Case Law Details
RELEVANT PARAGRAPH
12. We do not find ourselves in agreement with the reasoning adopted by the CIT(A). The conditions laid down in section 163(1) of the Act are clear. As per section 163(l)(c) of the Act, ‘agent’ includes any person in India from or through whom the non- resident is in receipt of any income, whether directly, or indirectly. In the present case, the expatriate personnel did not receive any income directly or indirectly from Pride Foramer. In fact, no live nexus stands established between Pride Foramer and the income earned by the expatriate personnel. Power under section 163(1) of the Act could be assumed only on establishing a live connection between Pride Foramer and the non-resident. The Assessing Officer was not able to establish any such nexus. The CIT(A) was of the view that the payment of fees for technical services received by Pride Fora sol, the undeniable employer of the expatriate personnel, indirectly covered the payment of the income to the personnel. A nexus was thus, in the view of the Ld. Commissioner of Income-tax (Appeals), existing, which was as per the requirements of the provisions of section 163(l)(c) of the Act. However, we do not find this to be correct. So as to attract the provisions of section 163(l)(c) of the Act, a live payment nexus in the routing of the income needs must be established. Here, on the other hand, what has been taken is a mere economic nexus, which does not provide power under section 163 of the Act to hold Pride Foramer as agent of the expatriate personnel. Pertinently, the Ld. Commissioner of Income-tax (Appeals), on the basis of the Technical Assistance Agreement, agreed with Pride Foramer that it was Pride Fora sol, i.e., the sister concern of Pride Foramer, which was the actual employer of the expatriate personnel. The department has not raised any issue against such finding of the Commissioner of Income-tax (Appeals). To stress the point, it would be appropriate to reproduce here under, clauses 10 & 12 of the Technical Assistance Agreement between Pride Foramer and Pride Forasol:
“10 PRIDE FORASOL shall remain the employer of the expatriates so deployed to PRIDE FORAMER and this Technical Assistance Agreement shall not constitute as secondment or as assignment of employment of such personnel to PRIDE FORAMER during he period of this Agreement.
12. The daily rate of fees in FRF payable in France which will be payable by PRIDE FORAMER to PRIDE FORA SOL as the fixed rate fees indicated in Appendix-A, which is all inclusive of the remuneration and statutory contributions, taxes if any and payable to the deployed expatriates by PRIDE FORASOL.”
15. Apropos the department’s contention that the terms of the contract between ONGC and Pride Foramer show that Pride Foramer was contractually liable and it indemnified ONGC against payment of all taxes by their sub-contractors and their employees and by such act, Pride Foramer accepted the position of agent of the personnel, firstly, undeniably, there was a privity of contract between ONGC and Pride Foramer. So far as regards the providing of indemnity by Pride Foramer in favour of ONGC, this was essential for Pride Foramer to provide as a contractor to ONGC, there being no privity of contract between ONGC and the sub-contractors or their employees. This argument, therefore, carries no force. Moreover, the conditions contained in section 163(1) of the Act are essentially the prerequisite – the sine qua non for holding any person as agent, which in the present case has not come about. Moreover, it is a matter of record that die terms of the contract were never an issue before the authorities below. Furthermore, an indemnity clause in an agreement per se ipso facto does not bring to the fore the holding of the indemnifies on behalf of agent under section 163 of the Act.
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