ITO, Bangalore V. M/s Ariba Technologies (India) Private Limited, Bangalore

ITA 616/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60708 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-04-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 26-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SARAVANAN
• Assessee Lawyers: KAUSHIK MUKERJEECA
• Keywords: Double taxation relief; Advance ruling
• Section: 201(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SMT P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO.616(BANG.)/2011 (ASSESSMENT YEAR : 2006-07 ) THE INCOME-TAX OFFICER, WARD-1(1), (INTL. TAXN.) R.P.BHAVAN, NRUPATYUNGA ROAD, BANGALORE-560 001 APPELLANT VS M/S ARIBA TECHNOLOGIES (INDIA) PVT.LTD., RMZ ICON, NO.51, PALACE ROAD, BANGALORE-560 052 PAN NO.AADCA0918P RESPONDENT REVENUE BY : SHRI. B. SARAVANAN, JCIT ASSESSEE BY : SHRI KAUSHIK MUKERJEE,CA DATE OF HEARING : 03-04-201 2 DATE OF PRONOUNCEMENT : 04-04-2012 O R D E R PER SMT. P. MADHAVI DEVI, JM; THIS APPEAL BY THE REVENUE RELATES TO ASSESSMENT YE AR 2006-07. 2. IN THIS APPEAL, THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN ALLOWING THE ASSESSEES CLAIM BY HOLDING THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX AT SOURCE WHILE MAKING THE PAYMENT TO THE FOREIGN COMPANIES ON THE TRANSACTIONS OF THE SALARY PAYABLE TO THE EMPLOYEE OF THE FOREIGN COMPANY FOR THE SERVICES RE NDERED BY HIM TO THE ASSESSEE IN INDIA IN TERMS OF THE SECONDMENT AGREEM ENT BETWEEN THE ITA NO.616(B)/2011 2 FOREIGN COMPANY AND THE ASSESSEE COMPANY. THE REVE NUE IS AGGRIEVED THAT THE CIT(A) HAS HELD THAT THE ASSESSEE IS NOT A N ASSESSEE IN DEFAULT U/S 201(1) AND THAT THE INTEREST U/S 201(1A) OF THE IT ACT, 1961 IS NOT LEVIABLE. 2.1 THE BRIEF FACTS OF THE CASE BEFORE US ARE THAT THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDI NG DATA PROCESSING, TECHNICAL CONSULTING, COMPUTER PROGRAMMING, TECHNIC AL SUPPORT AND IT ENABLED SERVICES. THE COMPANY HAD ENTERED INTO SEPA RATE AGREEMENTS FOR PROGRAMMING SERVICES, IT ENABLED PRODUCTS AND O THER SERVICES AGREEMENTS SUCH AS R & D AGREEMENTS. UNDER THE R & D AGREEMENTS THE PERSONNEL OF M/S ARIBA USA WAS TO ASSIST THE AS SESSEE ON SHORT TERM BASIS. ONE OF THE AGREEMENT IS TERMED AS EMP LOYEE ASSIGNMENT AGREEMENT I.E SECONDMENT AGREEMENT WHICH IS DATED 01-07-2005 TO SECURE THE SERVICES OF CERTAIN PERSONNEL OF M/S ARI BA USA TO ASSIST THE ASSESSEE IN ITS BUSINESS. IN TERMS OF THE AFORESAI D AGREEMENT M/S ARIBA USA HAS PROVIDED SERVICES OF ONE OF ITS EMPLOYEES S HRI NARAYAN VENKATESAN, TO THE ASSESSEE BY DEPUTING HIM TO INDI A AND HIS SERVICES WERE RENDERED IN INDIA. THE ASSESSEE HAS CLAIMED