YOROZU CORPORATION,JAPAN V. DCIT CIRCLE INTL. TAXATION 3(1)(1), NEW DELHI

ITA 2135/DEL/2023

AI Insights

Yorozu Corporation, a Japanese company, appealed against the final assessment order which included an addition of INR 115,247,693 as FTS for the Assessment Year 2020-21. The addition was based on reimbursements received from its Indian subsidiary, Yorozu JBM Automotive Tamil Nadu Private Limited (YJAT), for salaries of employees seconded to India. The Tribunal examined whether these reimbursements constituted FTS under the Income Tax Act and the India-Japan DTAA. The Tribunal concluded that the reimbursements were not FTS as the employees were under the control and supervision of YJAT, and the payments were made on a cost-to-cost basis without any markup. The Tribunal also noted that similar cases had been decided in favor of the assessee, establishing a precedent that such reimbursements should not be treated as FTS.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471616 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Other Referred Cases: Northern Operating Systems Pvt. Ltd vs. C.C., C.E. & S.T.-Bangalore (Adjudication), Flipkart Internet Private Limited vs. DCIT, ERST & Young U.S.LLP Vs ACIT (International Taxation), Boeing India [P] Ltd vs. DCIT, Director of Income Tax (IT)-I vs. A.P. Moller Maersk A S, Commissioner of Income Tax, Delhi II vs. Karl Storz Endoscopy India (P) Ltd.
• Laws Referred To: Income-tax Act, 1961, India-Japan Double Taxation Avoidance Agreement
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY B VASANTA
• Assessee Lawyers: S.K. AGGARWAL; VIDDHI SINGHAL; FOREIGN GROUP OF COMPANIES; HAD
• Keywords: Set aside; Transfer pricing; Tax effect; Period of limitation; TDS; Double taxation relief
• Section: 143(3); 195; 192; 153; 43; 22; 13; 40(a)(ia); 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’, NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT and SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 2135/DEL/2023 Assessment Year : 2020-21 Yorozu Corporation, vs. DCIT, 3-7-60, Tarumachi, Kohoku-Ku, Kanagawa, Circle Intt. Taxation 3(1)(1), Yokohama, New Delhi. JAPAN. (PAN: AAACY4487E) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri S.K. Aggarwal, CA & Ms. Viddhi Singhal, CA REVENUE BY : Shri Vijay B Vasanta, CIT DR Date of Hearing : 03.10.2024 Date of Order : 30.12.2024 O R D E R PER S. RIFAUR RAHMAN, AM : 1. The captioned appeal preferred by the assessee is directed against the assessment order dated 30.05.2023 passed by the Income Tax Department, Circle Int. Tax 3(1)(1), Delhi u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short ‘the Act”) for Assessment Year 2020-21 pursuant to the directions of the Dispute Resolution Panel u/s 144C(5) of the Act. 2 ITA No.2135/Del/2023 2. Brief facts of the case are, the assessee company, incorporated in the year 1948 and covered under the provisions of India-Japan DTAA, is engaged in the business of development, design, manufacture and sale of automotive parties, agricultural machinery parts and production equipment. 3. For assessment year 2020-21, the assessee filed its return of income on 09.01.2021 declaring total income of Rs. 138,114,740/-. The case was selected for scrutiny proceedings and the Assessing Officer framed draft assessment order under section 143(3) r.w.s 144C(1) of the Act determined the total income of Rs. 253,362,433/-. He made the addition of Rs. 115,247,693/- being reimbursement received on cost-to-cost basis as Fees for Technical Services ('FTS' in short) under the Income Tax Act, 1961 as well as Article 12 of the India Japan Double Taxation Avoidance Agreement ('India-Japan DTAA'). 4. Aggrieved, assessee filed objections before the ld. Dispute Resolution Panel-2, New Delhi (in short ld. DRP). Pursuant to directions of the ld. DRP, the Assessing Officer framed final assessment order dated 30.05.2023 u/s 143(3) read with section 144C(13) of the Act at a total income of INR 253,362,433 as proposed in the draft assessment order. 5. Aggrieved, assessee has come in appeal before us and has raised following grounds of appeal: “The Appellant Company submits that the below grounds are independent 3 ITA No.2135/Del/2023 and without prejudice to one another. 1. Ground 1-General Yorozu Corporation ('the Company' or 'the Appellant') submits that the final assessment order dated 30 May 2023 passed by the Learned Deputy Commissioner of Income-tax, Circle International Tax 3(1)(1), Delhi (hereinafter referred to as 'Ld. AO') pursuant to the directions issued under section 144C(5) of the Income-tax Act, 1961 ('the Act') dated 20 April 2023 by the Dispute Resolution Panel ('Ld. DRP') is bad in law and is contrary to the facts and circumstances of the present case. The detailed grounds of appeal, including the position in law and facts is set out in the ensuing paragraphs. 