2010 (9) TMI 152 - HC - Income Tax

Amount paid by the assessee to its parent foreign company - foreign company had deputed one of its employees to look after the affairs of the Indian Company - salary payable borne by the foreign company - Indian company was to reimburse salary - no question of any technical fees being paid to the foreign company Held that - income of the recipient chargeable under the head salaries , then such payment will not be considered as fees for technical services - amounts reimbursed in identical manner were treated as salary - no substantial question of law arises - appeal is dismissed accordingly.

Summary

Issues:
1. Treatment of amount paid to parent foreign company as salary or technical fee.

Analysis:
The appeal in question pertains to the Assessment Year 2001-02 and revolves around the treatment of a payment of 6,59,416 made by the assessee to its parent foreign company, Karl Storz Vertriebs GMBH & Company. The assessee claimed that this amount was reimbursement for the salary of an employee deputed by the parent company to the Indian entity. However, the Assessing Officer contended that in the absence of a formal agreement between the parties, the payment should be considered as a technical fee rather than salary.

The Income Tax Appellate Tribunal, on the other hand, sided with the assessee, recognizing the payment as reimbursement for the employee's salary. The respondent's counsel highlighted that similar claims had been made in previous years, specifically in the Assessment Years 1998-99, 1999-00, and 2000-01. Notably, in the first year of the company's incorporation, the Tribunal had already decided that such payments were to be treated as salary to the deputed employee, Mr. Peter Laser.

The counsel further emphasized that tax had been deducted at source under Section 192 of the Act for these payments, reinforcing the treatment of the amounts as salary. Given the consistent treatment of these payments as salary in previous years and the absence of any appeal by the Revenue against the Tribunal's decisions, the High Court concluded that no substantial question of law arose in this case. Consequently, the appeal was dismissed based on the established precedents and consistent treatment of the payments as salary to the deputed employee.