comparable companies, one has to fall back upon only on information available in public domain. If that information is insufficient, it is beyond the power of the assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s. 133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital differences. Therefore this objection of DRP is not sustainable. Thus respectfully following decision of coordinate B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process in a broad range of production facilities. 2.2. Assessee filed its return of income on 30.11.2017 declaring total income of Rs.90,94,42,450/-. The case was selected for complete scrutiny and notice u/s. 143(2) was issued to assessee along with questionnaire in notice u/s. 142(1). The Ld.AO noted that for the year under consideration, assessee had international transactions with its associated enterprises that exceeded Rs. 15 crores. Accordingly, a reference was made to the transfer pricing officer for determining the arm s length price of the international transaction undertaken by assessee. 2.3. On receipt of the reference, the Ld.TPO called upon assessee to furnish the economic details of the international transaction in form 3CEB. On receipt of the details filed by the assessee, the Ld.TPO noted that assessee had following international transactions with its AE. 2.4. The Ld.TPO noted that assessee used TNMM as the most appropriate method for manufacturing and trading segments and adopted combined transaction approach under the manufacturing segment. 2.5. The PLI was selected to be OP/OC. The assessee thus computed its margin under manufacturing segment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one comparable from the manufacturing segment and also from trading activity. Further, the DRP included one comparable in the trading activity. The DRP did not grant working capital adjustment as was prayed by the assessee. 2.14. In respect of the payment reimbursed by assessee to the AE towards salary expenses of the expat expatriate employees, the DRP upheld that it fall within the ambit of fee for technical services and therefore TDS ought to have been deducted u/s. 195 of the act. 2.15. The DRP thus upheld the disallowance made by the Ld.AO, u/s. 40(a)(i) of the act. On receipt of the DRP directions, the Ld.AO passed the impugned order by making an addition in the hands of assessee at Rs.17,31,94,360/-. Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal. 3. The Ld.AR submitted that Ground nos. 1 to 5 are general in nature and therefore do not require any adjudication. 4. In Ground no. 6 The Ld.AR submitted that sub-ground (c) (d) are the comparables that the assessee is seeking inclusion/exclusion under the manufacturing segment. He submitted that Ground no. 6(a) (b) are general in nature and therefore do not require adjudicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al goodwill of professional, celebrity goodwill, etc. Risk Assumed: The risk profile of Yokogawa India and its AEs in relation to the manufacturing activity has been summarised below: Characterisation: Manufacturing activity: Based on the results of the functional, risk and asset analysis, Yokogawa India can be characterized as a licensed manufacturer bearing market risks and performing normal functions undertaken by a manufacturer typically. Based on the above we shall undertake the analysis of comparable sought for inclusion/exclusion by the assessee under the manufacturing segment. 4.1. Ground No.6(c): The Ld.AR submitted that, the three comparables sought for inclusion under the manufacturing segment are a) Amtech Electronics (India) Ltd. b) Continental Controls Ltd. c) Supernova Engineers Ltd. 4.2. The Ld.AR submitted that all the 3 comparables passes through the filters applied the Ld.TPO. It is also submitted that in case of Supernova Engineers Ltd., the Ld.TPO had not raised any objections except for mentioning that it is functionally not similar. 4.3. It is the submission of the Ld.AR that all the 3 comparables are engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it deals in manufacturing of control panel for machines and installation, erection of machines. He referred to the annual report of this comparable placed at pages 2487 2528 of paper book. The Ld.AR submitted that this company has not made any export during the year by referring to page 2492. Referring to page 2500 of the paper book, the Ld.AR submitted that this company is 100% into manufacturing of control panel/WTP STP engineering service and panel manufacturing. Whereas the assessee is engaged in manufacturing of industrial automation instruments / equipments and electrical measuring instruments. (b) The Ld.AR submitted that the only observation by the DRP to include this company is by stating that it is engaged in manufacturing of control panel for machines and also provides automation solutions for industrial plants which is not correct as per the annual report. The Ld.AR thus submitted for exclusion of this comparable. The Ld.DR on the contrary submitted that the filters applied by the Ld.TPO does not include the export income filter and therefore the fact that this company do not have any export income is of no relevance. He thus submitted that this company is into m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assembly of control panel whereas the principle business activity of the company at page 2609 has stated to be other electrical equipment manufacturing services. As rightly pointed out by the Ld.DR, the revenue has been recognised by this company to be as manufacturing sales. From the annual report, it is not discernible what is the manufacturing activity carried out by this company. We therefore remand this