2. Ground 2 - The Ld. AO and Ld. DRP erred in making disallowance of reimbursement of salary cost from its Indian subsidiary company pursuant to the secondment of employees on pure cost-to-cost basis as Fees for Technical services (Tax effect - INR 11,524,769) 2.1 On the facts and circumstances of the case, the Ld. AO and Ld. DRP erred in not appreciating the fact that the underlying payment had already suffered taxes in India as salaries under section 192 of the Act and addition of the same income again in the hands of the Appellant would lead to double taxation of same income. 2.2 On the basis of facts and circumstances of the case, the Ld. AO and Ld. DRP erred in relying on the ratio of the decision in the case of 'Northern Operating Systems Pvt. Ltd (Supreme court judgement held in the context of service tax regime) which is not applicable to the facts of the Appellant. 2.3 On the facts and circumstances of the case, the Ld. AO and Ld. DRP erred in not following the binding precedent of the jurisdictional High Court and Income Tax Appellate Tribunal ('ITAT'). 2.4 On the basis of facts and circumstances of the case, the Ld. AO and Ld. DRP erred in not appreciating the fact that the Appellant is not rendering any services through the seconded employees and the salaries 4 ITA No.2135/Del/2023 paid to the seconded employees cannot be said to be consideration paid to the Appellant for provision of service. 2.5 On the basis of facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP has erred in law and fact in making a disallowance of INR 115,247,693 without considering that the reimbursement of expenses received by the Appellant were on pure cost-to- cost basis and is outside the purview of taxability under Fees for Technical Services ('FTS') under the provisions of the Act as well India-Japan Double Taxation Avoidance Agreement ('DTAA'). 2.6 The Appellant prays to your goodself that the addition made by the Ld. AO and Ld. DRP as per the Act read with Article 12 of the India-Japan DTAA in the impugned order is unwarranted, void, bad in law and liable to be deleted 3. The Appellant Company craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal, at any time before or during the hearing of the appeal.” 6. The assessee also raised following additional grounds of appeal before us :- \"Ground no. 4- The DIN quoted in the intimation letter and the directions issued by the DRP have been found to be not in existence and the final assessment order pursuant to the directions of the Hon'ble DRP is to be quashed 4.1 On the fact and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('the DRP') erred in not quoting a valid computer-generated Document Identification Number ('DIN') on the body of the DRP Directions dated 20 April 2023 passed under section 144C(5) of the Act, thus such directions are in contravention to the CBDT Circular No. 19 of 2019 and hence liable to be quashed/ annulled as invalid. 4.2 On the fact and in the circumstances of the case and in law, the DIN quoted in the intimation letter and the directions issued by the DRP have been found to be not in existence and no record has been found on the Income Tax portal, hence, the final assessment order pursuant to the 5 ITA No.2135/Del/2023 directions of the Hon'ble DRP is bad in law, null and void and liable to be quashed. 4.3 On the fact and in the circumstances of the case and in law, the final assessment order dated 30 May 2023 passed under section 143(3) read with section 144C(13) of the Act pursuant to the directions of the Hon'ble DRP is bad in law, null and void and liable to be quashed.\" 7. Grounds of appeal nos.1 and 3 are general and need no adjudication. The same are dismissed as such. 8. During the course of hearing, ld. AR of the assessee chose not to press any additional grounds of appeal. Accordingly, the same are dismissed as not pressed. 9. In ground no. 2, with its sub-grounds, the assessee has challenged the addition of INR 11,52,47,693/- on account of fee for technical services (‘FTS’). The relevant facts of the issue are, the assessee company had entered into a Secondment Agreement with its Indian subsidiary, Yorozu JBM Automotive Tamil Nadu Private Limited ('YJAT' in short), pursuant to which the employees of the assessee company were seconded to YJAT and separate employment contracts were entered by YJAT with each of the employees for employment in YJAT. For administrative convenience and in order to continue the existing retirement benefit plans and social security contributions in Japan for the seconded employees, nominal portion of salary and contribution social security benefit and retirement benefit plans has been paid by the assessee company in Japan. Further, the said portion paid