Seconded employee salary reimbursement is not fees for technical services where Indian entities control and supervise the personnel.

Reimbursement of salary and related costs for seconded expatriate employees was treated as cost-to-cost salary reimbursement, not fees for technical services. The seconded personnel worked under the direct control, supervision and instructions of the Indian associated enterprises, which bore the salary obligations and deducted tax under section 192 on the salary component. As no material showed that the foreign company rendered managerial, technical or consultancy services through the secondees, the receipts did not fall within section 9(1)(vii) or Article 12 of the India-Japan DTAA. The related addition was deleted.

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Issues: Whether reimbursement of salary and related costs for seconded expatriate employees received from Indian associated enterprises was taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Japan Double Taxation Avoidance Agreement.

Analysis: The seconded employees were taken into the employment framework of the Indian associated enterprises through the temporary transfer arrangement and corresponding memoranda of understanding. They worked under the direct control, supervision and instructions of the Indian associated enterprises, which were responsible for their salary and related obligations. The amount recovered by the foreign company was a cost-to-cost reimbursement for salaries and related expenses, with tax duly deducted under section 192 on the salary component. No material showed that the foreign company rendered any managerial, technical or consultancy service to the Indian associated enterprises through the seconded employees so as to bring the receipts within the meaning of fees for technical services. The arrangement therefore represented salary cost reimbursement and not consideration for technical services.

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

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