Monday, March 20, 2017

Reimbursement of salary of seconded employees held as FTS; ITAT relies on HC’s ruling of Centrica


a) Assessee, a swiss company was engaged in providing operations and management services to airports. It had entered into an agreement with Bangalore International Airport Ltd. (BIAL) for secondment of its skilled personnel.

b) Assessing Officer (AO) held that the payment received by the assessee from BIAL was in the nature of Fees for Technical Services (FTS) and, accordingly, chargeable to tax in India.

c) Assessee claimed that the seconded personnel work under the direct control and supervision of BIAL as it had the right to issue directions to the seconded employees. Therefore, aforesaid receipts cannot be considered as FTS.

d) CIT(A) upheld the order of AO, aggrieved-assessee filed the instant appeal before the Tribunal.

Tribunal held in favour of revenue as under:

1) Secondees were holding high managerial position and also holding the position in the management as CEO and CCO. This clearly establish the fact that they were not ordinary employees but having the expertise in the field of management. Therefore, the purpose of assignment was to avail the services of highly qualified personnel.

2) The Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. v. DCIT [2014] 44 300 (Delhi) had held that where employees used their technical knowledge and skills while assisting in conducting business of quality control and management, sum reimbursed to overseas companies towards salaries of seconded employees amounted to FTS.

3) Therefore following the decision of Hon'ble Delhi High Court in the case of Centrica (Supra),amount received in terms of secondment agreement was in nature of FTS, chargeable to tax under section 9 as well as under article 12 of India-Switzerland DTAA. – [2017] 79 199 (Bangalore - Trib.)

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