Mumbai Tribunal rules that no Permanent Establishment arises on deputation on hire basis. Further, no income arises to recipient on reimbursement of salary costs
- Tekmark Global Solutions LLC (“Tekmark?), a tax resident of the USA, deputed its personnel to Lucent Technologies Hindustan Private Limited („Lucent India?)
- As per the agreement between Tekmark and Lucent India, Tekmark to make arrangements to depute personnel based on specific requirements from Lucent India.
- Deputed personnel remain on the payroll of Tekmark and related costs to be charged to Lucent India.
- Such deputed personnel work under the direction, supervision and control of Lucent India
- Tekmark is not responsible for the work done / action performed by such deputed personnel.
- Lucent India has a right to send the deputed personnel back to Tekmark if not found suitable.
Issues before the Tribunal
- Whether the deputation of personnel by Tekmark to Lucent India could result in a Permanent Establishment (PE) for Tekmark in India.
- If a PE is held to exist in India, whether any profits could be attributed to Tekmark in India.
Ruling of the Tribunal
- When the services rendered are independent of and not under the control of Tekmark, the deputed persons cannot be considered as constituting permanent establishment of Tekmark in India. The tribunal based this ruling on the following facts:
- Tekmark is only providing personnel to work under the control and supervision of Lucent India and is not rendering any technical services to Lucent India.
- The deputed personnel are for all practical purposes employees of Lucent India and carry out the work alloted by Lucent India.
- Tekmark has no control over the activities or work to be performed by the deputed personnel and Lucent India has the right to remove the deputed personnel from services.
- The actual salary of the deputed personnal reimbursed by the Indian company is only reimbursement of salary payable by the Indian company, advanced by Tekmark.
- Even assuming that there is a PE in India, no income arises as only the actual salary of the deputed personnel is reimbursed by Lucent India. The Tribunal placed reliance on the following decisions in concluding that there is no income in reimbursement of expenses.
- CIT vs Industrial Engineering Projects (P) Ltd – 202 ITR 1014 Del
- CIT vs Siemens – 310 ITR 320 Bom
Comments:-This is yet another decision on the issue of whether the deputation of personnel by an overseas entity results in Permanent Establishment in India and the related attribution of profit and withholding tax issues.
Source: Tekmark Global Solutions LLC v. DDIT, ITA No.671/Mum/2007 (Mumbai Tribunal) dated 23 February 2010