Brief Facts and Question of Law:
Brief Facts of the Assessee:
The assessee is an Indian company engaged in the business of ownership and operation of supermarket chain in India. The assessee entered into an agreement of secondment of few employees with a Hong Kong based company M/s Diary Farm Company Ltd., (herewith “DFCL”). As per the said agreement, DFCL deputed its 5 employees to India, to whom the salary was paid by DFCL which was reimbursed to DFCL by the Assessee. DFCL, withheld tax on the said salary under section 192 of the Income Tax Act, 1961 (herewith “the Act”). The assessee reimbursed a sum of HC 25,82,922/- to DFCL towards the salary paid to the assigned personnel. The reimbursement was made without deduction of tax at source. The DDIT held that remittance made by the assessee constitute fee for technical services u/s 9(1)(vii) of the Act and an order u/s 201(1) and 201(1A) was passed treating the assessee as ‘Assessee in default” for not withholding tax at source at 10% u/s 195.
Held by CIT (A):
The CIT(A) after examination of the terms and conditions of the seconded agreement arrived at the conclusion that the seconded employees did not have a master servant relationship with assessee. They had provided managerial and consultancy services to the assessee within the meaning of explanation 2 to section 9(1)(vii) of the Act. The CIT(A) upheld the decision of the DDIT and held that tax has to be withheld at the rate of 10% u/s 195 of the Act.
Question of Law:
Whether, payment made towards reimbursement of salary of seconded employees can be treated as Fees for Technical services u/s 9(1)(vii) of the Act.
Contention of the Revenue:
The Revenue contented that as per the terms of the seconded agreement, the assessee did not have any control over deputed personnel. Also the employees were on the payroll of the DFCL and, therefore, there was no relation of master and employees between the assessee and these secondees. DFCL was the actual employer hence the services rendered by this employees were actually rendered on behalf of DFCL. The Revenue relied upon the judgement Hon’ble Delhi High Court in the case of Centrica India Pvt. Ltd. Vs. CIT 364 ITR 336 held by the Hon’ble High Court that the secondees are imparting technical expertise to all regular employees of the assessee. Further nomenclature used in the agreement relating to the payment as reimbursement cannot be a determinative factor.
Contention of the Assessee:
