2019 (4) TMI 664 - AT - Income Tax

TDS u/s 195 - reimbursement of Travel expenses & salary costs on seconded employees - simply reimbursement or FTS - levy tax and interest u/s.201(1) and u/s. 201(1A) - Indo Japan DTAA - HELD THAT - The expenses have been incurred in connection with technical services agreement, they bear a clear nexus with the technical services rendered and part and parcel in the process of service of a technical character. Therefore, the expenditure has been incurred for earning royalty/ FTS. The expenditure is that of service providers and not that of the assessee company. On the issue of the issue of reimbursement of salary costs on seconded employees, the CIT(A) held, inter-alia, that the seconded temporarily employees exchanged experience and skill training by the employer. i.e. the employer in this case is the entity which is seconding and once the term of the secondment is over, they will return back to their original employer and they do not loose the employer-employee relationship of the parent organization. Since the assessee has not become employer of seconded employees, what the assessee paid to Nippon Paint Company Limited and Wuthela Holdings Pte Limited at INR 29,62,869/- is the income of those companies and not in nature of reimbursement of salary. Further, CIT (A) applied the ratios of the Apex court/ HC/AAR and Tribunal. Although, the assessee filed this appeal, it has not laid any material to dislodge the findings recorded by the CIT(A) on the above issues, and hence we do not find any reason to interfere with the order of the Ld CIT(A). Therefore, the assessee s appeal is dismissed.

Summary

Issues:
1. Assessment of remittances to non-resident without TDS deduction
2. Nature of salary reimbursement to foreign nationals and TDS liability

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax for the assessment year 2010-11, where the Assessing Officer found that the assessee made remittances to a non-resident abroad without deducting TDS. The AO held that the remittance was technical assistance fees for providing support, training, and activities. The AO also considered salary reimbursement to foreign nationals and held it as payment for FTS, resulting in the assessee being in default under section 201(1). The CIT(A) upheld the AO's decision, leading to the current appeal. The AR argued that the remittances were travel expenses with no profit element, and the salary reimbursement was covered under section 192, not 195. However, the DR contended that the expenses were linked to technical services and should be treated as income. The CIT(A) supported the AO's decision based on relevant case laws and upheld the tax and interest levied.

2. Regarding the reimbursement of salary costs to seconded employees, the CIT(A) held that the employees were sent for skill exchange temporarily, and the employer-employee relationship remained with the parent organization. The payments made by the assessee to the companies providing the seconded employees were considered income of those companies, not reimbursement of salary. The CIT(A) applied precedents from the Supreme Court, High Courts, AAR, and Tribunal to support the decision. The Tribunal found no reason to interfere with the CIT(A)'s order as the appeal did not provide material to challenge the findings. Therefore, the assessee's appeal was dismissed, upholding the CIT(A)'s decision.

In conclusion, the Tribunal affirmed the CIT(A)'s decision on both issues, emphasizing the nexus between expenses and technical services for the remittances and the employer-employee relationship for salary reimbursement to seconded employees. The appeal was dismissed, and the tax and interest levied by the AO were upheld.