company back to the Ld.AO/TPO to carry out necessary verification and to find out what is the product manufactured by this company and to ascertain whether the manufacturing activity is comparable with that of assessee. In the event, the product manufactured is more or less similar with that of assessee and the same may be retained. Accordingly this comparable is remanded back to the Ld.AO/TPO for necessary verification in accordance with the directions hereinabove. III) Dembla Valves Ltd. (a) The Ld.AR submitted that this company is engaged into manufacturing of various types of valves catering to oil, gas, petrochemicals, power, water treatment and distillation, steel, electricals, pharma, paper and pulp industries. He thus submitted that this company is func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the Tribunal erred in not acknowledging its own decision, where it has held that Bodhtree Consulting Limited to be a valid comparable for SWD? (d) We note that Hon ble High Court observed and held as under: 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfer Pricing Adjustments' made by the concerned authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:- 7. We have heard the learned Departmental Representative as well as learned Authorised Representative and considered the relevant material on record. At the outset, we note that the TPO has applied the filter of 25% RPT whereas the assessee has contended that the filter of revenue from RPT should be applied at 15% instead of 25% applied by the TPO. The learned Departmental Representative has submitted that there is no standard rule for applying the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Four Soft Ltd. having 19.89% of RPT. Considering the functional details as reported in the Annual Report and following the earlier orders of this Tribunal in the case of Kodiak (supra), we direct the A.O/TPO to exclude these five companies namely Bhodtree Consulting Ltd., Exensys Software Solutions Ltd., Sankya Infotech Ltd., Thirdware Solution Ltd. Tata Elxsi Ltd. from the set of comparables. 4. This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. 5. The relevant portion of the said judgment is quoted below for ready reference: Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. We have heard the ld. DR As far as exclusion of this company Persistent Systems Ltd., on the ground that the related party transaction is more than 15% is concerned, we find that the admitted position with regard to related party transaction in this case of Persistent Systems Ltd., is 39.15%. The DRP in its order proceeded on the basis that the threshold limit for application of the Related Party Transaction filter (RPT filter) would be 25% of the total transaction. The Hon'ble Karnataka High Court in its Judgment 28-6-2018 in Pr. CIT v. Yodlee Infotech (P.) Ltd. [IT Appeal Nos. 684 and 685 of 2017, dated 28-62018] had to consider among other questions of law the following questions of law with regard to application of RPT filter, viz., Whether on the facts and in the circumstances of the case, and in law, the Tribunal was justified by not acknowledging its own orders where the Tribunal has held in stretching RPT% from 15-20% in case of Katera Software India Pvt Ltd? and Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that RPT filters should be 15% and not 25%, taken by the TPO?. The Hon'ble Court held as follows: ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RPT cannot be allowed to the extreme limit of 25% of revenue. Accordingly, in order to determine the ALP considering by considering the uncontrolled comparable transactions, it should be kept in mind that the uncontrolled transactions should be least influenced by the controlled and related prices. This Tribunal in the series of decisions has taken a view that when good number of comparables are available, then the threshold limit of RPT shall not be more than 15% of total revenue. In view of the facts and circumstances of the case when good number of comparables available, then we are of the considered opinion that the RPT filter of 15% is proper in the case of the assessee. By applying this filter of 15% RPT, we modify the impugned order of the CIT (Appeals) and therefore only one company namely Four Soft Limited will be excluded from the said comparable having more than 15% RPT. Accordingly, we direct the A.O./TPO to exclude the Four Soft Ltd. Having 19.89% of RPT. . 4. This Court in ITA No. 536/2015 C/w ITA No. 537/2015 delivered on 25-6-2018 (Prl. Commissioner of Income Tax Anr. v. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs. 6. Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present cases also. The appeals filed by 49/Bang/2022 the Appellants-Revenue are liable to be dismissed and are dismissed accordingly.' 22. We are of the view that the facts of the Assessee's case is similar to the case decided by the Hon'ble High Court and in the light of the aforesaid decision of the Tribunal which has been upheld by the Hon'ble Karnataka High Court, the RPT filter has to be applied adopting the threshold limit of 15%. We hold and direct accordingly. (f) In case of Barracuda Networks India Pvt. Ltd. vs. DCIT reported in (2021) 131 taxmann.com 337, this Tribunal has followed the above decision of Hon ble Karnataka High Court and has held that the RPT filter has to be applied by adopting the threshold limit of 15%. (g) We accordingly direct the Ld.AO/TPO to verify the RPT filter of these three comparables and to apply it at threshold limit of 15%. In the event, the RPT of these thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders support to the AEs for which Yokogawa India is remunerated by way of commission. The