By Geeta Jani / Dhishat B. Mehta
Chartered Accountants
17. [2018] 100 taxmann.com 230 (Bangalore –
Trib.) DCIT vs. IBM India
(P.) Ltd IT (IT)ANos.: 1288,
1291, 1294, 1297, 1300, 1303 & 1306 (Bang.) of 2017 A.Ys.: 2009-10 to
2015-16 Date of Order: 16th
November, 2011
Section
9 of the Act; Articles 7, 5 and 12 of India-Philippines DTAA – In absence of
FTS Article in DTAA, and in absence of PE in India, receipt of Philippines
company from Indian company, being in the nature of business profit, were not
chargeable to tax in India.
FACTS
The Taxpayer was an Indian
member-company of a global group. The Taxpayer was engaged in the business of
selling computers, software and lease financing of its products. The group had
a policy of deputing employees of one group company to another group company,
as may be required for certain business projects. For this purpose, the two
respective group companies entered into a standard expatriate agreement. During
this period, the employer of the deputed employee paid salary of deputed
employee in the home country. Thus, Philippines Group Company, (“FCo”) of the
Taxpayer had deputed its employee to the Taxpayer in India. The Taxpayer
reimbursed the amount equivalent to the salary to FCo. Further, the Taxpayer
had withheld tax on the salary of the employee and deposited the same with
Government of India. The Taxpayer did not withhold tax from the reimbursed
amount.
According to the tax authority,
FCo continued to be the employer of the deputed employees and also paid their
salaries. The Taxpayer only reimbursed salary to FCo but did not directly pay
salary to deputed employee. Therefore, the reimbursed amount was covered within
the definition of FTS under the Act as well as under India-Philippines DTAA.
Since the Taxpayer had not withheld tax from reimbursed amount, it was held
‘assessee-in-default’.
In appeal before CIT(A) the
Taxpayer also contended that in absence of FTS article in India-Philippines
DTAA, the receipt was ‘business profit’ and since FCo did not have a PE in
India, the receipt could not be chargeable to tax in India. CIT(A) held that
even if reimbursement by the Taxpayer to FCo was regarded as FTS, the payment
would not be chargeable to tax in India in absence of FTS article in
India-Philippines DTAA.
______________________________________________________
2. Apparently,
the disallowance was u/s. 40(a)(i) of the Act though the decision does not
mention the relevant provision
HELD
- In
an earlier decision in the case of the Taxpayer, the Tribunal has held that
when India-Philippines DTAA does not provide for taxing of FTS, it is not
chargeable to tax.
- There
is no specific clause in India-Philippines DTAA regarding income in the nature
of FTS. Article 23 does not apply to items of income which can be classified
under any other article, whether or not the income is taxable. A payment would
be covered by Article 23(1) [‘Other Income’ Article] if the payment was not
covered within any other Article.
- FCo
received payment in the course of its business. FCo did not have any PE in
India. Hence, the receipt, though business profit, cannot be brought to tax
under Article 7. Therefore, it was not chargeable to tax in India.
