Toshiba Corporation Vs DCIT (ITAT Delhi)
Addition of ₹10,76,36,392 was made by treating reimbursements of salary for seconded employees as Fee for Technical Services (FTS) u/s 9(1)(vii) & Article 12(4) of India–Japan DTAA. Assessee, tax-resident of Japan, had paid salaries in Japan on behalf of Indian Toshiba group entities, which reimbursed the Assessee without markup, with TDS duly deducted by Indian employers.
To prove secondment & employer–employee relationship with Indian entities, the Assessee produced payroll agreements, employment contracts, appointment letters, Form 16s, invoices, & Form 15CB/15CA (pages 2–4). The AO, however, misread the contracts & concluded that Toshiba Japan retained lien over secondees & therefore the reimbursement was FTS.
ITAT held that:
- The employment contract clearly showed full control, supervision, termination rights, & salary obligations with Indian entities.
- Form 16 demonstrated taxation under salary head.
- Reimbursement of salary cannot be treated as FTS, following Delhi HC in Boeing India, Karl Storz, Flipkart (Kar HC) & coordinate bench ruling in Advics Co. Ltd.
- Article 12(4) of DTAA excludes payments made to employees from the ambit of FTS.
- Supreme Court’s decision in Northern Operating Systems is distinguishable as it concerns service tax, not income tax.
ITAT held Revenue had wrongly recharacterised salary as FTS, accepted the employer–employee relationship with Indian companies, & deleted the entire addition. Appeal was partly allowed .
