Income Tax Appellate Tribunal - Mumbai
Mark & Spencer Reliance India P.Ltd, ... vs Department Of Income Tax
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'एल'
एल' मंुबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL
"L" BENCH, MUMBAI
सव ी बी. रामकोटय
रामकोटय, लेखा सद य एवं ी वजयपाल राव,
राव या.स
या स ।
BEFORE SHRI B. RAMAKOTAIAH,
RAMAKOTAIAH, AM & SHRI VIJAY PAL RAO, JM
आयकर अपील सं./I.T.A.
I.T.A. No.
No . 905/M/2012
( नधारण वष / Assessment Year : 2010-11)
Addl. Director o f Income बनाम M/s. Mark & Spencer Reliance
बनाम/
Tax(IT) Rs.-4 R.N.134, Vs. India P.Ltd.C/O Mr. shree
Scindia House, 1 s t Floor, Kumar Chirkal, C abin 07, Bldg
Ballard Estate, N.M. Road, 4C, GR Floor, RCP, Ghansoli,
Mumbai 400 038. Navi Mumbai
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAFCM5990D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
अपीलाथ ओर से / Appellant by : Shri Neeraja Pradhan
यथ क ओर से/Respondent
/Respondent by :
/Respon Shri F. V. Irani
सनवाई
ु क तार ख / D a te o f H e ar in g : 1st August 2013
घोषणा क तार ख/
ख/D at e Of P r on o u nce me n t: 4th September 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
This Appeal by the revenue is directed against the order dated 28.11.2011 arising from the order passed section 201 of Income Tax Act of Commissioner of Income Tax(Appeals) for the assessment year 2010-
11.
2. Revenue has raised the only ground in this appeal as under;
"1 On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that part reimbursement of expenses cannot be held as income deemed to accrue or arise in India and taxable as income being 'Fees for 2 ITA No. 905/M/2012 Marks and Spencer Reliance India Technical Services without consideration the following facts:
i. As per Para-13(4) of the DTAA, fees for technical services means payments of any kind in consideration for rendering of any technical or consultancy services ( including provisions of services of a technical or other personnel) and thus, provisions of services of personnel is included in the definition of fees for technical services.
ii. The services are covered under Article 13(4)(a) of Indo-UK Treaty and the chargeability of fees for technical services is wider in scope and nature u/s. 9(1 )(vii) read with explanation 2 of the Income Tax Act, 1961.
iii. The 'make available' component is present with the receipt as in terms of latest Rulings in Perfetti Van Melle Holding SV. in AAR No. 869 of 2010 dated 09-12-2011, the expression 'make available' would mean that the recipient of the service should derive an enduring benefit and would be in a position to derive benefit from similar service independent of the party rendering the services."
3. The assessee company is a Joint Venture Co. between Marks & Spencer PLC and Reliance Retail Limited. The assessee entered into an agreement dated 31.07.2009 with Marks and Spencer PLC of U.K. based company whereby the assessee was provided personnel to carry out the functions in the area of management, to setting up of business, property selection and retail operation, product and merchandise selection and to setting up merchandise teem. The AO has noted in the order passed under section 201 that following personnel were provided by the Marks and Spencer PLC to the assessee:
Mr. Mark Ashman- assist in overall management of setting up of business.
Mr. Spencer Sheen- assistance in property selection and retail operation.
Mr. Adam Colton- to lead merchandising and product selection.3 ITA No. 905/M/2012
Marks and Spencer Reliance India Ms. Emily Imeson- to set up merchandising team.
4. The assessee has paid a sum of Rs.4,83,60,187/- to Marks & Spencer PLC, London on 04.12.2009. The AO noted that on this payment the assessee did not make any deduction of tax under section 195. The AO issued a notice under section 201 for holding that assessee has committed default by remitting the money without deduction of tax and accordingly liable to be held for the liability under section 201. The assessee filed its reply and explain that the payee Marks & Spencer does not have a permanent establishment in India and further payments made by the assessee are in nature of reimbursement and therefore the same are not taxable. The assessee has also contended that as per Article 13(4) of the DTAA between India and UK the payment does not falls under the definition of fee for technical services. The AO did not accept the contention of the assessee and held that the assessee had committed a default by remitting the money without deduction of tax which was chargeable to tax as Fee for Technical Services (FTS), while passing order dated 20.10.2010 under section 201. On appeal the learned CIT(A) has held that the remittance is only part reimbursement of expenses and cannot treated as income deemed to accrue or arise in India, being FTS as per Indo-UK DTAA.
