TDS u/s 195 Not Applicable on Reimbursement of Allowances to Employees Deputed Outside India: ITAT Grants Relief to PII [Read Order]

In a major relief to M/s Petroleum India International (PII), the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that TDS provisions under section 195 of the Income Tax Act is not applicable on the reimbursement of reimbursed expenses to employees deputed outside India. The assessee, PII has been rendering the aforesaid services by marketing its capabilities through various foreign agents and through direct marketing efforts and when receives enquiries from foreign clients for rendering technical/consultancy services and training it approaches its member companies for locating expert technical personnel who possess specialized knowledge, expertise and experience for the purpose of enquiry raised. For the secondment of such employee by the member/employer company PII is to compensate the member employer company for all expenses incurred by it towards the Indian salary and other benefits of such employees during the period of secondment. During the course of assessment, the AO noticed that mostly these payments are made to the secondee who are non-resident and as per section 195 any person responsible for paying to the non-resident other than a company in some chargeable under the provisions of Income Tax Act, 1961. On appeal, the first appellate authority deleted the order of the AO holding that providing expert personnel of member company to PII for rendering technical services TDS was deductable under section 194J of the Act by relying upon the provisions contained in the Explanation 2 of section 9(1) of the Act by treating the same as fee for technical services on the ground that as per agreement on record between PII and overseas clients it is assessee/PII who is responsible for providing the technical services to the overseas clients and there is no privity of contract between member employer company and the overseas industrial units. ITAT Members Shri Prashant Maharishi, Accountant Member and Shri Kuldip Singh, Judicial Member observed that “member employer company deducts tax at source under section 192 of the Act from the Indian salary of such employee as they continue to get their salary from his employer member companies. Member companies have also continued to deduct statutory deduction like PF, tax, ESI from his salary paid by the member company. Since expert employees continued to get the salary from the member companies during the period of secondment their employer employee relationship continues even during the period of secondment. Moreover, member company in its books of account does not consider the reimbursement by PII as an item of income but the same is credited to the salary of account and as such the Ld. CIT(A) has rightly reached the conclusion that explanation 2 to section 9(1)(vii) is not attracted.” Upholding the CIT(A) order, the ITAT added that “the Ld. CIT(A) has also taken into consideration affidavit dated 28.08.2000 executed by executive chairman of PII wherein it is duly discussed the issue as to reimbursed expenses to employees deputed outside India by various Indian companies eg. Tata Infotech, State Bank of India, Systime, Bank of Baroda, Engineers India Limited, Tata Consultancy Services etc. who are paying such allowances to the employee deputed outside India but are not deducting tax at source on allowance paid in foreign currency to their personnel and all those personnel who are sent to overseas also draw an Indian salary component as a whole.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

TDS u/s 195 Not Applicable on Reimbursement of Allowances to Employees Deputed Outside India: ITAT Grants Relief to PII [Read Order]

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