TaxTMI 
TaxTMI 
2026 (6) TMI 813
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....by the assessee in this appeal is against the addition made by the Assessing Officer in respect of reimbursement of salary of seconded employees, treating it as Fee for Technical Services (FTS). 4. Facts of the case in brief as emanating from the record are; the assessee company was established under the laws of Japan. The assessee is engaged in carrying out research and development of Honda products. The assessee provides services that include design, prototype fabrication and testing of automobile engines, development of new materials and electronics and interior and exterior design of automobiles. During the period relevant to the assessment year under appeal, the assessee received Rs. 21,52,75,467/- from Honda R&D (India) Pvt. Ltd. towards reimbursement of salary costs of seconded employees on cost-to-cost basis (without any markup). The Assessing Officer, vide draft assessment order dated 23.03.2024, held that the reimbursement of salary cost of seconded employees is in the nature of Fee for Technical Services (hereinafter referred to as the 'FTS'). The assessee filed objections before the DRP. The DRP, vide directions dated 26th November, 2024, rejected objections of the a....
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....s whether the addition of reimbursement of salary cost of seconded employee to the tune of Rs. 21,527,5467/- is FTS or not. In order to differentiate between whether the seconded employees are delivering services on behalf of the foreign enterprises or they are delivering services for the salary paid by the Indian company, the question becomes the core contention. 2. One of the key tests to be satisfied is whether the services that are being provided are under the direct control of the foreign enterprises or the Indian enterprises. Some of the crucial factors to be considered are whether there is an employee-employer relationship, and some crucial factors are relevant to determine who the real employer is. a. Lien on Employment: Do employees return to the overseas entity? b. Social Security/Benefits: Does the overseas entity continue to pay social security/welfare benefits? c. Salary Payment: Does the overseas entity disburse salary (even if reimbursed)?. d. What is the nature of the services provided and the period for which they are provided? Reference to page 61 of the paper book, wherein the contract of employment of Mr. Ter....
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....hi)/[2014] 270 CTR 1 (Delhi) [25-04-2014], para 30 points to this last wordings that it actually covers the services given by the seconded employees. The relevant paras are extracted below: 30. The India-UK DTAA defines 'fees for technical services' as "payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel)". In this case, the overseas entities have, through the seconded employees, undoubtedly provided 'technical services to CIOP, especially since that expression expressly includes the provision of the services of personnel. The seconded employees, who work, so to say, for CIOP are provided by the overseas entities and the work conducted by them thus, i.e. assistance in conducting the business of CIOP of quality control and management is through the overseas entities. The nature of the services cast as "business support services" by CIOP - as also clearly within the bold "technical or consultancy. These services envisage the provision of quality service by vendors to the overseas entities, which CIOP, and the secondees, are to oversee.....
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....refer to terms and conditions of the Basic Secondment Agreement placed on record. The said agreement is executed between the assessee (referred to as 'HG') and Honda R&D (India) Pvt.Ltd. (referred to as the 'Company') in the agreement. The relevant excerpts of recitals, definitions and terms from the agreement are reproduced herein under: "Recitals: A. Employee (as hereinafter defined) possessing specific skill set/ having requisite qualifications or experience, and HG has accepted the request of the Company provided that the Company and Seconded Employee will enter into an employment agreement during the term of the secondment. HG has agreed that the Seconded Employee shall be released from their work at HG and shall be integrated as employee of the Company for the period of secondment. Further, such seconded employee shall work solely for the Company as its employee at the assigned destination/place and under the sole control direction and supervision of the Company and in accordance with all rules, regulations policies, guidelines and other practices as applicable to the employees of the Company. B. The cost which are incurred in connection with the em....
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....o replace any of the Seconded Employee in the event where employment of any Seconded Employee is terminated with the Company for any reason." 9. From plain reading of the 'Recitals' and 'definitions' in the agreement it is emerges that: - The assessee shall release the seconded employee from its work for the period of secondment; - the seconded employee of the assessee shall solely work for the Indian Company during the period of secondment; - during the period of secondment, the seconded employee shall work under the sole control, direction and supervision of the Indian company and under the Rules, regulations, policies, guidelines and other practices as are applicable to the other employes of the Indian company; - the cost (salary) of employment of seconded employes shall be borne by the Indian company; - the Indian company shall bear the risk and responsibility of seconded employees during the period of secondment; - the seconded employee during the period of secondment shall ceases to provide any services to the assessee and shall work only for the Indian company; - the seconded employee shall have no authority t....
