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.
16. The Ld, Commissioner of Income-tax (Appeals) has clearly erred in holding that ‘the easiest course for the Assessing Officer to recover the tax of the expatriates was to treat the assessee as agent of these technicians’ . Without doubt, the provisions of section 163(1) do not envisage any such “easiest course’. It is trite law that the legislature chooses its words with utmost care. In order to hold a person as agent, it is a sine qua-non that the conditions laid down in the section be fulfilled. Therefore, there is no room for such observation as made by the Ld. Commissioner of Income Tax (Appeals). The Assessing Officer did not have any discretion to choose either ONGC or Pride Foramer as agent of the expatriate personnel. To reiterate, Pride Foramer had obtained the services of the expatriate personnel form Pride Fora sol under a Technical Assistance Agreement dated 1.4.1999 against payment of technical fees. The technical fees were paid by Pride Foramer in France to Pride Fora sol. Under the agreement, the personnel remained the employees of Pride Fora sol. It was Pride Fora sol who paid their remuneration outside India. Such payment was specifically provided for under the Technical Assistance Agreement vide clauses 10 and 12 (supra) thereof. If the performance of any of the personnel was found by ONGC to be unsatisfactory, such personnel was to be deported to their employer in France, i.e., Pride Fora sol, in terms of clause 14 of the agreement, which deals with ‘unsatisfactory performance’ . This clause States that if in the opinion of the Operations Based Manager of Pride Foramer, any of the deployed personnel fails to perform the job allotted to them in a diligent, skillful and workman-like manner, or if there deployment or performance is not approved by their client, such personnel shall be deported to Pride Fora sol at their risk and cost. Pride Foramer has not been established to have exercised any control on the engagement or dismissal of the personnel provided by Pride Fora sol. In fact, in case of unsatisfactory performance by such personnel, Pride Foramer could only make a request for deporting them back to their employer, Pride Fora sol, for taking appropriate action. In terms of Article 13 of the Indo-French DTAA, Pride Fora sol was assessed to tax on the fees for technical services at the rate of 10 per cent on the gross receipt. No personnel of Pride Fora sol overstayed the statutory limit of 183 days in India. As such, in terms of Article 16 of the Indo-French DTAA, they were not liable to tax in India. When in financial years 2002- 03 & 03- 04, two personnel of Pride Fora sol stayed in India beyond the statutory period of 183 days, their tax was deducted/ paid by Pride Fora sol and their tax returns were filed accompanied by salary certificate issued by Pride Fora sol. The annual returns of the personnel who exceeded 183 days of stay in India, were filed by Pride Fora sol in the case of its personnel/ employees . These returns were assessed and interest for late payment was charged, which was duly paid. So far as regards Pride Foramer, it was not employed for or on behalf of the personnel. It did not have any business connection with the personnel, nor did the personnel receive any income directly, or indirectly from Pride Foramer. Since no remuneration was paid by Pride Foramer, there was no question of any salary having been paid or borne by its permanent establishment in India. There was no employer-employee relationship between Pride Foramer and the expatriate personnel. Pride Foramer did not employ the personnel under any separate deployment agreement as its employees. Pride Foramer did not have any authority to conclude contracts on behalf of any of the 27 personnel. It did not have any authority to maintain stock of goods from which it could regularly deliver goods on behalf of any of the 27 personnel. It did not secure orders in India mainly or wholly for the 27 personnel. As such, there was no business connection established and the provisions of Explanation (2) to section 9(1 )(i) of the Act were not attracted. The preconditions required for the provisions of section 163(1) of the Act were absent. The mere fact that the personnel of Pride Fora sol performed technical services on the jack up rig of Pride Foramer does not amount to a business connection, so as to make Pride Foramer liable to be treated as a statutory agent of the expatriate personnel. The entire amount of the technical services fees for deployment of its personnel by Pride Fora sol was taxed in the hands of Pride Forasol, as ‘Fees for Technical Services’. The personnel of Pride Fora sol also cannot be said to have received any income from Pride Foramer even indirectly. ‘Indirectly’ would apply to a direct nexus between Pride Foramer and the personnel, so far as regards the payment. Merely because Pride Fora sol charged fees for rendering technical assistance through its personnel, to whom the salary was paid by their employer, i.e., Pride Fora sol, this would not bring Pride Foramer within the scope of any indirect payment of salary to the expatriate personnel. It was Pride Forasol, their employer, who paid the salary to the personnel and such salary cannot in any manner be said to have been paid indirectly by Pride Foramer. It is relevant that the expatriate personnel were not privy to the contract between Pride Foramer and Pride Fora sol. Had they been privy to such contract, on the other hand, the situation would have been otherwise.
23. Likewise, the decision in the case ‘CIT, New Delhi Vs M/s Ely Lilly & Co. (India) Pvt. Ltd., rendered by the Honourable Supreme Court in Civil Appeal No. 5114/2007, vide order dated 25.3.09, is also not of any help whatsoever to the department. It nowhere envisages that where, as in the present case, no live nexus is established between the person sought to be treated as an agent in relation to `a resident and die non-resident, the person can still be included within the meaning of the term ‘agent’, as provided in section 163(l)(c) of the Act. As stated by the Ld. Counsel for Pride Foramer (as noted herein above), in I.T.A. Nos. 4069, 4070, 4071, 4078 & 4080, no tax is payable, since it was deleted by the CIT(A). In 14 cases, the assessment was at nil tax, showing that no tax was payable If no tax is payable, undeniably, there remains no case for agency.
24. In view of the above, the grievance of Pride Foramer against being treated as an agent of the expatriate personnel under section 163 of the Act is found to be of merit and it is accepted as such. Accordingly, it is held that Pride Foramer has erroneously been treated as an agent of the expatriate personnel. The order of the Ld. Commissioner of Income Tax (Appeals), therefore, is quashed on this score itself. That being so, the other issues raised are not required to be gone into and we are not doing so.