Case Law Details

Case Name : DCIT Vs. Mahanagar Gas Ltd. (ITAT Mumbai)
Appeal Number : IT Appeal No. 1945/Mum/2013
Date of Judgement/Order : 15/04/2016
Related Assessment Year : 2009-10
Courts : All ITAT (1730) ITAT Mumbai (489)
CA Saurabh Chokhra

Brief of the case:

1. The ITAT Mumbai in the above cited case held that reimbursement of secondment expensed by assessee to the company seconding its employees to assessee is not subject to TDS as the employer-employee relationship for all legal purposes subsist between seconding company and seconded employees for which seconding company is liable to deduct TDS on payments made by it to seconded employees.

2. Therefore, assessee company not liable to deduct TDS on reimbursement of seconded employees’ salaries made to seconding company.

Facts of the case:

1. AO observed that in Schedule M to Profit & Loss A/c assessee has debited a sum of Rs.193.46 lacs on account of secondment charges under the head personnel cost but no TDS has been deducted on the same.The AO applying the provisions of section 40(a)(ia) of the Act on this secondment charges disallowed the same by stating that no TDS has been deducted on the same.

2. CIT(A) however, allowed assessee’s appeal by relying on the decision of coordinate bench of ITAT Bangalore in the case of IDS Software Solutions (India) Pvt. Ltd. Vs. ITO (International Taxation) (2009 122 TTJ 410 (Bang) and also the decision of Hon’ble Bombay High Court in the case of CIT Vs. Kotak Securities Ltd. in Appeal No. 3111 of 2009.

3. Aggrieved revenue is in appeal before ITAT.

Contention of the Assessee:

1. It was submitted that the seconded employees were not the employees of assessee Mahanagar Gas Ltd. but employees of British Gas and they are working with assessee only in view of secondment agreement.Since the employers were seconded for limited time of 2 to 3 years, the remuneration payable to these seconded employees were being paid by British Gas or GAIL recoverable from assessee on cost to cost basis.

2. It was also argued that the liability to deduct tax is on whom who is responsible for making payment to the employees. In the present case, there was subsisting employer employee relation between British Gas and seconded employees. British Gas was also person responsible for making payment to seconded employees and application for deducting tax at source from salary was on British Gas. Ld.Counsel for the assessee made a categorical statement that British Gas has deducted TDS on these remunerations paid to seconded employees and also deposited in the treasury of the Govt. of India.

Held by ITAT Mumbai:

1. Assessee incurred the secondment charges of employees seconded by GAIL & British Gas to work with the assessee. Assessee also produced a letter from British Gas which clearly states that all the taxes due in India of the employees seconded to the assessee i.e. Mahanagar Gas Ltd. have been deducted from salary paid to seconded employees and paid to the Govt. of India.

2. The issue is covered by the decision of ITAT, Bangalore bench in the case of IDS Software Solutions (India) (P) Ltd. Vs. ITO (International Taxation) (2009) 122 TTJ 410 (Bang) wherein it was held that though the seconding company is employer in legal sense but since the services of the employee had been seconded to the assessee and since the assessee was to reimburse the emoluments and it controlled the services of the employee, it was the assessee which for all practical purposes was the employer.

3. Accordingly, the salary reimbursed to the company seconding its employees is not chargeable to tax in the hands of such company who itself has deducted tax on salaries paid to employees seconded to assessee.

4. Further, though the person deputed by the US Co was a technical person, the consideration paid under the secondment agreement was not “fees for technical services” because the fact that the seconded employee was responsible and subservient to the payer (assessee) and was required to also act as officer or authorized signatory or nominee of the assessee made it inconsistent with an agreement for providing technical services.

5. Therefore, the secondment expenses incurred by assessee is a kind of reimbursement made to British co and not chargeable to tax in the hands of British company as it itself deducting tax on salaries paid to seconded employees out of amount received from assessee.

6. Accordingly , revenue’s appeal was dismissed.

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Category : Income Tax (20861)
Type : Judiciary (8910)
Tags : CA Saurabh Chokhra (212) ITAT Judgments (3704) TDS (786)