Reimbursement to Parent Co. for Expatriate Employee’s Salary not Taxable as FTS: ITAT

Case Details: Yamazen Machinery and Tools India (P.) Ltd. v. ACIT - [2023] 149 taxmann.com 96 (Delhi-Trib.)

Judiciary and Counsel Details

• • G. S. Pannu, President & Saktijit Dey, Judicial Member
  • K.M. Gupta & Anubhav Rastogi, Advs. for the Appellant.
  • Sanjay Kumar, Sr. DR. for the Respondent.

Facts of the Case

Assessee, a wholly owned subsidiary of the Japanese company, had debited certain amount being reimbursement of expenses to its parent company. Assessing officer (AO) found that one part of said payment was classified as salary for providing services in India through certain employees of parent company for rendering managerial services.

AO concluded that the parent company had seconded its employees for rendering managerial services to the assessee. Therefore, the fee paid to them was in nature of FTS, requiring the withholding of the tax under section 195. Since the assessee had not deducted tax at source on such payment, AO made disallowance under section 40(a)(i).

On appeal, the CIT(A) upheld the disallowance. Aggrieved-assessee filed the instant appeal before the Tribunal.

ITAT Held

The Delhi Tribunal held that terms of assignment agreement make it clear that assigned employees, in respect of whom, the assessee has made disputed payments, were under complete control and supervision of the assessee during tenure of the assignment agreement. In other words, there was an employer-employee relationship between assessee and assigned employees.

Payments made to assigned employees, either directly or through parent company, have been treated as salary and tax at appropriate rate had been duly deducted under section 192 by the assessee, which was evident from TDS certificates issued in Form No. 16. Even assigned employees have filed their Income-tax Returns in India offering salary received from the assessee.

Thus, facts and materials placed on record, including terms of the assignment agreement clearly establish that for all practical purposes, concerned persons assigned by parent company to assessee were working as employees of assessee and receiving salary income.

Since reimbursement of expenses made by the assessee was in nature of salary cost and was subjected to TDS under section 192, such reimbursement could not be treated as FTS under section 9(1)(vii) and article 12 of India Japan DTAA.

List of Cases Reviewed

• • Centrica India Offshore (P.) Ltd. v. CIT [2014] 44 taxmann.com 300/224 Taxman 122/364 ITR 336 (Delhi) (para 10) distinguished.
  • Boeing India (P.) Ltd. v. Asstt. CIT [2020] 121 taxmann.com 276 (Delhi – Trib.) (para 11) followed.

List of Cases Referred to

• • Centrica India Offshore (P.) Ltd. v. CIT [2014] 44 taxmann.com 300/224 Taxman 122/364 ITR 336 (Delhi) (para 4)
  • DIT (IT) v. Abbey Business Services India (P.) Ltd. [2020] 122 taxmann.com 174/[2021] 279 Taxman 284 (Kar.) (para 4)
  • Boeing India (P.) Ltd. v. Asstt. CIT [2020] 121 taxmann.com 276 (Delhi – Trib.) (para 4)
  • Dy. DIT v. Yum Restaurants (Asia) Pte. Ltd. [2020] 117 taxmann.com 759 (Delhi – Trib.) (para 4)
  • Faurecia Automotive Holding v. Dy. CIT (IT) [IT Appeal No. 784 (Pune) of 2015, dated 8-7-2019] (para 4)
  • Toyota Boshoku Automotive India (P.) Ltd. v. Dy. CIT [2022] 138 taxmann.com 166 (Bang. – Trib.) (para 4)
  • Checkmate Services (P.) Ltd. v. CIT [2022] 143 taxmann.com 178/[2023] 290 Taxman 19/[2022] 448 ITR 518 (SC) (para 14).