by the assessee company were recharged to 6 ITA No.2135/Del/2023 YJAT at actuals and the same were reimbursed on cost-to-cost basis without any mark-up. During assessment year under consideration the assessee company had received Rs.11,52,47,693/- from YJAT on account of reimbursements for salary paid to Japanese employees in Japan by the assessee for the employees seconded to India as well as other reimbursement such as license fees, business trip expenses, certification fees etc., incurred by the assessee company as a group in order to reduce its cost and improve overall profitability. The assessee did not offer the same for taxation by claiming that there was no employer-employee relationship between assessee and seconded employees and that the services provided by the seconded employees did not fall under ‘Fee for technical services’ as per Income Tax Act and India-Japan DTAA. Rejecting the claim of the assessee the Assessing Officer completed the assessment by adding INR 11,52,47,693 by holding that reimbursement on account of secondment of employees is ‘Fee for technical services’ under Income Tax Act as well as Article 12 of the India Japan DTAA and taxable at the rate of 10%. Aggrieved, the assessee has come in appeal before the Tribunal. 10. At the time of hearing, learned AR of the assessee submitted as under: (i) Reimbursement of portion of salary of seconded employees from YJAT on cost-to- cost basis is not FTS under the Act as well as India- Japan DTAA; 7 ITA No.2135/Del/2023 (ii) Assessee’s employees were seconded to India pursuant to secondment agreement entered into between the assessee and YJAT. Further, YJAT had entered into an employment contract specifying the remuneration and other term and conditions in the employment contract with each of the seconded employees; (iii) As per Shorter Oxford English dictionary, 'employer' means 'a person who employs or makes use of a person or an organization that pays someone to do work on a regular or contractual basis and the term 'employee' means 'a person who works for an employer. An employee is a person who works under the direct control, supervision and direction of another person called an employer who exercises such authority over the employee. The employee not only receives instructions from his employer but is also subject to the right of the employer to control the manner in which he should carry out such instructions. A significant feature of employer-employee relationship being 'control and command\"; (iv) Further, reference may be drawn to the text of Article 15 of the OECD Commentary concerning the taxation of income from employment, which has laid down certain parameters in determining the real economic employer for the seconded employees: i. who has the authority to instruct the individual regarding the manner in which the work has to be performed; ii. who controls and has responsibility for the place at which the work is performed; iii. the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided; iv. who puts the tools and materials necessary for the work at the individual's disposal: v. who determines the number and qualifications of the individuals performing the work; vi. who has the right to select the individual who will perform the work and to terminate the contractual arrangements entered into with 8 ITA No.2135/Del/2023 that individual for that purpose; vii. who has the right to impose disciplinary sanctions related to the work of that individual; and viii. who determines the holidays and work schedule of that individual. 11. On the other hand, learned DR submitted that the assessee is a foreign company incorporated under the laws of Japan and is engaged in the business of manufacture and trading of automotive parts and dies/equipments. The assessee deputed foreign experts in Indian subsidiaries who are employed by the Assessee for short term assignments. He submitted that the payment to foreign entity by the Indian entities will fall under ‘FTS’, it will not fall under the category of secondment of employees. The Indian entity requires for experts to execute certain activities and it pays certain payments is only towards FTS. He further submitted that the real question is who is the employer Indian entity or foreign entity. In this regard he submitted that foreign employer is the real employer. In this regard he brought to our notice Page 645 of the paper book, which is the copy of the disbursement of salary to a employee namely Mr.Naoto Shoji, as per which the major salary was received by him outside India. Further he brought to our notice page 872 which is the decision of Hon’ble Supreme Court in the case of Flipkart Internet Private Limited versus DCIT [2022] 139 taxman com 595 [Karnataka ] in which the Hon’ble Court gave relief only on the