TaxTMI 
TaxTMI 
2026 (7) TMI 1871
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....sed incorporating the directions issued by the Dispute Resolution Panel-1 (hereafter as "DRP"), dated 10.12.2024. In this case, the assessee is incorporated under the laws of Japan and is a tax resident thereon. The main issue pertains to the reimbursement of expenses pursuant to secondment of employees being treated as Fees for Technical Services (FTS) by the Ld. AO. 1.1 Though the assessee has filed the present appeal with three grounds but ground no. 2 is the substantive ground. The same is extracted as under: - "2. Addition of INR 1.03.55.809 on account of employee cost reimbursement taxable as Fees for Technical Services ('FTS') The lower authorities erred in net appreciating that there exists employee-employer rela....
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....s return of income filed under the Act. 2.5. The lower authorities erred in not appreciating the fact that the payments by the Indian All to the Appellant are towards pure reimbursement of actual employee cost and does not have any element of Income." 2. Right at the outset, the Ld. AR drew our attention to the facts that in the assessee's own case for AY 2017-18 this issue has been decided in favour through order dated 12.04.2024 [165 taxmann.com 716 (Delhi - Trib.)]. Additionally, the Ld. AR mentioned the facts indicating that the impugned reimbursement is not FTS, as under: i. Existence of employers and employee relationship between the expatriates and the Indian Company, leading to the conclusion that no services we....
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....ch states that this agreement should not be construed as a manpower agreement or a partnership or a joint venture agreement. So this clause has been introduced so that the tax incidence on account of provisioning of manpower service and fee for technical service is not invoked in the case. (vii) So, this logically entails examining another aspect which is the 'Doctrine of Substance and Form' which has long guided the tax authorities for interpretation of agreements and forms an important element of jurisprudence. The intent of the terms of Deputation Agreement is crystal clear which is basically to second the employees of the assessee company to its AE in India with a careful usage in the terms of the contract that it shoul....
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....ear that the structure of a transaction was not designed to achieve genuine business purposes but merely to avoid taxes through contractual language." On this basis the Ld. DR stated that the earlier years case may not be relevant in deciding the present issue. 3. We have heard the rival submissions and have gone through the documents before us, including the ITAT's order in the assessee's own case for AY 2017-18 (supra). Right at the outset, it deserves to be mentioned that the Ld. DRP has stressed on the theory of Substance over Form and has interpreted the wording in the contract to the extent that FTS is disguised as being something other than a man-power agreement, or a partnership, or a joint venture agreement. We find that ther....
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....s through the expats and accordingly the impugned receipts in the nature of reimbursement towards salary cost of expats are FTS. Although there is no specific reference in TTA/MOU, it has always been the case of the assessee that the expats were seconded to the AEs to carry on routine business activities of Indian AEs as their employees. No material/evidence has been brought on record by the Revenue to substantiate its claim that the assessee rendered any managerial/consultancy/technical services to the Indian AEs through the expats in furtherance of its business in India. Further, the payment made by the Indian AEs is a pure reimbursement of salary costs of expats which has been cross charged by raising debit notes on the Indian AEs. It ca....