Secondment reimbursement not treated as fees for technical services; no tax withholding duty or default under the Income-tax Act.

Under a secondment arrangement, reimbursement of costs paid to a foreign entity was not treated as fees for technical services where the deputed personnel worked under the assessee's control, direction and supervision. The court held that the reimbursement retained the character of cost recovery, not consideration for technical services, so it was not chargeable under section 9(1)(vii). As a result, no obligation arose to deduct tax at source under section 195, and the assessee could not be treated as an assessee in default under sections 201(1) and 201(1A). The foreign decision relied on by the revenue was distinguished because permanent establishment was not in issue.

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Issues: Whether payments made under a secondment arrangement and reimbursement of costs to the foreign entity constituted fees for technical services chargeable to tax in India so as to require deduction of tax at source and attract liability under sections 195 and 201 of the Income-tax Act, 1961.

Analysis: The arrangement was found to be a secondment contract under which the deputed personnel worked under the control, direction and supervision of the assessee. The reimbursed expenditure related to costs incurred by the foreign entity and did not retain the character of consideration for technical services. On these facts, the payments were not treated as fees for technical services within the meaning of section 9(1)(vii), and there was no obligation to deduct tax at source on such reimbursement. The Court also held that the foreign decision relied on by the revenue was distinguishable because the issue of permanent establishment was not involved in the present case.

Conclusion: The payment was not chargeable as fees for technical services, the assessee was not liable to deduct tax at source, and the assessee could not be treated as in default under sections 201(1) and 201(1A) of the Income-tax Act, 1961.

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