The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that Tax Deduction at Source (TDS) is not applicable to reimbursement of salary based on the cost to cost without any profit element and cannot attract TDS Liability u/s 195 of Income Tax Act,1961.
The Appellant is a subsidiary of Goldman Sachs (Mauritius) LLC which was engaged in providing back-end support services in the nature of information technology-enabled services and software development services to the Goldman Sachs group entities. The appellant assessee employed expatriate employees, and part of their salary is paid by the assessee and part of it by the overseas entity, which is then reimbursed at cost by the assessee. The reimbursements are made under the head of the salary based on the cost to cost without any profit element.
The AO held the assessee, as ‘assessee in default ‘ under section 201(1) and section 201(1A) of the act. On appeal by the Assessee, the CIT(A) upheld the order of the AO. Hence, the assessee filed an appeal before the ITAT. The appellant submitted that they entered into an independent contract with each of the seconded employees and worked under the control of the assessee by the appointment agreement with the seconded employee.
The Tribunal observed that the reimbursement of salary and other administrative costs to an overseas entity, constitute under the India Recharge & Cost Allocation Agreement dated 03/03/2006, cannot be considered as ‘fees for technical services, under the act, and the said reimbursements are not liable for TDS u/s.195 of the Act. The assessee in India does the TDS on 100% salaries u/s 192 and paid the same to the credit of the Central Government.
The Coram of Shri Chandra Poojari and Smt Beena Pillai, while allowing the appeal has held that “the reimbursement made by the assessee in India to an overseas entity, towards the seconded employees cannot be regarded as “Fee For technical Services” Once there is no violation of the provision of section 195, the assessee cannot be held to be an assessee in default under section 201(1) of the Act for all the years under consideration and directed to delete the interest levied under section 201(1A) of the Act.
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