6. Before us, the learned DR has submitted that the Assessing Officer has clearly recorded the facts that the remittance of the money in question is for the service rendered by the payee through its employees and therefore, the said payment is in the nature of fee for technical 4 ITA No. 905/M/2012 Marks and Spencer Reliance India services. The Services in the area of management, selection of property and retail operations which are in the nature of business strategies, and advisory. Thus the gross revenue received by the payee being FTS is liable to tax and expenses can not be allowed as deduction. The learned DR has further contended that once the payment is fee for technical services then the theory of reimbursement of expenses does not apply. He has relied upon the order of the Assessing Officer and submitted that in case of payment to non-resident the assessee cannot take a unilateral decision that payments are not sum chargeable to taxes. The assessee could have obtained certificate under section 195(2) in this respect before making the remittance. The employee are provided to the assessee which were having requisite skills and experience to carry out functions of business development , preparing business strategies, sales strategies and advertising on retail matters in order to complete the preparatory necessary for the start of business of joint venture Co. The nature of the services provided by the payee through its employee is technical and expert's services in the field of management and other affairs therefore, the payment against such services falls under the definition of fees for technical service.
7. Learned DR has further contended that these personnel remained employees of the payee and therefore, there is no question of reimbursement of expenses. These employees were paid by the UK Co. and not by the assessee. The assessee made payment on the basis of 5 ITA No. 905/M/2012 Marks and Spencer Reliance India invoice raised by the UK Co. hence, the assessee was under obligation to deduct tax at source.
8. On the other hand, learned AR of the assessee has submitted that amount paid by the assessee is not an income in the hands of the payee as it is only reimbursement of cost. He has referred the details of the salary paid by the Mark and Spencer UK Co. to the personnel deputed with the assessee and reimbursement made by the assessee and submitted that the amount remitted by the assessee is less than the salary paid to the personnel. He has further submitted that even the amount paid is less than the invoice raised by the UK Co. as it was reduced after negotiation and therefore, it was a case of part reimbursement of the expenses. He has further referred the terms of the agreement between the parties and submitted that as per the terms of the service agreement the parties agreed to provide employees to the assessee and will be charged without mark up or the company shall directly compensate the seconded or engaged employees. He has further submitted that as it is provided in the service agreement the parties have also sign a seconded agreement in this respect on 31st July 2009. Thus, learned counsel has submitted that the seconded agreement would not be considered as service provided by the payee to the assessee and therefore the payment would not constitute fees for technical service as per the provisions of Article 13(4) of the Indo UK DTAA. He has further submitted that an identical issue has been considered and decided by this tribunal in case of Raymonds 86 ITD 791 which has been considered by 6 ITA No. 905/M/2012 Marks and Spencer Reliance India the special Bench of this Tribunal in case of Mahendra & Mahendra Ltd. 313 (AT) 263 (Mum)(SB). Thus the issue is directly covered by the decision of this Tribunal in case of Raymond as well as special bench decision in case of Mahendra and Mahendra Ltd.
9. The learned AR has emphasized that in the absence of making available any technical knowledge; know how, the payment does not fall within the article 13(4) of Indo-UK DTAA. Alternatively, the learned AR has submitted that even in case the payment are not treated as reimbursement the same are not taxable in India as business profits in the absence of P.E in India. He has also relied upon the following decisions:
CIT Vs De Beers India Minerals (P.) Ltd. 346 ITR 467 (Kar.) CIT Vs Siemens Aktiongesellschaft 310 ITR 0320 Utility Powertech Ltd. Vs ACIT in ITA No. 2561/M/2009 ACIT Vs CMS (India) Operations & Maintenance Co. (P.) Ltd. 19 Taxman 139(Chennai) Bhagyanagar Gas Ltd. Vs ACIT 29 Taxman 220 Abbey Business Services (India) (P.) Ltd. Vs DCIT 23 Taxman 346 (Bang.) ITO Vs ISE Securities & Services Ltd. in ITA No. 6391/M/2009
10. We have considered the rival submission as well as relevant material on record. The assessee paid Rs.4,86,6187/- to Marks and Spencer PLC towards salary expenditure of 4 employees deputed to the assessee for providing assistant in the area of management of setting of the business, retail operations, property selection & evaluation, 7 ITA No. 905/M/2012 Marks and Spencer Reliance India production marketing. A service agreement was entered into between the partners of the assessee joint venture on 6th October 2008, whereby Marks & Spencer PLC and Reliance agreed to provide assistance to the assessee joint venture to operate the business. The parties have set out the terms and condition of the business of the joint venture Co. as per clause 3.1 of the agreement between the share holders of the joint venture i.e. Marks & Spencer & Reliance who undertook to provide assistance from time to time to the assessee in the areas as provide under the clause as under:
"Subject to clause 3.2, M&S and Reliance each under take on request to provide assistance from time to time to the Company in areas such as;
(i) human resources
(ii) legal and governmental liaison;
(iii) tax, finance, and accounting;
(iv) store design (including construction and shop(fitting); and
(v) marketing, store operations. IT, and the sourcing of office space(such sorucing of office space, for the avoidance of doubt, being as M&S or a Reliance Service (as the case may be ) and not a Specific Service under Annex.2) ( all parties agreeing that the forgoing list is not intended to be exhaustive on terms to be mutually agreed between the parties but consistent with the provisions of this clause 3.)
