24. [2018] 95 taxmann.com 165 (Mumbai – Trib) Morgan Stanley Asia (Singapore) Pte Ltd vs. DDIT ITA Nos: 8595 (Mum) of 2010 and 4365 ( Mum) of 2012 A.Ys.: 2006-07 and 2007-08 Date of Order: 6th July, 2018 Article 13 of India-Singapore DTAA; Section 9, 195 of the Act – Amount received by a Singapore company from its AE in India towards reimbursement of salary of its deputed employee could not be considered as FTS since there was no income element.

Facts

The Taxpayer was a company
incorporated in, and tax resident of, Singapore. The Taxpayer had deputed one
of its directors/employees to India to set up and develop the business of its
associated entity (“AE”) in India (“ICo”) under a contract executed between
them. ICo was engaged in providing support services to group companies outside
India. The Taxpayer continued paying salary of its deputed employee, which was
reimbursed by ICo.

Before the AO, the Taxpayer
contended that the payment received by it was reimbursement without any income
element. However, the AO contended that the deputed employee was highly
qualified and having vast technical experience and expertise. The AO noted that
while salary is generally paid on a monthly basis, ICo had made single remittance
of consolidated amount. Further, there was no evidence to suggest that
provision of managerial and consultancy services to an AE was not the business
of the taxpayer. Therefore, the AO treated the reimbursement received by the
Taxpayer as FTS and charged further markup of 23.3% by determining ALP on the
basis of the order of the TPO.

The CIT(A) confirmed the order of
the AO.

Held

•     The contract between the
  Taxpayer and ICo clearly provided that the Taxpayer will pay salary on behalf
  of ICo and the same would be recharged by ICo. The tax authority had not
  disputed that the payment was reimbursement of salary without any income
  element.

•     Since the amount was
  reimbursement of cost, it cannot be brought within definition of FTS in
  explanation 2 to section 9(1)(vii) of the Act.

•  Hence, the reimbursed amount was to be regarded as salary in the
  hands of the deputed employee. Relying on the decisions in United Hotels Ltd
  vs. ITO [2005] 2 SOT 0267 (Delhi) and in ADIT vs. Mark and Spencer Reliance
  India Pvt Ltd (2013) 38 taxmann.com 190 (Mum-Trib), the payment was
  reimbursement of salary and not FTS under India-Singapore DTAA and the Act.
  Accordingly, it could not be taxed in the hands of the Taxpayer.