Salary reimbursement for deputed employee was not fees for technical services, so tax deduction at source was not required.

Payment to the German parent for a deputed employee was treated as salary reimbursement, not fees for technical services, because the facts showed no technical collaboration or technical service agreement. On that basis, no tax deduction at source was required on the remittance, so the disallowance linked to non-deduction was not attracted. The appellate authority followed the Tribunal's earlier view on the same factual matrix, and the disallowance was held unsustainable in favour of the assessee.

---

---

Issues: Whether the payment made to the German parent company represented fees for technical services liable to tax deduction at source, or merely reimbursement of salary paid to a deputed employee, so as to attract disallowance under section 40(a)(i) of the Income-tax Act, 1961.

Analysis: The payment was found to be towards salary reimbursement for an employee deputed by the German company to manage the Indian subsidiary. On identical facts in earlier assessment years, the Tribunal had held that such payment did not constitute fees for technical services, because the amount paid was in the nature of salary and there was no technical collaboration or technical service agreement. In that view, the amount was not chargeable as fees for technical services and the obligation to deduct tax at source did not arise. Consequently, the embargo under section 40(a)(i) was not attracted. The appellate authority had followed the earlier binding decision on the same factual matrix.

Conclusion: The disallowance under section 40(a)(i) was not sustainable. The issue was decided in favour of the assessee.

---