Salary reimbursement for deputed expatriate technicians treated as non-technical services, with no default under tax deduction provisions.

Reimbursement of salary paid to deputed expatriate technicians was treated as salary-related expenditure rather than fee for technical services, because the technicians worked under the assessee's supervision and control, were placed at its disposal during deputation, and the payments were made on a cost-to-cost basis without profit element. The arrangement separately covered technology transfer, royalty and personnel deputation, supporting the view that the salary reimbursements fell outside section 195 and were instead covered by salary deduction under section 192. On that basis, the assessee had a reasonable basis for the tax treatment adopted and was not regarded as an assessee in default under sections 201(1) and 201(1A).

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Issues: Whether reimbursement of salary paid to deputed expatriate technicians constituted fee for technical services attracting tax deduction under section 195 instead of salary attracting deduction under section 192, and whether the assessee could be treated as an assessee in default under section 201(1) and section 201(1A).

Analysis: The deputed technicians were placed at the disposal of the assessee, worked under its supervision and control, and their services were utilised during the period of deputation. The agreement separately dealt with technology transfer, royalty, and deputation of personnel, and the salary reimbursements were on a cost-to-cost basis without any element of profit in the hands of the foreign collaborator. The department itself had informed the assessee that salary payments were not covered by section 195, and the assessee had deducted tax under section 192 on the basis of that understanding. In these circumstances, the payment was correctly treated as salary-related expenditure and not as fee for technical services, and the assessee had a reasonable basis for adopting the tax-deduction method followed by it.

Conclusion: The reimbursement was not liable to deduction under section 195 as fee for technical services, and the assessee was not in default under section 201(1) or section 201(1A).

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