11. The partners of joint venture also agreed for employment of seconded employees of M&S or Reliance as provided under clause 3.5 and 3.6 of the agreement as under:
"3.5 M&S and Reliance shall, throughout the period of this Agreement, co-operate in good faith to agree and implement the process and machanisms which are most efficient for M&S, 8 ITA No. 905/M/2012 Marks and Spencer Reliance India Reliance and the Company from time to time for the secondment to the Company of employee of M&S or Reliance (as the case may be), including considering in goods faith the proposal that the Company directly engages such seconded employees but that the continuity of employment of such seconded employees is retained by M&S or Reliance (as the case may be).
3.6 Subject to clause 3.5 above and for the avoidance of doubt, the secondment or direct engagement of employees by M&S and Reliance to the Company shall be governed by a separate agreement and shall not constitute a M&S service or a Reliance Service. The cost of any employees of M&S or Reliance (as the case may be) that are seconded to or directly engaged by the Company will be charged to the Company without mark up or the Company shall directly compensate the seconded or engaged employee, unless otherwise agreed between M&S and Reliance."
12. Thus, it is clear from the clause 3.6 of the agreement that the parties will sign a seconded agreement without any mark up and therefore, the assessee shall directly compensate the seconded or engaged employees. The parties i.e. assessee and M&S PLC further signed a confirmation of understanding as agreed at the time of agreement vide confirmation letter dated 31st July 2009 whereby these employees which were provided by Marks & Spencer PLC to the assessee were retained as seconded employees. The assessee has claimed that the amount paid to the Marks & Spencer PLC UK is only the reimbursement of cost and since the same is not in the nature of FTS it is not taxable in India in the absence of any profit element as well as permanent establishment of the payee. As far as the claimed of reimbursement of cost is concerned the same is relevant only when the payments are found as not in the nature of FTS because in case of FTS the Gross amount is 9 ITA No. 905/M/2012 Marks and Spencer Reliance India taxable and not the profit element. Thus, let us, first examine issue of FTS and particularly as per the provision of Indo-UK DTAA.
