Pure reimbursement for seconded employees not taxable as technical services; fresh service permanent establishment finding also exceeded remand scope.

Pure reimbursement of seconded employee salary and related costs on a cost-to-cost basis, without markup and with the employee under the Indian entity's control, was not taxable as fees for technical services or fees for included services because no profit element or make available requirement was satisfied. The Assessing Officer's fresh finding of a service permanent establishment was set aside as it went beyond the limited scope of remand. Interest under section 234B was treated as consequential and followed the deletion of the substantive addition.

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Issues: (i) Whether reimbursement of salary and related costs for a seconded employee, received without markup, was taxable as fees for technical services or fees for included services; (ii) Whether the Assessing Officer travelled beyond the scope of remand by recording a fresh finding of service permanent establishment; (iii) Whether interest under section 234B was leviable.

Issue (i): Whether reimbursement of salary and related costs for a seconded employee, received without markup, was taxable as fees for technical services or fees for included services.

Analysis: The payment was found to be a pure reimbursement of salary and related costs on a cost-to-cost basis, with the seconded employee working under the control and supervision of the Indian entity. No profit element was embedded in the receipt. The services did not satisfy the make available requirement, and the receipt could not be characterised as consideration for technical or consultancy services merely because the employee was seconded. The authorities relied on by the Revenue were distinguished on the facts.

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

Issue (ii): Whether the Assessing Officer travelled beyond the scope of remand by recording a fresh finding of service permanent establishment.

Analysis: The earlier remand was confined to re-appreciation of the correct facts and re-adjudication of the character of the receipt. The finding on service permanent establishment was an entirely new conclusion, not arising from the issue remanded and not part of the subject matter of the earlier appeal. Such an enlargement of the remand scope was held to be impermissible.

Conclusion: The finding of service permanent establishment was set aside as being beyond the scope of remand, in favour of the assessee.

Issue (iii): Whether interest under section 234B was leviable.

Analysis: In view of the settled position that the levy is consequential where tax deduction obligations and non-resident taxation issues are determined accordingly, the interest issue did not survive independently once the substantive addition was deleted.

Conclusion: The levy of interest under section 234B was treated as consequential and was allowed for statistical purposes.

Final Conclusion: The substantive addition on account of reimbursement was deleted, the fresh service permanent establishment finding was invalidated, and the interest issue was disposed of consequentially, resulting in relief to the assessee.

Ratio Decidendi: Pure reimbursement of seconded employee salary and related costs on a cost-to-cost basis, without markup and without making available technical knowledge or skill, is not taxable as fees for technical services or fees for included services; a remand cannot be expanded to decide a wholly new issue beyond its scope.

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