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....ed herein below: "12. So far as the applicability of the jurisdictional Hon'ble Delhi High Court's decision in the case of Centrica India Offshore (P.) Ltd. (supra), in our considered view, the same would not apply to the assessee's case due to following reasons which are well substantiated by reference to the relevant clause(s) of TTA and MOU: S. No. Facts of Centrica India Offshore (P) Ltd. Facts of Advics Co., Ltd.(assessee) Relevant Clauses of TTA and MOU 1. The seconded employees were not specifically taken into employment by the Indian Company. Seconded employees taken into employment by the Indian AEs. Article 1 of TTA (Page 5 of Paper Book read with Article 1 and Article 2 of MOU (Page18 of Paper Book). 2. The obligation to pay the salary was of Foreign company. Indian Company was merely reimbursing the salary paid by Foreign Company. Seconded employees had no right against Indian Company in case of failure of payment of salary. The Indian AEs are obligated / solely responsible for payment of all the costs viz. salary and wages etc. and benefits to the expats which is clearly spelt out in the TTA(s) along with their corr....
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....pany and the obligation to pay salaries/remuneration to the seconded employees is primarily that of the Indian company. Thus, the decision rendered in the case of Centrica India Offshore (P) Ltd. is distinguishable on facts. 12. In the case of Toshiba Corporation (supra), the Coordinate Bench, after placing reliance on the decision rendered in the case of PCIT Vs. Boeing India (P) Ltd. - 146 taxmann.com 131 (Delhi), held as under:- "9. The Hon'ble Delhi High Court in the case of PCIT vs. Boeing India (P.) Ltd. (supra) has held that where the reimbursements are in the nature of salary the same could not be treated as FTS. The Hon'ble High Court placed reliance on the decision rendered in the case of CIT vs. Karl Storz Endoscopy India (P) Ltd in IT Appeal No.13 of 2008 decided on 13-9-2010 wherein after analysing facts of the case the Hon'ble High Court held: "10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to reimburse this salary at cost, i.e. without any mark-up. Thus, it was merely the question of....
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....ord, tax under the Act has also been deducted on payment of salaries. 11. The Hon'ble Delhi High Court in the case of Flipkart Internet (p) Ltd. (supra) while considering similar issue also examined the decision rendered in the case of Northern Operating Systems (P) Ltd (supra). The Hon'ble High Court held: "(vii) The petitioner issues the appointment letter, the employee reports to the petitioner, the petitioner has the power to terminate the services of the employee. For the purpose of a limited finding under section 195 on the basis of the available material, it could be concluded that the petitioner is the employer. (viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T. v. Northern Operating Systems (P.) Ltd. [2022] 138 taxmann.com 359 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a contract whereby employees were seconded to the assessee by foreign group of Companies, had upheld t....
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....ces this position. The terms of Basic Secondment Agreement leave no doubt that the employment policy, terms, regulations and guidelines and other practices as applicable to the employees of the Indian company shall apply to the seconded employees during the period of their secondment. The salary of the seconded employees shall be decided and paid by the Indian company. It is only the limited element of salary paid by the assessee to the seconded employee in Japan as per Memorandum of Understanding, that is reimbursed by the Indian company to the assessee on cost-to-cost basis. Nothing bears from the agreement or any other document on record that the payment received by the assessee from its Indian AE is in the nature of FTS. 14. Considering entire facts of the case and in light of the decisions discussed above, we find merit in submissions of the assessee. Hence, the addition made by the Assessing Officer holding reimbursement of salary of seconded employees as FTS is directed to be deleted. The impugned order is set aside and appeal of the assessee is allowed. ITA No. 912/Del/2025 (AY 2018-19) & ITA No. 913/Del/2025 (AY 2022-23) 15. Both the sides are unanimous in stat....