Case summary, Income Tax

Case: General Motors Overseas Corporation vs Deputy Director of Income Tax (International Taxation) 3(1)

Forum: ITAT Mumbai

Outcome: Partial

Issues covered:

  • Payment made for seconded employees: Scope of Fees for Included Services under the respective article of the tax treaty
  • Inclusion/ Exclusion of management services within the ambit of “make available” clause: Scope of Fees for Included Services under the respective article of the tax treaty


  • The Assessee was a company incorporated in and tax resident of the United States of America. It was engaged in the business of providing management and consulting services solely to the group entities worldwide.
  • The Assessee had entered into a Management Provision Agreement dated 26.12.1995 effective from 16.04.1994 with General Motors India Limited (‘GMIL’). GMIL was engaged in the business of manufacture, assembly, marketing, and sale of motor vehicles and other products in India.
  • Under the agreement, the Assessee was to provide executive personnel in connection with the development of general management, finance, purchasing, sales, service, marketing and assembly/ manufacturing activities to GMIL. The Assessee charges GMIL for the salary and other direct costs.
  • The Assessing Officer was of the view that the services provided under the agreement were chargeable to tax as ‘Fees for Technical Services’ in so far as it pertained to the amount attributable to services rendered by seconded Vice President Manufacturing.

Key Points

  • The experience of an expert lies in the mind of an expert and if an expert having knowledge and expertise is transferred from one tax jurisdiction to another tax jurisdiction, then it cannot be said that only the employees were per se transferred and not the technology. The technology/ expertise lies in the technical mind of an employee(s), not in the company and if the key employee(s) having the requisite knowledge, experience and expertise of technology are transferred from one tax jurisdiction to another tax jurisdiction, then it is the transfer of technology and not a transfer of employees. In other words, technology is made available by one entity situated in one tax jurisdiction to another entity situated in another tax Jurisdiction, through the transfer on deputation of its experienced/ expert technical employees.
  • In the present facts of the case, the vice president manufacturing was working with the Assessee before being sent as an expatriate employee in India. It was obvious that vice president manufacturing was having sufficient knowledge and experience of the technology and its standards used by the Assessee in the US. The Vice President was not an ordinary engineer but was having sufficient experience, exposure and knowledge about the technology of the Assessee and was also having the expertise to ensure the implementation of the standards of the Assessee in India.
  • Further, in the automobile industry, assembly of product and standards of the company are patented/ protected technology and owner of the standards, charges Royalty for sharing the standards and assembling of products. But in the present case, no Royalty was charged by the Assessee from Indian counterpart, as the Assessee had sent its employee under the agreement to India, in whom the technology/ experience for the assembly of the product and knowing the standards of the company, for setting the benchmark and implementing the standards of Assessee in India.
  • Paragraph 4(b) of the Explanation of Memorandum of Understanding stated that the technology will be considered as made available when the person acquiring the service is enabled to apply the technology. Accordingly, the Vice President manufacturing was knowing the technology and was having the experience to implement the standards of the Assessee in India and by sending the said vice president in India, in fact, the technology was made available in India by the Assessee.
  • In the garb of sending the technical experts in India, it cannot be permitted to say by the Assessee that they were merely employees and the cost is reimbursed by the Indian counterpart to the assessee for the services rendered by such employee. In fact, the technology was transferred through the expert experienced technocrat by the Assessee to Indian counterpart.
  • Therefore, the lower authorities were right in arriving at the conclusion that the services provided by the Assessee in connection to the seconded employee i.e. ‘Vice President’ were in the nature of fees for included services.

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