M/S. Centrica India Offshore Pvtl. Ltd v. Commissioner Of Income Tax-I & Ors

* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 26.02.2014 Pronounced on: 25.04.2014 + W.P.(C) No.6807/2012 M/S. CENTRICA INDIA OFFSHORE PVTL. LTD. .....Petitioner Through: Mr. N. Venkataraman, Sr. Adv. with Ms. K.G. Rajeshwari & Mr. R. Satish Kumar, Advs. Versus COMMISSIONER OF INCOME TAX-I & ORS. ..... Respondents Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Ruchir Bhatia, Jr. Standing Counsel. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S. RAVINDRA BHAT% 1. The writ petitioner (hereafter called “CIOP”) is aggrieved by the decision of the Authority for Advance Ruling (“the Authority”) dated 14.03.2012, by which the latter held that payment by it under –the agreement with certain overseas entities is “income accruing” to overseas entities in view of the existence of a service Permanent Establishment (PE) in India and that tax is liable to be deducted at source under Section 195 of the Indian Income Tax Act, 1961 (“the Act”). 2. CIOP is a wholly owned subsidiary of Centrica Plc., a company incorporated in the United Kingdom (“UK”). CIOP is incorporated in India. British Gas Trading Ltd. (“BSTL”) and Director Energy Marketing Limited, Canada (“DEML”) are also subsidiaries of Centrica Plc. These overseas concerns are collectively referred to hereafter as “overseas entities”. They are in the business of supplying gas and electricity to consumers across the U.K and Canada. The overseas entities outsource their back office support –functions for instance, debt collections/consumers‟ billings/monthly jobs to third party vendors in India etc. To ensure that the Indian vendors comply with quality guidelines, CIOP was established in India on 11.3.2008. It was to act as service provider to these overseas entities. 3. CIOP entered into service agreement with overseas entities to provide locally based interface between those overseas entities and Indian vendors. The scope and range of services so provided in terms of those agreements/understanding are: (i) management assistance for outsourced supplies in India and facilitating efficient interface back to U.S. business of Centrica Plc; (b) ensure that outsourced suppliers adhered to best practices and share them on e-2-e on optimal basis; (c) expert advice on widening scope of potential services in India to target work force through greater control and such other services as may be requested by Centrica Plc from time to time. It is stated that in terms of the agreement, the petitioner is compensated on full costs, i.e. expenses adopted by it in the Profit and Loss Account plus a mark-up of 15%. The petitioner is an income tax assessee and has been filing returns and paying income tax on the income earned out of the service agreement. To seek support during initial year of its operation, CIOP sought some employees on „secondment‟ from the overseas entities. For this purpose, it entered into an agreement with the overseas entities in which the latter seconded some employees for –fixed tenure. It is stated that in terms of the secondment agreement copy of which has been placed on the record, the employees so seconded work under CIOP‟s direct control and supervision. Conversely, the overseas entities are not responsible for any error or omission of the work of such employees. CIOP bears all risks and rewards associated with the work performed by such employees. To drive home this point, CIOP relies upon certain conditions in the secondment agreement, notably Sections 2.1(C), 2.2(A), 2.3(A) and 2.3(B). It is stated that the agreements fully require the petitioner to enter into a further individual agreement with each such employee (secondee) in terms of a pre-determined format. 4. CIOP highlights that the terms of these secondment agreements establish that the employees would work directly under the supervision and direction of its board and management. It is stated that the seconded employees came to India on deputation for short period. However, their family and financial matters remained in their home countries where they intended to ultimately return to after completion of the assignment. It was, convenient, for them, therefore, to receive salaries overseas. An option available to such employees was to receive their salaries through India and later transfer their salaries overseas. However, to avoid this, the employees continued to remain on the payroll of the overseas entities who used to pay and disburse the salaries. The petitioner thereafter reimbursed such salary costs to the overseas employers. It is stated that this arrangement/salary reimbursed is purely on cost-basis. Reliance is placed upon Section 3.1 of the secondment agreement which in this respect reads as follows: “(A) PLC shall charge CIO monthly for the actual documented costs and expenses that is incurred by PLC during the terms of this Secondment Agreement in respect of the Secondees during the Secondment (the „Monthly charge‟). (B) The monthly charge shall include: (i) all direct costs of Secondee‟s base salary and other compensation; (ii) costs of participation in PLC‟s retirement and social security plans and other benefits in accordance with applicable PLC policies; and (iii) other costs but only if such other costs have been agreed between CIO and PLC.” 5. It is stated that the petitioner offers to tax the salaries paid to every seconded employee in India and that it will file Income Tax Returns in India after dispatching appropriate taxes. It therefore withheld taxes under Section 192 of the Act with respect to the salary paid or payable to the seconded employees. Likewise, service income received by the petitioner from overseas entities in terms of the service agreement is offered by it to tax under the Act. CIOP, a resident Indian company, had sought advance ruling under Chapter XIX-B of the Act by its application dated 06.11.2009 on the following two questions: “(i) Whether on the facts and in the circumstances of the case, the reimbursements made by the Petitioner to overseas entities of the actual costs of expenses incurred under Secondment Agreement is in nature of income accruing to the overseas entities? (ii) If the answer to question No. 1 above is affirmative, whether tax is liable to be deducted at source by the petitioner under the provisions of Section 195 of the Income-tax Act, 1961?” 