13. The CIT(A) has considered the provisions of DTAA and decide the same issue by following the decision of special bench inc case of Mahendra & Mahendra(supra) in para 4.6 to 4.11 as under:
"4.6 In case of Mahendra and Mahendra Ltd 122 TTA 577 a SPL. Bench ITAT while discussing the issue of taxability of reimbursement of expenses, for the services rendered by the companies overseas, acting a lead manager for GDR & FCCB issued by Indian Co for raising the funds abroad have held, that where technical services were rendered to the Indian party, even though used by the non residents, the amount of management and commission fees is not taxable under the Indo UK treaty since "make available' clause is not satisfied. Regarding reimbursement of expenses it has decided the issue in para 19-13 as under:
"19.13 We have considered the nature of services rendered by the non-resident in an earlier part of this order. Such services commenced prior to the bringing out FCCB issue; and continued during the period when the issue was open for subscription and continued even after its closing. A meticulous look at the nature of such services taken note of above, clearly reveals that these are in the nature of technical, managerial or consultancy services. To be more specflc the 'management commission' paid by the assessee to the non-resident along with the 'selling commission' is aptly brought within the scope of "fees for technical services ". 'Underwriting commission' is basically consideration for assuring that f the issue is not fully subscribed then the underwriters shall take up the unsubscribed bed portion of the shares and In return for such undertaking, the underwriting commission is paid at a specific percentage of the amount of the total issue. Underwriting commission is only for incurring the liability of subscribing to the unsubscribed portion left over by the general public. The assurance so given for purchasing the unsubscribed shares does not require rendering of any services by the underwriter. Thus the underwriting commission is de hors the rendering of any managerial, technical or consultancy services and hence cannot fall within the definition of fees for technical services under s. 9(l)(vii). The last item is the reimbursement of expenses. The AD has not disputed that the sum of Rs. 1.68 crores is. In the nature of expenses reimbursed by the assessee to the lead managers. When a particular amount 10 ITA No. 905/M/2012 Marks and Spencer Reliance India of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under s. 9(l)(vii), should be or have at least some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be described as Income in the hands of the recipient. In other words the component of income must be present in the total amount of fees paid for technical services to constitute as an item falling under s. 9(l)(vii). Where the expenditure incurred is reimbursed as such without having am element of income in the hands of the recipient, it cannot assume the character of income deemed to accrue or arise in India. We, therefore, hold that the amount of 'management commission' in respect of FCCB issue amounting to Rs. 1.62 crores and the 'selling commission' of Rs. 6.07 crores fall within the scope of income by way of fees for technical services in terms of s. 9(l)(vii). However, the other two amounts namely the 'underwriting commission' at Rs. 2.43 crores and the 'expenses reimbursed' at Rs. 1.68 crores are not income by way of fees for technical services.
19.24 We have discussed above that where DTAA has been entered into by India with another country of which the non- resident is tax resident, then it has to be examined as to whether income, which is otherwise chargeable under the Act in the hands of the non-resident, can be brought to tax as per the terms of DTAA also. if the income is chargeable to tax under the regular provisions of the Act then the second question is to examine the provisions of DTAA and f the same is still taxable under DTAA then the non-resident is liable to tax In respect of such income. If however the DTAA immunes such income from tax net, then that income cannot be taxed notwithstanding the fact that the same is taxable under the general provisions of the Act. Having come to the conclusion that the management commission and selling commission are in the nature of income by way of fees for technical services under s. 9C1)(vii) now it remains to be seen whether they can be taxed under the DTAA also.
19,15 We will take up the second DTAA with UK, which is relevant to the FCCB issue brought in 1996. Article 7 deals with the 'business profits' and provides that the profits of an enterprise of Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. Article 5(1) defines 'PE' for the purpose of this convention to mean a fixed place of business through which business of an enterprise is wholly or partly carried on. Clause (2) of art. 5 gives the meaning of 'PE' in an inclusive manner. The learned Authorised Representative has contended 11 ITA No. 905/M/2012 Marks and Spencer Reliance India that since the nonresidents did not have any PE in India, the commission earned by them from the assessee which is 'business profit', was not liable to tax. We are not agreeable with this argument. There is controversy on the legal position that the 'business profits' under art. 7 can charged to tax in India only if the non-resident has PE in India. There is no dearth of the judicial precedents laying down that in the absence of any PE in India the business profit of the nonresident cannot be taxed in India. But the real controversy before us is about the nature of payment made by the assessee the non-resident which is in the nature of 'fees for technical services' for which special article has been included in the convention. Clause (1) of art. 13 of this DTAA provides that the royalties and fees for technical services arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other State. On a glance at this article, it turns out that there is no precondition for taxing royalties and fees for technical services in India only to the extent which is attributable to the PE of the non-resident, as is there in relation to art. 7. So even in the absence of any P.C of the non-resident, art. 13 operates and royalties or fees 'for technical services paid to the resident of another Contracting State may be taxed in that other State. 'Business profits' article is a general article, whereas there are certain separate articles for treating specific incomes independently. For example income from air transport is subject- matter of art. 8. Shipping is covered under art. 9. Interest income is specified under art. 12. In the like manner 'royalties and fees for technical services' is a subject-matter of art. 13. 