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2016 (5) TMI 27 - ITAT MUMBAI

2016 (5) TMI 27 - ITAT MUMBAI - TMI - Disallowance of expenses on account of employee’s expenses of secondment - non-deduction of TDS by invoking the provisions of section 40(a)(ia) - Held that:- The issue is covered by the decision of ITAT, Bangalore bench in the case of IDS Software Solutions (India) (P) Ltd. Vs. ITO [2009 (1) TMI 363 - ITAT BANGALORE-A] wherein the facts discussed as regards to where the assessee entered into a ‘secondment agreement’ with a US Company and obtained the service .....

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mployer. Accordingly, the salary reimbursed to the US Co was not chargeable to tax. Though the person deputed by the US Co was a technical person, the consideration paid under the secondment agreement was not “fees for technical services” because the fact that the seconded employee was responsible and subservient to the payer (assessee) and was required to also act as officer or authorized signatory or nominee of the assessee made it inconsistent with an agreement for providing technical service .....

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ct the AO to decide the issue in term of the principles laid down above - ITA No. 1945/Mum/2013 - Dated:- 15-4-2016 - Shri R. C. Sharma, AM And Shri Mahavir Singh, JM For the Appellant : Shri Sanjiv Jain, DR For the Respondent : Shri A. V. Sonde & P.P. Jayaraman ORDER Per Mahavir Singh, JM This appeal by revenue is directed against the order of CIT(A)-21, Mumbai in Appeal No. CIT(A)-21/IT/356/2011-12 vide order dated 14.12.2012. Assessment was framed by Addl. CIT-10(1), Mumbai u/s. 143(3) of .....

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ing the addition made on this account by the AO u/s.40(a)(ia) to the tune of ₹ 1,93,46,000/- and in not appreciating that non-deduction of TDS certificate was not obtained by the assessee company from the appropriate TDS authority for the year under consideration. 1. (ii) in ignoring that factually the assessee company was well aware of the TDS provisions of the Ac that "the non-deduction of TDS certificate should have been obtained u/s.197 for the current year as well; and instead wr .....

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ment charges disallowed the same by stating that no TDS has been deducted on the same. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by relying on the decision of coordinate bench of ITAT Bangalore in the case of IDS Software Solutions (India) Pvt. Ltd. Vs. ITO (International Taxation) (2009 122 TTJ 410 (Bang) and also the decision of Hon ble Bombay High Court in the case of CIT Vs. Kotak Securities Ltd. in Appeal No. 3111 of 2009. Aggrieved, revenue c .....

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ounsel, this is clear from secondment agreement. There is also a letter from British Gas which clearly states that all the taxes due in India of the employees seconded to the assessee i.e. Mahanagar Gas Ltd. have been deducted from salary paid to secondees and paid to the Govt. of India. Ld. counsel for the assessee drew our attention to pages 23 and 24 wherein declaration made by British Gas is that taxes due of secondee employees have been paid by them in India and relevant declaration is encl .....

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reports, drawings, patents, copyright, designs and other technical information which are the property of British Gas shall remain in the ownership of British Gas and there shall be no transfer or licence of such property except as may be otherwise agreed in writing between the parties, or as provided under the Technology Transfer Agreement. 16.2. for the avoidance of doubt the parties agree that during the Secondment any invention, design, copyright or other intellectual property made by a Secon .....

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ish Gas have agreed to second, therefore, employees to the joint venture company i.e. Mahanagar Gas Ltd. on secondment basis and under secondment agreement certain employees have been seconded to the assessee. It was explained before us that since the employers were seconded for limited time of 2 to 3 years, the remuneration payable to these seconded employees were being paid by British Gas or GAIL recoverable from assessee on cost to cost basis. It was also explained that the nature of secondme .....

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present case, there was subsisting employer employee relation between British Gas and expatriate. British Gas was also person responsible for making payment to expatriate and application for deducting tax at source from salary was on British Gas. Ld. counsel for the assessee made a categorical statement that British Gas has deducted TDS on these remunerations paid to seconded employees and also deposited in the treasury of the Govt. of India. The TDS on salary payment to expatriate seconded emp .....

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ich reads as under: 1120. Payment of any sum shall be liable for deduction of tax only under one section. 1. It has been brought to the notice of the Board that in some cases persons responsible for deducting tax at source are deducting such tax by applying more than one provision for the same payment. In particular, it has been pointed out that the sums paid for carrying out work of advertising are being subjected to deduction of tax at source under section 194C as payment for work contract as .....

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Vs. Kotak Securities Ltd. (2012) 340 ITR 333 (Bom), wherein it has been held as under: 31. The object of introducing section 40(a)(ia), as explained in the Central Board of Direct Taxes Circular No. 5, dated July 15, 2005-See [2005] 276 ITR (St.) 151 ), is to augment compliance with the TDS provisions in the case of residents and curb bogus payments. Moreover, though section 194J was inserted with effect from July 1, 1995, till the assessment year in question that is the assessment year 2005-06 .....

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footing that section 194J is not attracted, then in the assessment year in question, no fault can be found with the assessee in not deducting the tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) of the Act. It is relevant to note that from the assessment year 2006-07 the assessee has been deducting tax at source while crediting the transaction charges to the account of the stock exchange though not as fees for technical services but a .....

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of the Act and, therefore, the Assessing Officer was not justified in invoking section 40(a)(ia) of the Act and disallowing the business expenditure by way of transaction charges incurred by the assessee. 32. Accordingly, we hold that the transaction charges paid by the assessee to the stock exchange constitute "fees for technical services" covered under section 194J of the Act and, therefore, the assessee was liable to deduct tax at source while crediting the transaction charges to th .....

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arrived at the above conclusion in the peculiar facts of the present case, where both the Revenue and the assessee right from the insertion of section 194J in the year 1995 till 2005 proceeded on the footing that the assessee is not liable to deduct tax at source and in fact immediately after the assessment year in question, i.e., from the assessment year 2006-07 the assessee has been deducting tax at source while crediting the transaction charges to the account of the stock exchange. 7. We als .....

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echnical services . It was held that though the US Co was the employer in a legal sense but since the services of the employee had been seconded to the assessee and since the assessee was to reimburse the emoluments and it controlled the services of the employee, it was the assessee which for all practical purposes was the employer. Accordingly, the salary reimbursed to the US Co was not chargeable to tax. Though the person deputed by the US Co was a technical person, the consideration paid unde .....

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