TaxTMI 
TaxTMI 
2026 (4) TMI 1610
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....angalore and thereafter notices dated 11 March 2025 and 18 March 2025 under section 142(1) of the Act were issued by the learned AO without providing the basis of transfer of jurisdiction or without providing a copy of the order evidencing the transfer of jurisdiction 2. The learned AO has on the facts and circumstances of the case and in law, erred in concluding that the Assessee has provided technical services to Associated Enterprises (AEs) through the seconded employees and therefore the reimbursement of salary expenses received in respect of secondment of employees amounting to INR 35.24 763 received by the Assessee, is chargeable to tax in India as Fees for Technical services (FTS) given that the seconded employees make available their expertise and skills to AEs 3. The learned AD erred in levying consequential interest under section 234A and 2348 of the Act. 4 The learned AD erred in invoking penalty proceedings under section 270A of the Act for under-reporting of income for the captioned AY" 2. Brief facts of the case are as under: The assessee is a company incorporated under the laws of United Kingdom. It is part of Goldman Sache group and ....
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....es for technical services and is protected by the Explanation-2 to section 9(1)(vii) of the Act and Article13 (5) of the DTAA and (c) further there is no element of making available technology, know-how, processes and therefore, the same is not chargeable to tax under the India-UK Double Taxation Avoidance Agreement ("DTAA"). On 28/03/2025, the Assessing Officer passed draft order rejecting the assessee's submission and held that the reimbursement of salary received by the Assessee in chargeable to tax as fees for technical services because (1) the employees work under the control of group companies only for a limited period and after termination of secondment, they are employed by the Assessee in the home country. Therefore, they are ultimately the employees of the Assessee and not in the nature of reimbursement of salary, (b) merely because the receipt of the amount is equal to the cost, it does not take away the charms (c) the employees are providing technical, managerial and consultancy skills and are making available technical knowledge, experience, skill know-how of processes therefore, the same chargeable to tax under Article-13(5) of the DTAA. On receipt of the draft ....
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....ical under the provisions of the Act and the DTAA. Aggrieved by the order of the Ld.AO, the assessee filed appeal before this Tribunal. 3. The assessee submits that it has not rendered any technical services to the AEs but has merely seconded the employees to the group companies in India, who work exclusively under the control and supervision of the group companies. The assessee has no role to play after the employees are seconded and, it is the group companies in India that decide the terms of employment ie remuneration, term, working hours, leave, benefits, etc. including the termination of employment. The entire salary is borne by the group companies in India and is recorded as salary cost in the books of accounts. Most importantly, tax under section 192 of the Act is deducted by the group companies in India on the entire salary ie. the salary paid in India and outside India. Therefore, it is submitted that the group companies in India are the legal and economic employer of the seconded employees and the assessee has not rendered any service much less technical service to the group companies in India. It is submitted that since the group companies in India are the employer....
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.... in record. On identical facts in the case of payer in GSSPL, the Bangalore Bench of the ITAT for the relevant Assessment Years had held that the reimbursement of salary and other related costs are not FTS under the Act or the India UK DT-L-4. Hence, it was concluded by the ITAT that proceedings under section 201(1) und 201 (1A) of the Act are not justified..." 3.3 It is further submitted that the Assessing Officer in the draft assessment has accepted that the issue is covered in favour of the Assessee by the decision of Hon'ble Bangalore Tribunal in case of Goldman Sachs Services (supra) and in assessee's own case for A.Y. 2013 14, 2014-15 however, department has not accepted the order of the ITAT and has filed an appeal to the High Court, therefore the addition has been made. The relevant portion of the draft assessment order is extracted as under: "7.18 Further, as discussed above, the assessee has claimed that in case of GSSPL, AE of the assessee. for AY 2011-12. Hon'ble IT.AT has passed a favourable order against the order passed under section 201 (1) of the Act wherein the Hon'ble Bangalore ITAT has bell that the reimbursement of salary vests by GSSPL to o....
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....re the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy....
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....han a company) for professional services as defined in article 15 (Independent Personal Services)." 27. Rendering of managerial, technical and consultancy services is governed by Article 12 on 'Fees for included services' of the Double Tax Avoidance Agreement, between India and US. Payments made to 'individual or firm of individuals for service rendered by them in independent professional capacity are specifically excluded since they are covered by article 15 on Independent Personal Services. Likewise, Article 12 specifically excludes payments made towards services rendered by an 'employee' of the enterprise since services rendered under employment are covered by article 16 on Dependent Personal Services. The relevant portion of para 5(e) of Article 12 of the DTAA between India and US reads as follows : - "Fees for included services does not include payments made - to an 'employee' of the person making the payment or - to any individual or firm of individuals (other than a company) for professional services as defined in article 15 (Independent Personal Services)." The payments made by the Indian entity to the overseas....
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....erial, technical or consultancy services undertaken by the payee of fee. In other words, is the bracketted clause a stand alone provision or is it inextricably connected with the said services? HMFICL itself does not render any service of the nature of managerial, technical or consultancy to the applicant and it has not deputed its employee to carry out such services on its behalf. There is no agreement for rendering such services. In this factual situation, it is possible to contend that merely providing the service of a technical person for a specified period in mutual business interest not as a part of technical or consultancy service package but independent of it, does not fall within the ambit of S.9(1)(vii)." 32. Hon'ble Mumbai Tribunal in case of Mark & Spencer Reliance India (P.) Ltd., (supra) upheld the view of Hon'ble Mumbai Tribunal which held that, payment towards reimbursement of salary expenditure without any element of profit, would not be taxable under the provisions of the Act. Hon'ble Court also held that, when the entire salary has been subjected to tax in India at the highest average tax rate, the assessee could not held to be in default for....
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....erse in nature in holding nature of services rendered cannot be said as Fee for Technical Services ignoring that the conditions set out definition clause of in Explanation 2 to Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement as well are fully satisfied in present case? 3. Whether on the facts and in the circumstances of the case, the Tribunal's order is perverse in nature in ignoring the various clauses of the Agreement which signified that the overseas entity through the employees rendered technical, managerial and consultancy services, thus satisfying FTS as per the provisions of the Act and also under DTAA?" 2. Sri.E.I.Sanmathi, learned Senior Standing Counsel appearing for the appellants-Revenue would contend that the services rendered by the assessee are in the nature of technical services and it would not fall within the employer and employee relationship. Further, learned counsel would refer to page 69 of the paper book, wherein, clauses of the agreements are extracted in the order of the Commissioner of Income Tax, (Appeals) dated 19.02.2020. 3. On hearing learned counsel for the appellants-Revenue, we are of the consi....