19.16 It is settled legal position that the specific provisions override the general provision. The legal maxim 'Generalia specialibus non- derogant' means that the general things do not derogate from special. In other words, it implies that the special provisions override the general provision. If there are two conflicting provisions in the same section or clause, the special provision will prevail as the same is excluded from the general provision. To put it in simple words, if a specific provision is made on a certain subject-matter, that matter is excluded from the general provision. The Hon'ble jurisdictional High Court in the case of Forbes Forbes Campbell & Co. Ltd. vs. CIT (1994) 129 CTR (Born) 319 : (1994) 206 ITR 495 (Born) has quoted the above maxim with approval. It has also been applied by the Hon'ble Madras High Court in the case of CIT vs. Copes Vulcan Inc. (1986) 57 CTR (Mad) 244 : (1987) 167 ITR 884 (Mad), in which case it was held that s. 9(1)(i) is general in nature and s. 9(1)(vii) refers to a particular type of income and is a special provision dealing with even for technical services rendered by the foreign company. After considering the arguments from both sides it was held that s. 9(1)(vii) would apply. Recently the Hon 'ble Supreme Court in the case of Britannia Industries Ltd. vs. CIT (2005) 198 CTR (SC) 313 (2005) 278 ITR 546 (SC) has held that the 12 ITA No. 905/M/2012 Marks and Spencer Reliance India expenditure towards rent, repairs, maintenance of guest house used in connection with the business is to be disallowed under s. 3 7(4) because this is a special provision overriding the general provision. It therefore, follows that if a specific provision is made then that matter is excluded from the general provision. Coming back to the DTAA under consideration we find that art. 13 specifically deals with the 'royalty it's and fees for technical services'. In such a situation art. 7 dealing with the 'business profits' cannot be considered for application with respect to the 'fees for technical services' which is subject-matter of art. 13 separately. We will thus ignore the general provision in art. 7 and consider the special provision as contained in art. 13 for our purpose. Clause (2) of art. 13 provides that the royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to law of that State; but f the beneficial owner of the royalties or fees for technical services is the resident of the other Contracting State, the tax so charged shall not exceed the limits set out therein. Article 13(4) defines the term "fees for technical services" to mean payments of any kind to any person in consideration for the rendering Of any technical or consuitancy services (including the provision of services of technical services or other personnel);which:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3(a) of this article is received; or
(b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in para 3(b) of this article is received; or
(c) make available technical knowledge, experience, skill, know-how or processes, or consist of development and transfer of a technical plan or technical design.
19.17 The case of the assessee before the AO was that it is covered by (c) above, which fact has not been denied by the officer. Hence to bring any payment within the parameters of fees for technical services it is of paramount importance that the technical knowledge, experience or skill etc. is made available to it. Referring to the order passed by the Tribunal in Raymond Ltd. (supra) the learned Authorised Representative stated that the Mumbai Bench also considered the DTAA with UK and held that the technical services rendered by the lead managers in connection with the GDR issue must be mq4. available so as to be covered under art. 13. He submitted that the Tribunal held that since the services were riot made available hence the management and selling commission could not be taxed in the hands of the payee. He argued that the facts and circumstances considered in Raymond Ltd. are identical to those under consideration inasmuch as in that case also GDR issue was 13 ITA No. 905/M/2012 Marks and Spencer Reliance India brought out and lead managers were appointed who were paid for similar services, in the similar manner. He also referred to certain cases in which the order in the case of Raymond Ltd. (supra) has been followed by different Benches of the Tribunal taking the similar view.
19.18 We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that cis. (1) and (2) of art. 13 in the DTAA with UK clearly provide that the fees for technical services is taxable in India. Now we have to consider the meaning of the term "fees for technical services" as employed in this article. As noted above cl. (4) of art. 13 defines the meaning of the term "fees for technical services". The entire quarrel is about the applicability or other Wise of suo-u. (c) of cl, (4) of art. 13 as per which fees for making available of the technical knowledge, experience, skill etc. is Included in the definition of this sub-clause. In other words the technical knowledge. experience or skill etc. must be made available to the assessee so as to be covered within its scope and mere provi4jng of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not "made available the assessee. "Rendering of any technical or consultancy services"
is followed by "which make available technical Knowledge, experience, Skill, know how". In this context is becomes imperative to understand the meaning of the expression "make available used in this article. Make available means to provide Something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. In our context to make available the technical services means that such technical information or advice is transmitted by the non- resident to the assessee, which remains at its disposal for taking the benefit therefrom by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the nonresident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient. 19.19 The meaning of the expression "make available" has been aptly considered in the case of Intertek Testing Services India (P) Ltd., In re (2008) 220 CTR (AAR) 540: (2008) 307 ITR 418 (AAR) as under:
"Now, we shall proceed to analyse further cl, (c) of art. 13(4). Rendering of service and making use of service go together.14 ITA No. 905/M/2012
Marks and Spencer Reliance India They are two sides of the same coin. But cl. (c) of art. 13(4) does not stop at that. it carves out a (qualification thereto by employing the words 'which make available technical experience, skill, know-how or processes'. Rendering technical or consultancy service is followed by a relative pronoun 'which' and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that 'make available' to the recipient technical knowledge, know- how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own Without the aid of the service provider. By making available the technical skills or know-how, the recipient of the service will get equipped With that knowledge Or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology 'make available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in cl. (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor."
