The Tax Publishers2020 TaxPub(DT) 5432 (Karn-HC)

INCOME TAX ACT, 1961

Section 195

Assessee for all practical purposes had to be treated as employer of the seconded employees as secondment agreement constituted an independent contract of services in respect of employment with assessee and there was no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non-resident enterprise and therefore, the amount paid by assessee was not to suffer tax deducted at source under section 195.

Tax deduction at source - Under section 195 - Payments made to seconded employees -

Assessee was a subsidiary of ANITCO Ltd., UK ('ANP'). ANP had entered into an agreement with assessee-Abbey, India to outsource the provision of certain process and call centers to M/s. Msource India Pvt. Ltd. In order to facilitate outsourcing agreement between ANP and M. India Pvt. Ltd. an agreement for secondment of staff was entered into between ANP and assessee. AO found that as per the agreement, the employees of ANP were seconded to India who were highly skilled technical personnel and ANP had agreed to provide training to some of the employees of M. It was further held that the assessee's claim that there was nexus between ANP and the provision of services rendered by the expatriates was not correct as the employees were on the payroll of ANP and ANP was involved in providing technical services. AO held that balance amount of Rs. 10,91,02,724 was towards payment of 'fees for technical services' (FTS) as per section 9(1)(vii) of the Act, Explanation 2 and article 13(4)(c) of Indo-UK Double Taxation Avoidance Agreement (Hereinafter referred to as 'the DTAA', for short) and as such liable for deduction of TDS under section 195. Held: It was evident that assessee had entered into a secondment agreement for securing services to assist assessee in its business. The expenses incurred by the seconded employees which were reimbursed by assessee were not liable to deduction to tax at source and the aforesaid amount could not be considered as 'fees for technical services'. It was noted that secondment agreement constituted an independent contract of services in respect of employment with assessee and seconded employees had to work at such place as assessee might instruct and the employees had to function under the control, direction and supervision of assessee and in accordance with the policies, rules and guidelines applicable to employees of assessee. The employees in their capacity as employees of assessee had to control and supervise the activities of M India Pvt. Ltd. Therefore, assessee for all practical purposes had to be treated as employer of the seconded employees as secondment agreement constituted an independent contract of services in respect of employment with assessee and there was no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non-resident enterprise and therefore, the amount paid by assessee was not to suffer tax deducted at source under section 195.

REFERRED : DIT v. Morgan Stanley & Company Inc. (2007) 292 ITR 416 (SC) : 2007 TaxPub(DT) 1354 (SC), Sree Meenakshi Mills Ltd. v. CIT (2009) 310 ITR 320 (Bom-HC) : 2009 TaxPub(DT) 1060 (Bom-HC), CIT v. Zee Entertainment Enterprises Ltd. ITA Nos. 1107, 1117, 1174, of 2015 & 126 of 2016 (Bom-HC) : 2018 TaxPub(DT) 1288 (Bom-HC), DIT v. A.P. Moller Maersk (2015) 374 ITR 497 (Bom-HC) :2015 TaxPub(DT) 2173 (Bom-HC), Centrica India Offshore (P) Ltd. v. CIT &Ors. W.P.(C) No. 6807/2012, dated 25-4-2014 : 2014 TaxPub(DT) 2335 (Del-HC), DIT v. WNS Global Services (UK) Ltd. (2013) 32 Taxmann.com 54 (Bom-HC) :2013 TaxPub(DT) 1082 (Bom-HC), CIT v. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Karn-HC) : 2012 TaxPub(DT) 2504 (Karn-HC), DIT v. Krupp Udhe GMBH (2013) 354 ITR 173 (Bombay) : 2010 TaxPub(DT) 1639 (Bom-HC), CIT v. Siemens Aktiongesellschaft (2009) 310 ITR 320 (Bom-HC) : 2009 TaxPub(DT) 1060 (Bom-HC), DIT v. HCL Infosystems Ltd. (2005) 274 ITR 261 (Del) : 2005 TaxPub(DT) 132 (Del-HC), CIT v. Dunlop Rubber Co. (India) Ltd. (1983) 142 ITR 493 (Calcutta) : 1983 TaxPub(DT) 0599 (Cal-HC), Abbey Business Services (India) (P) Ltd. v. Dy. DIT 2012 TaxPub(DT) 2833 (Bang-Trib) and IDS Software Solutions (India) (P) Ltd. v. ITO (2009) 122 TTJ 410 (Bang-Trib) : 2009 TaxPub(DT) 1346 (Bang-Trib)

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