The assessee, an Indian company, ("A Ltd") entered into an agreement for secondment of staff with its overseas parent company ("A Plc."). Under the agreement it was agreed as under:
a) A Plc. shall not be responsible for and shall not be liable for any loss or damage occasioned by the Secondees' work;
b) Authority to instruct the Secondees shall lie with A Ltd.; and
c) Secondees' work shall be performed at such place as A Ltd. may instruct.
However, in consideration of the Secondment of Staff, A Ltd. would make payments to A Plc. equivalent to the remuneration, pension contributions, expenses etc. which was claimed as expenses by A Ltd. The tax on these salary costs, which was incurred and paid by A Plc., was deducted and paid to the credit of the central government. During assessment, the AO disallowed the reimbursement on the ground that the assessee was liable to deduct tax under section 195 of the Act in respect of reimbursements made to A Plc.
On appeal, the Tribunal held in favour of assessee as under:
1) Reimbursement of salary costs to a foreign company under a secondment agreement does not involve profit element and is not liable to income tax;
2) Section 9(1)(vii) of the Act is attracted if (i) there is a rendering of service; and (ii) for which a consideration should follow;
3) Consideration means something given in return for obtaining or getting a thing. As the reimbursement to overseas parent did not result in any profit or gain or income to it, these reimbursements cannot be treated as 'consideration'; and
4) In the instant case, overseas parent company has not rendered any services to the assessee. Therefore, the expression 'provision of services of technical or other personnel' used in the definition of 'fees for technical services' is not satisfied.
Therefore, it is held that the reimbursement doesn't attract Sec. 195 and has to be allowed - ABBEY BUSINESS SERVICES (INDIA) (P.) LTD. v. DCIT [2012] 23 taxmann.com 346 (Bangalore - Trib.)
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