Juniper Networks Inc Vs ITO (ITAT Bangalore)
ITAT Bangalore held that reimbursement of salary for seconded employee cannot be regarded as ‘Fee for technical services’ (FTS) under India-US Tax Treaty (DTAA).
Facts- The assessee, Juniper Networks Inc. is a company headquartered in the United States. The assessee had entered into an agreement for secondment of its personnel with the Indian entity Juniper Networks India Pvt. Ltd. (henceforth Juniper India). During the year under appeal, two of the assessee’s employees were seconded to Juniper India. as Engineering Services Managers. The salary of the seconded employees was paid by the assessee and reimbursed to it by Juniper India.
CIT(A) sustained the addition stating that the payment received by the assessee was for the rendering of services in the nature of FTS and as the income arose in India, where the services were rendered, such payment was to have been included in the assessee’s income for the year under appeal.
Conclusion- In the case of Goldman Sachs Services Pvt. Ltd. it was held that the reimbursement made by the assessee in India to overseas entity, towards the seconded employees cannot be regarded as “Fee For technical Services”.
Held that we are not in a position to uphold the argument of ld. A.R. that salary reimbursements for seconded employee was taxable as FTS. This ground raised by the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by assessee is directed against order of CIT(A)-12 Bengaluru dated 11.1.1023 for the assessment year 2012-13. The assessee has raised the following grounds:-
“The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under:
1. Order bad in law
At the outset, Juniper Networks Inc (hereinafter referred to as ‘the Appellant’ or ‘the Company’) prays that the order dated January 11, 2023 passed by the learned Commissioner of Income-tax (Appeals) – 12, Bangalore [‘CIT(A)’], upholding the order passed under section 144 read with section 147 of the Income-tax Act, 1961 (‘the Act’), be struck down as invalid, as the order is bad in law and on facts.
2. Reimbursement of expenses does not qualify as Fees for Technical Services (FTS) under the Act and under the India-US Tax Treaty (DTAA)
2.1. The Learned CIT(A) has erred in upholding the order of the ITO in concluding that salary expenses payable by Juniper India to the Appellant qualifies as FTS both under the Act and under the India-USA Double Taxation Avoidance Agreement.
2 2. The Learned CIT(A) has erred in upholding the order of the ITO in holding that the employees deputed by the Appellant make available technical knowledge, experience and skill
3. Payment of tax by the employee will exempt the remittance from TDS
The Learned CIT(A) has erred in upholding the order of the ITO wherein the fact that salary expenses reimbursed by Juniper India to the Appellant had already been subjected to applicable Indian income-tax under section 192 of the Act, has been disregarded.
Concluding no employer-employee relation exists between Juniper India and the deputed employees
The Learned CIT(A) has erred in upholding the order of the ITO in concluding that there exists no employer-employee relationship exists between Juniper India and the seconded employees.
5. Levy of interest under Section 234A of the Act
The learned CIT(A) has erred in upholding the order of the ITO wherein interest under Section 234A of the Act has been levied.
6. Relief
The Appellant prays that directions be given to grant all such relief arising from the preceding grounds as also all reliefs consequential thereto.
The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal. at any time before or during the hearing of the appeal.”
2. Ground No.1, which is not pressed at the time of hearing and the same is dismissed as not pressed.
3. With regard to Ground Nos.2, 2.1 & 2.2, facts of the issue are that the assessee, Juniper Networks Inc. is a company headquartered in the United States. It was issued with a notice u/s 148 of the Income-tax Act,1961 [‘the Act’ for short] on 31.03.2019 and in response it had filed a return of income on 03.05.2021. A notice u/s 143(2) of the Act was issued on 06.07.2021 along with reasons recorded. The assessee had entered into an agreement for secondment of its personnel with the Indian entity Juniper Networks India Pvt. Ltd. (henceforth Juniper India). During the year under appeal, two of the assessee’s employees, Shri Raghu Malena and Shri Srinivas Gadgil were seconded to Juniper India as Engineering Services Managers. The salary of the seconded employees was paid by the assessee and reimbursed to it by Juniper India. Against this assessee went in appeal before ld. CIT(A). Before the ld. CIT(A), the assessee contended that the assessee, in its submissions, has contended that the reimbursement of salary and other related costs by Juniper India to the assessee is on cost-to-cost basis and there is no profit element involved in the reimbursement. Such reimbursement does not constitute income in the hands of the assessee. Further, appropriate taxes have been withheld by Juniper India under section 192 of the Act and once a receipt has suffered taxation, the same cannot be taxed twice. It has also been argued, without prejudice to the above, that the receipt does not qualify as FTS under the India-USA DTAA. Accordingly, the payment made to Juniper US does not constitute income/sum chargeable to tax in India and hence there was no requirement on the part of the assessee to file a tax return in India.
3.1. The ld. CIT(A) observed that this issue has been considered by Hon’ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. Vs. CIT reported in 364 ITR 336 (Del.), wherein held as under:
