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2024 Supreme(Online)(ITAT) 702
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
S. RIFAUR RAHMAN, AM, SAKTJIT DEY, VP
Yorozu Corporation – Appellant
Versus
DCIT – Respondent
ITA No. 2135/DEL/2023
For the Appellants/Petitioners: Shri S.K. Aggarwal, CA, Ms. Viddhi Singhal, CA
For the Respondents: Shri Vijay B Vasanta, CIT DR
Fees for Technical Services cannot be charged when reimbursements relate strictly to salary payments of seconded employees, avoiding double taxation.
Headnote:(A) Income Tax Act, 1961 - Section 143(3) and Section 144C(13) - Fees for Technical Services - The appellant, a company engaged in manufacturing, challenged an addition made for reimbursement received as fees for technical services. The tribunal observed that such reimbursements paid under secondment agreements do not qualify as fees for technical services, aligning with precedents affirming that taxes had been duly remitted on the salaries. Court ruled that double taxation on the same income is impermissible. (Paras 8-18)
(B) Taxation Jurisprudence - Secondment Agreements - The nature of employment and the real employer-employee relationship were fundamental in determining the taxability of payments made for seconded employees. Payments merely for salary reimbursements do not constitute fees for technical services under respective DTAAs. The essence of employment relationship and tax implications under the Indian Act and DTAAs were central to the decision.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. background facts on the assessment order and secondment agreements. (Para 2 , 3 , 4) |
| 2. arguments regarding the treatment of reimbursements as taxable income. (Para 5 , 6) |
| 3. court's reasoning on employment relationships under secondments and their tax impact. (Para 11 , 12 , 13 , 14) |
| 4. the legal determination that reimbursements do not constitute fees for technical services. (Para 15 , 16 , 17) |
| 5. conclusion allowing the appeal and deleting the tax additions. (Para 18) |
O R D E R
PER S. RIFAUR RAHMAN, AM :
1. The captioned appeal preferred by the assessee is directed against the assessment order dated 30.05.2023 passed by the Income Tax Department, Circle Int. Tax 3(1)(1), Delhi u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2020-21 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act.
2. Brief facts of the case are, the assessee company, incorporated in the year 1948 and covered under the provisions of India-Japan DTAA, is engaged in the business of development, design, manufacture and sale of automotive parties, agricultural machinery parts and production equipment.
3. For assessment year 2020-21, the assessee filed its return of income on 09.01.2021 declaring total income of Rs. 138,114,740/-. The case was selected for scrutiny proceedings and the Assessing Officer framed draft assessment order under section 143(3) r.w.s 144C(1) of the Act determined the total income of Rs. 253,362,433/-. He made the addition of Rs. 115,247,693/- being reimbursement received on cost-to-cost basis as Fees for Technical Services ('FTS' in short) under the Income Tax Act, 1961 as well as Article 12 of the India Japan Double Taxation Avoidance Agreement ('India-Japan DTAA').
4. Aggrieved, assessee filed objections before the ld. Dispute Resolution Panel-2, New Delhi (in short ld. DRP). Pursuant to directions of the ld. DRP, the Assessing Officer framed final assessment order dated 30.05.2023 u/s 143(3) read with section 144C(13) of the Act at a total income of INR 253,362,433 as proposed in the draft assessment order.
5. Aggrieved, assessee has come in appeal before us and has raised following grounds of appeal:
“The Appellant Company submits that the below grounds are independent and without prejudice to one another.
1. Ground 1-General
Yorozu Corporation ('the Company' or 'the Appellant') submits that the final assessment order dated 30 May 2023 passed by the Learned Deputy Commissioner of Income-tax, Circle International Tax 3(1)(1), Delhi (hereinafter referred to as 'Ld. AO') pursuant to the directions issued under section 144C(5) of the Income-tax Act, 1961 ('the Act') dated 20 April 2023 by the Dispute Resolution Panel ('Ld. DRP') is bad in law and is contrary to the facts and circumstances of the present case.
The detailed grounds of appeal, including the position in law and facts is set out in the ensuing paragraphs.
2. Ground 2 - The Ld. AO and Ld. DRP erred in making disallowance of reimbursement of salary cost from its Indian subsidiary company pursuant to the secondment of employees on pure cost-to-cost basis as Fees for Technical services (Tax effect - INR 11,524,769)
2.1 On the facts and circumstances of the case, the Ld. AO and Ld. DRP erred in not appreciating the fact that the underlying payment had already suffered taxes in India as salaries under section 192 of the Act and addition of the same income again in the hands of the Appellant would lead to double taxation of same income.
2.2 On the basis of facts and circumstances of the case, the Ld. AO and Ld. DRP erred in relying on the ratio of the decision in the case of 'Northern Operating Systems Pvt. Ltd (Supreme court judgement held in the context of service tax regime) which is not applicable to the facts of the Appellant.
2.3 On the facts and circumstances of the case, the Ld. AO and Ld. DRP erred in not following the binding precedent of the jurisdictional High Court and Income T