basis 9 ITA No.2135/Del/2023 of non availability of make available clause. Therefore he submitted that the treatment given by the lower authorities are proper and he relied on them. 12. Considered the rival submissions and material placed on record. The issue raised in the present appeal is relating to secondment of employees by the assessee to its subsidiary companies in the field of manufacturing in India. They were employed in India with the specific condition that they will not work in the country of origin during the period of employment in India. Facts on record show that salaries of employees working in India are being paid by the Indian entities in both Indian currencies and in Yen on the basis of reimbursement on cost to cost basis to the assessee. Their salaries are being subjected to tax in India. The issue raised by the revenue is that salary of employees paid by the entities to the assessee has to be treated as FTS considering the fact that they are employed here as experts to pass on their expertise. 13. We observed that similar issues were already considered by the coordinate benches in several cases and held that payments to be only salary and will not fall under the category of FTS. Specifically, we refer to the decision of Coordinate bench in the case of ERNST & Young U.S.LLP Vs ACIT (International Taxation) (2023) 153 taxmann.com 95. Wherein it was held as under: “18. We have given thoughtful consideration to the rival contentions and have carefully perused the order of the authorities below. Since the ld. DR has placed strong 10 ITA No.2135/Del/2023 reliance on the judgment of the Hon'ble Supreme Court [supra], we would like to address it first. 19. At the very outset, we have to state that the judgment has to be read in the context in which it is delivered and in the words of the Hon'ble Supreme Court, the judgment was delivered for : \"48. The task of this court, therefore is to, upon an overall reading of the materials presented by the parties, discern the true nature of the relationship between the seconded employees and the assessee, and the nature of the service provided - in that context - by the overseas group company to the assessee.\" 20. The Hon'ble Supreme Court, in the above context, observed as under: \"33. The issue which this court has to decide is whether the overseas group company or companies, with whom the assessee has entered into agreements, 24 provide it manpower services, for the discharge of its functions through seconded employees. 34. The contemporary global economy has witnessed rapid cross- border arrangements for which dynamic mobile workforces are optimal. To leverage talent within a transnational group, employees are frequently seconded to affiliated or group companies based on business considerations. In a typical secondment arrangement, employees of overseas entities are deputed to the host entity (Indian associate) on the latter's request to meet its specific needs and requirements of the Indian associate. During the arrangement, the secondees work under the control and supervision of the Indian company and in relation to the work responsibilities of the Indian affiliate. Social security laws of the home country (of the secondees) and business considerations result in payroll retention and salary payment by the foreign entity, which is claimed as reimbursement from the host entity. The crux of the issue is the taxability of the cross charge, which is primarily based on who should be reckoned as an employer of the secondee. If the Indian company is treated as an employer, the payment would in effect be reimbursement and not chargeable to tax in the hands of the overseas entity. However, in the event the overseas entity is treated as the employer, the arrangement would be treated as service by the overseas entity and taxed.\" XXXXX 53. Facially, or to put it differently, for all appearances, the seconded employee, for the duration of her or his secondment, is under the control of the 11 ITA No.2135/Del/2023 assessee, and works under its direction. Yet, the fact remains that they are on the pay rolls of their overseas employer. What is left unsaid- and perhaps crucial, is that this is a legal requirement, since they are entitled to social security benefits in the country of their origin. It is doubtful whether without the comfort of this assurance, they would agree to the secondment. Furthermore, the reality is that the secondment is a part of the global policy - of the overseas employer loaning their services, on temporary basis. On the cessation of the secondment period, they have to be repatriated in accordance with a global repatriation policy (of the overseas entity). 