Centrica India Offshore Pvt. Ltd. Vs CIT (Delhi High Court)
The Delhi High Court considered a writ petition challenging the Authority for Advance Rulings (AAR) order dated 14.03.2012, which held that payments made by Centrica India Offshore Pvt. Ltd. (CIOP) to certain overseas group entities under secondment arrangements constituted income accruing to those entities through a service Permanent Establishment (PE) in India and that tax was deductible at source under Section 195 of the Income-tax Act, 1961. CIOP, an Indian subsidiary of Centrica Plc., UK, had been established to provide support services by coordinating outsourced back-office functions performed by Indian vendors for overseas group entities. It rendered services under service agreements on a cost-plus 15% markup basis and sought support during its initial operations through secondment of employees from overseas entities. Salaries of the secondees were paid overseas by the overseas entities and reimbursed by CIOP on an actual-cost basis. CIOP deducted tax under Section 192 on salaries paid to the secondees and sought an advance ruling on whether reimbursement of salary costs constituted income in the hands of the overseas entities and whether tax was deductible under Section 195. The AAR answered both questions against CIOP.
Before the High Court, CIOP contended that it was the real and economic employer of the seconded employees, who worked under its supervision and control. It argued that the overseas entities merely continued salary disbursement for administrative convenience, with reimbursement being made on a cost-to-cost basis. It submitted that the reimbursements were not income of the overseas entities, that the secondment arrangement did not result in a service PE under the applicable India-UK and India-Canada Double Taxation Avoidance Agreements (DTAAs), and that the doctrine of diversion of income by overriding title applied. CIOP relied upon the distinction between legal and economic employer, the OECD Commentary, and decisions including Kishore ESIC, CIT v. Eli Lilly and Co. India Private Limited, DIT v. M/s. E-Funds IT Solution, and Morgan Stanley and Co., In Re.
