ITAT rules in favour of Yum Restaurants
The income-tax appellate body has ruled that the services of the India vice-president (V-P) of Yum Restaurants (Asia) — which operates KFC, Pizza Hut, and Taco Bell — are not be taxable. The case pertains to an agreement between Yum Restaurants (Asia), the assessee, and its Indian counterpart, where Vinod Mehboobani was deputed as the vice-president at the time. The assessing officer held that technical services were being provided by the V-P on behalf of the assessee company, hence, the salary reimbursement was ‘fee for technical services’ (FTS).
However, the income tax appellate tribunal (ITAT), Delhi, held that the V-P took part in the day-to-day functioning of the Indian counterpart, attended board meetings, signed its financial statements, and was under the direct control and superintendence of Yum Restaurants India. Besides, he did not “make available” any technology, knowledge, or skill.
During the period under consideration, salary was paid by the assessee in Singapore and was reimbursed by Indian counterpart on a cost-to-cost basis. Therefore, the ITAT held that the V-P was an employee of the Indian concern and not of the assessee-company. Besides, the V-P had paid tax on his salary in India and taxing it as FTS would lead to double taxation, the Bench noted. India and
Singapore have a double taxation avoidance agreement. Yum Restaurants (Asia), the assessee, is a company incorporated in Singapore. The assessing officer had also alleged the existence of a service/dependent agent permanent establishment (PE) of the assessee in India and sought for attribution of business income to the PE on account of marketing activities carried out by the Indian counterpart. However, the ITAT held that the assessee did not have service PE in India. It pointed out the deduction of the salary cost would result in nil income and there would be no income attribution to the PE.
Neha Malhotra, director, Nangia Andersen LLP, said: “Judgments like these instil the faith of taxpayers in the Indian judiciary that a benefit enshrined under the tax treaty shall not be denied where the taxpayer deserves it.”