21. And finally, the Hon'ble Supreme Court concluded as under: \"65. It is held, for the foregoing reasons, that the assessee was the service recipient for service (of manpower recruitment and supply services) by the overseas entity, in regard to the employees it seconded to the assessee, for the duration of their deputation or secondment. Furthermore, in view of the above discussion, the invocation of the extended period of limitation in both cases, by the revenue is not tenable. 66. In light of the above, the revenue's appeals succeed in part; the assessee is liable to pay service tax for the periods spelt out in the SCNs. However, the invocation of the extended period of limitation, in this court's opinion, was unjustified and unreasonable. Resultantly, the assessee is held liable to discharge its service tax liability for the normal period or periods, covered by the four SCNs issued to it. The consequential demands therefore, shall be recovered from the assessee. 67. The impugned common order of the CESTAT is accordingly set aside. The commissioner's orders in original are accordingly restored, except to the extent they seek to recover amounts for the extended period of limitation. The demand against the assessee, for the two separate periods, shall now be modified, excluding any liability for the extended period of limitation.\" 22. A perusal of the judgment of the Hon'ble Supreme Court [supra] shows that it was in the context of manpower recruitment and supply of services for which the assessee was recipient of services and was liable to pay service tax. As mentioned elsewhere, this judgment was delivered to discern the true nature of relationship between the seconded employees and the assessee and nature of services provided in that context by oversees group companies to the assessee. 23. The Hon'ble High Court of Karnataka in the case of Flipkart Internet [P] Ltd 448 ITR 268 had the occasion to consider the aforementioned judgment of the Hon'ble Supreme Court relied upon by the ld. DR and the Hon'ble High Court, inter alia, held as under: 12 ITA No.2135/Del/2023 \"viii) The Revenue has relied upon the judgment of the Apex Court in C.C., C.E. & S.T.-Bangalore (Adjudication) etc. v. M/s. Northern Operating Systems Pvt. Ltd.12 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 Civil Appeal Nos.2289-2293/2021 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 man power 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. (xi) Accordingly, any conclusion on an interpretation of secondment as contained in the M.S.A. to determine who the employer is and determining the nature of payment by itself would have no conclusive bearing on whether the payment made is for 'FIS' in light of the further requirement of \"make available.\" 24. The deputation agreement between the assessee and EY India member firms are exhibited at pages 19 to 43 of the Paper Book. It would be pertinent to refer to certain relevant clauses in the agreement as under: \"Assignment' shall mean release of personnel by EYUS to and who is to be in employment by EYGDS India for the period of employment under the terms and conditions agreed by EYGDS and employee. 25. Under the head \"General Terms and Conditions of Secondment\" : \"3.1 During the Period of Assignment, the International Assignees shall function solely under the control, direction and supervision of EY LLP INDIA 13 ITA No.2135/Del/2023 and in accordance with all rules, regulations, policies, guidelines and other practices, generally applicable to the employees of EY LLP INDIA. International Assignees shall work exclusively for EY LLP INDIA and shall be solely responsible to EY LLP INDIA for their work during the Period of Assignment. EY LLP INDIA shall decide the nature of work of the International Assignees and EY LLP INDIA shall be solely responsible for the work of International Assignees during the Period of Assignment. 3.2 EYUS shall not be responsible for the work of the International Assignees or assume any risk for the results produced from the work performed by the International Assignees during the period. The International Assignees shall not be regarded as employees of EYUS and shall not in any way be subject to any kind of instructions or control of EYUS during the Period of Assignees. 3.3 EYUS shall not have any obligation towards EY LLP INDIA regarding the performance of international Assignees. The privity and lien of EYUS would cease during the period of employment with EY LLP India on entering of employment contract by international assignee with EY LLP India.