Reimbursement of seconded employees' salaries on cost-to-cost basis, with Indian entity as economic employer and full TDS deducted, not taxable as FTS under Act or DTAA.

ORDER

Per Smt. Beena Pillai, JM:

Present appeal filed by assessee against the final assessment order dated 14.07.2025 passed u/s. 143(3) r.w.s. 144C(13) for A.Y. 2023-24 passed in pursuance of direction given by the DRP dated 27.06.2025 u/s. 144C(5) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”]. The assessee raised the following grounds of appeal:

“1. The learned AO has on the facts and circumstances of the case and in law, erred in completing the assessment proceedings, where notice dated 11 February 2025 was issued by Income-tax officer-International Taxation- Ward 1(1) Bangalore and 4 March 2025 was issued by Income-tax officer- International Taxation-Ward 1(2), Bangalore and thereafter notices dated 11 March 2025 and 18 March 2025 under section 142(1) of the Act were issued by the learned AO without providing the basis of transfer of jurisdiction or without providing a copy of the order evidencing the transfer of jurisdiction

2. The learned AO has on the facts and circumstances of the case and in law, erred in concluding that the Assessee has provided technical services to Associated Enterprises (AEs) through the seconded employees and therefore the reimbursement of salary expenses received in respect of secondment of employees amounting to INR 35.24 763 received by the Assessee, is chargeable to tax in India as Fees for Technical services (FTS) given that the seconded employees make available their expertise and skills to AEs

3. The learned AD erred in levying consequential interest under section 234A and 2348 of the Act.

4 The learned AD erred in invoking penalty proceedings under section 270A of the Act for under-reporting of income for the captioned AY”

2. Brief facts of the case are as under:

The assessee is a company incorporated under the laws of United Kingdom. It is part of Goldman Sache group and carries on the activity of providing financial services. The Assessee also provides services to its affiliate entities in India and earns service income in nature of fees for technical service. It filed its return of income for the year under consideration on declaring total income at Rs.3,070/- on 29/11/20236. The return was selected for scrutiny and statutory notices were issued. In response, the representatives of assessee appeared before the Ld. AO and filed details called for.

2.1 The Ld.AO noted that year under consideration, i.e, A.Y. 2023-24, the Assessee had seconded certain employees to its group companies in India and received an amount of Rs.35,24,763/- from the AEs towards the salary of the seconded employees, which was paid by the Assessee and thereafter recovered as reimbursement from the group companies. It was submitted that the arrangement between the assessee and the group companies is that the salary cost of seconded employees is partly paid in India by the group companies and partly is paid by the Assessee outside India in their home country. The portion of salary paid by the Assessee outside India is subsequently reimbursed by the group companies on a pure cost-to-cost basis without any mark- up. The reimbursements made by the group companies to the Assessee is recorded as salary and payroll costs in their books of accounts. A portion of the salary is paid to employees in the home country for various reasons like family of the employees is situated there, for continuation of social benefits, repatriation restriction under foreign exchange regulations in India etc. It was thus submitted that the payment of salary in the home country and subsequent reimbursement did not involve any service element and is for administrative convenience.

2.2. During the course of assessment proceedings for the year under consideration, on 11 March 2025, the Assessing Officer