Salary reimbursement for seconded employees is not fees for technical services where the Indian entity is the real employer.

Cost-to-cost reimbursement of salary paid to an overseas entity for seconded employees was treated as salary reimbursement, not fees for technical services, because the secondees worked under the Indian entity's control, separate employment contracts existed, and the payment contained no mark-up or income element. The arrangement also failed the treaty make-available test. On that basis, no withholding obligation arose under section 195, and the assessee could not be treated as in default under sections 201(1) and 201(1A).

---

---

Issues: Whether reimbursement of salary and related costs paid to an overseas entity in respect of seconded employees constituted fees for technical services or chargeable income, so as to require deduction of tax at source under section 195 and consequential treatment of the assessee as an assessee in default under sections 201(1) and 201(1A).

Analysis: The arrangement showed that the seconded personnel worked under the control and supervision of the Indian entity and that separate employment contracts existed between the assessee and the secondees. The salary paid abroad was reimbursed on a cost-to-cost basis, without any mark-up or profit element, and the entire salary was subjected to tax deduction at source under section 192(1) in India. In these circumstances, the reimbursement did not represent consideration for rendering managerial, technical or consultancy services by the foreign entity. The arrangement also did not satisfy the make-available requirement under the applicable treaty framework. The character of the payment was, therefore, that of salary reimbursement and not fees for technical services.

Conclusion: The reimbursement was not taxable as fees for technical services and no obligation to deduct tax arose under section 195; the assessee could not be treated as an assessee in default under sections 201(1) and 201(1A).

Ratio Decidendi: A cost-to-cost reimbursement of salary paid for seconded employees, where the Indian entity is the real and economic employer and the payment does not entail any income element or make available technical knowledge, is not fees for technical services and does not attract withholding under section 195.

---