2019 (7) TMI 1971 - AT - Income Tax

Income deemed to accrue or arise in India - Treating salary and other related costs reimbursed to the appellant as Fees for Technical Services - taxing the amount received as reimbursement of the salary and other related costs as fees for technical services in terms of section 9(1)(vii) of the Income-tax Act 1961 as well as under Article 12 of India-Canada DTAA ) - HELD THAT - We find substance in the submissions made by Ld. Sr. Counsel since the perusal of documents on record reveal that the assessee has entered into employee secondment agreement with the Indian entity. Pursuant to Clause (6) of the agreement the assessee was to be reimbursed with direct wages and benefit costs. The role and responsibilities of Mr. Anindya Ghosh has been remunerated in the submissions dated 29/03/2016. The perusal of Form 16 12BA as placed on record would reveal that the Indian Entity has deducted due taxes against the aforesaid payments. The matter would go back to Ld. AO for re-appreciation of correct facts and re-adjudication of the matter in the light of submissions made by Ld. Sr. Counsel. Needless to add hat adequate opportunity of being heard shall be granted to the assessee to substantiate its stand. Appeal stands allowed for statistical purposes.

Summary

Issues:
1. Taxability of salary and related costs reimbursed as Fees for Technical Services
2. Levy of interest under section 234B of the Income Tax Act, 1961

Analysis:
1. Taxability of salary and related costs reimbursed as Fees for Technical Services:
- The appeal contested the final assessment order that treated the reimbursement of salary and related costs received by the assessee as 'fees for technical services' under section 9(1)(vii) of the Income-tax Act and the India-Canada Double Taxation Avoidance Agreement. The assessee argued that the reimbursement did not fall within the purview of 'fees for technical services' and was not taxable income. The Assessing Officer added the amount to the assessee's income, considering it as Fees for Technical Services.
- The Dispute Resolution Panel upheld the decision, directing the Assessing Officer to apply the correct tax rate. The Senior Counsel for the Assessee pointed out that the payment was related to an employee providing managerial services, not technical services as assumed by the Assessing Officer.
- Upon review, it was found that the employee had entered into an agreement for reimbursement of wages and benefit costs, and the Indian entity had deducted taxes accordingly. The matter was remanded back to the Assessing Officer for reevaluation based on the correct facts presented by the Senior Counsel.

2. Levy of interest under section 234B of the Income Tax Act, 1961:
- The Assessing Officer levied interest under section 234B of the Income Tax Act, 1961 on the assessee. The assessee contended that no interest was leviable based on the facts and circumstances of the case. The Assessing Officer's decision to levy interest was deemed incorrect and illegal by the assessee.
- The matter of interest levy was not the primary focus of the appeal. The main dispute revolved around the taxability of the reimbursement as fees for technical services. The decision to remand the primary issue back to the Assessing Officer for reevaluation also indirectly impacted the interest levy issue.

Conclusion:
The appeal was allowed for statistical purposes, and the matter was remanded back to the Assessing Officer for reevaluation based on the correct facts presented during the appeal. The decision highlighted the importance of accurate assessment and classification of payments, ensuring proper taxation in accordance with the law.