Secondment reimbursement outside fees for technical services where no technical knowledge is made available, avoiding withholding-tax default.

Reimbursement of salary costs for seconded personnel, without any mark-up or profit element, was treated as non-taxable under the India-UK DTAA because the arrangement did not make available technical knowledge, experience, skill, know-how or processes to the assessee. The services performed through the secondees, including management, property selection, retail operations and merchandising support, therefore did not fall within fees for technical services. As the underlying salary component had already been taxed in India, no withholding-tax default arose and the payer was not liable to be treated as an assessee in default under sections 195 and 201.

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Issues: Whether the payments made to the foreign company for seconded personnel constituted fees for technical services under the India-UK DTAA and the Income-tax Act, and whether the assessee was liable to deduct tax at source and be treated as an assessee in default under sections 195 and 201.

Analysis: The payment was found to be only part reimbursement of salary cost for employees seconded under the agreement, without any mark-up or profit element. The services rendered through the seconded personnel were in the nature of assistance in management, property selection, retail operations and merchandising, but the arrangement did not result in making available technical knowledge, experience, skill, know-how or processes to the assessee. On that basis, the payment did not fall within the treaty definition of fees for technical services. Once the payment was not taxable as FTS, and as the salary element had already been subjected to tax in India, no default in withholding tax could be attributed to the assessee.

Conclusion: The payment was not taxable as fees for technical services and the assessee was not liable to be treated as an assessee in default for failure to deduct tax at source.

Final Conclusion: The revenue's challenge failed, and the finding of no withholding-tax default was sustained.

Ratio Decidendi: A reimbursement of seconded employee costs, without profit element and without making available technical knowledge or skill, does not constitute fees for technical services under the India-UK DTAA and does not trigger withholding liability under section 195.

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