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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of CIT(A)-12 Bengaluru dated 11.1.1023 for the assessment year 2012-13. The assessee has raised the following grounds:- “The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under:
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA
Order bad in law At the outset, Juniper Networks Inc (hereinafter referred to as 'the Appellant' or 'the Company') prays that the order dated January 11, 2023 passed by the learned Commissioner of Income-tax (Appeals) - 12, Bangalore ['CIT(A)'], upholding the order passed under section 144 read with section 147 of the Income-tax Act, 1961 ('the Act'), be struck down as invalid, as the order is bad in law and on facts.
2. Reimbursement of expenses does not qualify as Fees for Technical Services (FTS) under the Act and under the India-US Tax Treaty (DTAA) 2.1. The Learned CIT(A) has erred in upholding the order of the ITO in concluding that salary expenses payable by Juniper India to the Appellant qualifies as FTS both under the Act and under the India-USA Double Taxation Avoidance Agreement. 2 2. The Learned CIT(A) has erred in upholding the order of the ITO in holding that the employees deputed by the Appellant make available technical knowledge, experience and skill Payment of tax by the employee will exempt the remittance from 3. TDS The Learned CIT(A) has erred in upholding the order of the ITO wherein the fact that salary expenses reimbursed by Juniper India to the Appellant had already been subjected to applicable Indian income- tax under section 192 of the Act, has been disregarded. Concluding no employer-employee relation exists between Juniper India and the deputed employees The Learned CIT(A) has erred in upholding the order of the ITO in concluding that there exists no employer-employee relationship exists between Juniper India and the seconded employees. Levy of interest under Section 234A of the Act 5. The learned CIT(A) has erred in upholding the order of the ITO wherein interest under Section 234A of the Act has been levied. Relief 6. The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal. at any time before or during the hearing of the appeal.”
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA
2. Ground No.1, which is not pressed at the time of hearing and the same is dismissed as not pressed.
With regard to Ground Nos.2, 2.1 & 2.2, facts of the issue are that the assessee, Juniper Networks Inc. is a company headquartered in the United States. It was issued with a notice u/s 148 of the Income-tax Act,1961 ['the Act' for short] on 31.03.2019 and in response it had filed a return of income on 03.05.2021. A notice u/s 143(2) of the Act was issued on 06.07.2021 along with reasons recorded. The assessee had entered into an agreement for secondment of its personnel with the Indian entity Juniper Networks India Pvt. Ltd. (henceforth Juniper India). During the year under appeal, two of the assessee's employees, Shri Raghu Malena and Shri Srinivas Gadgil were seconded to Juniper India as Engineering Services Managers. The salary of the seconded employees was paid by the assessee and reimbursed to it by Juniper India. Against this assessee went in appeal before ld. CIT(A). Before the ld. CIT(A), the assessee contended that the assessee, in its submissions, has contended that the reimbursement of salary and other related costs by Juniper India to the assessee is on cost-to-cost basis and there is no profit element involved in the reimbursement. Such reimbursement does not constitute income in the hands of the assessee. Further, appropriate taxes have been withheld by Juniper India under section 192 of the Act and once a receipt has suffered taxation, the same cannot be taxed twice. It has also been argued, without prejudice to the above, that the receipt does not qualify as FTS under the India-USA DTAA. Accordingly, the payment made to Juniper US does not IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA constitute income/sum chargeable to tax in India and hence there was no requirement on the part of the assessee to file a tax return in India.
