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New Page 1Part C : Tribunal &
AAR International Tax Decisions
5 DDIT v. Tekmark Global Solutions LLC
(ITA 671/2007) (ITAT-Mum.)
Article 5(2), 7 of India-USA DTAA
Dated : 23-2-2010
No income arises to the foreign company in India in the
course of deputing personnel to an Indian company, who work under the control
and supervision of the Indian company and thus become employee of the Indian
company. Amount of salary of deputed employees reimbursed to the foreign company
is not taxable in India.
Facts :
Lucent Technologies Hindustan Private limited (ICO), an
Indian company, entered into an agreement with the assessee, a tax resident of
USA, to have their personnel deputed as per specifications of ICO.
ITAT considered the following terms of the contract between
ICO and the assessee to conclude that the arrangement between them was not for
providing of services by the assessee through its employees but that of
selecting and offering personnel for working as employees of ICO :
-
ICO provided
specifications of the employees whom it (ICO) required pursuant to deputation
arrangement.
-
The deputed personnel
worked under the direction, supervision and control of ICO.
-
The assessee was not
responsible for the work done or actions taken by the deputed personnel.
-
The lodging, boarding and
other related expenses of deputed personnel were arranged by ICO.
-
The agreement made it
clear that the agreement was for providing employees as per specifications of
ICO and not for providing services to ICO.
The ITAT did note that the deputed personnel continued to be
on the payroll of the assessee and that the salary of the deputed personnel was
paid by the assessee for recoupment by way of reimbursement from ICO.
The Tax Department contended that the arrangement involved
rendering of services by the assessee to ICO through its employees in India and
that there was emergence of Service PE of the assessee in India. Accordingly,
the amounts were held chargeable in the hands of the assessee.
ITAT held :
The ITAT held :
-
No part of technical
services were rendered by the assessee to ICO.
-
The deputed personnel for
all practical purposes became the employees of ICO and carried out work
allotted to them by ICO. The assessee had no control over the activities or
the work performed by the deputed personnel. ICO alone had the right to remove
the deputed personnel.
-
When the services
rendered are independent of, and not under the control of, the assessee, the
deputed personnel do not give rise to emergence of PE of the assessee in
India.
-
In the circumstances, the
amount received was reimbursement of salary which the assessee had disbursed
as advance on behalf of and to the employees of ICO.
-
Even on an assumption
that there is emergence of PE, there was no income embedded in the
reimbursement of expenses.
