* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on: 26.02.2014 Pronounced on: 25.04.2014 + W.P.(C) No.6807/2012 M/S. CENTRICA INDIA OFFSHORE PVTL. LTD. .....Petitioner Through: Mr. N. Venkataraman, Sr. Adv. with Ms.

K.G. Rajeshwari & Mr. R. Satish Kumar, Advs.

Versus COMMISSIONER OF INCOME TAX-I & ORS. ..... Respondents Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Ruchir Bhatia, Jr. Standing Counsel.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S. RAVINDRA BHAT %

1. The writ petitioner (hereafter called “CIOP”) is aggrieved by the decision of the Authority for Advance Ruling (“the Authority”) dated 14.03.2012, by which the latter held that payment by it under the agreement – with certain overseas entities is “income accruing” to overseas entities in view of the existence of a service Permanent Establishment (PE) in India and that tax is liable to be deducted at source under Section 195 of the Indian Income Tax Act, 1961 (“the Act”).

2. CIOP is a wholly owned subsidiary of Centrica Plc., a company incorporated in the United Kingdom (“UK”). CIOP is incorporated in India. British Gas Trading Ltd. (“BSTL”) and Director Energy Marketing Limited, Canada (“DEML”) are also subsidiaries of Centrica Plc. These overseas concerns are collectively referred to hereafter as “overseas entities”. They are in the business of supplying gas and electricity to consumers across the U.K and Canada. The overseas entities outsource their back office support functions – for instance, debt collections/consumers‟ billings/monthly jobs to third party vendors in India etc. To ensure that the Indian vendors comply with quality guidelines, CIOP was established in India on 11.3.2008. It was to act as service provider to these overseas entities.

3. CIOP entered into service agreement with overseas entities to provide locally based interface between those overseas entities and Indian vendors. The scope and range of services so provided in terms of those agreements/understanding are: (i) management assistance for outsourced supplies in India and facilitating efficient interface back to U.S. business of Centrica Plc; (b) ensure that outsourced suppliers adhered to best practices and share them on e-2-e on optimal basis; (c) expert advice on widening scope of potential services in India to target work force through greater control and such other services as may be requested by Centrica Plc from time to time. It is stated that in terms of the agreement, the petitioner is compensated on full costs, i.e. expenses adopted by it in the Profit and Loss Account plus a mark-up of 15%. The petitioner is an income tax assessee and has been filing returns and paying income tax on the income earned out of the service agreement. To seek support during initial year of its operation, CIOP sought some employees on „secondment‟ from the overseas entities. For this purpose, it entered into an agreement with the overseas entities in which the latter seconded some employees for fixed tenure. It is stated that in terms of the secondment agreement – copy of which has been placed on the record, the employees so seconded work under CIOP‟s direct control and supervision. Conversely, the overseas entities are not responsible for any error or omission of the work of such employees. CIOP bears all risks and rewards associated with the work performed by such employees. To drive home this point, CIOP relies upon certain conditions in the secondment agreement, notably Sections 2.1(C), 2.2(A), 2.3(A) and 2.3(B). It is stated that the agreements fully require the petitioner to enter into a further individual agreement with each such employee (secondee) in terms of a pre-determined format.

4. CIOP highlights that the terms of these secondment agreements establish that the employees would work directly under the supervision and direction of its board and management. It is stated that the seconded employees came to India on deputation for shor