commission is generally computed as the difference between the final sale price to the customers offered by the AE and the transfer price (which is arrived at as standard price X transfer factor). Assets: The tangible assets that are employed by Yokogawa India for carrying on its business activities are as follows: S. No. Nature of Assets Value in INR Lakhs 8. Freehold land 90.52 9. Buildings 2290.28 10. Plant Equipment 1812.68 11. Furniture Fixtures 184.01 12. Vehicles 210.74 13. Office equipment 694.10 14. Leasehold improvements 161.03 Total 5443.37 The assessee also owns intangible a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave perused the submissions advanced by both sides in the light of records placed before us. (iii) We note that DRP rejected this comparable for the reason that this company is trading in different types of products and is not similar with those manufactured and sold by the assessee. We note that in the present case, largely DRP has been blowing hot and cold at the same time. While considering the comparables, objected by the assessee for exclusion in the manufacturing segment, the DRP has not considered the product manufactured and has taken a view that assessee is following TNMM wherein a narrow observation cannot be used for exclusion/inclusion of comparable. However, while considering the trading segment, the DRP is strictly following the product similarity that is manufactured and traded between the assessee and the comparable company. Such approach by the DRP cannot be accepted. (iv) We are of the view that that the revenue accepted this comparable in the preceding assessment year. Without there being a cogent reason, the comparable cannot be excluded. There is nothing placed on record to establish that this company is functionally not similar to the assessee. We th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment that was not granted while computing the margins of the assessee under both trading and manufacturing segment. 11.1. It has been submitted by Ld.AR that working capital was been denied to the assessee on the ground that assessee failed to demonstrate such differences could have any impact on assessee's profit. It has been submitted by Ld.AR that the submissions advanced by assessee demonstrating computational impact has not been considered by the Ld.AO/TPO. 11.2. Before us, Ld.AR submitted that it is an accepted principle upheld in various decisions of this Tribunal that working capital adjustment should be allowed on actual. It has been submitted that all relevant details for computation of working capital was provided to the Ld.AO/DRP which has been disregarded. He placed reliance upon the decision of coordinate bench of this Tribunal in case of Huawei Technologies India (P.) Ltd. v. Jt. CIT reported in (2019) 101 taxmann.com 313, wherein it has been held that the working capital has to be granted in actual. 11.3. On the contrary, Ld.CIT DR placed reliance upon orders passed by authorities below. We have perused submissions advanced by both sides in ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... row to fund the purchase, or reduce the amount of cash surplus which it is able to invest. Note that the interest rate July 2010 Page 6 might be affected by the funding structure (e.g. where the purchase of inventory is partly funded by equity) or by the risk associated with holding specific types of inventory) 16. Making a working capital adjustment is an attempt to adjust for the differences in time value of money between the tested party and potential comparables, with an assumption that the difference should be reflected in profits. The underlying reasoning is that: A company will need funding to cover the time gap between the time it invests money (i.e. pays money to supplier) and the time it collects the investment (i.e. collects money from customers) This time gap is calculated as: the period needed to sell inventories to customers + (plus) the period needed to collect money from customers - (less) the period granted to pay debts in suppliers 11.7. The reverse applies to huge accounts payable. By having high accounts payable, a company is benefitting from a relatively long period to pay its suppliers. It would need to borrow less money to fund its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect in denying working adjustment due to unavailability required data, however there is no merit in observations of DRP/TPO as supported by Ld.CIR DR, in denying working capital adjustment due to absence of details for working out adjustments in comparable companies chosen. If we appreciate the argument advanced by Ld.CIT.DR, there would remain no comparables for the purpose of comparability analysis to determine ALP of an international transaction, and this would be fatal to entire exercise of transfer pricing analysis. 11.11. Regarding comparable companies, one has to fall back upon only on information available in public domain. If that information is insufficient, it is beyond the power of the assessee to produce correct information about comparable companies. Revenue on the other hand has sufficient powers u/s. 133(6) to compel production of required details from comparable companies. If this power is not exercised to find to get information required, then it is no defense to say that Assessee has not furnished required details to deny any adjustment on account of working capital differences. Therefore this objection of DRP is not sustainable. Therefore in, endeavor should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e international transactions of the assessee involve charges for raw material and components, sales and manufacturing goods, reimbursement of