Taxability of employee cost reimbursements as Fee for Technical...

Taxability of employee cost reimbursements as Fee for Technical Services (FTS) under the India-Japan tax treaty. The assessee, a Japanese company, seconded employees (expats) to its Indian associated enterprises (AEs). The Revenue contended that the expats rendered managerial/technical services, and the reimbursements received were taxable as FTS. However, the assessee argued that the expats worked as employees of the Indian AEs, and the payments were pure salary reimbursements. The Tribunal examined the terms of the secondment agreements and memorandums of understanding, which indicated that the expats worked under the direct control and supervision of the Indian AEs. The Tribunal held that no evidence was provided to substantiate the Revenue's claim of managerial/consultancy services rendered. The reimbursements were mere cross-charges of salary costs, taxable as salary income in the hands of the expat employees, not as FTS in the hands of the assessee. Consequently, the addition of FTS was deleted.