\" 26. It can be seen from the above that EY LLP India is alone responsible for complying with the requirement of withholding of tax under the Indian Tax Laws and the same has been verified from the Sample Form No. 16 Exhibited at pages 96 to 98 of the assessee paper book. 27. The co-ordinate bench in the case of Boeing India [P] Ltd 121 Taxmann.com 276 which has been affirmed by the Hon'ble High Court of Delhi, had the occasion to consider an identical issue and held as under: \"30. We have given thoughtful consideration to the orders of the authorities below. We have also carefully perused the salary reimbursement agreement, which is placed at pages 296 onwards of the paper book, and as per clause1.1, it is provided that the secondees have expressed their willingness to be deputed to BIPICL [the 20 appellant] and TBC [AE] have agreed to release these employees to BIPICL. It is provided that TBC will facilitate payment of salaries in secondees home country on behalf of BICIPL. Under the head employment status, it is provided that the secondees shall be working for BICIPL and will be under supervision, control and management of BICIPL as an employee of BICIPL. 31. It is clear from the afore-stated relevant clauses that the secondees were, in fact, in employment of the appellant and as per the terms, the 'A' was paying salaries at the home country of the secondees and, therefore, there was reimbursement by the appellant. These facts clearly show that the assessee has 14 ITA No.2135/Del/2023 been paying to its own employees and this fact alone clearly distinguishes the facts of the decision in the case of Centrica India Offshore Ltd [supra]. 32. The co-ordinate bench in the case of AT & T Communication Services India Pvt Ltd. [supra], distinguishing the decision of the Hon'ble Delhi High Court in the case of Centrica India Offshore Pvt Ltd [supra], has held as under: \"30. The DRP has affirmed the decision of the Ld. AO by holding that the assessee has deducted withholding tax on 21 substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment. 31. The DRP has affirmed the decision of the AO by holding that the assessee has deducted withholding tax on substantial payments and yet argued that the tax is not deductible u/s 195 of the act and provision of section 40(a)(i) cannot be invoked in the case of said payment. 32. The Special Auditors in their Audit Report have worked out particulars of payments in respect of which no TDS was deducted u/s 40(a)(ia) of the Act. Consequently, an amount of Rs. 54,06,328/- was not to be allowed as expenditure.\" 33. We have also perused the TDS certificates, Forms 15CA and 15CB, tax deducted by the assessee and all these documents are part of the paper book. There is no dispute that the assessee has deducted tax at source u/s 192 of the Act. On the given facts of the case, we are of the considered opinion that the provisions of Section 195 of the Act do not apply. Considering the facts of the case in totality, in light of judicial decisions referred to hereinabove, we do not find any merit in 22 the disallowance made by the Assessing Officer/DRP. We, accordingly, direct for deletion of addition of Rs. 56.58 crores.\" 28. Affirming the order of the co-ordinate bench in ITA No. 71/2022 dated 11.10.2022, the Hon'ble High Court held as under: \"11. As far as disallowance under Section 40(a)(ia) of the Act is concerned, this Court finds that there is no dispute that the assessee has deducted tax at source under Section 192 of the Act. This Court is in agreement with the opinion of the ITAT that Section 195 of the Act has no application once the nature of payment is determined as salary and deduction has been made under Section 192 of the Act. 12. This Court is further of the view that the judgment in Centrica India Offshore Pvt. Ltd (supra) has no application to the present case as the ITAT has 15 ITA No.2135/Del/2023 returned a finding that the real employer of the seconded employees continues to be the Indian entity and not the overseas entity. 13. In Director of Income Tax (IT)-I vs. A.P. Moller Maersk A S, the Supreme Court in Civil Appeal No.8040/2015 decided on 17th February, 2017 has held as under:- \"11. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of imagination, payments made by the agents can be treated as free for technical service. It is in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. It is reemphasized that neither the AO nor the CIT(A) has stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Record shows that the assessee had given the calculations of the total costs and pro-rata division thereof among the agents for reimbursement. Not only that, the assessee have been submitted before the Transfer Pricing Officer that these payments were reimbursement in the hands of the assessee and the reimbursement was accepted as such at arm's length. Once the character of the payment is found to be in the nature of reimbursement of the expenses, it cannot be income chargeable to tax.