6. CIOP urged, before the Authority, that in tune with the recognized international principles, it is the real and economic employer of the seconded employees, even though their legal employers were the concerned overseas entities. It was also urged that in terms of the secondment agreement, the overseas entities were not providing any service to the petitioner. Furthermore, the payment to the seconded employees by the overseas entities was purely out of convenience which was in turn reimbursed on cost-basis. The reimbursement made to such overseas entities was not taxable as income in India because the taxes were already paid in respect of the seconded employees in India. It was urged that the reimbursement to the overseas entities could not be considered as income under the time-tested doctrine of “diversion of income by overriding title”. Thus, submitted the petitioner, the presence of the seconded employees did not create a permanent establishment (PE) of such overseas entities under the Double Taxation Avoidance Agreement (DTAA). (PE) of such overseas entities under the Double Taxation Avoidance Agreement (DTAA). 7. The respondent income tax authorities countered the petitioner‟s submission by stating that the seconded employees were rendering monthly services to the petitioner and reimbursement to the overseas entities was in the nature of “fees for technical services” and covered under Section 9(1)(vii) of the Act as well as under the Double Taxation Avoidance Agreements applicable to U.K. and Canada. It was, therefore, contended that the overseas entities would have PE under the DTAA. The respondent argued that CIOP could only terminate the seconded agreement but could not terminate the contract of those seconded employees. This proved that it was not the real employer and that the overseas entities were the real and legal employers. Consequently, there was no charge on the petitioner through the overseas entities in respect of the obligation of payment of remuneration to the seconded employees. This, according to the respondent amounted to application of income and not diversion of income by the overriding title. 8. The Authority ruled against the petitioner, by the order impugned in the present case, on 14.03.2012, inter alia, holding that: (a) reimbursement of salary cost paid/payable by the petitioner to overseas entities under the terms of Secondment Agreement is in the nature of income accrued to the overseas entities; (b) the services rendered by seconded employees are managerial in nature but such services will not come within the –purview of Article 13.4 of the IndiaUK DTAA or Article 12.4 of –IndiaCanada DTAA. Therefore, consideration paid by the Petitioner to the overseas entities cannot be held to be fees for technical services; (c) the overseas entities constitute service PE under the relevant DTAA on account of employees deputed by overseas entities to the Petitioner under the terms of Secondment Agreement; and (d) Tax is liable to be deducted at source under Section 195 of the Act on amount paid/payable by Petitioner to overseas entities under the Secondment Agreement The material parts of the Authority‟s findings are extracted below: XXXXXX XXXXXX XXXXXX “12. What is the position in this case? The applicant was created as a subsidiary by the overseas entity for coordinating the services of various vendors in India to whom it has outsourced some activities needed by it. A service agreement was then entered into by the overseas entity with the applicant for this purpose. The applicant was to be paid the costs it incurred for doing the work plus 15% of it as profits or compensation. The applicant submits that it has offered this 15% to tax in India. 13. The applicant required to be guided in the processes and procedures of the overseas entity. For this, the overseas entity deputed or seconded some of its employees to the applicant to render their services in India. As we see it, those employees continue to be the employees of the overseas entity and they are paid their salaries and other perquisites or allowances by the concerned overseas entity. All their service benefits are given by the overseas entity. They, thus, remain the employees of their original employer. On a reading of the Secondment Agreement, it is seen that the right of the seconded employees to seek their salaries and other emoluments is against the overseas entity. They cannot claim it as of right against the applicant. 14. The right of dismissal of the employees vests in or rests with the overseas entity. Even though the control and supervision of the employees and their work is with the applicant, the applicant cannot terminate their employment. It can only terminate the secondment agreement of the employees. XXXXXX XXXXXX XXXXXX Secondment Agreement, it is seen that the right of the seconded employees to seek their salaries and other emoluments is against the overseas entity. They cannot claim it as of right against the applicant. 14. The right of dismissal of the employees vests in or rests with the overseas entity. Even though the control and supervision of the employees and their work is with the applicant, the applicant cannot terminate their employment. It can only terminate the secondment agreement of the employees. XXXXXX XXXXXX XXXXXX 18. On the terms of the Secondment Agreement, it is difficult to find that the amount paid by the applicant to the overseas entities is reimbursement as sought to be emphasized by learned counsel for the applicant. Obligation to pay the salary rested with the overseas entities and the right of the employee to claim it is only against the overseas entities. The employee is conferred no right to claim the salary from the applicant nor is the applicant burdened with an obligation to pay that salary. It is difficult to accept the argument that what is paid by the applicant to the overseas entity in view of its sending its employees to the applicant for rendering service is reimbursement of the salary paid by the employer to them. Merely because the overseas entity is not charging the applicant anything more than what it has paid by way of salary and other emoluments to the concerned employee, that does not alter the situation. The fact that in the accounts of the applicant, this is entered as reimbursement of cost or it is not shown as income in the account of the overseas entity, cannot be conclusive of the question. What the Model commentary on Article 15 concerning the taxation of income from employment says is that where a comparison of the nature of services rendered by the individual with the business activities carried on by his former employer and by the enterprise to which the services are provided points to an employment relationship that is different from the former contractual relationship, then certain additional factors may be relevant to determine whether the employer who receives the secondees could be treated as their employer. What we find in this case is that the overseas entity has created an Indian company as its subsidiary for ensuring that the services to be rendered to it by various Indian vendors are properly coordinated. The overseas entity wants their services to be consistent with its business and policies. The applicant having been newly constituted, was presumably not in a position to render help to the various vendors in the matter of fulfilling their obligations or in the matter of ensuring compliance with the processes and practices employed by the overseas entities. The Secondment Agreement is specifically based on the fact that CIO has asked the overseas entity to provide staff with knowledge of various processes and practices employed by the overseas entity and experience in managing and applying such processes and practices. On a look at the list of employees, it is seen that the persons seconded are concerned with managerial functions and they are to oversee the applicants' operations and to be overall responsible for its activities and functions. This, therefore, appears to be a case where some employees qualified in the processes and procedures of the overseas entity are lent to the applicant, the Indian entity, a subsidiary, to perform the functions envisaged for it. What is paid by the applicant to the overseas entity in view of this lending of service of certain employees, would really spell in the realm of compensation paid for managerial services. Of course, it remains for us to consider whether it is taxable and if it is, whether it is taxable in India. XXXXXX XXXXXX XXXXXX XXXXXX XXXXXX XXXXXX 20. Here, the enterprise to which the employees are sent is the subsidiary of the original employer. The persons well versed in the processes and procedures of that employer are sent to the subsidiary to enable the subsidiary to perform the work for which it was created in accordance with the processes and procedures of the original employer. The work is also really that of the employer, in the sense, that it is to coordinate the work of the vendors of the employer situated in the other State. It is a work needed by the original employer. On the terms of the agreement entered into by CIO with the overseas entity and the separate agreements entered into with the seconded employees, we have held that the obligation to pay the salary is that of the original employer and the right of the employees to claim that salary is against the original employer. The work of the employer in India, is not unconnected with the activity of their original employer, the overseas entity. On the other hand, it is part of it. In this situation, we are of the view that even if we are able to postulate two work relationships - we find it difficult to do so - the one responsible for the remuneration, the overseas entity, has to be found to be the employer. XXXXXX XXXXXX XXXXXX 26. In the case on hand, as can be seen, the secondee employees are all rendering managerial services. They are General Manager, Operations Manager, Delivery Manager and Relationship Manager respectively. It is true, as pointed out by the Revenue, that even the separate agreements do not specify the nature of the services required to be provided by the employees. There is no material as of now to indicate that they are performing any technical functions or consultancy functions. They can be said to be managing the business of the subsidiary as requested by Centrica Plc., consistent with its aims. There is no acceptable argument except reliance upon a ruling by this Authority in Version Data Services India Private Limited (AAR No.865 of 2010). We may notice that the High Court of Madras has in a Judgment in Writ Petition No. 14921 of 2011, set aside the finding of this Authority on that question and has remanded the relevant question for a re-consideration. To that extent, the finality of the Version Ruling has now gone. So, the reliance placed on that Ruling by the Revenue is of no avail. 27. On the materials now available, it is not possible to hold that the managerial services being rendered in this case, will come within the purview of Article 13.4 of the India-UK Convention or Article 12.4 of the Indo-Canada Convention. Hence, the consideration paid by the applicant to the overseas entities for getting the services of these employees cannot be held to be fees for technical services. In view of the above, it is not necessary to consider the question whether the service is made available to the applicant.” CIOP‟S contentions 9. CIOP, the petitioner submits that the Authority fell into error in overlooking that there is a strong underlying master-servant relationship in the case of secondment whereas in service agreements, the relations between the parties is between two principals, i.e. the service provider is an independent contractor. In this regard, learned senior counsel relied upon the decision reported as Kishore v. ESIC,2007 (4) SCC 579. It is submitted that in terms of the secondment agreement, the control of the petitioner over the seconded employee –is complete in almost all aspects, such as (i) dictating the scope and nature of work to be undertaken; (ii) right of supervision; (iii) right to issue instructions and directions; (iv) right to dictate that the seconded employees would not have any entitlement to seek salaries and other emoluments against the petitioner; (v) right to terminate the secondment agreement even though not the service itself. 10. Learned counsel differentiated between the concept of “legal employment” and “economic employment” and in this context relied upon the observations in „International Hiring-out of Labour‟by Klaus Vogel as well as principles contained in the OECD Commentary on the Model Tax Convention. It was argued that a legal employer appoints someone and, therefore, has the right to terminate the employment. The economic employer, on the other hand, enjoys the fruits of the labour, possesses the authority to inspect and control and bears the risks and results of the work performed by the employee. The place of employment or work would also be that directed by the economic employer. The economic employer may not have the legal right to terminate the employment altogether, it would possess the right to terminate the contractual arrangement, i.e. the secondment agreement. The payment of salary of the seconded employee is charged from the economic employer. Learned counsel reiterated that an overall reading of Articles 2.1, 2.2, 2.3, 3.1 and 5.2 of the secondment agreement conclusively establishes that it was a real and economic employer of the seconded employees and that they were acting to its dictate in the performance of their job and not placed there to perform the tasks assigned by the overseas entities. 11. Reliance was placed upon the judgment reported as CIT v. Eli Lilly and Co. India Private Limited,(2009) 312 ITR 225 (SC), to say that the determinative factors for examining whether the home salary paid by the foreign company in foreign currency abroad can be held -to be “deemed” or “accrued” or “assigned” in India depends on an indepth analysis of facts and arrangements in each case. If the salary or remuneration paid by the foreign company is for rendition services in India then the payment fell within Section 9(4)(i) read with Section 192(1). Learned counsel relied upon a recent ruling of the Division Bench of this Court in DIT v. M/s. E-Funds IT Solution, ITA 735/2011. Similarly, reliance was also placed upon the ruling in Morgan Stanley and Co., In Re, 2006 (284) ITR 260 (SC). The petitioner submits that the substance and not the form of the arrangement should be looked into. The over-emphasis on a singular factor such as legal employment of the seconded employee and the right to terminate it by its overseas entities would distort the correct picture which is that effective and overall control is that of the petitioner. The mere secondment of such employees would not amount to rendition of services through them by the overseas entities. 12. It is urged that in terms of the service agreement with the overseas entities, the petitioner charges on cost plus mark-up at 15%; in turn it charges reimbursement due from the overseas entities as secondment agreement as salary costs in its books of accounts. This cost is included in the service receivable on cost plus 15% mark-up basis. Thus, the petitioner offers its income to taxation in India. Maintaining that the two arrangements, i.e. the secondment agreement entered into between the petitioner and the overseas entities on the principal-to-principal basis is distinct from the individual agreements entered into with the seconded employees, it is –argued that whilst the former is a contract for service, the latter by each individual seconded employee with the petitioner, CIOP are contracts for service. It is again reiterated that the overseas entities supplied gas and electricity to U.K. and Canada-based consumers. These overseas entities outsource their non-integral business to third party vendors in India. The petitioner merely provides business support services in relation to such outsourced processes. The non-integral and non-revenue generating business of such overseas entities, therefore, constitute the integral revenue generating business activities of the petitioner. It can, therefore, by no stretch of imagination be said to carry-on business on behalf of the overseas entities. Nor can it be concluded that the overseas entities are renting their employees to other entities or providing managerial services to the petitioner. It was argued that the law declared in Morgan (supra) was misapplied. In this regard, learned counsel relied upon the following observations of the Supreme Court: “As regards the question of deputation, we are of the view that an employee of MSCo when deputed to MSAS does not become an employee of MSAS. A deputationist has a lien on his employment with MSCo. As long as the lien remains with the MSCo the said company retains control over the deputationist‟s terms and employment. The concept of a service PE finds place in the U.N. Convention. It is constituted if the multinational enterprise renders services through its employees in India provided the services are rendered for a specified period. In this case, it extends to two years on the request of MSAS. It is important to note that where the activities of the multinational enterprise entails it being responsible for the work of deputationists and the employees continue to be on the payroll of the multinational enterprise or they continue to have their lien on their jobs with the multinational enterprise, a service PE can emerge.” 13. It is submitted that without fulfilling both criteria, i.e. the foreign enterprise assuming responsibility for the deputed personnel‟s work and the employee being on the payroll or retaining their lien on employment there would no service PE. In the present case, the first is significantly absent and as regards the second, the payment is made exclusively out of the petitioner‟s funds. Respondent‟s contentions: 14. According to the respondent the secondment Agreement dated December 1, 2008 is premised on the following facts: (a) CIOP has asked the overseas entities to provide staff with knowledge of various processes and practices employed by PLC and the experience in managing and applying such processes and practices, and (b) subject to the provisions of this Secondment Agreement, the overseas entities nominated and CIOP accepted the secondees. The above facts, says the respondent, clearly show that the staff seconded to India (in the CIOP) must possess the knowledge of various processes and practices employed by the overseas entities and experience in managing and applying such processes and practices. It has also been stated in terms of the Service Agreement dated December 1, 2008 that CI OP has to provide the following advisory and support services – (a) Assistance in managing the partnership with outsourced suppliers in India and facilitating an efficient interface back to the UK businesses of the overseas entity; (b) Ensuring that outsourced suppliers follow best practices, share such best practices and that processes utilized in India and in e2e are optimized; (c) Expert advice on widening the scope of potential services delivered in India through a direct workforce with greater control; and (d) Such other services that may be requested by overseas entities from time to time. 15. Therefore, the scope of services contemplated by the Service Agreement and the capabilities required in the seconded employees, when seen together, according to the respondent, indicate that the arrangement is not a simple secondment which normally happens in enterprises operating in multiple locations to familiarize the employee with the operations being carried out in the other location. This is a case where operations in India require the expertise of employees of the non-resident companies and their ability to implement processes and practices in the applicant company. The objective of utilization of such services is to create and effective interface between the outsourced suppliers of the overseas entities, ensuring that those suppliers follow best practices etc. To that extent, there definitely arose technical expertise which the seconded employees had to possess to support the business of the overseas entities (although being seconded to the applicant company in India). 16. The respondent submits that it is also necessary to see if such services (in the form of expertise and capability of implementation) amount to „technical services‟ under the provisions of the domestic tax act and the relevant provisions of the applicable treaties. Section 5 of the Act is the charging section and in case of non-residents clause (2) states as follows: “(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes –all income from whatever source derived which (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.” 17. The Revenue also relies on Section 9 of the Act, which provides for income which is deemed to accrue or arise in India. Section 9(1)(vii) of the Act states as follows: “(vii)Income by way of fees for technical services payable by –– (a)The Government; or (b)A person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c)A person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: (d)[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1[st] day of April, 1976, and approved by the Central Government.] in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1[st] day of April, 1976, and approved by the Central Government.] –[Explanation 1. For the purposes of the foregoing proviso, an agreement made on or after the 1[st] day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] –Explanation [2]. For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “salaries”.] –[Explanation 1. For the purposes of the foregoing proviso, an agreement made on or after the 1[st] day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] –Explanation [2]. For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “salaries”.] 18. It is submitted that two of the overseas entities are tax residents of UK and one is a tax resident of Canada. The Revenue relies on the relevant provisions of the DTAA (in the case of the DTAA with UK, on Article 13 and in the case of DTAA with Canada, on Article 12). It then submits that an examination of the Secondment agreement and the materials on record show that the arrangement between CIOP and the overseas entities amounts to the latter providing managerial services. Here, it is argued that the term “managerial services” is not defined in Section 9 of the Act and as such resort may be had to the explanation of meaning rendered in various judicial precedents available. Yet, the expression „management‟ should be interpreted in terms of its normal business or ordinary meaning. In this context, it is argued that the term management includes handling of manpower and their affairs. The expression „managerial services‟ has also been interpreted as follows: (a) It signifies services for management of affairs or services rendered in performing management functions; and (b) A managerial service is towards the adoption and carrying out the policies of an organization. It is of a permanent nature for the organization as a whole. 19. Further, it is argued that the following services have been held to be managerial services: (a) Hiring and training commercial agents (OECD Report Treaty Characterisation Issues Arising from E-commerce); (b) Overall management and direction [Advance Ruling No. P 28 (242 ITR 208)]; (c) Development and administration of dealer network, sales and marketing, service etc. (d) Managing financial operations, (e) Supplier development and materials management, including development if local suppliers. 20. The Revenue placed reliance on the decision of the Delhi High Court in the case of CIT v. Bharti Cellullar Ltd., 319 ITR 139, where the scope of the meaning „managerial service‟ was examined. The Court held as follows: 19. Further, it is argued that the following services have been held to be managerial services: (a) Hiring and training commercial agents (OECD Report Treaty Characterisation Issues Arising from E-commerce); (b) Overall management and direction [Advance Ruling No. P 28 (242 ITR 208)]; (c) Development and administration of dealer network, sales and marketing, service etc. (d) Managing financial operations, (e) Supplier development and materials management, including development if local suppliers. 20. The Revenue placed reliance on the decision of the Delhi High Court in the case of CIT v. Bharti Cellullar Ltd., 319 ITR 139, where the scope of the meaning „managerial service‟ was examined. The Court held as follows: “We have already pointed out that the expression „fees for technical services‟ as appearing in Section 194J of the said Act has the same meaning as given to the expression in Explanation 2 to Section 9(1)(vii) of the said Act. In the said Explanation the expression „fees for technical services‟ means any consideration for rendering of any „managerial, technical or consultancy services‟. The word „technical‟ is preceded by the word „managerial‟ and succeeded by the word „consultancy‟. Since the expression „technical services‟ is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words:- “Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.” This would mean that the word „technical‟ would take colour from the words „managerial‟ and „consultancy‟ between which it is sandwiched. The word „managerial‟ has been defined in the Shorter Oxford English Dictionary, Fifth Edition as:- „of pertaining to, or characteriastic of a manager, esp. a professional manager of or within an organization, business, establishment, etc.‟ The word „manager‟ has been defined, inter alia, as:-„a person whose office it is to manage an organization, business establishment, or public institutions, or part of one; a person with the primarily executive or supervisory function within an organization etc; a person controlling the activities of an organization etc.; a person controlling the activities of a person or team in sports, entertainment etc.‟. It is therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression „manager‟ and consequently „managerial service‟ has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.” 21. The Revenue emphasizes the positions adopted by the secondees in the applicant company. The secondees are the General Manager, Operations Manager, Delivery Manager and Relationship Manager. It is urged that there can under the circumstances be no doubt that the said deputed or seconded employees were rendering managerial services to the Petitioner and as such the remuneration payable in respect of these secondees was in the nature of „fees for technical services‟ in terms of Section 9(1)(vii) of the Act. 22. It is argued that Article 13 of the DTAA between India and UK defines the term „technical services‟ as follows: “Fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a)are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or 22. It is argued that Article 13 of the DTAA between India and UK defines the term „technical services‟ as follows: “Fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a)are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b)are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or property for which a payment described in paragraph 3(b) of this Article is received; or (c)make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design The Revenue states that the term “managerial service” is not included in the scope of the term „technical service‟ within the meaning of the term in Article 13 of the DTAA (revised treaty as entered into in 1993). However, it is urged that the Court should hold that the services of the deputed employees fall within the meaning of the term as contained in Article 13(3), which includes „making available technical knowledge, experience, skill, know-how or processes.‟ In terms of the scope of work emerging from the Service Agreement and the Secondment Agreement it is clear that the seconded employees are being sent to India with knowledge of various processes and practices employed by PLC and the experience in managing and applying such processes and practices. This leaves no element of doubt that the seconded employees are making available their experience and skill in managing and applying the processes and practices. The whole objective of their secondment is to train and familiarize the staff in India so that once the secondment ceases, the staff in India can apply the processes and practices and that in itself would be sufficient to conclude that the condition of „make available‟ is also satisfied. 23. It is also argued that the expression „make available‟ has been interpreted by the Authority in some recent rulings, Anaphram Inc. (305 ITR 394), Cushman and Wakefield (s) Pte. Ltd. (172 Taxman 179), ISRO Satellite Centre (220 CTR 20) and others. The genesis of these decisions is that the recipient should be able to apply the same subsequently. It is contended that the secondees would be making available their expertise and skill to the Indian operations of the applicant company and hence the remuneration would clearly fall within the scope of „fees for technical services‟ as contained in Article 12 of the DTAA between India and UK. 24. Referring to Article 12 of the DTAA between India and Canada, it is argued that the meaning of the expression „fees for included services‟ is similarly couched as the term „fees for technical services‟ under Article 13 of the DTAA between India and UK. Reliance is also placed on the decision of the Authority in the case of AT&S India (P) Ltd. (287 ITR 421) which occasioned the examination, (in respect of the DTAA between India and Austria) whether the services rendered under a seconded agreement would be in the nature of technical services so as to attract withholding tax provisions under Section 195 of the Act. The Authority held that the services were in the nature of „technical services‟ and the reimbursements of salary and other costs were liable for deduction of tax at source. On the issue of reimbursements in that case, the Authority held that the contention that payments are only reimbursements of actual expenditure is not supported by any evidence and there is no material to show what was the actual expenditure and what was claimed as a reimbursement. Provisions of the DTAA between India and UK and India and Canada evidence and there is no material to show what was the actual expenditure and what was claimed as a reimbursement. Provisions of the DTAA between India and UK and India and Canada 25. Article 13 of the DTAA between India and UK provides as follows: “ARTICLE 13 – Royalties and fees for technical services- 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2.However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a)In the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article,- Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article,- (i)During the first five years for which this Convention has effect; effect; (aa) 15 percent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and (bb) 20 percent of the gross amount of such royalties or fees for technical services in all other cases; and fees for technical services in all other cases; and (ii)During subsequent years, 15 percent of the gross amount of such royalties or fees for technical services; and such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 percent of the gross amount of such royalties and fees for technical services. Article and fees for technical services defined in paragraph 4(b) of this Article, 10 percent of the gross amount of such royalties and fees for technical services. XXXXXX XXXXXX XXXXXX 4.For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term “fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: to paragraph 5, of this Article, the term “fees for technical services” means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a)are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b)are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or property for which a payment described in paragraph 3(b) of this Article is received; or make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. 5.The definitions of fees for technical services in paragraph (a)are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b)are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or property for which a payment described in paragraph 3(b) of this Article is received; or make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical