Seconded employee salary reimbursements are not fees for technical services when paid at cost and under Indian control.

Reimbursement of salary paid for seconded employees was treated as non-taxable as fees for technical services where the secondees worked under the control and supervision of the Indian group entities, which were the economic and de facto employers. The reimbursement was on a cost-to-cost basis without markup, and the salary component had already suffered tax deduction in India. On those facts, the payment fell within the exclusion for amounts taxable under the head salaries, and the DTAA position supported the same result. No material factual distinction was shown for the year under review, so the addition was unsustainable.

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Issues: Whether the reimbursement of salary paid in respect of seconded employees was chargeable to tax in India as fees for technical services.

Analysis: The Tribunal followed the earlier coordinate bench view that, on the facts, the seconded personnel worked under the control and supervision of the Indian group entities and the Indian entities were the economic and de facto employers. The reimbursement was on a cost-to-cost basis without markup and the salary component had already been subjected to tax deduction in India. In such a situation, the amount reimbursed to the overseas entity fell within the exclusion from fees for technical services for amounts that would be income chargeable under the head salaries, and the DTAA position also supported the same conclusion. No factual distinction for the year under appeal was shown.

Conclusion: The reimbursement was not taxable as fees for technical services and the addition was unsustainable; the issue was decided in favour of the assessee.

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