3.1. The ld. CIT(A) observed that this issue has been considered by Hon’ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT reported in 364 ITR 336 (Del.), wherein held as under: • “Whilst the agreement between the Indian company and the overseas entity granted the Indian company the right to terminate the secondment, the Indian company had no right to terminate the original underlying employment relationship between the secondee and the overseas entity; • The payment was not in the nature of reimbursement, but rather, payment for services rendered. The employment relationship between the overseas entity and the Indian taxpayer from which the overseas entity's independent obligation to pay the secondees arose continued and the overseas entity was under no obligation to use payments - received from the Indian company to pay the secondees. The SLP against the above judgment of the Delhi High Court, having been dismissed, the legal position is now clarified. The facts of the appellant's case are identical with that of Centrica discussed above. 3.2 Further, the ld. CIT(A) observed that the Centrica decision, extracted below, also addresses the issue raised by the assessee that the payment received by it was mere reimbursement and on cost-to-cost basis with no profit element involved:
38.The mere fact that CIOP, and the secondment agreement, phrases the payment made from CIOP to the overseas entity as 'reimbursement' cannot be determinative. Neither is the fact that the overseas does not charge a mark- up over and above the costs of maintaining the secondee relevant in itself, since the absence to markup (subject to an independent transfer pricing exercise) cannot negate the nature of the transaction. It would lead to an absurd conclusion if, all else constant, the fact that no payment is demanded negates accrual of income to the overseas entity. Instead, the various factors concerning the determination of the real employment link continue to operate,
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA and the consequent finding that provision of employees to CIOP was the provision of services to C1OP by the overseas entities triggers the DTAAs. The nomenclature or lesser-than-expected amount charged for such services cannot change the nature of the services. Indeed, once it is established, as in this case, that there was a provision of services, the payment made may indeed be payment for services - which may be deducted in accordance with law - or reimbursement for costs incurred. This, however, cannot be used to claim that the entire amount is in the nature of reimbursement, for which the tax liability is not triggered in the first place. This would mean that in any circumstances where services are provided between related parties, the demand of only as much money as has been spent in providing the service would remove the tax liability altogether. This is clearly an incorrect reasoning that conflates liability to tax with subsequent deductions that may be claimed.
3.3. Further, the ld. CIT(A) relied on the decision of ITAT Bangalore in the case of M/s. Food World Supermarkets Ltd. Vs. DDIT wherein held that salary reimbursement for seconded employee was taxable as FTS. In that case the ITAT held that payment made by the Indian company to its Hong Kong AE for secondment of employees who were senior and experienced professionals, was taxable as FTS and hence tax was to be deducted u/s 195 of the Act. The ITAT held that services of the personnel, deputed under the secondment agreement amounted to rendering of managerial consultancy services to the Indian entity. The ITAT rejected the taxpayer's stand that the payment was in the nature of reimbursement of salary, holding that "all the payment made by the assessee to nonresident on account of FTS or royalty are chargeable to tax irrespective of any profit element in the said payment or not". The ld. CIT(A) further observed that similar decision by the ITAT Bangalore, in case of Flughafen Zurich AG vs. DDIT (International Tax) [TS-96-ITAT-2017(Bang)] is applicable to the facts of the assessee's case. In view of the foregoing discussion, it was held by the ld. CIT(A) that the payment received by the assessee was for the rendering of services in the nature of IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA FTS and as the income arose in India, where the services were rendered, such payment was to have been included in the assessee's income for the year under appeal. Hence, the addition made on this ground was sustained by the ld. CIT(A).
3.4. Accordingly, by placing reliance on the above decisions, the ld. CIT(A) dismissed the appeal of the assessee. Against this assessee is came in appeal before us.
We have heard the rival submissions and perused the materials available on record. The ld. D.R. submitted that Hon’ble Karnataka High Court in the case of Abbey Business Services India Pvt. Ltd. in of2014 dated 1.12.2020 is not applicable to the facts of the present case. According to him in that decision, the issue was only with regard to only travelling expenses. Further, he submitted that the judgement of Hon’ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd. in [TS-503-HC-2000 (Kar.)] is also not applicable to the fact of the case and he drew our attention to the para 19 of the judgement, which reads as follows: “Karnataka HC allows Flipkart's writ petition challenging rejection of its application under Section 195(2) for 'NIL' TDS on payment to Walmart Inc. for reimbursement of salaries to seconded employees; Directs Revenue to grant 'Nil' TDS certificate; HC observes that finding under Section 195 is tentative and even if Revenue orders that no deduction of tax be made, the question of taxability of recipient still remains to be decided; Thus, the question of prejudice to Revenue at the stage of Section 195 is unavailable to it; Elaborately distinguishes Delhi HC ruling in Centrica India Offshore relied upon by the Revenue and also holds that the Revenue missed the Karnataka HC Division Bench's dicta in Abbey Services that "secondment agreement constitutes an independent contract of services in respect of employment" and proceeded to decide that secondment falls under Fees for Included Services (FIS)”.