T HAT IT HAS REIMBURSED REMUNERATION/SALARY OF THE SECONDED EMP LOYEE TO M/S ARIBA USA ON ACCOUNT OF SECONDMENT AGREEMENT WHICH WAS IN TURN REMITTED TO THE EMPLOYEE. SINCE THE ASSESSEE HAS N OT DEDUCTED TAX AT SOURCE AS PROVIDED U/S 195 OF THE IT ACT, 1961 A S HOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE TO EXPLAIN AS TO WHY THE COM PANY SHOULD NOT BE ITA NO.616(B)/2011 3 TREATED AS THE ASSESSEE IN DEFAULT IN TERMS OF SEC .201(1) AND 201(1A) OF THE IT ACT, 1961. IN RESPONSE TO THE SAID NOTICE, THE ASSESSEE SUBMITTED THAT THE COMPANY HAS REMITTED AN AMOUNT OF RS.18,80 ,778/- TO M/S ARIBA USA WHICH IS AFTER DEDUCTION OF TDS AMOUNT OF RS.8,69,715/- WHICH HAS BEEN PAID TO THE GOVERNMENT ACCOUNT. IT I S ALSO SUBMITTED THAT THE SALARY COST TO SHRI NARAYAN VENKATESAN HAS BEEN DULY ACCOUNTED FOR UNDER THE HEAD SALARIES AND ALLOWANC ES AND THAT THE SALARY COST DISCHARGED BY M/S ARIBA USA IS FOR ADMI NISTRATIVE CONVENIENCE ONLY. IT WAS ALSO SUBMITTED THAT THE S AID EMPLOYEE WAS UNDER THE DIRECT CONTROL AND SUPERVISION OF THE ASS ESSEE AND NONE OF HIS ACTS DURING THE COURSE OF ASSIGNMENT SHALL BE BINDI NG ON M/S ARIBA USA. IT WAS ALSO SUBMITTED THAT THE REMITTANCES TO M/S ARIBA USA CANNOT BE TERMED AS FEES FOR INCLUDED SERVICES (F IS) IN TERMS OF ARTICLE12(4)(A) OF THE DTAA BETWEEN INDIA AND USA A ND ALSO THAT THE AMOUNT DOES NOT CONSTITUTE INCOME IN THE HANDS OF T HE RECIPIENT COMPANY. 3. THE AO HOWEVER, WAS NOT SATISFIED WITH THE SAID CONTENTIONS OF THE ASSESSEE AND HELD THAT THE PAYMENT IS MADE BY T HE ASSESSEE TO NON- RESIDENT FOREIGN COMPANY FOR THE SERVICES RENDERED BY ITS EMPLOYEE AND THEREFORE, TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE AS PER THE PROVISIONS OF SEC.195 OF THE IT ACT. THUS, HOLDING THE ASSESSEE TO BE AN ASSESSEE IN DEFAULT U/S 201(1) HE ALSO LEVIED INTE REST U/S 201(1A) OF THE IT ACT. ITA NO.616(B)/2011 4 3.1 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE CIT(A), WHO AFTER TAKING THE SECONDMENT AGREEMENT INTO CONS IDERATION, OBSERVED THAT THE SECONDED EMPLOYEE WAS SENT TO IND IA AND HIS SALARIES HAS BEEN PAID BY THE INDIAN COMPANY AFTER DEDUCTING TAX FROM THE SALARY FOR THE REASON THAT HE WAS RESIDENT IN INDIA DURING THAT PERIOD AND ALSO SALARY ACCRUED AND AROSE IN INDIA. HE ALS O OBSERVED THAT THE NET OF SALARY AMOUNT WAS REMITTED TO M/S ARIBA USA AT THE REQUEST OF EMPLOYEE TO BE CREDITED TO THE EMPLOYEES ACCOUNT I N USA. THUS, OBSERVING, HE HELD THAT ONCE THE AMOUNT IS ALREADY TAXED IN THE HANDS OF THE EMPLOYEE, TREATING THE SAME AMOUNT AS FEES FOR TECHNICAL SERVICES (FTS) REMITTED TO THE PARENT COMPANY IN U SA DOES NOT ARISE. HE ALSO HELD THAT THE AO TAXED THE FTS AT THE RATE OF 10% + SURCHARGE AND EDUCATION CESS WHICH PUT TOGETHER WORKS OUT TO ONLY 11.22% AS AGAINST THE AVERAGE RATE OF TAX DEDUCTED BY THE ASS ESSEE OF 31.62%. HE THUS, HELD THAT THE AOS ACTION OF TREATING THE SAM E AMOUNT AS FTS WHICH WAS ALREADY TAXED AS SALARY IN THE HANDS OF T HE RECIPIENT IS NOT CORRECT. HE ACCORDINGLY, ALLOWED THE ASSESSEES APP EAL. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 3.1 BOTH THE PARTIES ADVANCED THEIR ARGUMENTS IN SU PPORT OF THEIR CONTENTIONS. 3.2 THE LEARNED COUNSEL FOR THE ASSESSEEE ALSO BROU GHT TO OUR NOTICE THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF THIS TRIBUNAL WHICH ARE AS FOLLOWS; ITA NO.616(B)/2011 5 1. M/S IDS SOFTWARE SOLUTIONS (INDIA) PVT.LTD., VS ITO REPORTED IN 122 TTJ(BANG.)410 2. ACIT, NEW DELHI VS M/S KARLSTORZ ENDOSCOPY IND IA PVT.LTD., IN ITA NO.2929(DEL.)2009 REPORTED I N 2010 TII- 135-ITAT-DEL-INTL. 4. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE FIND THAT THE CASE OF THE ASSESSEE IS FAIRLY COVERED BY THE DECISION OF THE TRIBUNAL (CITED SUPRA). THE RELEVA NT PORTION OF THE TRIBUNALS DECISION IN THE CASE OF M/S IDS SOFTWARE SOLUTIONS (INDIA) PVT.LTD., IS REPRODUCED HEREUNDER; 13. THE NEXT QUESTION IS WHETHER THE AMOUNT CAN BE CONSIDERED AS FEES FOR TECHNICAL SERVICES WITHIN TH E MEANING OF EXPLANATION-2 BELOW SEC.9(1)(VII) OF THE IT ACT. UNDER THIS EXPLANATION FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION INCLUDING LUMPSUM CONSIDERATION F OR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL, BUT DOES NOT INCLU DE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MININ G OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDE RATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE U NDER THE HEAD SALARIES. IT IS NOT DENIED BEFORE US ON BEHALF OF THE ASSESSEE THAT DR.SUNDARARAJAN IS A TECHNICAL PERSON. WHAT IS HOWEVER SUBMITTED IS THAT ARTICLE I I AND VI OF THE SECONDMENT AGREEMENT WOULD BE OUT OF PACE IN A CONTRACT FOR PROVIDING TECHNICAL SERVICES. ARTIC LE II AS ITA NO.616(B)/2011 6 WE HAVE ALREADY SEEN CONTAINS EIGHT CLAUSES OUTLINI NG THE DUTIES AND OBLIGATIONS OF THE SECONDED EMPLOYEE . ARTICLE VI PROVIDES FOR INDEMNIFICATION WHICH HAS A LSO BEEN EARLIER NOTICED BY US. WE ARE INCLINED TO AGRE E WITH THE SUBMISSION THAT THESE TWO ARTICLES ARE OUT OF P LACE IN A CONTRACT FOR PROVIDING TECHNICAL SERVICES. FOR EX AMPLE, CLAUSES (A) TO (C) OF ARTICLE II MAKE THE SECONDED EMPLOYEE RESPONSIBLE AND SUBSERVIENT TO THE ASSESSE E COMPANYWHICH CANNOT BE THE CASE IF THE AGREEMENT IS FOR PROVIDING TECHNICAL SERVICES BY IDS TO THE ASSESSE COMPANY. SIMILARLY, CLAUSE(E) WHICH REQUIRES THE SECONDED