PROFESSIONAL UPDATE N0V 14, 2015
PROFESSIONAL UPDATE
Sum paid to foreign AE for secondment of high level managers is taxable as ‘FTS’
Food World Supermarkets Ltd. v. DDIT [ITAT Bangalore] ITA No. 1356 & 1357 of 2013, Date of Decision: October 28, 2015
Facts of the case :The assessee is an Indian company engaged in the business of ownership and operation of supermarket chain in India. The assessee entered into an agreement with M/s Diary Farm Company Ltd., (DFCL). DFCL is a company based in Hong Kong and engaged in the identical business activity that of assessee. Under the said agreement, DFCL agreed to assign its employees to the assessee and consequently 5 employees/expatriates were deputed by DFCL to the assessee. The assessee agreed to engage these employees to assist its business operation. It was also agreed between the parties that DFCL would pay salary to the assigned personnel and the assessee would reimburse such amount to DFCL. Accordingly, salaries to assigned personnel were paid by DFCL which was subjected to TDS u/s 192 of the Income-tax Act. The assessee reimbursed such amount to DFCL towards the salary paid to the assigned personnel. The reimbursement was made without deduction of tax at source.
Decision of the Tribunal
The Appellate Tribunal while following Delhi High Court decision in the case of Centrica India Offshore Private Limited held that the payment made by the assessee to Hong Kong based company for secondment of employees (Senior and Experienced Professionals) is taxable as fees for technical services (FTS). The ITAT also noted that secondees were assigned by DFCL and there was no separate contract of employment between assessees and the secondees, and secondees claimed salary from DFCL, performing their duties for and on behalf of DFCL, rendering managerial and highly expert services to assessee. The Tribunal further observed that if the payment being FTS or Royalty is made to non-resident, then the concept of total income becomes irrelevant and is chargeable to tax irrespective of any profit element in the said payment.
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