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA 4.1. According to him, these facts are missing in the present case of the assessee. In our opinion, the argument of ld. D.R. is totally misconceived. The judgement of Hon’ble Karnataka High Court in the case of Abbey Business Services India Pvt. Ltd. cited (supra) is squarely applicable to the facts of the case, wherein held as under:
“9. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 9(i)(vii) and Section 195(1) of the Act, which is reproduced below for the facility of reference:
9(i)(vii) income by way of fees for technical services13 payable by-- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; 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 construction16, assembly, mining or like project undertaken by the recipient16 or consideration which would be income of the recipient chargeable under the head "Salaries".
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA 195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :
After having noticed the relevant statutory provisions, we may take note of relevant clauses of DTAA. Article 5 of DTAA deals with 'permanent establishment'. Article 5(2)(k) describes the expression 'permanent establishment' and furnishing of services including managerial services, other than those taxable under Section 13 within a Contracting State by an enterprise through employees or other personnel. Article 7 deals with business profits and provides that profits of a business of a Contracting State shall be taxable only in that state unless the enterprise carries on business in other contracting state to a permanent establishment situate therein. Article 13 inter alia provides that provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base.
Now we may advert to the facts of the case in hand. From perusal of the relevant clauses of the agreement as well as the nature of services provided by the assessee under the agreement, it is evident that the 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 the assessee is not liable to deduction to tax at source and the aforesaid amount could not be considered as 'fees for technical services'. It is also pertinent to note that secondment agreement constitutes an independent contract of services in respect of employment with assessee. From the perusal of the key features of the agreement, which have been reproduced by the Commissioner of Income Tax (Appeals), it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of Msource India Pvt. Ltd. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees. There is 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 the assessee was not to suffer tax deducted at IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA source under Section 195 of the Act. Similar view has been taken by High Court of Delhi in HCL INFO SYSTEM LTD. supra in respect of salaries paid to foreign technicians on behalf of the assessee.
So far as reliance placed by learned counsel for the revenue on the decision of M/S CENTRICA INDIA OFFSHORE PVT. LTD. supra is concerned, from perusal of paragraph 29 of the aforesaid decision, it is evident that the High Court of Delhi considered the issue whether the secondment of employees by BSTL and DEML, the overseas entities fall within Article 12 of India, Canada and Article 13 of India, UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the case.
In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee.”
4.2. Even in the case of Flipkart Internet Pvt. Ltd. cited (supra), the Tribunal held as under: “Karnataka HC allows Flipkart's writ petition challenging rejection of its application under Section 195(2) for 'NIL' TDS on payment to Walmart Inc. for reimbursement of salaries to seconded employees; Directs Revenue to grant 'Nil' TDS certificate; HC observes that finding under Section 195 is tentative and even if Revenue orders that no deduction of tax be made, the question of taxability of recipient still remains to be decided; Thus, the question of prejudice to Revenue at the stage of Section 195 is unavailable to it; Elaborately distinguishes Delhi HC ruling in Centrica India Offshore relied upon by the Revenue and also holds that the Revenue missed the Karnataka HC Division Bench's dicta in Abbey Services that "secondment agreement constitutes an independent contract of services in respect of employment" and proceeded to decide that secondment falls under Fees for Included Services (FIS):HC KAR”.
