Mumbai Tribunal rules reimbursement of expenses on secondment of employees not FTS

 

This Tax Alert summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) in case of Temasek Holdings Advisors (I) Pvt .Ltd. (Taxpayer) on the issue of taxability of payments made by Taxpayer to its parent company in Singapore, i.e., Temasek Holding Pte. Ltd. (Sing Co) in relation to secondment of employees to India and certain other expenses incurred by Sing Co for the business of Taxpayer.

The Tribunal ruled that payments made by Taxpayer towards salary and other employment costs of the seconded employees amount to reimbursement of expenses and not payments for any services rendered by Sing Co to Taxpayer. Such payments were not taxable in India as the same were reimbursement of expenses and were not fees for technical services (FTS) under the Income Tax Laws (ITL) or India–Singapore Double Tax Avoidance Agreement (Singapore DTAA). Furthermore, since taxes had already been withheld on salary payments made by Sing Co to the seconded employees, there was no further withholding of taxes required when such amount was reimbursed by Taxpayer. Accordingly, such reimbursement cannot be disallowed in computation of income of Taxpayer.