19.20 Similar view has been taken in the case of Raymond Ltd. (supra). It, therefore, follows that making available the technical services to the recipient is sine qua non for treating consideration paid for it as fees for technical services under art. 13 of DTAA with UK. Adverting to the facts of the instant case we find that the lead managers had rendered technical, managerial or consultancy services in the GDR issue, but such services were not made available to the assessee inasmuch as the assessee only derived the benefit from the technical 15 ITA No. 905/M/2012 Marks and Spencer Reliance India knowledge, experience or skill in its pos.., hold that art. 13 of DTAA with UK does not apply to the instant case and hence the 'management and selling commission' cannot be taxed in India. The other two items namely underwriting commission and expenses reimbursed have already been held by us to be not in the nature of fees for technical services. if the underwriting commission does not fall within art. 13 of DTAA with UK, then that will fall within the scope of art. 7, being the 'business profit' which is a general provision for the income earned. It is a settled legal position and also clearly borne out from the language of art. 7 that the profits of an enterprise which carries on business in the other State shall be taxed only to the extent which is attributable to its PE. The assessee argued before the AO that the nonresident had no PE in India, which has not been contradicted by the AO. Nowhere from the assessment order it comes up that the AO had treated any place as PE of the non- resident. In the absence of any PE of the non-resident in India, in our considered opinion, the 'business profits' under art. 7 cannot be charged to tax and hence underwriting commission would also be outside the ambit of tax as per DTAA. Thus the entire amount paid by the assessee in relation to the FCCB issue, viz., management, selling and underwriting commission along with the reimbursement of expenses cannot be taxed in the hands of the non-resident and resultantly there can be no obligation on the assessee to deduct tax at Source under s.
195. Resultantly the assessee cannot be treated as "assessee in default" under s. 201(1) of the LT. Act."
4.7 The present case is a case of part reimbursement of expenses and therefore there is no income element present in part reimbursement. The services rendered by the four persons deputed to the appellant are assistance in management and set up of business, assistance in property selection and evaluation and leading the retail operation, merchandising and product matter and set up of merchandising team under direct control, management and supervision of the appellant. This means that the four persons deputed to the appellant have worked as per the needs of the appellant to set up its retail business operations. The services necessary to set retail business operations cannot be said to be technical services within the scope of treaty between India and U.K. and as explained by ITAT Mumbai in the case of Raymonds Ltd (supra). Further, from the above it also cannot be said that the services have been 'made available' to the appellant to be taxable in India. 4.8 Reference in this regard is made to the judgement of ITAT Bangalore 'A' Bench In case of IDS Software Solutions (India (P) Ltd. 122 ITJ (Bang) 410. In this case of an employee of U.S. Company was seconded to the Indian Company under an 16 ITA No. 905/M/2012 Marks and Spencer Reliance India secondment agreement" to provide managerial services in the business of the Indian Company. The seconded employee was reportable and responsible to the Indian Company and was required to devote the whole of his time, attention and skills to the duties required by the secondment agreement. The Indian company had the right to approve or reject the employee and if necessary to request the US company to replace the employee if such employee is found not qualified to meet the requirements of the seconded arrangements. The seconded employee was required to act and serve as 'officers', authorized signatories, nominees and in other lawful capacity on behalf of the Indian company etc. On these facts the ITAT has held as under;
"The next question is whether the amount can be considered as fees for technical services within the meaning of Expin. 2 below s.9(1)(vii) of the IT.Act. Under this Explanation fees for technical services means any consideration including lump sum consideration for the rendering managerial, technical or consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries ". It is not denied before us on behalf of the assessee that Dr.Sundarajan is a technical person. What is however submitted is that arts 11 and VI of the secondment agreement would be out of place in a contract for providing technical services. Article II as we have already seen contains eight clauses outlining the duties and obligations of the seconded employee. Article VI provides for indemnification which has also been earlier noticed by us. We are inclined to agree with the submission that these two articles are out of place in a contract for providing technical services. For example, Cls. (A) to (C) of art II make the seconded employee responsible and subservient to the assessee company which cannot be the case if the agreement is for providing technical services by IDS act as officer or authorized signatory or nominee or in any other lawful personal capacity for the assessee company, would also be out of place in the agreement for rendering technical services as it cannot be imagined that a technical person would also be required to act in non-technical capacities under an agreement for rendering technical services. Clause (H) on which considerable reliance was placed by the Department to contend that the agreement is one for rendering technical services, is merely a clause ensuring secrecy and confidentiality of the information accessed by the seconded employee in the course of his employment with the assessee company. Such confidentiality extends not only to technical information, which would be the case if the agreement is one for rendering technical services but also to financial or accounting 17 ITA No. 905/M/2012 Marks and Spencer Reliance India information, price or cost data and any other proprietary or business related information. Article VI which provides for indemnity, that is to say, the liability of the assessee company to indemnify the US company from all claims, demands, etc., consequent to any actor omission by the seconded employee is also inconsistent with the claim of the Department that this is an agreement for rendering technical services. The article further provides that nothing in the agreement shall be construed as a warranty of the quality of the seconded employee. It is not usual to find a stipulation in an agreement for rendering technical services."
4.9 Similarly in case of Louis Berger International Inc. 40 SOT 370 (Hyd) Hon'ble Hyderabad 1TAT in a case of reimbursement of expenses for providing consultancy services has held that such reimbursement of expenses is not taxable under India USA treaty and also under the Act. Jn case of United Hotels Ltd. [93 TTJ 8221, the Hon'ble ITAT, Mumbai has considered the scope of fees fOr technical services and payment of salary to the employees on deputation for rendering various professional services, such as accounting, engineering etc. and has held that payment of salary to the employees on deputation is not fees for technical services under section 9(l)(vii) of the Act. 4.10 Similar view has been taken by ITAT in other cases namely:
ADIT (IT) Vs. Bureau Veritas 131 TTJ (Mumbai) 29, ACIT vs. Modicon Network (F) Ltd 14 SOT 204 (Del), D.D.I.T.(IT) vs. Tata Iron & Steel Co. Ltd.6 ITR 463; also.
4.11 Hence following the judgement of Mahendia & Mahendra ITAT Spl. Bench, and other decisions as above the part reimbursement of expenses cannot be has9 income deemed to accrue or arise in India and taxable as income being "Fees for Technical Services" as per DTAA between India and U.K.
14. It is clear from the order of the learned CIT(A) that it has followed the decision of Special Bench of this Tribunal in case of Mahendra & Mahendra and held that the payment are not in the nature of Fees for Technical Services (FTS). Thus in the absence of make available technical knowledge, expertise, skill, know-how or process etc. it cannot be held that the payment is FTS as per article 13(4) of Indo UK DTAA. The term fee 18 ITA No. 905/M/2012 Marks and Spencer Reliance India for technical service has been defined under par 4 of article 13 of Indo-UK DTAA as under:
"4. for the purposes of paragraphs 2 of this Article, and subject of paragraph 5 of this Article, the terms "fees for technical services" means payment of any king of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which;
(a) are ancillary and subsidiary to the application of enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ;or
(b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or
(c) make available technical knowledge, experience, skill know-
how or processes, or consist of the development and transfer of a technical plan or technical design".
15. As per clause (e) of para 4 if the payment is a consideration for rendering of any technical or consultancy services which make available technical knowledge, experience, skill, know-how or process, or consist of development and transfer of technical plan or technical design shall be treated as fee for technical services. An identical issue has been considered by the Hon'ble Karnataka High court in case of CIT vs. De Beers India Minerals(P.) Ltd.(supra) in par 22 as under:
"22. What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available to the recipient technical knowledge, know- how, and the like. The service should be aimed at and result in transmitting technical knowledge, etc, so that the prayer of the service could derive on enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available' the technical knowledge, skills, etc, must remain with the person receiving the services even after the 19 ITA No. 905/M/2012 Marks and Spencer Reliance India particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skill of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc. Does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied."