4.3. These judgements are consistently followed by the coordinate bench and in the case of Tesco Bengaluru Private Limited in IT(TP)A No.2898/Bang/2018 & IT(TP)A No.2387/Bang/2019 vide order dated 4.8.2022 for the AYs 2014-15 & 2015-16, it was held as under: “6.7 We have heard the rival submissions and perused the material available on record. After hearing both the parties, we are of the opinion that similar issue came
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA for consideration before this Tribunal in the case of Abbey Bus Services Pvt. Ltd. reported in 122 Taxmann.com 174 (Karn) wherein held as under:- “From perusal of the relevant clauses of the agreement as well as the nature of services provided by the assessee under the agreement, it is evident that the assessee had entered into a secondment agreement for securing services to assist it in its business. The expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source and the aforesaid amount could not be considered as 'fees for technical services'. It is also pertinent to note that secondment agreement constitutes an independent contract of services in respect of employment with assessee. From the perusal of the key features of the agreement, it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of another company. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees and expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source. There is 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 the assessee was not to suffer tax deduction at source under section 195. Thus, substantial question of law is answered against revenue. [para 11]”
4.4. Further, in the case of Goldman Sachs Services Pvt. Ltd. in to 369 & 338 to 345/Bang/2020 for the assessment years 2011-12 to 2014-15 & 2015-16 to 2018-19 vide order dated 29.4.2022, wherein they considered the order of the Tribunal in the case of Toyota Boshoku Automotive India Pvt. Ltd. vs. ACIT in IT(TP)A No.1646/Bang/2017 & 2586/Bang/2019 for AYs 2013-14 & 2015- 16 dated 13.4.2022 wherein held as under:
“At the outset it would be useful to understand the concept of Assignment or secondment. Multi-national companies with a view to utilize skill within the group companies has global mobility policy of assignment or secondment. Secondment is deputing or sending one employee in one
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA entity of the multi-national company in one country to another entity of the same multi-national company in another country. For reasons like continued pensionary benefits and other similar reasons the employee would want to retain his contract of employment with the original employer rather than with the seconded employer. In such agreement there are usually three parties, the employer deputing or seconding his employee, the employee and the employer to whom the employee is seconded or deputed. Such arrangements are also referred to as “International hiring out of labor”. Sec.9(1)(ii) of the Act lays down that Income in the form of salaries is deemed to accrue or arise in India and is deemed to have been earned in India if is received for services rendered in India. Under the Act, irrespective of the residential status of the employee, salary would be taxable in India, if it is for services rendered in India which is deemed to have been earned in India. In the case of seconded employee, if they are tax residents of a country with whom India has a Treaty for avoidance of double taxation, Indian tax authorities right to tax salary income would depend on the terms of such treat.
OECD Model Commentary, (which is adopted in many of the DTAA (treaties) provides for right of taxation in so far as salaries are concerned, between the source state and the residence state. Article 15 of the Model Commentary reads thus: Article 15: INCOME FROM EMPLOYMENT 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived there from may be taxed in that other State.
Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA
(c) the remuneration is not borne by a permanent establishment which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.”
Article 15(1) of OECD Model Convention lays down the rule of taxation of income earned by the seconded employee by giving the right to tax by the State where employment is exercised. The term “Employment is exercised” means, the place where the employee is physically present when performing the activities for which the employment income is paid. Article 15(2) of OECD Model Convention carves out exception to the rule in Article 15(1) by facilitating short term secondment without the burden of having to pay tax in the country where the employment is exercised subject to the following three conditions: (a) If the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned. and; (b) if the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and, (c)if the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. The Second Condition –the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State. The meaning of the term ‘employer’ is critical as there are occasions when seconded employees are on the rolls of a non-resident employer, but in essence, work as per the directions and under the supervision of an enterprise to whom he has been seconded and yet claims short stay exemption.
Since the right of the state of the temporary employment to tax employment income was limited by the provisions and conditions of Article 15, the tax administrations were not happy to notice that non-resident labor was easily entering their boundaries and easily avoiding source country taxation.
As a possible contribution to solving problems of abuse, recent OECD guidelines lay down guidelines to resolve interpretation issues concerning the concept of "employer" for purposes of paragraph 2 of Article 15. In determining the employer, the guidelines attaches importance to the nature of the services rendered, in order to determine, whether the services rendered by the individual constitute an integral part of the business of the enterprise
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA to which these services are provided. In cases where the nature of the services rendered point to an employment relationship different than the one of the formal employer, the guidelines suggests objective criteria to determine the employer, namely:-
− who has the authority to instruct the individual regarding the manner in which the work has to be performed; − who controls and has responsibility for the place at which the work is performed; − the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided; − who puts the tools and materials necessary for the work at the individual’s disposal; − who determines the number and qualifications of the individuals performing the work.
