In a significant ruling, the Bombay High Court has held that payment of salary under secondment agreement does not attract tax deducted at source (TDS).
A secondment agreement is an agreement entered into between a foreign Company and its Indian affiliate wherein the foreign company deputes its staff to the Indian company for a certain period, and during this time, this staff remains on the payroll of foreign company. The Indian company reimburses the salary and other cost to foreign company. The deputed staff’s salary remains taxable in India during this period.
In the present case, an Assessing Officer (AO) noted that Marks & Spencer Reliance India had paid Rs.4.83 crore to Marks & Spencer’s PLC London.
While the Indian affiliate cited these payments as a mere reimbursement of their expenditure, the AO deemed the payments as fee for technical services as per the provisions of the Double Taxation Avoidance Agreement (DTAA).
Accordingly, the AO passed orders holding the company to be liable for the tax and simultaneously charged interest.
The first appellate authority, Commissioner of Income Tax (Appeals), interfered with this order of the AO in an order dated Nov. 28, 2011.
Thereafter, the Revenue Tribunal held that the Commissioner was right that “Marks & Spencer India (assessee) paid sum of Rs.48,66,187 to M/s. Marks & Spencer PLC towards salary expenditure of four employees deputed to the (assessee) for providing assistance in the area of management, to setting up of business, property selection and retail operations etc.”
A division bench of Justice SC Dharmadhikari and Justice PD Naik upheld the findings of the tribunal in the present case and dismissed an appeal filed by the Director of Income Tax (International Taxation) against the order of the tribunal which had observed:“This was a clear case of deputing the officials / employees for the promotion of the business of the assessee which is Indian arm of M/s. Marks & Spencer PLC, UK. Since the said payment to the employees is already subjected to tax in India, therefore there is no question of treating the assessee in default for non-deduction of tax at source.”
Read the Order here.