Salary reimbursement for seconded employee not taxable as technical services where pure cost recharge and make available test fail.

Reimbursement of salary for a seconded employee was treated as a pure salary recharge, with no profit element, and therefore fell outside fees for technical services under section 9(1)(vii). The Explanation excluding consideration taxable as salary applied because the payment represented salary cost recovered under the contractual arrangement. Under Article 12 of the India-Singapore DTAA, the services were also not shown to satisfy the make available requirement, so the amount could not be taxed as technical services in the assessee's hands. The addition was deleted, and the alternative adjustment issue was not examined.

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Issues: Whether reimbursement of salary paid in respect of a seconded employee was chargeable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore Double Taxation Avoidance Agreement.

Analysis: The payment was found to arise from a contractual arrangement under which salary was paid by the assessee on behalf of the Indian company and thereafter recharged. The record showed that the amount recovered represented pure salary cost with no element of profit. The exclusion in the Explanation to section 9(1)(vii) applied because consideration which would be income chargeable under the head salaries is outside the scope of fees for technical services. On the treaty issue, the services rendered through the deputed employee were not shown to satisfy the make available requirement, and the reimbursement could not be taxed as technical services in the assessee's hands. The alternative adjustment issue was not adjudicated after acceptance of the main contention.

Conclusion: The reimbursement was not taxable as fees for technical services and the addition was deleted in favour of the assessee.

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