EMPLOYEE TO ALSO ACT AS OFFICER OR AUTHORI ZED SIGNATORY OR NOMINEE OR IN ANY OTHER LAWFUL PERSONA L CAPACITY FOR THE ASSESSEE COMPANY, WOULD ALSO BE OU T OF ACE IN AGREEMENT FOR RENDERING TECHNICAL SERVICES A S IT CANNOT BE IMAGINED THAT A TECHNICAL PERSON WOULD A LSO BE REQUIRED TO ACT IN NON-TECHNICAL CAPACITIES UNDE R AN AGREEMENT FOR RENDERING TECHNICAL SERVICES. CLAUSE( H), ON WHICH CONSIDERABLE RELIANCE WAS PLACED BY THE DEPARTMENT TO CONTEND THAT THE AGREEMENT IS ONE FOR RENDERING TECHNICAL SERVICES, IS MERELY A CLAUSE EN SURING SECRECY AND CONFIDENTIALITY OF THE INFORMATION ACCE SSED BY THE SECONDED EMPLOYEE IN THE COURSE OF HIS EMPLOYMENT WITH THE ASSESSEE COMPANY. SUCH CONFIDENTIALITY EXTENDS NOT ONLY TO TECHNICAL INFOR MATION, WHICH WOULD BE THE CASE IF THE AGREEMENT IS ONE FOR RENDERING TECHNICAL SERVICES BUT ALSO TO FINANCIAL OR ACCOUNTING INFORMATION, PRICE OR COST DATA AND ANY OTHER PROPRIETARY OR BUSINESS RELATED INFORMATION. ARTI CLE VI WHICH PROVIDES FOR INDEMNITY, THAT IS TO SAY, THE L IABILITY OF THE ASSESSEE COMPANY TO INDEMNIFY THE US COMPANY ITA NO.616(B)/2011 7 FROM ALL CLAIMS, DEMANDS ETC., CONSEQUENT TO ANY AC T OR OMISSION BY THE SECONDED EMPLOYEE IS ALSO INCONSIST ENT WITH THE CLAIM OF THE DEPARTMENT THAT THIS IS AN AGREEMENT FOR RENDERING TECHNICAL SERVICES. THE AR TICLE FURTHER PROVIDES THAT NOTHING IN THE AGREEMENT SHAL L BE CONSTRUED AS A WARRANTY OF THE QUALITY OF THE SECON DED EMPLOYEE. IT IS NOT USUAL TO FIND SUCH A STIPULAT ION IN AN AGREEMENT FOR RENDERING TECHNICAL SERVICES. 14. THE DEPARTMENT HAS DRAWN OUR ATTENTION TO THE R ULING OF THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF AT & S INDIA PVT.LTD.,(2006) 287 ITR 21. IN HIS CASE TH E AGREEMENT ENTERED INTO BY THE INDIAN COMPANY WITH I TS AUSTRIAN PARENT COMPANY WAS TITLED FOREIGN COLLABORATION AGREEMENT. ARTICLE 4 OF THE AGREEMEN T OBLIGED THE AUSTRIAN COMPANY TO PROVIDE ALL ASSISTA NCE AND COOPERATION TO THE INDIA COMPANY IN ITS VENTURE BY PROVIDING APPROPRIATE SUPPORT TECHNOLOGY. ARTICLE 4.2 REQUIRED THE AUSTRIAN COMPANY TO OFFER THE SERVICES OF ITS TECHNICAL EXPERTS TO THE ASSESSEE FOR WORKING ON TH E PROJECT THAT WAS BEING EXECUTED. THERE WAS ANOTHER AGREEMENT CALLED THE SECONDMENT AGREEMENT BETWEEN T HE INDIA AND AUSTRIAN COMPANIES AND IT INTER-ALIA PROV IDED THAT THE AUSTRIAN COMPANY CAN AT ANY TIME REMOVE TH E SECONDED PERSON AND REPLACE HIM WITH SIMILARLY QUAL IFIED PERSONS. REFERRING TO THE SECONDMENT AGREEMENT, THE AAR OBSERVED THAT A PLAIN READING OF THE ABOVE CLAU SE WOULD SHOW THAT THE AUSTRIAN COMPANY RETAINED THE R IGHT OVER THE SECONDED PERSONNEL AND HAD THE POWER TO REMOVE ANY SECONDED