Seconded employee salary reimbursement is not fee for technical services where the Indian company controls, supervises, and bears cost.

Reimbursement of salary cost for seconded employees was not fee for technical services where the secondment agreement showed the employees were released by the foreign entity, integrated into the Indian company, and worked solely under its control, direction and supervision. The Indian company bore the salary cost, could evaluate, discipline and terminate the secondees, and the reimbursement was made on a cost-to-cost basis without markup. On these facts, the relationship during secondment was treated as employer and employee with the Indian company, so the payment was salary reimbursement rather than consideration for technical services. The Tribunal therefore held that the amount could not be taxed as fee for technical services and the addition was deleted.

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Issues: Whether reimbursement of salary cost of seconded employees received by the assessee from its Indian group company was liable to be treated as fee for technical services.

Analysis: The secondment agreement showed that the seconded employees were released from the foreign entity, integrated with the Indian company for the period of secondment, and worked solely under the Indian company's control, direction and supervision. The Indian company bore the salary cost, had the right to evaluate, discipline and terminate the seconded employees, and the reimbursement was on a cost-to-cost basis without markup. On these facts, the relationship during secondment was that of employer and employee with the Indian company, and the payment represented salary reimbursement rather than consideration for technical services. The Tribunal followed its earlier coordinate bench decisions distinguishing cases where the foreign entity itself rendered technical services through secondees.

Conclusion: The reimbursement could not be treated as fee for technical services and the addition was liable to be deleted.

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