As a consequence, instead of being regarded as nonresident employee of a non-resident employer rendering services on a temporary basis, individuals may, if certain objective criteria are met, be deemed to be the employees of the service recipient in the other country (i.e. source country), and therefore, taxable in the source country where they are performing their services. Thus where the control is exercised by the entity to whom the services are rendered, such an entity shall be construed to be the employer for the purpose of Article 15(2)(b).”
4.5. Finally, in the above order, it was held as follows:
“Thus, even if, the rendering of service by the seconded personnel constitutes a contract for service, in the absence of making available any technical knowledge or skill to the Indian entity, the same shall not constitute fees for technical services.
In support we refer to the decision of Hon’ble Karnataka High Court in the case of CIT vs. De Beers India Minerals Pvt. Ltd. reported in (2012) 21 taxmann.com 214, on the concept of ‘make available’, observed and held as under: “What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment 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.
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 employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961, files their respective returns under Section 139
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA of Income Tax Act, 1961 and shows the entire salary paid by the Appellant (including part of the salary paid in Foreign Exchange) as his/her income as salaries and pays the income tax thereon
Coming to the third issue of payment of salary, allowances and expenses of the personnel drawn from different global entities to work with the appellant, we find that learned Counsel submits that the employer-employee relationship exists between the Appellant and Seconded Personnel who have been sent on secondment to the Appellant; the Appellant has entered into separate employment contract with the Seconded Personnel. The seconded Personnel, during the period of secondment, work under the control and supervision of the Appellant; In terms of the employment contract, the appellant is under obligation to pay salary (including other entitlements) to the Seconded Personnel during the period of secondment in foreign exchange in his home country; for administrative convenience, the Appellant remits the salary payable to the Seconded Personnel in his home country in Foreign Exchange through the Seconder Company; the Seconded Personnel, as required under the Income Tax Act, 1961. We find that the issue is no longer res integra and is covered by decision of Volkswagen India Pvt. Ltd. Vs CCE, Pune-I, 2014 (34) STR 135 (Tri. Mumbai) [maintained by Apex Court in 2016 (42) S.T.R. J145 (S.C.)] wherein it was held that:
5.1 In view of the clauses of agreements noticed herein above and other facts, we hold that the global employees working under the appellant are working 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.
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.
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA 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.
Respectfully following the above views expressed by Hon’ble Karnataka High Court in DIT vs. Abbey Business Services India (P.)Ltd.(supra), Hon’ble AAR in Cholamandalam MS General Insurance Co. Ltd. (supra), Hon’ble Bombay High Court in case of Marks & Spencer Reliance India Pvt.Ltd. vs. DIT (supra), Hon’ble Delhi High Court in the case of DIT Vs. HCL Infosystems Ltd. (supra), Coordinate bench of this Tribunal in case of IDS Software Solutions vs. ITO (supra), Hon’ble Pune Tribunal in case of M/s.Faurecia Automative Holding(supra), Hon’ble Ahmedabad Tribunal in the case of Burt Hill Designs (P) Ltd. vs. DDIT(IT) (supra), we are of the view that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as “Fee For technical Services”
Once there is no violation of provision of section 195, assessee cannot be held to be an assessee in default under section 201(1) of the Act for all the years under consideration. We therefore direct the Ld.AO to delete the interest levied under section 201(1A) of the Act for all the years under consideration.”
4.6. In view of the above discussion, we are not in a position to uphold the argument of ld. A.R. that salary reimbursements for seconded employee was taxable as FTS. This ground raised by the assessee is allowed.
Ground Nos.3 & 4 are infructuous in view of our findings in ground Nos.2, 2.1 & 2.2.
Ground No.5 is consequential and mandatory in nature and to be computed accordingly.
IT(IT)A No.164/Bang/2023 M/s. Juniper Networks Inc., USA
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 08th May, 2023