PERSONNEL FROM THE ASSESSEE COMPANY WHICH HAS CONTROL AND SUPERVISION OF THE WO RK OF THE SECONDED EMPLOYEE NAMELY, DR. SUNDARARAJAN. ITA NO.616(B)/2011 8 HE WAS APPOINTED AS MANAGING DIRECTOR BY THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY AND NOT BY IDS. IN FACT, THE ASSESSEE COMPANY COULD EVEN TERMINATE THE SERVICES OF DR. SUNDARARAJAN AS MANAGING DIRECTOR DURING THE PERIOD OF EIGHT MONTHS DURING WHICH HE WAS TO SERVE THE ASSESSEEE COMPANY. THERE WAS NO SEPARA TE FOREIGN COLLABORATION AGREEMENT OF THE KIND WHICH W AS ENTERED INTO BETWEEN THE INDIAN AND THE AUSTRIAN COMPANIES IN THE RULING OF THE AAR. IT APPEARS TO US ON A READING OF THE RULING OF THE AAR THAT IN THAT CAS E THE SECONDMENT AGREEMENT WAS SUBSERVIENT TO THE FOREIGN COLLABORATION AGREEMENT. THESE ARE THUS THE FEATUR ES WHICH DISTINGUISH THE PRESENT CASE FROM THE DECISIO N OF THE AAR. WE ARE, THEREFORE, UNABLE TO APPLY THE SA ID DECISION TO THE PRESENT CASE. 15. THE DEPARTMENT HAS ALSO RELIED ON ANOTHER RULIN G OF THE AAR IN SOUTH WEST MINING LTD., IN RE (2005) 27 8 ITR 233. THIS IS A CLEAR CASE OF TECHNICAL CONSULTANTS VISITING INDIA FOR COLLECTING RANDOM SAMPLES FOR THE PURPOSE OF SENDING REPORTS FROM ABROAD ON THE BASIS OF THE ANA LYSIS OF THE SAMPLES. THE QUESTION WAS WHETHER THE FEES P AID TO THE NON-RESIDENT CONSULTANT WERE FEES FOR TECHNI CAL SERVICES. THERE CAN BE NO DOUBT THAT THE SERVICES RENDERED BY THE NON-RESIDENT CONSULTANTS WERE TECHN ICAL AND CONSULTANCY SERVICES. IN THIS CASE THERE WAS NO SECONDMENT AGREEMENT. IT WAS A CLEAR AND SIMPLE CA SE OF RENDERING TECHNICAL SERVICES. THIS CASE HAS NOT HING IN COMMON WITH THE PRESENT CASE. 16. FOR THE ABOVE REASONS, WE ARE ALSO NOT ABLE TO HOLD THAT THE PAYMENT TO IDS REPRESENTED FEES FOR TECHNI CAL SERVICES. ITA NO.616(B)/2011 9 17. IN THE RESULT, WE HOLD THAT THE ASSESSEEE WAS N OT LIABLE TO DEDUCT TAX FROM THE AMOUNT REPRESENTING REIMBURSEMENT OF THE SALARY PAID BY IDS TO DR. SUNDARARAJAN WHILE REMITTING THE SAME TO IDS U/S 19 5 OF THE IT ACT. THE SALARY PAID BY THE ASSESSEE TO DR.SUNDARARAJAN HAS BEEN MADE THE SUBJECT OF TAX DEDUCTED AT SOURCE AND THE SAME HAS BEEN REMITTED T O THE INDIAN INCOME TAX AUTHORITIES. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO IN TERFERE WITH THE ORDER OF THE CIT(A) AND THE GROUNDS OF APPEAL RAISE D ARE REJECTED. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH APRIL, 2012. SD/- SD/- ( N.K. SAINI) ( SMT. P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDIC IAL MEMBER PLACE: BANGALORE DATED: 04-04-2012 AM* COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. CIT(A) 4. CIT 5. DR 6. GF(BLORE) BY ORDER AR, ITAT, BANGALORE