Facilitate Analysis v. Commissioner Of Income Tax-I,New Deln]V Conclusion45

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 24 DAY OF JUNE 2022 BEFORE. THE HON BLE MR.JUSTICE S. SUNIL DUTT YADAV|$WRIT PETITION NO.3619/2021 (TIT) BETWEEN: M/S. FLIPKART INTERNET PRIVATE LIMITED)ALYSSA, BEGONIA &CLOVER EMBASSY TECH VILLAGE,OUTER RING ROAD,DEVARABEESANAHALLI VILLAGE,BANGALORE - 560 103)THROUGH ITS AUTHORISED SIGNATORYMS. NEHA AGARWAL. | ... PETITIONER (BY SRI TARUN GULATI, SENIOR ADVOCATE FORSRI KISHORE KUNAL, SRI PARTH, |SRI KISHORE KUNAL, SRI PARTH, | MS.ANKITA PRAKASH & SRI PRADEEP NAYAK,ADVOCATES)ADVOCATES) AND& 1.THE DEPUTY COMMISSIONER OF INCOME TAX. (INTERNATIONAL TAXATION), — CIRCLE - 1(1)_ ROOM NO.441, 4[TH|]FLOOR, BMTC BUILDING, 80 ROAD,| KORAMANGALA,| BANGALORE - 560 O95. 2.THE COMMISSIONER OF INCOME TAX-1, (INTERNATIONAL TAXATION), BMTC BUILDING, KORAMANGALA,| BANGALORE - 560 O95. 3.THE JOINT COMMISSIONER OF INCOME TAX-1, C.R. BUILDING NO.1, QUEENS ROAD, | BANGALORE - 560 OO1. 4CENTRAL BOARD OF DIRECT TAXES THROUGH THE SECRETARYDEPARTMENT OF REVENUE,DEPARTMENT OF REVENUE, MINISTRY OF FINANCE,| GOVERNMENT OF INDIA,| CENTRAL SECRETARIAT, |NORTH BLOCK,NORTH BLOCK, NEW DELHI - 110 OOL. | ... RESPONDENTS (BY SRI K.V.ARAVIND, ADVOCATE) AK O THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OFCONSTITUTION|OFINDIA,PRAYING.TO.QUASH|THE|IMPUGNED ORDER WITH DIN AND LETTER DATED 01.05.2020|ANNEXURE-A PASSED BY R-1 BEING ILLEGAL AND ARBITRARY|AND ETC, | THIS WRIT PETITION HAVING BEEN HEARD AND.RESERVEDON16.06.2022.ANDCOMING|ONFORPRONOUNCEMENT OF ORDERS, THIS DAY, THE COURT MADE|THE FOLLOWING: ORDER S, SUNIL DUTT YADAV. J This order has been divided into the following Sections to. facilitate analysis: iaBrief Facts|5TTContentions of Petitioner|8LilContentions of Respondents|13)IVAnalysis(A) Whether the application of the petitioner dated1).15.01.2020 filed under Section 195(2) of theIncome Tax Act was not maintainable?(B) Whether the petitioner is required to deduct25>TDS under Section 195(2) read with Article 12(4) ofthe convention between Government of United.States of America and the Government of Republicof India for the avoidance of Double Taxation andthe prevention of FISCAL evasion?(C) Deduction under Section 195(2) of I.T. Act on31.the sum chargeable under this Act|(D) Whether Deduction is on gross receipts? 33.(E) Secondment and reimbursement of costs36|(F) Distinguisning the Judgment in Centrica India.47)Offshore (P.) Ltd. v. Commissioner of Income Tax-I,New Deln|]V | Conclusion45| The petitioner has called in question the validity of the.order dated 01.05.2020 passed by the first respondent at.Annexure-A whereby the application for Nil TDS Certificate|nas been rejected and the petitioner has been directed to|deduct tax at source at the applicable rate. The conclusion|arrived at, in the impugned order is as follows:- FConclusion: 49.In the preceding paragraphs, the need for|secondment, nature of services provided by seconded|employees, employer-employee relationship and thetaxabilityOf|thepaymentshavebeen|GISCUSSEC|elaborately and the following has been established; 1. ThereIS|NO|employer-employee relationsnip—between M/s Flipkart Internet Private limited Indiaand secondees seconded Dy aSSesseeé.between M/s Flipkart Internet Private limited Indiaand secondees seconded Dy aSSesseeé. 2. The services rendered/provided by the secondedemployees are in the nature of tecnnical services,botn under IT Act and under DTAA as wel|l.employees are in the nature of tecnnical services,botn under IT Act and under DTAA as wel|l. 3, Deduction u/s 192 does not result in doublededuction nor does it obviate the need to deductu/s 195.deduction nor does it obviate the need to deductu/s 195. 4. Once the income ts in the nature of FIS/FIS, it ts tobe taxed on gross basis; there is no need to'examine whether or not [ncome element Isembedded in the said payment. |be taxed on gross basis; there is no need to'examine whether or not [ncome element Isembedded in the said payment. | 2. The services rendered/provided by the secondedemployees are in the nature of tecnnical services,botn under IT Act and under DTAA as wel|l.employees are in the nature of tecnnical services,botn under IT Act and under DTAA as wel|l. 3, Deduction u/s 192 does not result in doublededuction nor does it obviate the need to deductu/s 195.deduction nor does it obviate the need to deductu/s 195. 4. Once the income ts in the nature of FIS/FIS, it ts tobe taxed on gross basis; there is no need to'examine whether or not [ncome element Isembedded in the said payment. |be taxed on gross basis; there is no need to'examine whether or not [ncome element Isembedded in the said payment. | 2.Consequent to the grant of relief at prayer (a), the|petitioner has sought for issuance of writ of mandamus to|direct the first respondent to issue Nil Tax Deduction at|Source Certificate to the petitioner under Section 195(2) of)the Income Tax Act, 1961 ['I.T. Act for brevity]. — L.BRIEF FACTS: 3.The petitioner is stated to be engaged in the|business of providing Information Technology Solutions and|Support Services for e-commerce industry. In the course of|its Dusiness, the petitioner is stated to nave made payments in|the nature of pure reimbursements” to M/s.Walmart Inc.,|Delaware, USA (hereinafter referred to as ‘Walmart Inc.') for|tne Assessment Year 2020-2021 and in that regard hadrequested the Department for issuance of a ‘Certificate of No|Deduction of Tax at Source’. The payment of salaries to the|deputed expatriate employees were stated to have been made|Dy Walmart Inc. for administrative convenience and the|petitioner had made reimbursements to Walmart Inc. With|respect to sucn payments, the petitioner had sougnt for|granting of Certificate under Section 195 of the I.T. Act. — 4‘Walmart Inc. and Flipkart Singapore had entered|into an Inter-Company Master Services Agreement (M.S.A.)|dated 28.05.2019 for secondment of employees and provisionof services. In terms of the M.S.A., either of the parties or its|affiliates could use the seconded employees. 5.Tnat|Clause 4.7provides tnat the party placing the|secondees will invoice the compensation and the wage cost of|secondees incurred in the Home Country.| 6.It is pointed out that the M.S.A. has two distinct|parts - (i) relating to provision of services and (ii) secondment|of employees. The present petition is concerned only with the|secondment of employees. — ].It is the stand of the petitioner that in terms of the|M.S.A., ‘Walmart Inc.’ had seconded four employees to the|petitioner and nad entered into a Global Assignment.Arrangement with the seconded employees, which provided|that the seconded employees would work for the benefit of thepetitioner. 8.The petitioner is stated to have issued the l/etters|of appointment confirming the employment of seconded|employees witn the petitioner and in sucn letters of)appointment, the details of responsibilities of the seconded|employees has been detailed. — OQ.It is stated that the petitioner makes contribution|to the Provident Fund Authorities as an ‘employer of seconded|employees and tnat the said employees are working in India|on Employment VISA’ wherein, the petitioner is declared to be|an em ployer 10. In response to the invoices raised py Walmart Inc.|as regards the payments made towards salaries of the|seconded employees, the petitioner had intended to make|payments to Walmart Inc., and in that context, nad made an|application at Annexure-G under Section 195(2) of the LI.T.|Act requesting for allowing the remittance of cost-to-cost|reimbursements to be made by the _ petitioner witnoudeduction of tax at source. 11. It Is also submitted that Indo-US Double Taxation.Avoidance Agreement (DTAA’ for brevity) would be. of|relevance, as double taxation at source where a non-resident.earns income in India and is liable for being taxed for sucn|income in the Country of residence, is to be avoided. 10. In response to the invoices raised py Walmart Inc.|as regards the payments made towards salaries of the|seconded employees, the petitioner had intended to make|payments to Walmart Inc., and in that context, nad made an|application at Annexure-G under Section 195(2) of the LI.T.|Act requesting for allowing the remittance of cost-to-cost|reimbursements to be made by the _ petitioner witnoudeduction of tax at source. 11. It Is also submitted that Indo-US Double Taxation.Avoidance Agreement (DTAA’ for brevity) would be. of|relevance, as double taxation at source where a non-resident.earns income in India and is liable for being taxed for sucn|income in the Country of residence, is to be avoided. 12. However, the said application came to be rejected.while directing the petitioner to deduct tax at source on tne!premise as found in the conclusion of the impugned order|reproduced supra at para-l. LILCONTENTIONS OF PETITIONER:, 13.)The petitioner is not required to deduct tax under|Section 195 on payments wnhnicn are in the nature oreimbursement, as witnnolding obligations under Section 195.arise only when the ‘sum paid to the non-resident is|‘Chargeable to tax under the Act. Reliance is placed on the|judgment in the case ofGE India Technology Centre PrivateLimitedV.Commissioner of Income Tax ana Another[$] 1(2010) 10 SCC 29° 14. As per Article 12 of the ‘DTAA’', the sums paid couldnot be regarded as Fee for Technical Services (hereinafter|referred to as FITS’) and accordingly, there will be no income|of Walmart Inc. chargeable to tax in India. | 15. The ‘Memorandum of Understanding’ (MoU) dated17.09.1989 entered into between the Government of India|and U.S.A. which is stated to be forming part of the DTAA|provides that Fee for Included Services (hereinafter referred toas FIS’), which make available to the person acquiring the|services, only would be amenable to tax. | Accordingly, it is submitted that any service that doesnot make technology available to the person acquiring the.service would not fall in the category of ‘make available and|accordingly, would stand exciuded from the _ provision § ofArticie -12 of DTAA.- 16. The payments in the nature of reimbursementcannot be cnarged as income under the Act. In the presentcase, the petitioner has paid only the actual cost of salaries of|the seconded employees and there is no mark-up. which Is | retained by Walmart Inc. on such costs. Reliance is placedon the judgment of Hon'ble Supreme Court in|%irector of.Income Tax (IT)-IVoA.P. Moller Maersk A Si[%]*as aiso tnejudgment in|Commissioner of Income TaxV.Kalyan! Steels.Ltd.,[)] 17. It is further contended that the payment made bythe petitioner to ‘Walmart Inc.’ are mere reimbursement of |Salaries paid to the seconded employees and once sucn|payments are salaries, the same falls outside the purview of‘FIS’ in terms of Article 12 and 16 of DIAA. In light of the law|laid down by tne Apex Court inUnion of India ana Another.Vi. AzadlBachnaoAndolanandAnother[/]andEngineeringAnalysisCentreofExcellence|PrivateLimitedVYCommissioner of Income Tax & Another[1]provisions of DTAAinsofar as it is more beneficial to the assessee would prevail|over the domestic law and as payments in question being in|the nature of salaries under Article 16 cannot be treated as. %(2017) 5 SCC 651. )(2018) 254 Taxmann 350 (Kar) | /(2003) 263 ITR 706 (SC) | ,(2021) 432 ITR 471 ‘FIS' by the respondent Authorities