Case nº AAR No. 752 of 2007 of Authority for Advance Rulings, January 29, 2009 (case Cholamandalam MS General Insurance Co. Ltd. Vs The Commissioner of Income-tax (LTU))
| Judge | For Appellant: Anita Sumanth, Adv. and Umesh Prasad Pathak, C.A. and For Respondents: S.D. Kapila, Adv. and V. Subramanian, Addl. Commr., Chennai |
| President | P.V. Reddi, Chairman and A. Sinha and Rao Ranvijay Singh, Members |
| Resolution Date | January 29, 2009 |
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Ruling:
P.V. Reddi, Chairman, (At 1. The applicant, an Indian company, seeks advance ruling broadly on the question whether it is obliged to deduct tax at source for the payments made to Hyundai Marine and Fire Insurance Co. Ltd. Korea (HMFICL) from time to time in connection with the 'Secondment Agreement' entered into between them. Under that agreement, the services of Mr. Shin Bong In, (hereinafter referred to as Secondee) who was an employee of HMFICL at Korea were kept at the disposal of the applicant for a period of two years in order to assist the applicant in matters relating to Korean insurance business. 2. The following facts are stated in the application:- 2.1 The applicant is engaged in the business of non-life insurance and is interested in building up business relationship with Indian companies which are subsidiaries/joint ventures of certain foreign Companies. The applicant has, inter alia, two divisions - one each dealing with the Korean and Japanee segments in 2.2 In pursuing the above objective, the Secondment Agreement dated 13.3.2006 between HMFICL (Provider) and the applicant (Recipient) was entered into. Pursuant to that agreement, an employee of HMFICL, Mr. Shin Bong In, (Secondee) has been seconded to engage in certain specified activities under the supervision and control of the recipient. The agreement was effective for a period of two years. HMFICL is not in the business of supply of man power. Under the Agreement, the applicant reimburses HMFICL only a part of the salary and other benefits payable to the seconded employee as provided in the Agreement. The scale of reimbursement is fixed as per clause 3.3 read with Schedule I to the Agreement. Debit notes are raised by HMFICL on the applicant on a monthly basis for the amounts due. No part of the salary or benefits is payable to the Secondee by the applicant. 2.3 HMFICL continues to be the employer of the secondee and it continues to pay salary to the employee. The secondee has no right or authority to conclude any contract on behalf of the recipient. HMFICL has been deducting tax from the salary payable to the seconded employee and such tax has been deposited with the Income-tax Department in 3. On these facts, the applicant submits that payments made by it to HMFICL, 4. The following questions were framed for consideration by this Authority: i. Whether on the facts and circumstances of the case, the amount paid or payable by the applicant to HMFICL under the terms of the secondment agreement dated 13.3.2006 is in the nature of income accruing to M/s. HMFICL in respect of which, tax is liable to be deducted at source by the applicant under the provisions of Income-tax Act, 1961 ii. If the answer to the first question is in the affirmative, what is the rate at which tax is required to be deducted at source by the applicant iii. Whether, on the facts and circumstances of the case, HMFICL has a permanent establishment in 5. It is the contention of Revenue that the amount paid by the applicant to HMFICL under the terms of the secondment agreement is nothing but fee paid for providing services of technical personnel to the applicant and the nature of services to be performed by the seconded employee are essentially technical and consultancy services. It is therefore submitted that income shall be deemed to accrue to HMFICL in 5.1. In the comments of the Commissioner, a contention was also raised that the seconded employee can be regarded as an agent of HMFICL in 6. Let us now turn our attention to the relevant terms and clauses in the agreement known as Secondment Agreement to which HMFICL and the applicant are parties. In the agreement, HMFICL is described as 'Provider' and the applicant as 'Recipient'. Mr. Shin Bong In, the employee of the Provider is referred to as 'Secondee'. 6.1. In the preamble it is stated that for developing the Korean business, the Recipient is interested in taking a person who has knowledge of 6.2. The word "Services" is defined to mean (a) to introduce to the recipient company potential business from and provide access to clients, and business contacts for the Korean business in India; (b) to assist the Recipient in developing insurance products for the Indian market including specific policy wordings, terms and conditions and advice and expertise on pricing technique; (c) to furnish the recipient with such expertise necessary to establish and develop the business including actuarial and accounting systems, marketing expertise, information technology and investment; (d) to provide the Recipient with inputs on the design of company's reinsurance programmes. 6.3. Clause 3 of the Agreement deals with the "Services and Fees. In consideration of the Recipient agreeing to make the payments provided for in clause 3.3, the Provider will ensure that the employee is seconded to the Recipient on a full time basis to provide the services mentioned above, initially for a period of two years. [vide 3.1]. The payment to be made is stipulated in clause 3.3. which reads as follows: "3.3. In consideration of... |
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