expenses, payment towards royalty and management fees, charges of capital equipment, payment of intra-goods services, charges of material, commission income, rendering of software services, reimbursement of expenses and Global Sale and Marketing Activity Fees. The TPO has accepted all other transactions except the international transactions regarding Global Sale and Marketing Activity Fees. It is pertinent to note that the international transactions of the assessee are comprising of revenue receipt from the AE as well as revenue payment to the AE. Therefore in these facts and circumstances of the case, we find that when the other international transactions regarding revenue receipt from the AE are tested under the TNMM analysis then the transaction of fee payment by the assessee towards the services rendered by the AE should not be separately tested but all the international transactions having receipt from the AE and payment to the AE shall be clubbed together and then has to be analysed under TNMM. We further note that the DRP has directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 2CO-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an `Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot prove its claim with reliable evidence and confirmed the order of the AO. Aggrieved, the assessee is in appeal. 27. The ld. AR submitted that the issue of TDS on reimbursement of salary of seconded employees is settled now with the decision of the Hon ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd. v. DCIT (International Taxation), WP No.3619/2021(T-IT) dated 24.6.2022. The ld. AR further submitted that the coordinate Bench in the case of Goldman Sachs Services P. Ltd. v. ACIT , IT(IT)A No. 362 to 369/Bang/2020 dated 29.4.2022 has considered the similar issue and held that there is no violation of provisions of section 40(a)(ia). 28. The ld. DR relied on the order of the Supreme Court in the case of C.C.,C.E ST, Bangalore v. Northern Operating Systems (P) Ltd. [Civil Appeal No.2289 to 2293 of 2021) dated 19.5.2022. 29. We have heard the rival submissions and perused the material on record. We notice that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to note that the Secondment Agreement constitutes an independent contract of services in respect of employment with assessee Hence, the DCIT in the impugned order has missed this aspect of the matter and has proceeded to consider the aspect of rendering of service as to whether it was 'FIS' 38. In light of setting aside of the impugned order in the context of legal position as noticed, the only order that can now be passed is of one granting 'nil tax deduction at source'. 39. Accordingly, in light of the above discussion, the impugned order at Annexure-A dated 1-5-2020 is set aside and the respondent No.1 is directed to issue a Certificate under section 195(2) of IT. Act to the effect of 'Nil Tax education at Source' as regards the petitioner's application dated 15-1-2020. 30. We also notice that the coordinate bench of the Tribunal in the case Goldman Sachs Services 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween India and US. Payments made to individual or firm of individuals for service rendered by them in independent professional capacity are specifically excluded since they are covered by Article 15 on Independent Personal Services. Likewise, Article 12 specifically excludes payments made towards services rendered by 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held that the payment to AE was in the nature of `fees for technical services' and not reimbursement of expenses and further laid down that the nomenclature of reimbursement was not decisive. It noted that: 'Money paid by assessee to overseas entity accrues to overseas 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 49/Bang/2022 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 plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inational enterprise, a service PE can emerge. Applying the above tests to the facts of this case, it is found that on request/requisition from MSAS the applicant deputes its staff. The request comes from MSAS depending upon its requirement. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in India. Payment of salaries is not covered under section 195. Thus, it is necessary to take into consideration following aspect to determine Payments to enterprise seconding employees, the Indian entity has an 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., reported in 309 ITR 356, 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 - manageria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch payment are towards reimbursement of salary cost borne by oversees entity, and that, no income can be said to accrue to oversees entity in India. The decision of this Tribunal in case of Abbey(supra) has been upheld by Hon ble Karnataka High Court in DIT vs. Abbey Business Services India (P.)Ltd., reported in (2020) 122 taxmann.com 174. 35. Hon ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (2017) 79 taxmann.com 459, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 36. The Ld.AR has placed 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 employeremployee relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king as their employees and having employee employer relationship. It is further held that there is no supply of manpower service rendered to the appellant by the foreign/holding company. The method of disbursement 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 15.04.2013. 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 DIT vs. Abbey ..... X X X X Extracts X X X X X X X X Extracts X X X X
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