by applying Section 9 of)the I.T. Act. 18. It Is submitted tnat tne stand of Revenue tnat.Certificate under Section 195 is only tentative and anon-conciusive opinion, is not a legally tenable stand. The.prima faciededuction of tax and contingency of refund at a.later stage cannot make original levy to be valid, when liability|to deduct tax is in excess of jurisdiction. %(2017) 5 SCC 651. )(2018) 254 Taxmann 350 (Kar) | /(2003) 263 ITR 706 (SC) | ,(2021) 432 ITR 471 ‘FIS' by the respondent Authorities by applying Section 9 of)the I.T. Act. 18. It Is submitted tnat tne stand of Revenue tnat.Certificate under Section 195 is only tentative and anon-conciusive opinion, is not a legally tenable stand. The.prima faciededuction of tax and contingency of refund at a.later stage cannot make original levy to be valid, when liability|to deduct tax is in excess of jurisdiction. 19. It is submitted tnat as perClause 3.1of M.S.A., the.petitioner was granted unconditional right to terminate tneemployment of seconded employee and looking into the)nature of control exercised by the petitioner over the|employees, the petitioner would qualify to be the real and)economic employer of the seconded employees. | 20. ‘Walmart Inc. being a tax resident of U.S.A., the.disputed transaction will be governed by the provisions of‘DTAA in view of Section 90(2) and whether the payments.made by the petitioner to Walmart Inc. amounts to FIS /. ‘FIS' will have to be determined as per the provisions of Article|17 of 'DTAA.' While placing reliance on the judgmentin |Commissionerof Income-Tax, Central Circle|VYDe beers India Minerals (P)|Ltd[3]*it is contended that the terms of Article 12 is only to.those payments which are made for rendering the technical or consultancy services and making the technical Knowledge,|experience availabie to the recipient which only are covered|within the meaning of FIS’. 21. Once the transaction is admittedly in the nature ofpayment of salaries, same is excluded from purview of Section195 and cannot be subjected to further deduction. 22. The reliance placed by the respondents in Centrica India Offshore (P.) Ltd.Vi.Commissioner of Income Tax-I,|New Delhi[5]is misplaced and erroneous. The case is_distinguishable insofar as inCentrica India Offshore(supra), the non-resident entity had seconded its employees|to the new incorporated Indian subsidiary and the Indian| 6(2012) 346 ITR 467 (KAR)T(2014) 227 Taxmann 368 (SC)T(2014) 227 Taxmann 368 (SC) subsidiary was specifically incorporated to provide back office|Support services in relation to third party vendors in India.However, in the present case, the petitioner was incorporatedon 01.10.2012 and nad a well developed and establisned|business model in India much before 'Walmart Inc.’ became|majority equity interest nolder in Flipkart Singapore in August2018. [iT.CONTENTIONS OF RESPONDENTS: 23. Section 195(2) of the I.T. Act’ provides fordetermination of appropriate portion of sum chargeable and)does not contemplate Nil deduction of tax at source andaccordingly, Section 195(2) is not applicable. 24. The Assessing Officer has duly considered all thecontentions including the relationsnip of seconded employee|with Walmart Inc. and has arrived at the conclusion tnat.tnere.ISNO|‘employer-employeerelationsnippetweenM/s.Flipkart Internet Private Limited and the seconded|employee. It has further held that the services rendered by|the seconded employees are in the nature of technical services|under the Income Tax Act and ‘DTAA’, which findings are well| considered and do not call for interference in exercise of.limited power of judicial review. 25. The mere deduction of tax at source under Section.1927 does not obviate the need to deduct tax at source underSection 195, as tax at source is to be deducted on the gross|payment and the question of examining the income element|embedded therein in the payment does not arise. 26. As the Agreement entered into is between tworelated parties, even if consideration is agreed on cost-to-cost|basis, the character of payment would not be altered. 2/7. The terms of Agreement would reveal that thepayment made is consideration for rendering of technical|consultancy services. 28. The purpose of payment if looked into would fallwithin the ambit of FITS. tin terms of Section 9 as well as Interms of DITAA. considered and do not call for interference in exercise of.limited power of judicial review. 25. The mere deduction of tax at source under Section.1927 does not obviate the need to deduct tax at source underSection 195, as tax at source is to be deducted on the gross|payment and the question of examining the income element|embedded therein in the payment does not arise. 26. As the Agreement entered into is between tworelated parties, even if consideration is agreed on cost-to-cost|basis, the character of payment would not be altered. 2/7. The terms of Agreement would reveal that thepayment made is consideration for rendering of technical|consultancy services. 28. The purpose of payment if looked into would fallwithin the ambit of FITS. tin terms of Section 9 as well as Interms of DITAA. 