|CORAM:||Abraham P. George (AM), P. Madhavi Devi (JM)|
|GENRE:||International Tax, Transfer Pricing|
|CATCH WORDS:||operational income, Secondment agreement|
|DATE:||October 17, 2014 (Date of pronouncement)|
|DATE:||October 20, 2014 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Foreign exchange fluctuation gain arising on realization of trade debtor’s, payment to creditors etc is operational income. Tests for distinguishing secondment contract with technical services agreement|
(i) The TPO had considered foreign exchange fluctuation gains to be non-operational in nature. This view was confirmed by the DRP stating that the foreign exchange fluctuations had nothing to do with the business operations of a tax payer. The DRP had refused to follow the decision of M/s. Saplap India (P) Ltd (Supra). None of the authorities have given any finding that foreign exchange fluctuation gains were relatable to any capital receipts or outgoes. Assessee had given a break up of foreign exchange gain in which it had specifically excluded the exchange loss on purchase of fixed assets. We are of the opinion that the foreign exchange fluctuation gain arising to the assessee on realization of trade debtor’s, payment to creditors etc., were nothing but operational income.
(ii) No doubt even if we come to a conclusion that there indeed were no secondment agreements and the persons sent were all along the employees of the affiliates abroad, it would not necessarily means that such affiliates were rendering technical services to the assessee. In our opinion, three cases relied on by the learned DR namely IDS Software Solutions India (P) Ltd 21 DTR 240, Ariba Technologies India (P) Ltd and M/s Abbey Business India (P) Ltd all had different factual scenarios. In the case of IDS Software Solutions, there was an agreement between the U.S. Co which had sent the persons to India, with its Indian subsidiary. It was from such agreement that the Tribunal came to a conclusion that the concerned employees were employees of the assessee during the relevant time. There was also a minutes of the Board of Directors of the U.S Co which substantiated the contentions of the assessee that the deputed persons were working in India as employees of the assessee in India. Similarly in the case of Ariba Technologies India (P) Ltd also, there were agreements between M/s Ariba USA and its Indian subsidiary through which Ariba US had provided services of one of its employees to its Indian subsidiary. In the case of M/s Abbey Business India Services also, there was an outsourcing agreement between Abbey U.K. entered with its subsidiary in India. The Tribunal had verified the clauses of this agreement and came to a conclusin that there was a secondment of staff to the assessee. As against this, here, as mentioned by us above, there was no such agreement of secondment, produced by the assessee before us or before any of the lower authorities. We are, therefore, of the opinion that the issue requires a revisit by the AO. Whether the employees of the affiliates abroad were rendering services to the assessee company, as a part of any technical services agreed to be rendered by such affiliates to the assessee, has to be seen based on the verification of actual services rendered by them. Assessee should also be given an opportunity to show that the employees came to India only on a secondment and had not rendered any technical services on behalf of the affiliates abroad.