Law:

Section:

Section 9 of the Income-tax Act, 1961, read with article 12 of DTAA between India and USA - Income - Deemed to accrue or arise in India - Royalties and fees for included services - Applicant, a wholly owned subsidiary of U.S. company, namely, Verizon, US, is engaged in providing services relating to development and maintenance of telecom software solutions and certain information technology enabled services - All services rendered by applicant are exported from India to its parent company, Verizon US - In order to ensure that efficiency is built into system and productivity is optimal, parent company felt that applicant needs individuals from US - Said requirement was met by sending three of employees of GTE-OC, an affiliate of parent company and engaged in a business similar to that of applicant - Thereupon, applicant entered into a Secondment Agreement with GTE-OC in terms of which three employees of GTE-OC were to provide managerial services to applicant - Applicant submits that payments made are in nature of reimbursement of salary and expenses paid by GTE-OC to expatriate employees - It further submits that as salary payment and benefits paid to expatriate employees have suffered withholding tax under section 192, same amount cannot be subjected to withholding tax under section 195 - It is apparent from Personnel Secondment Agreement that seconded employees would remain employees of GTE-OC and, payment of their salaries is not dependent on applicant - Thus, it follows that managerial services performed by them are as employees of GTE-OC and not as employees of applicant - Whether it is a trite law that capacity in which person receives amount determines its taxability in his hands - Held, yes - Whether in that view of matter, sums that are remitted by applicant represent income accruing to GTE-OC for providing services to applicant and, hence, same are chargeable to tax under section 195 - Held, yes - Whether since services provided by GTE-OC are in nature of managerial services, payments made by applicant are covered under 'fees for included services' under Article 12(4) of DTAA - Held, yes - Whether, further, services being managerial in nature, payments…

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