29. The contention that provision of services rendered.by the seconded employees would not fall within the ambit of ‘FITS: is to be rejected, as tne services are provided byseconded employees, who were offered senior positions in the|Management and sucn employees were assigned by Walmart|Inc. to the petitioner only because of their experience in|managerial and consultancy skills required by the petitioner.and accordingly, the payment made ought to be construed as|‘FTS:’ as defined in Section 9(1)(vii) of the I.T. Act. 30. The examination of documents would reveal that.the seconded employees remain the employees of ‘Walmart|Inc. even during the period of secondment. | 31. #The deduction of tax at source under Section 192will not take away the applicability of the appropriate Section. — [TVANALYSIS: 32. In light of the above factual matrix, the following.points arise for consideration:- (A) Whether the application of the petitioner dated|15.01.2020 filed under Section 195(2) of the Income.Tax Act was not maintainable? (i).It is the contention of Revenue that the applicationunder Section 195(2) is maintainable only in the event of composite payment and that where a NIL Deduction)Certificate is sought for, recourse is to be made under Section|19/7. (il)It must be noted that the Deputy Commissioner of.Income Tax (DCIT) while passing the impugned order nas not|dealt with such aspect and has rejected tne application on its|merits. In the present proceedings, wherein the petitioner nas|sought for setting aside of the impugned order, Submission is made by the Revenue that Section 195(2) could not have beeninvoked.| (iii) If it were the stand that the application was notmaintainable, the DCIT ought to nave recorded such finding|while rejecting the application. In the absence of any finding|regarding the non-maintainability of the application, it is not|open for the Revenue to canvass such point in the proceedings|instituted by the petitioner. The judicial review of the order of DCIT cannot be enlarged by considering fresh contentions|which would have the effect of altering the impugned order by| reading into its substantive aspects which were not consideredby the DCIT.| (iv) As rightly pointed out by the petitioner, sucn acontention as raised finds a cursory and fleeting mention in|the statement of objections filed by the Revenue and cannot|be raised for the first time in the present proceedings. Even|otherwise, the scope of Section 197 being distinct from that of Section 195(2), as Section 197 would come into operation on|an application by the recipient of an income, which is not the|factual scenario in the present case. (V) As per Rule 29BA of Income Tax Rules, 1962, an!application can be made by the payer in Form No.15E for|grant of Certificate determining appropriate proportion of sum chargeable to tax in the case of payment made to |non-resident recipient under Section 195 (2) of the Act. The relevant extract of Rule JOBA and Form No.15E navepeen extracted nereinbelow : "29BA. Application for grant of certificate for|determination of appropriate proportion of sum) (otnerthanSalary),payableto|non-resident,cnargeablie in case of the recipients. (V) As per Rule 29BA of Income Tax Rules, 1962, an!application can be made by the payer in Form No.15E for|grant of Certificate determining appropriate proportion of sum chargeable to tax in the case of payment made to |non-resident recipient under Section 195 (2) of the Act. The relevant extract of Rule JOBA and Form No.15E navepeen extracted nereinbelow : "29BA. Application for grant of certificate for|determination of appropriate proportion of sum) (otnerthanSalary),payableto|non-resident,cnargeablie in case of the recipients. (1).An|applicationby CGDe€rsOffordetermination of appropriate proportion ofsum chargeable in the case of non-resident|recipient under sub-section (2) or sub-section(7) of section 195 shall be made in Form 15E|electronically, - i) under digital signature; or fi) through electronic verification code. ~[FORM No. L5E| |See rule 29BA] {e-Form Application by a person for a certificate under section 195(2)and 195(7) of the Income-tax Act, 1961, for determination of appropriate proportion of sum (other than salary) payable to non-resident, chargeable to tax in case of the recipient. 10, The Assessing Officer, I being the person responsibie for making payment| to a non-resident or to a foreign company any sum (not being income.chargeable under the hnead “Salaries’) do, hereby, request that acertificate may be issued to me after determining the appropriateproportion of such sum cnargeable to tax in the case of the recipient (ifany) and authorise me to deduct income-tax on such appropriate.proportion (if any).aa (vi) As per Rule 28 of Income Tax Rules, 1962, aperson can file an application in Form No.13 for grant of a|Certificate for deduction of income tax at any lower rates or no)deduction of income tax under Section 197(1). Form No.13)prescribes the format of application that is to be made by the|recipient/payee for no deduction of tax at source or lower rate|for deduction of tax at source and the relevant portion of the|Form is extracted as follows : “FORM No. 13|See rules 28 and 3/G]_ |e-Form|| Application by a person for a certificate under section 197 and/orsub-section (9) of section 206C of the Income-tax Act, 1961, for nodeduction of tax or deduction or collection of tax at a lower rate _ 1oO| Tne Assessing Officer, en @ ) wd vececenesecaveususavaueeseseuseretaveererauseveesesevesteresees GO, NErebdy,request that a certificate may be issued to the person|responsibie for paying me the incomes/sum, authorising|him, not to deduct/deduct income-tax at lower rate, at the.time of payment of such income/sum to me. The details|are specified in Annexure-I. and/or| I,OT vececunuceceveususavaueuseseuseretevecreraeseveeseteeseseresees GO, NEeredy,request that a certificate may be issued to me forreceiving the incomes/sum:- (i) after deduction of income-tax at lower rate as|I do not nave the details of the person making|payments and their number is likely to exceed| (ii) without deduction of income-tax as this}applicationIS.made|TOrtheperson/entity|specified in rule 28AB. | The details are specified in Annexure-II. and/or| I,OT vececenesecaveususavaueeseseusererereererauseveeseteeseserasees GO, NEerebyrequest that aé_ certificate may be issued to thSeller/Lessor/Licensor, authorising him to collect income-tax at Jower rate at the time of debit of such amount to.my account or receipt thereof from me, as the case may|be. Tne details are specified in Annexure-III. xXKXXXKX Accordingly, the Income Tax Rules and the relevant Formmakes it clear that the application under Section 195 is at theinstance of the person making the payment, while the|application under Section 197 is at the instance of the|recipient. (vil) This Court inCommissionerOfLncome-Tax,International Taxation\VBovis Lend Lease (India) (P.) Ltd.[8]nasreiterated this positionat Para 12, which is as follows: and/or| I,OT vececenesecaveususavaueeseseusererereererauseveeseteeseserasees GO, NEerebyrequest that aé_ certificate may be issued to thSeller/Lessor/Licensor, authorising him to collect income-tax at Jower rate at the time of debit of such amount to.my account or receipt thereof from me, as the case may|be. Tne details are specified in Annexure-III. xXKXXXKX Accordingly, the Income Tax Rules and the relevant Formmakes it clear that the application under Section 195 is at theinstance of the person making the payment, while the|application under Section 197 is at the instance of the|recipient. (vil) This Court inCommissionerOfLncome-Tax,International Taxation\VBovis Lend Lease (India) (P.) Ltd.[8]nasreiterated this positionat Para 12, which is as follows: "12. ......AS 1S Clear from Sub-Section (of Section 195 of the Act, if the person|responsible for paying any amount chargeable|under this Act to a non-resident, considers that| the whole of such sum would not be [Incomecnargeable in tne case of the recipient, ne may| S[2012] 208 Taxmann 168 (Kar) make an application to the assessing officer todetermine tne appropriate portion of sucn sumso cnargeable and upon sucn aetermination,|tax snall be deducted under Sub-Section (1) only on tnat proportion of the sum which Is sochargeable. However, if the assessing authorityis of the view that no tax is chargeable, acertificate to that effect could be Issued to the|person responsible for making payment. Once|a certificate is issued, tne liability of the personresponsible for paying under the aforesaid|provision ceases and without any deduction ne|may make payment to the non-resident.|Insofar as Section 197 is concerned it providesfor a similar application being made by tnerecipient of the income. On such an applicationbeingMadeUnderSection197(1),theassessingofficerCaf)giveto.him|SUCNcertificate as may be appropriate. If sucn|certificates states no tax is deductible, untilsuch certificate is cancelled by the assessing|officer, the person responsible for paying tne|income is under “No obligation” to deduct tax|while making payment. In fact tne languageemployed is "Shall". Therefore, it is mandatory|in nature. Wheat is the effect of such acertificateWasthe|subjectmatter ofinterpretation. ~ Accordingly, it is clear that Section 197 can be invokedby the recipient and accordingly, the contention that presentapplication under Section 195(2) is not maintainable, is liable|to be rejected. — (vill) Tne Apex Court inTransmission Corpn. of A.P. Ltd.V Commissioner of Income-Taxat para-8 has held as.follows:- “8....hereafter, section 195 deals withdeduction of tax in cases where payment is to be|maae to a non-resident wnich inter alia provides:- (a) Any person responsible for paying to anon-resident, any interest, or any sum,chargeable under the provisions of this Act(other than interest on securities andsalary), shall, at tne time of payment,deduct iIncome-tax thereon at the retes Inforce. Sub-section (1) of Section 195excludes from its operation the sum whichis to be paid as interest on securities or thesum wnicn is chargeable under the nead“Salaries as the deduction on sucn sumwould be governed by other’ sections,namely, sections 192 and 195. Q[1999] 105 Taxmann 742 (SC) (Db) Wnere tne person responsible for payingany sum cnargeable under tne Act to a non-resident considers that the whole or sucnsum would not be chargeable in the case ofthe recipient, he may make an applicationto the Assessing Officer to determine “theappropriate proportion of such sums socnargeable’'; upon sucn determination, taxshall be deducted under sub-section (1)only on tnat portion of the sum wnicn Is socCnargeable. (c) Not only this, but sub-section (3)provides that any person entitled to receiveany interest or other sum on wnicn income-tax is to be dqeaqucted under sub-section (1may make an application in the prescribed|form to the Assessing Officer for the grant|of certificate authorising him to receive sucninterest or other sum without deduction oftax under the sub-section. (Db) Wnere tne person responsible for payingany sum cnargeable under tne Act to a non-resident considers that the whole or sucnsum would not be chargeable in the case ofthe recipient, he may make an applicationto the Assessing Officer to determine “theappropriate proportion of such sums socnargeable’'; upon sucn determination, taxshall be deducted under sub-section (1)only on tnat portion of the sum wnicn Is socCnargeable. (c) Not only this, but sub-section (3)provides that any person entitled to receiveany interest or other sum on wnicn income-tax is to be dqeaqucted under sub-section (1may make an application in the prescribed|form to the Assessing Officer for the grant|of certificate authorising him to receive sucninterest or other sum without deduction oftax under the sub-section. (qd) Furtner, section 19/7 provides’ threcipient can file an application to theAssessing Officer for a certificate that thetotal income of the recipient justify thededuction of income-tax at any lower ratesor no deduction of tncome tax and theAssessing Officer, if satisfied, can grantsucn certificate as may be appropriate. - (emphasis supplied) (ix) It is the further contention of the respondent that,if the petitioner was of the view that the amount is notchargeable under the provisions of the Act, the question of|obtaining certification under Section 195(2) or Section 197|qaoes not arise. (Xx)The object of Section 195(2) and Section 197 of the|Act are in the nature of safeguards for the assessee and are tobe invoked to avoid consequences of a finding eventually that|the payer ought to have made deduction after assessment and in sucn case, it would be open to treat the assessee as an)assessee in default’ in terms of Section 201 of the I.T. Acct,leading to prosecution being initiated under Section 2/76Bagainst the payer and disallowance of expenses under Section|40(a)(ia) of the I.T. Act. — (xi) Keeping in mind that the determination underSection 195(2) or under Section 197 by grant of Certificate|being tentative in nature, the assessee must be permitted to invoke such provision and seek for certificate in order to avoidconsequences of non-deduction as enumerated above. It|cannot be stated that the assessee is debarred from invoking| such a provision if he were of the view that the payment being|made was not chargeable under the provisions of the I.T. Act.To place sucn a heavy burden of adjudication upon theassessee before invoking the tentative determination under|Section 195(2), considering the nature of proceedings, may|not be called for. Accordingly, the recourse to Section 195(2)is perfectly in consonance with the object of Section 195 and)cannot be faulted. (B)Whether the petitioner is required to deduct TDunder Section 195(2) read with Article 12(4) of theconvention between Government of United States of)America and the Government of Republic of India for|the avoidance of Double Taxation and the prevention of FISCAL evasion? (1)At the outset, it ought to be noted that Section|90(2) of the I.T. Act provides that where the Central|Government has entered into an agreement with a country|outside India for the purpose of granting relief of tax or for)avoidance of double taxation in relation to the assessee,| provisions of the Act would apply to the extent they are more|beneficial to the assessee. (il).The Apex Court In|Engineering Analysis Centreof Excellence Private LimitedVVCommissioner of Income Tax ana Another[10]has clarified that where theprovisions of the ‘DTAA’ is more beneficial than the provisions|of the I.T. Act, it is the ‘DTAA' that should be treated as the|law that requires to be followed and applied. The observations|at Para-1/76 would be of relevance, which reads as follows:- (1)At the outset, it ought to be noted that Section|90(2) of the I.T. Act provides that where the Central|Government has entered into an agreement with a country|outside India for the purpose of granting relief of tax or for)avoidance of double taxation in relation to the assessee,| provisions of the Act would apply to the extent they are more|beneficial to the assessee. (il).The Apex Court In|Engineering Analysis Centreof Excellence Private LimitedVVCommissioner of Income Tax ana Another[10]has clarified that where theprovisions of the ‘DTAA’ is more beneficial than the provisions|of the I.T. Act, it is the ‘DTAA' that should be treated as the|law that requires to be followed and applied. The observations|at Para-1/76 would be of relevance, which reads as follows:- “176. Tne conclusions in tne aforestated paragrapnhave no direct relevance to the facts on hand as the|effect of Section 90 (2) of the Income Tax Act, read witnFxplanation IV thereof, is to treat the DITAA provision asthe law that must be followed by Indian Courts,|notwithstanding wnat may be contained in the Income|Tax Act to the contrary, unless more beneficial to tne|Assessee. (iil) Article 12(1) of DTAA’ provides for taxation ofRoyalties and FIS arising in a Contracting State and paid to a|resident of other Contracting State. Furtner, Articie 12(2)| 102021 SCC OnLine SC 159] provides that Royalties and FIS may also be taxed in the.Contracting State in which they arise. (iv) FIS:' is defined in Article 12(4) as follows:- For purposes of this Article, "fees for includedservices" means payments of any kind to any personin consideration for the rendering of any technical or|consultancy services (including tnrough the provisionof services of technical or other personnel) if suchservices: (a) Xxx| (D) make availabie technical Knowledge, experience,Skill, know-how, or processes, or consist of thedevelopment and transfer of a technical plan ortecnnical design. (Vv)Tneremustpedcomparison petweentneprovisions of the I.T. Act and the provisions of DTAA’ and a|finding that ‘DTAA’ is better in light of the provision under|Article 12(4) for the purpose of determining whether the|payment made by the petitioner to Walmart Inc. would|constitute FIS,, requires determination. (vi) Section195(2)placesal)obligation|Onthepetitioner to make deduction of tax under sub-section (1)| where payment of "any such sum chargeable under this Act” isbeing made to a non-resident. (vil) Tne words chargeable under tnis Act if read in.conjunction with provision of Article 12(4) of ‘DTAA’ and the|obligation under Section 195(2) is looked at, it becomes clear|that ‘FIS’ as defined under Article 12(4) are more beneficial to the assessee insofar as his obligation to deduct the tax.Accordingly, Article 12(4) requires to be applied to determine|liability