August 2019

Section 9(1)(vii) of the Act; Article 13 of India-France DTAA – Reimbursement of salary of seconded employees does not qualify as FTS – By virtue of the MFN clause in India-France DTAA, managerial services do not qualify as FTS

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

16.  [2019] 56 CCH 0235 (Pune – Trib.)

Faurecia Automotive Holding vs. DCIT (IT)

ITA No.: 784/Pun/2015

A.Y.: 2011-12

Date of order: 8th July, 2019

 

Section 9(1)(vii) of the Act; Article 13 of India-France DTAA – Reimbursement of salary of seconded employees does not qualify as FTS – By virtue of the MFN clause in India-France DTAA, managerial services do not qualify as FTS

 

FACTS – 1

Taxpayer, a company resident in France, was engaged in designing and building moulded plastic parts for passenger car interiors. During the year under consideration, it seconded an employee (Mr. X) to an Indian group entity (ICo). During the relevant year, Taxpayer paid the salary to Mr X on behalf of ICo, which was then reimbursed by ICo without any mark-up. Taxpayer contended that the reimbursement received from ICo was not subject to tax.

 

However, the AO contended that the amount received from ICo was FTS under the Act and hence subject to tax in India.

 

Aggrieved, Taxpayer appealed before the DRP who upheld the AO’s order on the contention that Mr. X made available his technical knowledge, experience and skills, etc. to ICo and hence qualifies as FTS under the DTAA.

 

However, Taxpayer went in appeal before the Tribunal.

 

HELD – 1

FTS under the Act is defined to mean any consideration for the rendition of managerial, technical or consultancy services, unless such an amount is chargeable to tax under the head 'salaries’ in the hands of the recipient.

 

What is of relevance is the real recipient and not the literal recipient. If an amount is paid to the expatriate of an NR but the real recipient is the NR, then the nature of that amount may be FTS. However, if the real recipient is the employee and the NR is merely a person acting as a post office on behalf of the employee, then the payment made would be in the nature of salary. Such amount will then not qualify as FTS.

 

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