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TMI Blog2024 (4) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... that Master Service Agreement entered into between HCLT and the foreign AEs is in the nature of a business arrangement, by which the dominant intention of the parties to come together and serve the overseas customers is fulfilled, HCLT was merely distributing the receipt of payment from the overseas customer to the group entities for their share of the work and the payment received by the foreign AEs from HCLT was only in the nature of revenue sharing and cannot be construed to mean that services were provided by the foreign AEs to HCLT. Co-ordinate Bench further held that both HCLT and the foreign AEs are jointly rendering services to the customers located outside India; billing is done on a consolidated basis on the customer by HCLT (including the services rendered by the foreign AEs to the customer located outside India); payments are received by HCLT from the customer located outside India and thereafter, revenue is shared by HCLT with the foreign AEs for the proportionate volume of services rendered by the foreign AEs to the customer. Also held that AO erred in holding that the services were rendered by foreign AEs to HCLT and the said findings of the AO are contrary to the bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logia Da Informacao Eireli, HCL America Inc., C/o HCL Technologies Ltd., HCL Technologies Sweden AB (Successor to HCL Sweden AB), HCL Technologies France, HCL Hong Kong SAR Limited, HCL Singapore Pte Limited, HCL Technologies Denmark APS, HCL Technologies (PTY) Limited, [Formerly known as HCL Axon (PTY) Limited], HCL Poland SP. Z.O.O., HCL Technologies Belgium BVBA (Successor to HCL Belgium N.V.) Versus ACIT, Circle International Taxation- 2(1)(1), New Delhi. ITAs No.550 to 554/Del/2023, ITAs No.560 to 564/Del/2023, ITA No.541/Del/2021, ITAs No.565 to 569/Del/2023, ITA No.529/Del/2021, ITAs No. 570 to 575/Del/2023, ITA No.542/Del/2021, ITA No.583/Del/2021, ITAs No.413 to 417/Del/2023, ITAs No.458 to 462/Del/2023, ITAs No.463 to 467/Del/2023, ITAs No.468 to 472/Del/2023, ITAs No.77 to 81/Del/2023, ITAs No.555 to 559/Del/2023, ITAs No.418 to 422/Del/2023, ITAs No.423 to 427/Del/2023, ITAs No.428 to 432/Del/2023 And ITAs No.453 to 457/Del/2023 Shri G.S. Pannu, Hon'ble Vice President And Shri Anubhav Sharma, Judicial Member For the Assessee : Shri Ajay Vohra, Sr. Advocate; Shri Neeraj Jain & Shri Aditya Vohra, Advocates; and Shri Arpit Goyal, CA For the Revenue : Shri Vizay B. Vasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the client's location (onsite services). The onsite services are also provided through the near shore development centers. The onsite services, requiring physical presence of Engineers onsite due to customer preferences / security reasons/ time zone requirements, are performed by the employees of the assessee either at customer location or nearshore delivery centers. 2.3 Under the Software Services category, both the onsite and offsite services are delivered to the customer directly. The employees of HCLT as well as the assessee provide services in a very secure IT environment, wherein both the teams access the customer's server directly and write the software codes on such server. The assessee generally works from the customer's location with direct coordination with them. 2.4 In the Software / Application design (mostly by HCLT), the software program is broken down into modules for coding. A single team, either HCLT or the assessee, provides end to end development services on a specific module of the software directly on customer's server. Accordingly, no software code comes to India in tangible or intangible form (email etc). All documentation, design and codes are directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been signed between the parties. However, it is primarily a Master Service Agreement which is relied by the assessee and the coordinate Bench in ITA No.537/Del/2021 and others (supra) has construed the same and concluded, in para 15, page 35-37 as follows:- "15. From the perusal of the Master Service Agreement wherein certain relevant clauses have already been reproduced above, we find that as per clause 5, the assessee has the primary responsibility for performance of software and IT services in respect of agreements entered into with overseas customers of HCL Group ; that as per clause 7, the assessee and HCLT acknowledge that performance of obligations under the Master Service Agreement may result in discovery, creation or development of inventions, methods, techniques, improvements, software designs, computer programs, strategies, data and other original works of authorship, which shall fully vest with the assessee on creation and be the property of the assessee and it is also acknowledged that the existing Intellectual Property Rights of the assessee, including any modifications or enhancements thereto that may be developed in the course of providing services under the Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on linkage between HCLT, HCL group entities and customers and that the fact that HCLT is the facilitator or single contact point for the end customer does not lead to the conclusion that services are being provided by the assessee to HCLT ; that such arrangement is entirely meant for administrative convenience of the end customers, so as to circumvent the need to approach multiple entities time and again for the desired services. All the services are facilitated from one place by HCLT, which acts like the leader in a consortium. We are of the