Payment under Secondment would not attract TDS when it was Taxed in India as Salary: ITAT Ahmedabad [Read Order]

In Burt Hill Design Pvt Ltd v. DCIT, the division bench of the Ahmedabad ITAT held that where payment made by assessee-company in pursuance to secondment agreement with US-company consist of income which was chargeable, to tax in India under head 'income from salaries', the assessee is not bound to deduct TDS under section 195 of the Income Tax Act on such payments.

The assessee is engaged in the business of providing information technology enabled services, is subsidiary of Burt Hill Inc USA. During the relevant period, the assessee, under a secondment agreement with BH Inc had placed certain employees at the disposal, and control, of the assessee.The income tax authorities during the course of survey proceedings found that the assessee has made remittances to BH Inc, in respect of reimbursement of payroll costs, without any deductions on account of tax withholdings. The assessee maintained that these are reimbursements plain and simple, and that the payments did not involve any profit element taxable in the hands of BH Inc. It was also explained that the payments were in the nature of salaries, andthe assessee had duly discharged his tax withholding obligations from these salaries to the extent the recipients were taxable in India. The details of tax payment by the seconded employees were also furnished by the assessee before the Department.

Rejecting these contentions, the assessing officer observed that the payment was infact in the nature of payment for services rendered by these employees since employees were of BH Inc.it was further held that held that the work done by these employees of BH Inc has resulted in creation of a service PE and therefore, entire amount paid to BH inc. is taxable in India on gross basis and TDS under section 195 also attracts on such payments.

Recalling its own decision in an earlier case of the assessee, the bench reiterated that “as long as a payment to non-resident entity is in the nature of payment consisting of income chargeable under the head ‘Income from Salaries’, the assessee does not have any tax withholding obligations under section 195 of the Income Tax Act.”

It was also noted that “the payment made to Burt Hill Co Inc USA consists of income which is chargeable, and has been charged, to tax in India under the head 'income from salaries'. Whether the seconded employees continue to be in employment of the foreign entities or not is wholly irrelevant for this purpose. What is relevant is that the income embedded in the payments in question is taxable in India under the head 'Salaries', and if that be so, there are no tax withholding obligations under section 195 of the Income Tax Act.”

Read the full text of the order below.