Facts
Avion Systems Inc. („taxpayer‟) is a US based company providing highly qualified technical personnel as well as technology relating to telecom sector and telecom engineering services.
The taxpayer has entered into a contract with Lucent Hindustan Technologies Private Limited („Lucent‟), an Indian company engaged in manufacturing and commissioning of telecom equipment in India, for providing qualified technical personnel for its telecom project in India.
The taxpayer did not have a permanent establishment in India.
The tax officer held that the entire agreement and transactions between the taxpayer and Lucent is one of „making available‟ technical knowledge, expertise, skill and know-how, which is taxable as fees for included services under Article 12 of the India-US tax treaty.
On appeal, the Commissioner of Income-tax (Appeals) upheld the order of the tax officer.
Issues before the Mumbai Tribunal
Whether the technical personnel provided by the taxpayer to Lucent were the taxpayer‟s employees or have been outsourced for facilitating them in the employment of Lucent as temporary employees?
If the technical personnel are considered to be employees of the taxpayer, whether the payment received from Lucent would fall within the purview of fees for included services under Article 12 of the India-US tax treaty?
Observations and Ruling of the Mumbai Tribunal
Employees were of the taxpayer
Lucent did not have the technical personnel and hence sourced such personnel from the taxpayer.
Lucent did not take any kind of responsibility of any temporary worker provided by the taxpayer.
The taxpayer was responsible for all the personnel deployed to Lucent and all the compliance of laws relating to employer-employee relationship, registration, payment of salary etc.
All personnel are employees of the taxpayer, who have to give undertaking as employees of the taxpayer.
The payments for the personnel deployed was given to the taxpayer by Lucent as per the work sheet along with the fee of 6% of the invoice value.
The temporary workers( technical) could not be considered as the employees of Lucent., and hence were the employees of the taxpayer.
Fees for included services
The taxpayer‟s services were engaged by Lucent, not because it was a recruiting agency, but because it being a leader in telecom engineering, who has highly qualified technical personnel and could deliver high end solutions in telecom related technology.
The taxpayer has requisite and technical skills in providing solutions in technology relating to telecom sector. Lucent, an Indian company wanted technical experts, who have experience and skill for commissioning and supply of telecom equipment in India and which skill set undoubtedly was with the taxpayer,.
The taxpayer‟s case was clearly covered by example three given in the Memorandum of Understanding to the India-US tax treaty which explains that payments received by a US company for sending experts to India to show Indian engineers how to produce extra-strong wallboard, was in the nature of fees for included services.
The payment received by the taxpayer from Lucent was taxable in India under Article 12 of the India-US tax treaty.
Conclusion
The payment received in pursuance of a contract for providing technical manpower may be taxable as fees for included services under the India-US tax treaty.
Source: Avion Systems Inc.v. DDIT (I.T.A.No. 1745/Mum/2009)(Mumbai Tribunal)dated 30 May 2012
Avion Systems Inc. („taxpayer‟) is a US based company providing highly qualified technical personnel as well as technology relating to telecom sector and telecom engineering services.
The taxpayer has entered into a contract with Lucent Hindustan Technologies Private Limited („Lucent‟), an Indian company engaged in manufacturing and commissioning of telecom equipment in India, for providing qualified technical personnel for its telecom project in India.
The taxpayer did not have a permanent establishment in India.
The tax officer held that the entire agreement and transactions between the taxpayer and Lucent is one of „making available‟ technical knowledge, expertise, skill and know-how, which is taxable as fees for included services under Article 12 of the India-US tax treaty.
On appeal, the Commissioner of Income-tax (Appeals) upheld the order of the tax officer.
Issues before the Mumbai Tribunal
Whether the technical personnel provided by the taxpayer to Lucent were the taxpayer‟s employees or have been outsourced for facilitating them in the employment of Lucent as temporary employees?
If the technical personnel are considered to be employees of the taxpayer, whether the payment received from Lucent would fall within the purview of fees for included services under Article 12 of the India-US tax treaty?
Observations and Ruling of the Mumbai Tribunal
Employees were of the taxpayer
Lucent did not have the technical personnel and hence sourced such personnel from the taxpayer.
Lucent did not take any kind of responsibility of any temporary worker provided by the taxpayer.
The taxpayer was responsible for all the personnel deployed to Lucent and all the compliance of laws relating to employer-employee relationship, registration, payment of salary etc.
All personnel are employees of the taxpayer, who have to give undertaking as employees of the taxpayer.
The payments for the personnel deployed was given to the taxpayer by Lucent as per the work sheet along with the fee of 6% of the invoice value.
The temporary workers( technical) could not be considered as the employees of Lucent., and hence were the employees of the taxpayer.
Fees for included services
The taxpayer‟s services were engaged by Lucent, not because it was a recruiting agency, but because it being a leader in telecom engineering, who has highly qualified technical personnel and could deliver high end solutions in telecom related technology.
The taxpayer has requisite and technical skills in providing solutions in technology relating to telecom sector. Lucent, an Indian company wanted technical experts, who have experience and skill for commissioning and supply of telecom equipment in India and which skill set undoubtedly was with the taxpayer,.
The taxpayer‟s case was clearly covered by example three given in the Memorandum of Understanding to the India-US tax treaty which explains that payments received by a US company for sending experts to India to show Indian engineers how to produce extra-strong wallboard, was in the nature of fees for included services.
The payment received by the taxpayer from Lucent was taxable in India under Article 12 of the India-US tax treaty.
Conclusion
The payment received in pursuance of a contract for providing technical manpower may be taxable as fees for included services under the India-US tax treaty.
Source: Avion Systems Inc.v. DDIT (I.T.A.No. 1745/Mum/2009)(Mumbai Tribunal)dated 30 May 2012
No comments:
Post a Comment