The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) has held that salary reimbursement for seconded employees would not be taxable as Fees for Technical Service (FTS) under the India-US tax Double Taxation Avoidance Agreement, also known as Indo-US DTAA.
The assessee, Juniper Networks Inc. was a company headquartered in the United States. The assessee had entered into an agreement for secondment of its personnel with the Indian entity Juniper Networks India Pvt. Ltd. (henceforth Juniper India). During the year under appeal, two of the assessee’s employees, seconded to Juniper India as Engineering Services Managers. The salary of the seconded employees was paid by the assessee and reimbursed to it by Juniper India..
Ajay Rotti, on behalf of the assessee submitted that the reimbursement of salary and other related costs by Juniper India to the assessee was on cost-to-cost basis and there was no profit element involved in the reimbursement.
He further submitted that, appropriate taxes had been withheld by Juniper India under section 192 of the Act and once a receipt had suffered taxation, the same could not be taxed twice. It had also been argued that the receipt would not qualify as FTS under the India-USA DTAA.
ShahnawazUlRahman, on behalf of the revenue submitted that the payment received by the assessee was for the rendering of services in the nature of FTS and as the income arose in India, where the services were rendered, such payment was to had been included in the assessee’s income for the year under appeal.
Similar isuue had arisen in the case Netflix Entertainment Services India, that even if seconded employees were only loaned for a short period, they form a permanent establishment. The Goods and Services Tax obligation was a result of Netflix Inc’s employment of seconded employees to support its services in India. The matter is still to attain finality.
But the Tribunal bench has taken an alternate view in this matter.
The two member Bench of Chandra Poojari, (Accountant Member) and BeenaPillai, (Judicial Member) referring to the Goldman Sachs Services Pvt. Ltd allowed the appeal filed by the assessee and held that salary reimbursements for seconded employees would not be taxable as Fee for Technical Services (FTS).
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