TDS U/s. 195 not applicable on Payment under Secondment if same is taxable in India as Salary

1. By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)’s order dated 10^th July 2012, in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2009-10.

2. Grievances raised by the assessee, in substance, are against learned CIT(A)’s upholding (i) the disallowance , under section 40(a)(i), of Rs 4,54,28,424, in respect of reimbursement of payroll costs, and of Rs 16,86,463, in respect of reimbursement of related professional and legal fees, to Burt Hill Inc USA; (ii) the disallowance of Rs 12,77,927 in respect of medical insurance premium paid for the employees, placed at the disposal of the assessee under secondment agreement with Burt Hill Inc USA; and (iii) the disallowance of Rs 1,50,000 being house rent paid to Managing Director of the assessee company. For the record, however, the detailed grounds of appeal raised by the assessee are set out below:

1. (a) The learned CIT (A) has grossly erred in law and on facts of the case in confirming the action of the AO in disallowing an amount of Rs. 4,54,28,424/- being expenditure incurred on pay-roll ( man power) costs of the employees of the company who were working in India for the appellant company’s business operations on full time basis under the secondment agreement paid by way of reimbursement to its parent foreign company i.e. Burt, Hill Inc, USA.

(b) The learned CIT (A) has grossly erred in law and on facts of the case in confirming the action of the AO in disallowing an amount of Rs. 16,86,463/- being expenditure on legal and professional fees paid by way of reimbursement to its parent foreign company i.e. Burt, Hill Inc, USA.

(c) The learned CIT (A) has grossly erred in law and on facts of the case in confirming the action of the AO in disallowing an amount of Rs.4, 71,14,887/- (Rs. 4,54,28,424/- on account of reimbursement of expenditure on pay-roll costs + Rs. 16,86,463/- on account of reimbursement of legal and professional fees) by arbitrarily holding that the payments are in the nature of fees for technical services and therefore chargeable to tax in the hands of the payee in India u!s. 9(1)(vii) of the I. T. Act.

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