V.K. Shridhar, Member - The applicant, Verizon Data Services India Private Limited (VDSI), is a Private Limited company and is incorporated under the provisions of the Indian Companies Act, 1956. It is a wholly owned subsidiary of Verizon Data Services LLC, US (Verizon US). The applicant is engaged in providing services relating to development and maintenance of telecom software solutions and certain information technology enabled services. All services rendered by the applicant are exported from India to its parent company Verizon US. The applicant submits that in order to ensure that efficiency is built into the system and the productivity is optimal, the parent company felt that the applicant needs individuals from US. The requirement was met by sending three of the employees of GTE Overseas Corporation, USA (GTE-OC), an affiliate of the parent company and engaged in a business similar to that of the applicant. Pursuant to it, the applicant entered into a Secondment Agreement with GTE-OC on 1st April, 2008. Broadly speaking, the role of the three employees as described in the Secondment Agreement is: that each employee shall function and act exclusively under the direction, control and supervision of the applicant; that GTE-OC shall not be responsible for the work of any employees nor would undertake any obligation or risk with respect to the quality of the results produced from the work performed by such employees during the term of assignment; that GTE-OC would not be responsible for any claim, liability, etc. arising from the actions of the expatriate employee and that GTE-OC shall pay to the employees for the items which an employee is entitled to receive and the applicant shall reimburse GTE-OC for the items paid or provided to the employees. The responsibility to deduct tax under the Indian tax laws shall be upon the applicant. The first employee has assumed the position in the capacity of the Managing Director of the applicant. The role of the other two employees is to liaise between the applicant and the parent company, to supervise and provide directions on the manner in which the activities of the applicant should be carried out. The applicant submits that GTE-OC shall send the bill on the cost of items incurred for payment by the applicant on a month to month basis.

2. The applicant submits that the payments made are in the nature of reimbursement of salary and expenses paid by GTE-OC to the expatriate employees. Nothing is paid over and above the said amount. The tax payable at source on the salary and benefits that accrue to the expatriate employees are paid in India. As the applicant is the economic employer of the seconded employees, the liability to deduct the tax is upon the applicant. No income arises to GTE-OC as it only represents cost to cost reimbursement. As the salary payment and benefits paid to the expatriate employees have suffered tax withholding under section 192 of the Income Tax Act, 1961(Act), the same amount cannot be subjected to tax withholding under section 195 of the Act.

3. The applicant submits that GTE-OC is not rendering any services to the applicant through its expatriate employees. These personnel were deputed at the request of the applicant to work under its control. The reimbursement of salary cost paid by GTE-OC in respect of provision of personnel to the applicant is for administrative convenience and should not qualify as 'Fees for Included Services (FIS)' under India-US DTAA (DTAA). Under Article 12(4)(b), of the DTAA, consideration towards technical knowledge, skill etc. would be considered as FIS only if the technical know-how, skills etc. is made available to the applicant. It would be a case of FIS as there is a transfer of technical knowledge, skills etc. from GTE-OC to the applicant. The expatriate employees are engaged in rendering managerial services and not technical services. It is thus the applicant's case that the payments made to GTE-OC are not in the nature