ERNST & Young U.S. LLP Vs ACIT (ITAT Delhi)
ITAT Delhi held that cost to cost reimbursement on account of secondment of employees cannot be treated as Fees for Technical Services (FTS) as defined under Article 12 of India USA-Double Tax Avoidance Agreement (DTAA).
Facts- The only issue that is involved here is that whether cost to cost reimbursement on account of secondment of employees was Fees for Technical Services [FTS] as defined under Article 12 of the India-USA Double Tax Avoidance Agreement [DTAA] and whether arrangement between the assessee and Indian entities constitutes the ‘provision of services’ by the assessee through seconded personnel.
Conclusion- Held that cost to cost reimbursement on account of secondment of employees cannot be treated as FTS as defined under Article 12 of India USA-DTAA and seconded personnel are employees of EY India firms whose income has been taxed as salary in their respective hands. Therefore, the very same amount could not, in law, be subjected twice – firstly in the hands of the seconded employees working in India and secondly again the hands of the assessee. The Assessing Officer is accordingly, directed to delete the impugned addition.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is preferred against the order dated 27.07.2022 framed u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 [the Act, for short] pertaining to Assessment Year 201 9-20.
2. The grievance of the assessee is two-fold – firstly, the assessee is aggrieved by the validity of notice u/s 143(2) of the Act and secondly, the assessee is aggrieved by the disallowance of Rs. 50,99,38,561 /- being cost-to-cost reimbursements on account of secondment of employees.
3. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides.
4. Grievance relating to the validity of notice u/s 143(2) of the Act was not pressed by the ld. counsel for the assessee and hence the same is dismissed as not pressed.
5. The only issue that survives which needs adjudication is whether cost to cost reimbursement on account of secondment of employees was Fees for Technical Services [FTS] as defined under Article 12 of the India-USA Double Tax Avoidance Agreement [DTAA] and whether arrangement between the assessee and Indian entities constitutes the ‘provision of services’ by the assessee through seconded personnel.
6. The assessee is a limited liability partnership firm, incorporated under the laws of United States of America and is engaged in the business of providing professional services in the field of assurance, tax, transaction and business advisory services etc to its clients across the globe including India. The assessee is eligible for availing treaty benefits as per the treaty between India and USA.
7. During the year under consideration, the assessee has offered its income to tax as per section 115A of the Act r.w. the provisions of Article of the India-USA Tax Treaty. Return so filed was selected for complete scrutiny and accordingly, statutory notices were issued and served upon the assessee.
8. During the course of scrutiny assessment proceedings, inter alia, the Assessing Officer issued a show cause notice to the assessee requiring the assessee to show cause as to why the payments received by the assessee on account seconded employees amounting to Rs. 50,99,38,561 /- should not be taxed as FTS/Independent Personal Services [IPS] as per the treaty provisions.
9. The assessee filed detailed reply alongwith documentary evidences pursuant to which, the Assessing Officer framed draft assessment proceedings proposing to make the following valuations to the returned income of the assessee:
