NIPPON KOEI CO. LTD.,HYDERABAD vs. ADIT - INTERNATIONAL TAXATION-2, HYDERABAD

Only issue involved in this appeal is whether one Mr. Antony J. Burchell is a dependent service provider attracting Article-16 of the India- Izrael Double Taxation Avoidance Agreement (DTAA) or an independent service provider falling in Article-15 thereof.

Brief facts are that the assessee is a Japan’s leading engineering consultancy company and draws on the technical expertise of specialists in diverse fields. It entered into a contract with Chennai Metro Rail Corporation, Chennai Smart City Limited, Tamil Nadu Road Development Company Limited etc., and in that pursuit to encourage the local talent, the assessee set up a wholly owned subsidiary Nippon Koei India Pvt. Limited. Assessee filed the return of income for the assessment year 2020- 21, declaring an income of Rs. 2,97,64,900/-. During the assessment proceedings, the learned Assessing Officer noticed that it made a payment of Rs. 44,30,359/- to one Mr. Burchell, but did not deduct the TDS. Assessee pleaded that the said Mr. Burchell is an expert in Railway engineering, he stayed in India only for fifteen days and the payments made to him are for the consultancy services, but they are not the payments towards salary. 4. Learned Assessing Officer, however, did not agree with the assessee and by looking into the clauses in the agreement like hours of work, mode of payment etc., and concluded that the agreement is not for consultancy services, but it falls in the ambit of salary. Accordingly learned Assessing Officer brough to tax the amount of Rs. 44,30,359/-. 5. Assessee preferred objections before learned DRP and reiterated their plea as was taken before the learned Assessing Officer and claims to have filed the GST invoices and proof of payment of GST also, stating that if it were the salary, there is no question of payment of GST, but it is only since the payment for consultancy services, it attracted the payment of GST and, therefore, the assessee paid a sum of Rs. 63,42,907/- towards GST.

Learned DRP, however, on a reappraisal of the terms of contract in the light of Article-16 of DTAA held that Mr. Burchell is a dependent service provider, Article-16 of DTAA is applicable and, therefore, the order of the learned Assessing Officer has to be upheld. Hence, the assessee is aggrieved and filed this appeal, challenging the findings of the authorities below.

At the outset, learned AR submitted that though the entire material was submitted before the authorities below they failed to consider the same in its proper perspective, but on the other hand, they picked up certain projects from the agreement dated 31/01/2020 between Mr. Burchell and the assessee (NK) for the purpose of rendering consulting services under the agreement between Chennai Metro Rail Ltd., (CMRL) and NK for the general consultancy services (GC) for Chennai Metro Rail Project Phase-2 (Project), without having any regard to the attendant circumstances like the employability of Mr. Burchell at his age of 71 years and his qualifications. Learned AR also submitted that in terms of the judgment of the Hon’ble Apex Court in the case of Dharangadhara Chemical Works Limited vs. State of Saurashtra AIR 1957 SC 264, the critical test to decide the relationship of employer and employee or master and servant is the existence of the right in the employer not merely to direct what work was to be done, but also to control the manner in which it was to be done, the nature or extent of such control varying in different industries. Basing on this, he submitted that the authorities totally ignored the evidence of payment of Rs. 63,42,907/- towards GST by the assessee on the reverse charge basis. He submitted that the question of dependent or independent service provider has to be decided contextually, but not merely by referring to one or two clauses in an agreement which was framed inconsonance with international norms and cannot be interpreted in isolation. He, therefore, prayed that given an opportunity, the assessee is prepared to establish that the payment of GST in the light of other attendant circumstances before the learned Assessing Officer to establish that the payments made to Mr. Burchell or the payments for consultancy services, not attracting any TDS.

Per contra, learned DR submitted that the engagement of Mr. Burchell is pursuant to a contract which the authorities below perused and, therefore, unless and until the assessee establishes that such clauses are not there in the agreement it is not open for the assessee to say that the impugned payments are for consultancy services, but not salary, attracting TDS.

We have gone through the record in the light of the submissions made on either side. There is no denial of the fact that the assessee submitted the material relating to the payment of GST. Payment of GST is one of the indications of the intention of the parties that the agreement was for payment of consultancy services because such a payment of GST took place at a contemporaneous period, but not at a later point of time to make good the deficiency in the case of the assessee, if any. Thus, fact in juxtaposition to the stay of Mr. Burchell only for fifteen days in India suggests some strength in the argument of the learned AR. However, the aspect of GST payment missed the attention of the authorities below. As the Hon’ble Apex Court held in the case of Dharangadhara Chemical Works Limited (supra), the test for deciding the relationship of employer and employee or the master and servant is the existence of the right in the employer not merely to direct what work was to be done, but also to control the manner in which it was to be done, while taking into consideration the nature or extent of such control, which varies from case to case, we are of the considered opinion that this question of fact has to be decided by taking into consideration the totality of facts, which in this case include the extent to which the assessee controls the manner in which Mr. Burchell has to execute his work vis-à-vis the CMRL, and the contemporaneous understanding of the parties about the services of Mr. Burchell and payments therefor in the light of the payment of GST.

With this view of the matter, we set aside the impugned orders and restore the issue to the file of the learned Assessing Officer to consider the issue afresh in the light of the attending factors including the payment of GST, after affording an opportunity to the assessee. Grounds are accordingly treated as allowed for statistical purposes.

In the result, appeal of the assessee is treated as allowed for statistical purposes.