to deduct tax. (villi) It is clear that ‘FIS' under Article 12(4) would referto payments of any kind to any person in consideration for|rendering of technical or consultancy services (including|through the provision of services of technical or other|personnel)ifSUC)?Services|makeavailabletecnnicalKnowledge, experience, Skill, KNOw-noWw or _ processes consists of development or transfer of technical plan or'technical design. (ix) In terms of Article 12(4)(b) for the purpose ofconstruing ‘FIS’, it is necessary that the rendering of technical Or consultancy services must make available tecnnical|Knowledge, experience, skill, KNOW-how or processes. Further,|it may also consist of development and transfer of a tecnnical plan or technical design. (Xx)Accordingly, it is not a mere rendering of technical|or consultancy services, but the requirement of make availablein terms of Article 12(4)(b) requires to be fulfilled. In light of|the above legal requirement whether the present payment|would amount to FIS’ requires to be determined. (ix) In terms of Article 12(4)(b) for the purpose ofconstruing ‘FIS’, it is necessary that the rendering of technical Or consultancy services must make available tecnnical|Knowledge, experience, skill, KNOW-how or processes. Further,|it may also consist of development and transfer of a tecnnical plan or technical design. (Xx)Accordingly, it is not a mere rendering of technical|or consultancy services, but the requirement of make availablein terms of Article 12(4)(b) requires to be fulfilled. In light of|the above legal requirement whether the present payment|would amount to FIS’ requires to be determined. (xi) Tne DCIT while passing the impugned order atPara-36 has conciuded that payment made to Walmart Inc.will fall in the category of payments made to any person in)consideration for rendering technical, consultancy services|through the provision of services of technical or other)personnel. It is observed that Walmart Inc. has through the|seconded employees provided technical services to FlipKart|Internet Private Limited (India), as tecnnical services would|also include provision of services of personnel. In theimpugned order what has been lost sight of is the requirement| of “make available’ in terms of Article 12(4)(b). A perusal of M.S.A. entered on 29.05.2019 would refer to:- | "(a) Clause 2.1.1 - The use of certain services describedin| Annexure-A are in the Scope of Work concludedbetween the parties or their Affiliates for the relevant|Service; (b) Clause 2.1.2 - The use of certain Secondees on terms and conditions described in Annexure-B unless|the parties agree to the contrary in respect of the|particular secondment in the relevant Scope of Work.” (xii) The M.S.A., if subjected to scrutiny as regards the.aspect of secondment does not reveal the satisfaction of the|requirement of make availabie wnhicn is asine qua nonfor.being a FIS. (xiii) Tne DCIT has proceeded to pass the impugned)order without examining this aspect. Tne fact that the|employees seconded nave the requisite experience, Skill or|training capable of completing tne services contemplated in|Seconament (|Clause 6.7.4of M.S.A.) by itself is insufficientto treat it as FIS as has been concluded,|de horsthe |satisfaction of 'make available.' (xiv) Tne proceeding under Section 195 results in atentative finding more as a safeguard to the payee and if such determination exempts the payee from making a deduction at)that stage, such tentative deduction, it must be empnasizedis |still subject to final determination of taxabilityqudtherecipient. — (xv) Accordingly, the contention of respondents raised.at the time of oral arguments that the enquiry regarding|"Make available still remains to be determined and is based on.furtner material to be submitted regarding the requisition of the employees by the petitioner is an enquiry that is not called for. As the M.S.A. does not support ‘make available’, furtherenquiry beyond that may not be called for, considering the|nature and scope of proceedings. (C) Deduction under Section 195(2) of Income Tax Acton the ‘sum chargeable under this Act :-.(1)As discussed above, it is the provision of DTAA|that would be of only relevance in determining the necessity of deducting tax. However,|de horsthe 'DTAA’, the question ofdeduction would only arise where the payee is seeking to| make payment to the non-resident of a sum chargeable under|the I.T. Act. (il).The DCIT has grossly erred while concluding that.where the payment is made for the services rendered, then|whether the charge for the services rendered is equivalent to the cost or not becomes irrelevant. The finding that the|services rendered fall within the description of services as in|Explanation-2 in Section 9(1)(vi) and that the element of profit is not an essential ingredient of receipt, to make it|taxable IS Erroneous. make payment to the non-resident of a sum chargeable under|the I.T. Act. (il).The DCIT has grossly erred while concluding that.where the payment is made for the services rendered, then|whether the charge for the services rendered is equivalent to the cost or not becomes irrelevant. The finding that the|services rendered fall within the description of services as in|Explanation-2 in Section 9(1)(vi) and that the element of profit is not an essential ingredient of receipt, to make it|taxable IS Erroneous. (iii) It must be noted that as observed above, the)provisions of the I.T. Act, will have to give way to the|provisions of ‘DTAA’ when ‘DTAA' is more beneficial to the|assessee. It Is in thnis context that the rellance onsExplanation-2 in Section 9(1)(viil) may not be of relevance.The aforesaid provision of the 1.T. Act wnicn deals with FTSis |different from the concept of FIS under Article 12(4). The)‘make available requirement that is mandated under Article|12(4) grants benefit to the petitioner and accordingly, the.question of falling back on the provisions of Section 9 of the) I.T. Act does not arise. On this score alone, the conclusion in |the impugned order of the payment for the service falling|within the description under Section 9 of the I.T. Act as)‘deemed income, is to be rejected. (D) Whether Deduction Is on gross receipts? (i).The contention of learned counsel! Sri. K.V.Aravind|is that normally the deduction is on gross receipts as in cases|of Section 194) and Section 194C of the I.T. Act and in light of|the principle laid down in.Associated Cement Co. Ltd.V.Commissioner of Income-Tax[11]in the present case alsotne deduction should be on the gross remittance. (il)Section 194C provides for deductions “at the time|of credit of such sum to the account of the contractor or at the|time of payment thereof in cash....". Similarly, Section 194)provides for deduction “at the time of credit of such sum to|the account of the payee or at the time of payment thereof in|casn...... 11(1993) 67 Taxmann 346 (SC)| (iii) In the case of|Associated Cement Company Ltd. (supra),the question was as regards deduction of tax under|Section 194C(1) and as to whether deduction was to be|confined to the Income component of that sum was under|consideration. Tne Apex Court nas observed that it was/|neither possible nor permissible to tne payer to determinewhat part of the amount paid by him to the contractor|constitutes income of the latter. It was further observed that.permitting such ascertainment of income component would|result in placing an impossible Durden upon the payer and|would result in an impractical and unworkable provision. This|would not further the case of the Revenue as Section 194C(1) refers to deduction at the time of credit of ‘such sum’, which isIn contradistinction to Section 195 where the deduction Is on.‘any otner sum cnargeabile under the provisions of the I.T. Act| (iv) What needs to be noticed is that the logic ofdeduction of tax on the gross amount as Nas been held in|respect to Section 194C and Section 194J cannot be extendedto Section 195 wnhicn specifically uses the term “any other sumchargeable under the provisions of this Act." Such terminology| is absent in Section 194C and Section 194) of the I.T. Act.The difficulty of ascertainment of income component as being|an impossible Durden on the payer in the context of Section|194C as observed by Apex Court is obviated in the presentcase, as Section 195(2) provides for a mechanism whereby|the Assessing Officer may be called upon to determine)“proportion of the sum which is so chargeable.” In fact, inGE India Technology Centre (P) Ltd.(supra), tne ApexCourt at para-14 nas specifically recorded the distinction|abovementioned as follows:- is absent in Section 194C and Section 194) of the I.T. Act.The difficulty of ascertainment of income component as being|an impossible Durden on the payer in the context of Section|194C as observed by Apex Court is obviated in the presentcase, as Section 195(2) provides for a mechanism whereby|the Assessing Officer may be called upon to determine)“proportion of the sum which is so chargeable.” In fact, inGE India Technology Centre (P) Ltd.(supra), tne ApexCourt at para-14 nas specifically recorded the distinction|abovementioned as follows:- F14. One|moreaspectneedsto|be|highlighted. Section 195 falls in Chapter XVII whichdeals with collection and recovery. Chapter XVII-B|deals with deduction at source by the payer. On|analysis of various provisions of Chapter XVII one|finds the use of aifferent expressions, nowever, theexpression “sum chargeable under the provisions ofthe Act” is used only in Section 195. For example,Section 194-C casts an obligation to deduct TAS in|respect of “any sum _ paid to any _ residenSimilarly, Sections 194-EE and 194-F inter|alia provide for deduction of tax in respect of “any|amount” referred to in the specified provisions. In|none of tne provisions we find the expression “sumcnargeable under tne provisions of the Act”, wnicn as Stated above, is an expression used only in|Section 195(1). Tnerefore, this Court is required to give meaning and effect to tne said expression. It|follows, therefore, that the obligation to deduct TAS.arises only wnen there is a sum cnargeabile underthe Act." Accordingly, the contention of learned counsel! for theRevenue regarding deduction on gross amount deserves to be.rejected. (E) Secondment and reimbursement of costs: (1)In the impugned order, the DCIT has construed tne|secondment where services are provided and payment made|thereon as being within the ambit of tax liability. As discussed supra, the ‘FIS’' in terms of the ‘DTAAwould not include any payment towards provision of mere|rendering of service and there must be asine qua nonof.‘make available. Further, the payment must be one.chargeable under the provisions of I.T. Act. (il)Tne payment is pursuant to M.S.A. and the.payment in the present case relates to the secondment of employees. The following clauses of the M.S.A. would be of |relevance:-. (a).Clause 1.7— defines secondment as therelationship of assigning a secondee by a party to|tneotnerpartyas|contemplatedUnder|tneAgreement. Tne payment under the Agreement isalso only in respect of the secondment.| (D).Clause 1.5defines the scope of work.relating to the secondment. (C)Clause 3.1which provides that Flipkartmay terminate the services of the secondees. (d).Clause 4.7provides that the party placingtne secondees can invoice the party recei