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2.2 Assignment Relationships - For the period of the assignment, the Expatriate Employees shall be under the control and direct supervision of IBM India and functionally report to the management of IBM India or such other person as IBM India may direct, and work exclusively for the operations of IBM India, and in no way further the business of IBM UK or any other entity.

2.3 Rules and Responsibility - The Expatriate Employees will be governed by the terms of assignment, and the applicable rules and regulations of IBM India as may be in force from time to time. The working relationship between the Expatriate Employees and IBM India shall be solely determined between IBM India and the Expatriate Employee. Specific relaxations if any, may be made by IBM India in respect of the Expatriate Employee as IBM India may deem fit. IBM UK shall not be responsible for the work executed by the Expatriate Employees and all risks and IT(IT)A Nos.1288, 1291, 1294, 1297, 1300, 1303 & 1306/Bang/2017 rewards of the work performed by the Expatriate Employees shall rest with IBM India.

4. That during the assignment period, salary (excluding allowances and expenses paid locally by IBM India) will be paid in home country (i.e. USA) which will be reimbursed by IBM India.

5. That during the period of assignment with IBM India all other terms and conditions as per IBM polices were applicable.

6. IBM India deducted tax at source u/s.192 of the Act on the salary paid to the seconded employees and paid the same to the credit of the Central Government. As we have already seen IBM India had to reimburse the salary cost of the expatriate employees to the concerned IBM oversees entity. At the time of making payment of such reimbursement, no taxes were deducted at source by IBM India in respect of reimbursements made to IBM Overseas companies in respect of salary paid to seconded employees as, according to IBM India, the same was in the nature of cost- to-cost reimbursements and no element of income was involved. The Deputy Commissioner of Income-tax, International Taxation, Circle 1(1) ("DCIT") issued notices calling for details in respect of reimbursements made by IBM India to IBM Overseas companies during the years under consideration and also required IBM India to show cause as to why reimbursements made to IBM Overseas companies should not be treated as Fees for Technical Services (FTS) and why IBM India should not be treated as an assessee in default in respect of reimbursements made to IBM Overseas companies on which no taxes were deducted at source.

2. The nature of services rendered by the expatriate employees was FTS within the meaning of Expln.2 to Sec.9(1)(vii) of the Act. In this regard the DCIT found that all the deputed employees had technical skills and imparted their skill while on deputation to India to further the business projects of IBM India and therefore the payment in the form of reimbursement by IBM India to IBM oversees entity was in the nature of FTS. In coming to the above conclusion, the DCIT referred to the Assignment Initiation Request (AIR) raised by IBM India from time to time requesting IBM Overseas entities to assign secondees for stipulated period in relation to its business projects wherein details of the assignee, job profile of the assignees, etc. would be mentioned. According to the DCIT, on analysis of AIR, the requirement of the IBM India is not to carry out its regular or normal business activities. It expresses it requirement of highly qualified, experienced, skilled employees the overseas companies. The seconded employees are not ordinary employees or workers. The overseas companies are assigning certain employees because of their expertise and managerial/consultancy skills which requires IBM India for its business development/improvement/growth. Therefore, the payment towards such services are fall within the ambit of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act. According to DCIT Any consideration paid for rendering of a managerial, technical or consultancy services which include provision of services of technical or other personnel, falls within the meaning of fees for technic0 services subject to one exception that is when the consideration would be income of the recipient chargeable under the head "Salaries". According to the DCIT, IBM India is not the real employer of the seconded employees. The subject-matter of payments is not merely the salaries of such employees, which have suffered tax, but compensation which, as noted above, takes in its ambit other items also which the SECONDER is entitled to receive from the applicant under the expatriate agreement. And further the recipient of the consideration of compensation is the SECONDER and not the seconded employees and the compensation is not the income of the SECONDER chargeable under the head "Salaries". The fact that the employees of the SECONDER have received their salaries from the SECONDER and have paid tax under the head "Salaries" is of no consequence. According to DCIT, the fact that the sum paid by IBM India as reimbursement was equivalent of salary IT(IT)A Nos.1288, 1291, 1294, 1297, 1300, 1303 & 1306/Bang/2017 payable to expatriate employees and that there is no profit element involved in such payments that accrues to IBM oversees entity was not an essential ingredient of a receipt to be taxable as an income. He held that once the income falls in the category described under 9(1)(vii) then the TDS sections will come into operation irrespective of the fact whether the amount paid by IBM India is equal to the cost incurred by the SECONDER or whether the SECONDER is having any taxable in its hands or not. These questions are irrelevant for deciding the taxability of the income from Fees for Technical Services.

10. Aggrieved by the order of the DCIT, IBM India filed appeal before CIT(A), who confirmed the order of the AO on points 1 to3 as given above. On point 4 and 5 given above, the CIT(A) held in favour of the Assessee. Aggrieved by the order of the CIT(A) on points 4 & 5 the revenue has filed these appeals before the Tribunal.

11. We have heard the rival submissions. There are two common issues which arise for consideration in these appeals by the revenue. The first issue is as to whether the CIT(A) was right in holding that even if the reimbursement by IBM India to IBM Philippines are regarded as "FTS", yet in so far as payments by IBM India to IBM Philippines is concerned, the same would not be chargeable to tax in the hands of IBM Philippines in India, the source country and therefore there would be no obligation to deduct tax at source u/s.195 by IBM India when it makes payment to IBM IT(IT)A Nos.1288, 1291, 1294, 1297, 1300, 1303 & 1306/Bang/2017 Philippines in view of the absence of article in DTAA between India and Philippines (DTAA) dealing with FTS, can it be taxed in the source country as "other income" under Article 23(1) of the DTAA or u/s.9(1)(vii) Expln.2 of the Act as "FTS" has been concluded in several decisions of Tribunal in the context of DTAA clauses which are identical with DTAA between India and Philippines. The Assessee made payments to IBM Philippines by way of reimbursement of salary of expatriate employees sent on secondment to IBM India. One of the IBM Oversees entity to whom IBM India made payments was a tax resident of Philippine. It is in that context the issue came before the CIT(A) as to whether IBM India was obliged to deduct tax at source u/s.195 of the Act, when making payment. In fact in the case of IBM India Pvt. Ltd. Vs. DDIT in IT(IT)A Nos.489 to 498/Bang/2013 chargeability to tax of income in the nature of FTS when there is no such provision of taxing for Fees for Technical Services in the Indo-Phillipines Treaty was considered and decided by the Bangalore Bench of ITAT in favour of the Assessee (vide Paragraph 7.3.1. to 9.1.5 of the said order).