considered opinion that the Master Service Agreement entered into between HCLT and the assessee, including other HCL group entities is in the nature of a business arrangement, by which the dominant intention Page | 36 of the parties to come together and serve the overseas customers is fulfilled. Receipt of payment from the overseas customer by HCLT which further distributes the same to the group entities, including the assessee, for their share of the work, cannot be held to be income in the hands of the assessee and liable to tax in India. In our view, the payment received by the assessee from HCLT is only in the nature of revenue share and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean that services were provided by the foreign AEs to HCLT. 6. The Co-ordinate Bench further held that both HCLT and the foreign AEs are jointly rendering services to the customers located outside India; billing is done on a consolidated basis on the customer by HCLT (including the services rendered by the foreign AEs to the customer located outside India); payments are received by HCLT from the customer located outside India and thereafter, revenue is shared by HCLT with the foreign AEs for the proportionate volume of services rendered by the foreign AEs to the customer. It will be appropriate to reproduce the relevant observation here in below; "22. In our considered opinion, the broad perusal of the agreements entered into between the parties clearly postulate a situation that both HCLT and the assessee are jointly rendering services to the customer located outside India ; billing is done on a consolidated basis on the customer by HCLT (including the services rendered by the assessee to the customer located outside India) ; payments are received by HCLT from the customer located outside India and thereafter the revenue is shared by the HCLT with the assessee for the proportio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a holistic manner, it was clear that that both onsite and offsite personnel of the foreign AEs and HCLT respectively were responsible for writing the code; that the respective teams of the foreign AEs and HCLT work directly with the foreign customer's managers; that in majority of the projects, the entire development environment is owned by foreign customer; that the code and test scripts are worked on from foreign customers' servers and provided directly on the said servers; that the integration is normally done through customer build machines that integrate the various units of code into a solution. It was, accordingly, held that payments made by HCLT to the foreign AEs could not be construed as FTS. It will be appropriate to reproduce the relevant observation here in below; "33. From the perusal of the aforesaid statements of various employees which were recorded during the course of survey by the TDS officers, which were heavily relied upon by the ld. AO by cherry picking some of the questions and answers alone given by them, we find that prima facie all the statements of employees actually support the contentions of the assessee herein. From the aforesaid statements, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices to the customer outside India. Therefore, the amount paid by HCLT to the assessee is for the services utilized for business of onsite services carried on by HCLT outside India. Thus, such receipts in the hands of the assessee would not be taxable in India in view of first limb of the exception carved out in clause (b) of section 9(1)(vii) of the Act and cannot be deemed to accrue or arise in India. 10. The ld. Sr. Counsel has also pointed out that the coordinate Bench has kept the following issues open:- Re: (IV)Taxability under the DTAAs - No findings returned 1. The Bench has held that since receipts of the foreign AEs from HCLT are held to be not taxable in India under the provisions of the Act, the grounds raised qua taxability of the impugned receipts under the DTAAs were rendered academic in nature; no findings were returned and the same were left open for determination.(Para no.35, Page No.67) Re: (V) Receipts in connection with Infrastructure Services 2. The Bench noted that they have already held receipts of foreign AEs from HCLT to be not taxable in India. It was further held that the receipts towards Infrastructure Services were also not chargeable to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as HCL Axon Technologies Inc) 2015-16 492/DEL/2023 22. HCL Technologies B.V Netherlands 2014-15 551/DEL/2023 23. HCL Technologies B.V Netherlands 2015-16 552/DEL/2023 24. HCL Singapore Pte Ltd 2014-15 556/DEL/2023 25. HCL Singapore Pte Ltd 2015-16 557/DEL/2023 26. HCL Australia services Pty ltd 2014-15 561/DEL/2023 27. HCL Australia services Pty ltd 2015-16 562/DEL/2023 28. HCL Great Britain Ltd 2014-15 566/DEL/2023 29. HCL Great Britain Ltd 2015-16 567/DEL/2023 30. Axon Solution Limited 2014-15 571/DEL/2023 (ii) Set-off of amount of reversal of receipts for infrastructure services not given in draft assessment order S.No. Name of the Company AYs ITA No. 1. HCL (Brazil) Technologia da informacao Ltda. 2017-18 417/DEL/2023 2. HCL Technologies (Pty) Ltd 2015-16 425/DEL/2023 3. HCL America Inc 2017-18 462/DEL/2023 4. HCL Technologies Sweden AB (successor of HCL Sweden AB) 2017-18 467/DEL/2023 5. HCL Technologies Philippines, Inc. 2017-18 484/DEL/2023 6. HCL Technologies Italy S.P.A. (Successor to HCL Italy S.R.L.) 2017-18 489/DEL/2023 7. HCL Canada Inc (Formerly known as HCL Axon Technologies Inc) 2017-18 494/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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