Seconded employee reimbursements treated as salary, not technical service fees, with deduction under section 192 and disallowance deleted.

Reimbursement of crew salary and related expenses paid to a foreign group company retained the character of salary where the crew were appointed by the Indian enterprise, worked under its control, and were placed at its disposal. On that basis, the payment was not fees for technical services and tax deduction was required under section 192, not section 195. The Tribunal also accepted that the non-deduction point did not sustain disallowance under section 40(a)(i) on these facts, so the crew-salary disallowance was deleted. The broader management-rights issue was remanded for fresh consideration.

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Issues: Whether reimbursement of crew salary and related expenses paid to Alfa Crew was chargeable as fees for technical services so as to attract section 195 and disallowance under section 40(a)(i), or whether it was salary payable to seconded employees on which tax was deductible under section 192; and whether the assessee was in default for non-deduction at source on that footing.

Analysis: The agreement showed separate consideration for crewing services and a separate reimbursement mechanism for actual crew salaries and expenses, together with a handling fee. The crew members were found to have been appointed by the assessee through individual appointment letters, worked under the assessee's control, and were placed at the assessee's disposal during the deployment period. On those facts, the payment reimbursed to the foreign group company was held to be in substance salary cost of the crew and not consideration for technical services to the foreign company. The Tribunal followed the principle that where deputed personnel function under the control of the Indian enterprise, the payment retains the character of salary, and tax is to be deducted under section 192, not section 195. The Tribunal also accepted that short or initial non-deduction under section 192 could not justify disallowance under section 40(a)(i) where the total salary tax liability was otherwise dealt with under Chapter XVII-B and the exempt portion under section 10(6)(viii) had been considered.

Conclusion: The reimbursement of crew salary and expenses was not fee for technical services; it was salary payable to seconded employees, deductible under section 192. The disallowance under section 40(a)(i) was deleted on this issue and the assessee succeeded.

Final Conclusion: The appeal succeeded on the crew-salary disallowance, while the management-rights issue was sent back for fresh adjudication, leaving the matter only partly decided in the assessee's favour.

Ratio Decidendi: Payments made by an Indian enterprise as reimbursement of salaries for personnel seconded to it, who function under its control and are appointed by it, retain the character of salary and are not taxable as fees for technical services in the hands of the foreign service provider.

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