16. Thus, merely providing the employees or assisting the assessee in the business and in the area of consultancy, management etc. would not constitue make available of the services of any technical or consultancy in nature. The Hon'ble High Court has observed in para 13 that as per the definition for fee for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know-how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA. Accordingly, in view the decision of Hon'ble Karnataka High Court in case of CIT vs. De Beers India Minerals (P.) Ltd. (supra) and Special Bench decision in case of Mahendra and Mahendra (supra), we hold that the 20 ITA No. 905/M/2012 Marks and Spencer Reliance India payment in question does not fall under the term fee for technical services as per provisions of Indo-UK DTAA.
17. Having held that the payment in question is not fees for technical services the same has to be examined in the light of relevant provisions of the Act and DTAA. Even, under the Income Tax Act, if the payment is only reimbursement of expenses the same cannot be regarded as income in the hand of the payee/recipient. The learned AR of the assessee has placed reliance on the decision of Hon'ble Jurisdiction of High court in case of CIT v. Siemens AktiongesellsChaft 310 ITR 320, wherein the Hon'ble High Court.
18. In the case in hand, there is no dispute that the payment for salary to the employees deputed in India and subsequently absorbed is less than the actual amount of salary paid by Marks and Spencer PLC UK to the personnel in India. The details of payment are given by the CIT(A) in para 2.6 of the impugned order as under:
"During the course of hearing it was noticed that TDS of Rs. 62,86,149/- has been done by Marks & Spencer India Pvt Ltd on a amount of Rs.1,88,10,781/- including perquisite of Rs.42,23,855/- paid to Mr. Spencer Sheen, one of the persons deputed by the U.K. Co. to the appellant. In this regard Learned Authorised Representative has explained that Mr. Spencer Sheen in addition to working with the joint venture company was also functioning as Director in Bangalore Company. Acknowledgement copies of the return of all the employees have been filed with the details as under:
Name Gross Total Income Total tax paid
(In Rs.) (In Rs.)
1 Spencer Timothy Sheen 1,88,10,781 62,86,149
2 Emily Charlotte Imeson 45,55,340 44,37,326
3 Adam Benjamin Coiton 89,03,801 29,18,767
21
ITA No. 905/M/2012
Marks and Spencer Reliance India
4 Mark Peter Ashman 1,94,34,489 64,98,148
Total 5,17,04,411 1,71,40,390
The details of salaries paid to the employees by the U.K. remitted by the Indian joint venture are as under:
Summary of Reconciliation of Jt. Employees claimed by final Amount re-charged to MSRIPL for 2008-09.
Particulars Amount Amount Amount
Claimed Waived £ Recharged £
A Joint Employer Cost 241,146 19,179 221,967
Mark 234971 234971 27,181 207,790
Spencer 135,905 135,905 15,485 120,420
Adam 73,913 73,913 16,834 57,079
Emily Sub-total 685,935 78,679 607,256
19. There is no dispute about the facts as record by the CIT(A) that the assessee has made the payment towards part reimbursement of the salary expenditure which clearly shows that there is not element of profit in the said payment. This claim of the assessee is also supported by the various clauses of the agreement and seconded agreement as referred by us in the forgoing paras. Further the entire amount of salary received by these personnel has been subjected to tax in India at the highest average rate of tax. Therefore, there is no question of any default on the part of the assessee. It is pertinent to mention that payment by the assessee is actually payment made to the employees deputed in India under seconded agreement but routed through Marks and Spencer PLC UK.
Since the said payment to the employees is already subjected to tax in India, therefore, there is no question of treating the assessee in default for non-deduction of tax at source.
22ITA No. 905/M/2012
Marks and Spencer Reliance India
20. In view of the above discussions, we do not find any error or illegality in the impugned order of CIT(A). We find that the decision relied upon by the learned DR are not applicable in the facts case of the assessee, because there is no ambiguity about the payment by the assessee and actual salary expenditure by the Marks and Spencer PLC. Accordingly, we do not find any merits in the appeal of the revenue.
21. In the result, the appeal of the revenue is dismissed Order pronounced in the open Court on this 4th day of September 2013 Sd/- Sd/-
(बी. रामकोटय) ( वजयपाल राव)
लेखा सद य या यक सद य
( B. RAMAKOTAIAH) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai: Dated: 4th September 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai