IN RE: A.T. AND S. INDIA P. LTD. Vs. STATE

JUDGEMENT

(1.) THIS application under section 245Q(1) of the Income -tax Act, 1961 (for short "the Act") is by an Indian resident - AT&S India Limited (hereinafter referred to as "the applicant") . The applicant is a subsidiary of AT&S Austria Technologie & Systemtechnik Aktiengesellschaft, Austria (for short "the AT&S Austria") , a company incorporated under the laws of Republic of Austria. The applicant is carrying on the business of manufacturing of Printed Circuit Boards. The applicant entered into various agreements with AT&S Austria. It entered into an agreement for Information Technology Cost Sharing with AT&S Austria on 13 -3 -2001 - a fact which is not relevant any more for the present discussion. Among others, two agreements which are material here are Foreign Collaboration Agreement dated 17 -8 -2000 and Secondment Agreement dated 17 -9 -2002. Pursuant to the latter agreement the AT&S Austria undertook to assign or cause its subsidiaries to assign its qualified employees to the applicant. They are to work for the applicant and will receive compensation substantially similar to what they would have received as employees of AT&S Austria or its subsidiaries. Such employees are to be engaged by the applicant on full -time basis.

(2.) THE Government of Republic of India and the Government of Republic of Austria have entered into an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income on 5 -9 -2001 which is notified by Notification No. GSR 682(E) , dated 20 -9 -2001 (hereinafter referred to as "the DTAA") .

(3.) MR . T.N. Chopra, learned counsel appearing for the Commissioner, has on the other hand vehemently argued that payments under the secondment agreement cannot be called reimbursements and that the payments fall within the meaning of royalty as well as fees for technical services under section 9(1) (vii) of the Act. It is argued that the real question is being sidetracked by bringing in the employment agreements between the seconded employees and the applicant; from the letter of the applicant's counsel dated 6 -9 -2006 it is clear that the seconded employees are technical personnel with technical qualifications and therefore, the payments by the applicant to AT&S Austria for the services rendered by them evidently answer the definition of FTS in Explanation (2) to section 9(1) (vii) of the Act as well as in article 12(4) of DTAA. The so -called employment agreements are afterthought and are produced at a belated stage and that they are not in conformity with the secondment agreement; at any rate they do not override the secondment agreement. It is, further, submitted that question No. (2) has a limited scope and ambit and has to be answered in the light of section 195 of the Act and as the payments are chargeable under the provision of the Act being in the nature of royalty/FTS, they are subject to withholding tax at the source.