By Dhishat B. Mehta | Bhaumik Goda
Chartered Accountants
15.
TS–336–ITAT–2020 (Del.) DDIT vs. Yum
Restaurants Asia Pte Ltd. ITA No.
6018/Del/2012 A.Y.: 2008-09 Date of order: 16th
July, 2020
Articles 5 and 12 of India-Singapore DTAA – Seconded employee working
under control and supervision of Indian company did not constitute service PE –
Service PE under Article 5(6) and taxability as FTS under Article 12 cannot
co-exist – Services provided did not fulfil ‘make available’ requirement under
Article 12 of India-Singapore DTAA
FACTS
The assessee, a
resident of Singapore, was engaged in franchising of certain restaurant brands
in the Asia Pacific region (including India). It entered into a technology
license agreement with its Indian AE (I Co) for operation of restaurant
outlets. I Co in turn appointed a number of franchisees for operating restaurants
in India under brand names KFC and Pizza Hut.
Mr. V was an
employee of the assessee who had been deputed to India to work under the
control and supervision of I Co. Mr. V was working solely for I Co. However,
the assessee continued to pay remuneration to Mr. V. I Co reimbursed the amount
equivalent to the remuneration of Mr. V (after deducting tax) to the assessee.
The A.O. concluded
that Mr. V constituted service PE of the assessee in India. Hence, the amount
reimbursed by I Co to the assessee was in the nature of FTS and taxable in
India. The A.O. further concluded that the assessee had agency PE in India.
In the appeal,
after referring to relevant clauses of the Deputation Agreement and the
evidence furnished by the assessee, the CIT(A) held that Mr. V was not an
employee of the assessee. Hence, he did not have any right / lien over his
employment. Consequently, there was no service PE of the assessee.
HELD
Service PE
- The deputation
agreement between the assessee and I Co mentioned that the assessee was not
responsible for, or assumed the risk of, the work of assignees; assignees would
work under the control, direction and supervision of I Co; and the assessee
released assignees from all rights and obligations, including lien on employment,
if any.
- CIT(A) had given
the following findings:
- An employee of I
Co leading the business development team had resigned. Mr. V was deputed to
India as his substitute. Upon expiry of the deputation period, Mr. V was
inducted as an employee of I Co.
- During the
deputation period, I Co had reimbursed the remuneration paid by the assessee on
cost-to-cost basis. I Co had also deducted the applicable tax. Mr. V had paid
tax in India on his remuneration.
- All the facts and
circumstances indicate that Mr. V was an employee of I Co and the assessee had
merely acted as a conduit for payment of remuneration to Mr. V in Singapore
since his family was in Singapore.
- Other evidence,
such as attending board meetings of I Co, signing financial statements of I Co
as its director, etc., also showed that Mr. V was involved in the day-to-day
management of I Co.
- Revenue had also
not controverted the findings of the CIT(A). Thus, the deputation of Mr. V did
not constitute service PE of the assessee in India.
- Even if a service
PE of the assessee in India was constituted, no income can be attributed to the
service PE because for computing profit attributable to PE, expenses incurred
(in this case, remuneration paid to Mr. V) should be deducted. Having regard to
reimbursement of remuneration on cost-to-cost basis, the income of the PE would
be ‘Nil’.
FTS
taxability
- Having regard to
provisions of Article 5(6) read with Article 12 of the India-Singapore DTAA,
service PE and taxability as FTS cannot co-exist.
- Even otherwise,
services did not fulfil the ‘make available’ condition under Article 12 of the
India-Singapore DTAA.
- Mr. V worked as
an employee of I Co and paid taxes on his remuneration. Taxing the same again
as FTS would result in double taxation of the same income.
Agency PE
- The A.O. did not
establish under which limb of definition of agency PE in Article 5(8) of
India-Singapore DTAA the agency PE of the assessee was constituted in India.
Note: The Tribunal distinguished the Delhi High
Court decision in the case of Centrica India Offshore Pvt. Ltd. [2014] 364 ITR 336 as not applicable to the facts under
consideration. The exact basis of this conclusion is not clear.
