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19 July 2013
Following its own decision in an earlier assessment year, the Chennai Bench of the Income Tax Appellate Tribunal has held that no tax should be deducted on payments made to a US company in relation to the reimbursement of expenses for employees seconded to an Indian company.(1) The tribunal had previously observed that disallowance under Section 40(a)(ia) of the Income Tax Act is permitted only if tax is deductible under Chapter XVII-B of the act. Tax was not deductible under Section 192 of the act as there was no employee-employer relationship between the seconded employees and the assessee.
Furthermore, for tax to be deductible under Section 195 of the act, the amount should be chargeable to tax. Even if it was considered that the services rendered were fees for technical services, tax would not be charged, as no technical know-how or experience was made available. Thus, as the amounts payable did not fall within the tax withholding provisions of the act, disallowance under Section 40(a)(ia) was not warranted.
The secondment of employees, the corresponding reimbursement of expenses and the taxability thereof continue to be areas of dispute, as there are conflicting views on taxability. The Mumbai Bench of the Income Tax Appellate Tribunal has now also confirmed that the reimbursement of expenses is not liable to withholding tax.
For further information on this topic please contact Pranay Bhatia or Vidushi Maheshwari at Economic Laws Practice by telephone (+91 22 6636 7000), fax (+91 22 6636 7172) or email (email@example.com or firstname.lastname@example.org).
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