Case Law Details
Brief of the Case
ITAT Bangalore held In the case of M/s Food world Supermarkets Ltd. vs. DDIT that there is no separate contract of employment between the assessee and the secondees. The secondees are under the legal obligation as well as employment of DFCL and assigned to the assessee only for a short period of time. In the absence of any contract between the assessee and the secondees, the parties cannot enforce any right or obligation against each other. The secondees can claim their salary only from the parent company i.e DFCL and not from the assessee. Once it is found that the secondees were rendering the marginal and highly expertise services to the assessee the payment for such services is in the ambit of fee for technical services (FTS) defined in explanation 2 to sec. 9(1)(vii). However, on assessee claim that secondement of employee constitutes a service PE and provision of sec.44AD will applicable, matter remanded to AO to look into all the relevant facts.
Ration decidendi – All the payment made to non-resident on account of FTS or royalty are chargeable to tax irrespective of any profit element in the said payment or not. Being reimbursement for services by employees deputed by foreign entity is covered under FTS u/s 9(1) (vii), TDS liability u/s 195 applicable.
Facts of the Case
The assessee is an Indian company engaged in the business of ownership and operation of supermarket chain in India. The assessee entered into an agreement dated 6/6/2007 with M/s Diary Farm Company Ltd., (DFCL). DFCL is a company based in Hong Kong and engaged in the identical business activity that of assessee. Under the said agreement dated 6/6/2007, DFCL agreed to assign its employees to the assessee and consequently 5 employees/expatriates were deputed by DFCL to the assessee.
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