Honda R&D Company Limited Vs ACIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the appeals of a Japanese company and held that reimbursement of salary costs of seconded employees received from its Indian group company could not be treated as Fees for Technical Services (FTS). The dispute arose when the Assessing Officer treated ₹21.52 crore received by the assessee from Honda R&D (India) Pvt. Ltd. towards reimbursement of salary costs of seconded employees as FTS and made an addition accordingly. The Dispute Resolution Panel upheld the assessment, leading to the appeal before the Tribunal.
The assessee contended that the reimbursements were made strictly on a cost-to-cost basis without any markup. It relied on the Basic Secondment Agreement, under which the seconded employees worked solely for the Indian company, were under its exclusive control, supervision, and direction, and were subject to its employment policies. The Indian company had the authority to evaluate, promote, discipline, suspend, or terminate the employees and bore all risks and responsibilities relating to their work. The Indian company also determined and bore the salary costs, while certain salary components paid in Japan were reimbursed purely for administrative convenience. Salaries paid to the seconded employees were subjected to tax deduction at source in India.
