By Geeta Jani, Dhishat B. Mehta
Chartered Accountants
1. TS-294-ITAT-2017(Bang)
Emulex Design &
Manufacturing
Corporation vs. DCIT
A.Y.: 2010-11, Date of
Order: 23rd June, 2017
Facts
Taxpayer, a US company
(FCo) had a subsidiary, ICo in India. FCo entered into an agreement with ICo as
per which, FCo seconded one of its employee to ICo for rendering specialised,
skill based expert service to ICo. The services were in the field for technology
of setting up of an independent business centre. In the relevant financial
year, ICo reimbursed expenses incurred by FCo viz. the salary of the seconded
employee without any mark-up.
While filing the return of
income in India, FCo contended that the amount received from ICo was purely in
the nature of reimbursement and hence not taxable in India. Moreover, the
nature of services rendered by the seconded employee was managerial in nature
and hence was excluded from the purview of ‘Fees for included service’ (FIS) as
defined under Article 12 of India-US DTAA.
However, AO argued that the payment was in the nature of FIS.
Aggrieved, FCo raised objection before the Dispute Resolution Panel (DRP), who
also upheld the order of AO.
Aggrieved by the order of AO, FCo appealed before the
Tribunal.
Held
– The secondment agreement between FCo and ICo
indicated that ICo intended to obtain the temporary services of FCo’s employee
who possessed specialised skills and capabilities. The seconded employee was
required to provide their expert service in the field of technology for setting
up of an independent design centre.
– Thus, secondment was for the purpose of
rendering specialised and expertise services and not for providing general
managerial or administrative service.
– Having regard to the business profile of ICo1,
the services rendered by the employee qualifies as technical services.
– Though the payment by ICo is without any
mark-up, such receipt is still chargeable to tax as FIS under the India-US DTAA2.
