DCIT Vs Applied Materials India Private Limited (ITAT Bangalore)
Revenue filed appeals against CIT(A)’s order deleting the demand raised u/s 201(1) & 201(1A) for alleged non-deduction of TDS on salary reimbursements made by Assessee to its U.S.-based parent for seconded employees. ITAT upheld CIT(A)’s findings & dismissed all four appeals.
Applied Materials India Pvt. Ltd. is a wholly-owned Indian subsidiary of a U.S. company. During a survey u/s 133A, it was found that Assessee reimbursed the salary of seconded employees (sent from its US parent) without TDS u/s 195. AO treated these reimbursements as “Fee for Technical Services (FTS)”, holding tax was deductible u/s 195. Total tax & interest demand for AY 2013–14: ₹55.7 lakh. Assessee argued the reimbursement was cost-to-cost, & the secondees were under its full control & supervision, forming an employer-employee relationship in India.
CIT(A) relied on the jurisdictional Karnataka High Court decision in Flipkart Internet Pvt. Ltd. & coordinate ITAT rulings in assessee’s own earlier years. CIT found that the secondees were employees of the Indian company. The Indian entity had deducted TDS u/s 192 (Form 16 submitted showing ₹1.19 crore tax deducted) and therefore, there is no obligation existed to deduct tax u/s 195.
ITAT fully affirmed the CIT(A)’s order, holding that the reimbursement of salary did not constitute income in the hands of the foreign parent and the relationship between assessee & secondees was that of employer-employee. Tribunal also noted that payments were already taxed in India u/s 192 & no FTS was involved. Tribunal rejected Revenue’s argument that the secondment involved technical or consultancy services under DTAA or section 9(1)(vii). Thus Tribunl concluded that no TDS was deductible u/s 195 on salary reimbursement. Demand u/s 201(1) & 201(1A) was invalid & all four years’ assessments were rightly quashed by CIT(A).
