Seconded personnel reimbursements not chargeable to tax in India, so no TDS disallowance under section 195 follows.

Payments made to a foreign deputing entity as reimbursement of salary and related costs for seconded personnel were treated as not shown to be sums chargeable to tax in India. The arrangement showed that the secondees remained on the foreign entity's payroll, with no separate fee for technical services or know-how and no employee-employer relationship with the Indian assessee. Section 195 applies only where the remittance is chargeable under the Act, and the assessee could bona fide treat the payments as outside Indian taxability. On that basis, there was no default under Chapter XVII-B and disallowance under section 40(a)(i) was not sustainable.

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Issues: Whether payments made to the foreign deputing entity towards reimbursement of salaries and related costs for seconded personnel were sums chargeable to tax in India so as to attract deduction of tax at source under section 195 of the Income-tax Act, 1961, and consequent disallowance under section 40(a)(i).

Analysis: The reimbursement arrangement showed that the deputed persons remained on the payroll of the foreign entity and that no employee-employer relationship existed with the assessee. The payments were made under agreements describing the arrangement as reimbursement of actual salary and associated expenses, without any separate fee for technical know-how or services. The Court applied the principle that section 195 is triggered only when the payment is a sum chargeable under the Act. It further held that, in the circumstances, the assessee could bona fide believe that no part of the remittance constituted income chargeable in India. The reasoning was reinforced by the distinction between the domestic definition of fees for technical services and the treaty requirement of making available technical knowledge, as well as the principle that the payer may consider chargeability for the purpose of section 195.

Conclusion: The payments were not shown to be sums chargeable to tax in India and the assessee was not in default under Chapter XVII-B; therefore, disallowance under section 40(a)(i) was not sustainable.

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