\" 14. A Division Bench of this Court in Commissioner of Income Tax, Delhi II vs. Karl Storz Endoscopy India (P) Ltd., ITA No.13/2008 decided on 13th September, 2010 has held as under:- 1. This appeal pertains to the Assessment Year 2001-02. The issue relates to the treatment which is to be given to the amount of Rs.6,59,416 paid by the assessee to its parent foreign company, i.e., Karl Storz Vertriebs GMBH & Company. The assessee had claimed that he parent company had deputed one of the employees, viz., Mr. Peter Laser to the Indian Company/assessee and the aforesaid amount represented reimbursement of the salary, which was payable to Mr.Peter Laser. The Assessing Officer (AO), however, was of the opinion that since no agreement between the assessee and the parent company was produced and even the agreement between the parent company and its employees. Mr. Peter Lazer on the basis of which he was purportedly deputed to the Indian Company was produced, this amount should be treated as payment towards technical fee. 16 ITA No.2135/Del/2023 xxx xxx xxx 3. Learned counsel for the respondent-assessee has pointed out that this was not the first year in which such a claim was made. He stated that the Indian Company was incorporated during the Assessment year 1998-99 and for the establishment of this company which is subsidiary to the aforesaid foreign company. Mr. Peter Laser was deputed, the amount paid from the Assessment year 1998-99 onwards were always treated as salary and accepted as such. Learned counsel for the respondent has produced the copy of the orders dated 15.06.2005 passed by the ITAT, which relates to the Assessment year 1998-99, i.e. the first year of the incorporation of the respondent-company. Perusal of this orders shows that this very issue is decided and the following findings were arrived at by the Tribunal holding that the aforesaid payment would be treated as salary to Mr. Peter Laser. \"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 ITA No.71/2022 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 17 ITA No.2135/Del/2023 technical services. Moreover, since it is paid as salary to Mr. Laser, tax has been deducted under Section 192 of the Act.\" 4. Learned counsel also submitted that thereafter in the Assessment Year 1990-00 as well as 2000-01, the amounts reimbursed in identical manner were treated as \"salary\" to Mr. Laser. He further states that no appeal was filed against the aforesaid order of the Tribunal by the Revenue.\" 15. Consequently, this Court is of the view that the issues of 'receivables' as well as 'disallowance' under Section 40(a)(ia) of the Act are essentially questions of fact, which give rise to no substantial questions of law especially when the findings of the ITAT are not perverse.\" 29. Considering the facts of the case in totality, in light of the deputation agreement, we are of the considered view that cost to cost reimbursement on account of secondment of employees cannot be treated as FTS as defined under Article 12 of India USA-DTAA and seconded personnel are employees of EY India firms whose income has been taxed as salary in their respective hands. Therefore, the very same amount could not, in law, be subjected twice - firstly in the hands of the seconded employees working in India and secondly again the hands of the assessee. The Assessing Officer is accordingly, directed to delete the impugned addition.” 14. From the above, it is clear that the reimbursement on account of secondment of employees cannot be treated as FTS under DTAA and also on the basis of salary being offered to tax in their respective hands, in the given case also, the respective employees have already offered the same to tax in India. 15. The India- Japan DTAA, Article 12(4) states 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 to in article 14, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel.” 18 ITA No.2135/Del/2023 16. Similarly, the Indo-US DTAA Article 12(5) states as under: “5. Notwithstanding paragraph 4, “fees for included services” does not include amounts paid : (a) (b) (c) (d) for services for the personal use of the individual or individuals making the payments ; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services).” 17. The language in the both the treaties are similar, therefore, we are inclined to follow the above decision. Further, the decision of Flipkart relied by ld. DR are also dealt with by the coordinate Bench and accordingly, direct the AO not to treat the secondment of employees as FTS. Accordingly, the additions made are deleted. 18. In the result, the grounds raised by the assessee are allowed and also the appeal preferred by them. Order pronounced in the open court on this 30.12.2024. Sd/- sd/- (SAKTIJIT DEY) (S.RIFAUR RAHMAN) VICE PRESIDENT ACCOUNTANT MEMBER Dated : 30.12.2024 TS 19 ITA No.2135/Del/2023 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "