TOSHIBA ENERGY SYSTEM & SOLUTIONS CORPORATION,JAPAN V. DCIT CIRCLE INTL TAXATION 3(1)(1), NEW DELHI

ITA 2113/DEL/2023

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The case involves Toshiba Energy System & Solutions Corporation, the appellant, contesting the classification of reimbursements received for salaries paid to seconded employees as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961, and Article 12(4) of the India-Japan Double Taxation Avoidance Agreement (DTAA). The appellant argued that the reimbursements were merely cost recoveries without any profit element, similar to a previous case involving Toshiba Corporation. The Department of Income Tax defended the original assessment, but acknowledged the similarity to the Toshiba Corporation case. The Tribunal examined the contracts and payment structures, finding them consistent with salary payments rather than FTS, leading to the decision in favor of the appellant.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791081 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 25-07-2023
• Other Referred Cases: Toshiba Corporation vs. DCIT, PCIT vs. Boeing India (P.) Ltd., CIT vs. Karl Storz Endoscopy India (P) Ltd, Flipkart Internet (P) Ltd vs. Northern Operating Systems (P) Ltd
• Laws Referred To: Income Tax Act, 1961, India-Japan DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: EKTA JAIN
• Assessee Lawyers: VISHAL KALRA; KASHISH GUPTA; CHARTERED ACCOUNTANT; FOREIGN GROUP OF COMPANIES; HAD
• Keywords: TDS; Double taxation relief
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अधिकरण धिल्ली पीठ “डी”, धिल्ली श्री विकास अिस्थी, न्याविक सदस्य एिं श्री एम. बालगणेश, लेखाकार सदस्य क े समक्ष IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”, DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M. BALAGANESH, ACCOUNTANT MEMBER आअसं.2113/धिल्ली/2023(नि.व. 2020-21) ITA No.2113/DEL/2023 (A.Y.2020-21) Toshiba Energy System & Solutions Corporation, 72-34, Horikawa Cho, Saiwai Ku Kawasaki-Shi, Kanagawa, Japan 212-0013 ...... अपीलार्थी/Appellant PAN AAGCT-4986-R बिाम Vs. The Deputy Commissioner of Income Tax, Circle International Tax 3(1)(1), Civic Centre, Minto Road, New Delhi 110002 ..... प्रनिवादी/Respondent अपीलार्थी द्वारा/ Appellant by : Shri Vishal Kalra, Advocate & Shri Kashish Gupta, Chartered Accountant प्रधिवािीद्वारा/Respondent by : Ms. Ekta Jain, CIT(DR) सुिवाई की निथर्थ/ Date of hearing : 03/12/2025 घोषणा की निथर्थ/ Date of pronouncement : 10/12/2025 आदेश/ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the Assessment Order passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’) dated 26.05.2023, for Assessment Year 2020-21. 2. Shri Vishal Kalra, appearing on behalf of the assessee submits that the only ground of appeal he is pressing before the Tribunal for adjudication is ground no. 4 i.e. assailing findings of the Assessing Officer (AO) and Dispute Resolution Panel (DRP) in treating the reimbursement of actual cost towards seconded employees Printed from counselvise.com 2 ITA No. 2113/DEL/2023 (A.Y.2020-21) as Fee for Technical Services (FTS) u/s.9(1)(vii) of the Act and Article 12(4) of India-Japan DTAA. He submitted that during the period relevant to assessment year under appeal, the assessee had received reimbursements to the tune of Rs.10,61,81,658/- on account of salaries paid to the employees of Indian entities i.e. Toshiba J.S.W Powers System P. Ltd., Toshiba Transmission and Distribution Systems India P. Ltd. The payments received by the assessee towards the reimbursements were on cost to cost without any element of profit. The ld. Counsel for the assessee submits that the issue in the instant appeal i.e. reimbursement of salaries to seconded employees is identical to the one decided by the Tribunal in the case of assessee’s group company Toshiba Corporation vs. DCIT in ITA No. 2587/Del/2023 for AY 2020-21 vide order dated 01.12.2025. The facts in the instant appeal are identical. He further submitted that the terms and conditions for appointment of seconded employees by the Indian subsidiaries are identical to the one considered by the Tribunal in the case of Toshiba Corporation vs. DCIT (supra). He thus placed reliance on the aforesaid decision by the Tribunal. 3. Per contra, Ms. Ekta Jain representing the department vehemently defended the impugned order and prayed for upholding findings of the AO. However, the ld. DR fairly stated that the issue involved in the present appeal is similar to the one considered by the Tribunal in the case of Toshiba Corporation vs. DCIT (supra). 4. Both sides heard, orders of the authorities below examined. The only ground of appeal assailed by the Counsel for the assessee is ground no. 4. The same reads as under:- Printed from counselvise.com 3 ITA No. 2113/DEL/2023 (A.Y.2020-21) “4. That on the facts and circumstances of the case and in law, the AO/DRP have failed to appreciate that the amounts received by the Appellant from Indian entities represent reimbursement of actual costs without any element of profit and accordingly, not chargeable to tax in India.” 5. During the period relevant to assessment year under appeal, the assessee has received reimbursements from its group entities in India amounting to Rs.10,61,81,658/- in respect of salaries paid to 22 seconded employees. We find that the issue in the instant appeal is identical to the one considered by the Coordinate Bench of the Tribunal in the case of assessee’s group company Toshiba Corporation vs. DCIT (supra). In the instant case, the contracts entered into between the seconded employees and the Indian entities are similar to the contracts in the case of Toshiba Corporation vs. DCIT (supra). The payments are made to the seconded employees by Indian entities after deduction of tax at source. The AO in the impugned order has nowhere disputed that the payments were made without any mark-up. In similar set of facts, the Coordinate Bench in the case of Toshiba Corporation vs. DCIT (supra) held as under:- “8. The assessee has made payment of Rs.10,76,36,392/- in respect of 26 employees to the assessee as reimbursement of salary paid in Japan for the services rendered by said employees in India. The Indian entities have made payment of the salary to the said employee’s consequent to respective employee entering into a separate agreement/contract of employment. To substantiate that there was employment contract between the seconded employees and Indian entities, the assessee has placed on record one such contract at page 715 of the paper book which lays down the terms and conditions of the employment. A perusal of the said contract/appointment letter would show that the payment of salary to the seconded employees is solely by the Indian company. The salary would be made partly in yen and partly in Indian rupee. The employee would be working under the control of the Indian company and the Indian company would have right to terminate services of the seconded employee in case of breach of the terms and conditions of employment. The Form No. 16 in respect of seconded employees issued by the Indian companies show that the payment of salary Printed from counselvise.com 4 ITA No. 2113/DEL/2023 (A.Y.2020-21) made to the seconded employees is subject to TDS provisions. Thus, the tax has been deducted on the payment of salary to the seconded employees by the Indian companies. 9. The Hon’ble Delhi High Court in the case of PCIT vs. Boeing India (P.) Ltd. (supra) has held that where the reimbursements are in the nature of salary the same could not be treated as FTS. The Hon'ble High Court placed reliance on the decision rendered in the case of CIT vs. Karl Storz Endoscopy India (P) Ltd in IT Appeal No.13 of 2008 decided on 13-9-2010 wherein after analysing facts of the case the Hon'ble High Court held: \"10. The foreign company had deputed one of its employees to look after the affairs of the Indian Company. The salary payable to this employee was to be borne by the foreign company. The Indian company was to reimburse this salary at cost, i.e. without any mark-up. Thus, it was merely the question of payment of salary to Mr. Peter Laser. There is no question of any technical fees being paid to the foreign company. Assuming for the sake of argument that it was in the nature of technical fees paid to the foreign company; then, as rightly pointed out by the learned counsel, Article 12.4 was applicable and not Article 13.4 as contended by the learned DR. Even if Article 12.4 was applicable, the said Article specifically excludes payments mentioned in Article 15. Article 15 states that salaries, wages and other similar remuneration derived by a resident of a Contracting State (Germany) in respect of an employment shall be taxable in the other Contracting State (Indian) only if the employment is exercised there. In other words, salaries paid to such personnel like Mr. Laser are taxable in India and they cannot be considered to be fees for technical services. Further, even as per Section 9 of the Act, the payment cannot be treated as fees for technical service. Explanation 2 to Section 9(1)(vii) gives the meaning of the expression \"fees for technical services\" as per which, inter alia, any consideration which would be income of the recipient chargeable under the head \"salaries\", then such payment will not be considered as fees for technical services. Thus, even as per the provisions of the Act, the payment in question cannot be treated as fees for technical services. Moreover, since it is paid as salary to Mr. Laser, tax has been deducted under section 192 of the Act.\" 10. If we look at the India - Japan DTAA similar provisions are contained in Article 12 that deals with Royalty and FTS. FTS is defined in Article 12(4). The same reads as under: \"(4) The term 'fees for technical services' as used in this article means payments of any amount to any person other than payments to an employee of a person making payments and to any individual for independent personal services referred in Article 14\" Printed from counselvise.com 5 ITA No. 2113/DEL/2023 (A.Y.2020-21) Once it is established that the payments are made as salary to the employees for the services rendered in India, such payments are outside the preview of FTS. The assessee in the instant case has been able to substantiate that the payments made by Indian entities to the assessee are qua reimbursements of salary paid in Japan to the seconded employees for the services rendered in India by them. As is evident from FORM 16 available on record, tax under the Act has also been deducted on payment of salaries. 11. The Hon'ble Delhi High Court in the case of Flipkart Internet (p) Ltd. (supra) while considering similar issue also examined the decision rendered in the case of Northern Operating Systems (P) Ltd (supra). The Hon'ble High Court held: \"(vii) The petitioner issues the appointment letter, the employee reports to the petitioner, the petitioner has the power to terminate the services of the employee. For the purpose of a limited finding under section 195 on the basis of the available material, it could be concluded that the petitioner is the employer. (viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T. v. Northern Operating Systems (P.) Ltd. [2022] 138 taxmann.com 359 where the Apex Court has interpreted the concept of a secondment agreement taking note of the contemporary business practice and has indicated that the traditional control test to indicate who the employer is may not be the sole test to be applied. The Apex Court while construing a contract whereby employees were seconded to the assessee by foreign group of Companies, had upheld the demand for service tax holding that in a secondment arrangement, a secondee would continue to be employed by the original employer. (ix) The Apex Court in the particular facts of the case had held that the Overseas Co., had a pool of highly skilled employees and having regard to their expertise were seconded to the assessee and upon cessation of the term of secondment would return to their overseas employees, while returning such finding on facts, the assessee was held liable to pay service tax for the period as mentioned in the show cause notice. (x) It needs to be noted that the judgment rendered was in the context of service tax and the only question for determination was as to whether supply of manpower was covered under the taxable service and was to be treated as a service provided by a Foreign Company to an Indian Company. But in the present case, the legal requirement requires a finding to be recorded to treat a service as 'FIS' which is \"make available\" to the Indian Company.\" Printed from counselvise.com 6 ITA No. 2113/DEL/2023 (A.Y.2020-21) The Hon'ble High Court finally concluded that the Assessing Officer has wrongly held reimbursement of salary as FTS. 12. In the light of facts of the case and the decisions discussed above we hold that the Revenue has misread the Contract of appointment/Letter of appointment. The assessee has been able to establish employee-employer relationship between the seconded employees and the Indian entities. Where the payments are made to employees as salaries, such payments cannot be recharacterized as FTS.” 6. Thus, in light of the fact that in the instant case facts are pari materia to the facts in case of Toshiba Corporation (supra), we hold that the reimbursements received for salaries paid to seconded employees cannot be held as FTS. Thus, the assessee succeeds on ground no. 4 of appeal. 7. The assessee in appeal has raised as many as 10 grounds. Ground of appeal no. 1 to 3 & 5 to 8 are either general or are in support of ground no.4, hence, require no separate adjudication. 8. No submissions were made on ground of appeal no. 9 & 10, hence, the same are dismissed. 9. In the result, appeal of the assessee is allowed protanto. Order pronounced in the open court on Wednesday the 10th day of December, 2025. Sd/- Sd/- (M. BALAGANESH) (VIKAS AWASTHY) लेखाकार सदस्य/ACCOUNTANT MEMBER न्यानयक सदस्य/JUDICIAL MEMBER धिल्ली/Delhi, ददिांक/Dated 10/12/2025 NV/- Printed from counselvise.com 7 ITA No. 2113/DEL/2023 (A.Y.2020-21) प्रतिलिपि अग्रेपिि/Copy of the Order forwarded to : 1. अपीलार्थी/The Appellant , 2. प्रनिवादी/ The Respondent. 3. The PCIT 4. ववभागीय प्रनिनिथि, आय.अपी.अथि., वदल्ली /DR, ITAT, धिल्ली 5. गार्ड फाइल/Guard file. ORDER, //True Copy// (Asstt. Registrar) ITAT, DELHI Printed from counselvise.com 8 ITA No. 2113/DEL/2023 (A.Y.2020-21) 1. Date of dictation of Tribunal order 08.12.2025 2. Date on which typed draft order is placed before the dictating Member 09.12.2025 3 Date on which typed draft order is placed before the other Member (in the case of DB) 4. Date on which the approved draft order comes to P.S/Sr.P.S 5. Date on which the fair Order is placed before the dictating Member for sign 6. Date on which the fair Order is placed before the other Member for sign ( in the case of DB) 7. Date on which the Order comes back to P.S./Sr.P.S for uploading on ITAT website 8. Date of uploading, if not, reason for not uploading 9. Date on which the file goes to the Bench Clerk 10. Date on which order goes for xerox 11. Date on which order goes for endorsement 12. Date on which the file goes to the Superintendent/O.S. for checking 13. Date on which the file goes to the Assistant Registrar for signature on the order 14. Date on which the file goes to dispatch section for dispatch the Tribunal Order 15. Date of dispatch of order 16. Date on which file goes to Record Room after dispatch the order Printed from counselvise.com "