The Taxation Times is an initiative to keep you abreast with
the latest development in the realm of the Direct Taxes in
India.
Taxation Times is a monthly newsletter published by UJA
specifically with an intent and object to simplify and
provide clarity on certain provisions of the Income Tax Act,
discuss the implications of various amendments and
circulars notified time and again, understand the judicial
precedents as decided by various courts and interpret these.
TAXATION TIMESFebruary 2020
Contents
Notifications & Circulars
Introduction
Article
Case Laws
Tax Calendar
Pg 3
Pg 4
Pg 8
Pg 6
Pg 9
3. The tax compliances for February 2020 and the CBDT notifications issued in January 2020 have been
included in the latter part of this newsletter.
2. Certain judicial decisions pronounced by the High Court & ITAT;
What do you think about this issue? Do you have any inputs to make the forthcoming issues more interesting and
relevant? Please share your feedback at [email protected]
We hope that you find this edition of the Taxation Times interesting & useful.
1. Should reimbursements of costs of seconded employees be taxable in India? Let's see.
Now, coming back to this month's Taxation Times, let's see what's in store :
It's already been a month down to 2020! As per the recent reports released by the IMF, global growth is projected
to rise from an estimated 2.9 percent in 2019 to 3.3 percent in 2020. While we're hoping that the economy speeds
up in 2020, a downside i.e the intensifying political unrest between Iran and US is creating a potential risk
sentiment.
UJA Tax Team
We look forward to hearing from you!
Best Wishes,
TAXATION TIMES
3
These reimbursements which are paid by the host
organization to the employer have very often been a matter
of litigation. The questions which generally arise under
such a scenario is –
The jurisdictional authorities on several occasions have
examined the above issue. There are a plethora of cases
which conclude that reimbursement of expenses to the
overseas organizations towards the cost of the overseas
employees come within the ambit of s. 9(1)(vii) of the
Income Tax Act 1961 and accordingly constitute “fees for
- Do such reimbursements to the overseas employer
constitute “fees for technical services”?
- The “employer' or the “seconder” i.e the original
employer of the deputed personnel;- The “employee” or the “secondee” i.e the
personnel who would be rendering the services;
Under secondment arrangements, the seconded employee
receives remuneration/emoluments from his employer and
the host organization generally reimburses to the employer
the cost of such remuneration etc. paid to the secondee.
Very often in order to achieve commercial
expediency organizations depute personnel to or
from other countries. Typically, under such an
arrangement personnel are temporarily transferred from
one location to another location (generally within the same
organization) for a definite period of time. This concept of
deputation of employees across different locations is
referred to as “secondment”.
The parties to such a secondment arrangement would
generally include :
- The “host” i.e the organization to whom the
seconded employee would render services.
An agreement is executed between the parties detailing the
terms and conditions of such secondment.
More recently, the Hon'ble Chennai ITAT in the case of
Nippon Paint (India) Private Limited observed that
reimbursements were taxable because the seconded
employees temporarily exchanged experience and skill.
Further more, there still continues to exist an employer –
employee relation between the overseas entity and the
seconded employee.
- The overseas entity was under a contractual
obligation to pay the seconded employee payments
for the services rendered and these payments were
to be made irrespective of whether the Indian entity
reimbursed / paid to the employer such costs.
In the above case, the SLP filed before the Supreme Court
was dismissed.
The Hon'ble Delhi High Court in the case of Centrica
India Offshore Pvt. Ltd held that reimbursements paid to
foreign companies to cover the cost of the seconded
employees constitute “fees for technical services”. The
Hon'ble High Court observed that :
- As per the secondment agreement, the overseas
entity granted to the Indian entity the right to
terminate the secondment. The Indian entity on it's
own account did not have the authority to terminate
the employment between the seconded employee
and the overseas entity;
technical services”. However, there are also various
decisions which state that reimbursements do not constitute
“fees for technical services” and therefore no taxes to be
with held on such payments made.
- The seconded employees retained the right to
participate in the overseas organizations retirement
benefits. The remuneration which were paid to the
seconded employees were reclaimed back from the
Indian entity;
TAXATION TIMES
4
Reimbursement Costs of Seconded Employees
What you need to know?
Thus, under both the above situations, the key concerns
addressed were regarding the control and supervision of
the seconded employees which lie with the parent entity.However, the judiciaries have also answered in favour of
the taxpayers wherein it was held that reimbursements to
the parent entities towards the cost of seconded employee
does not constitute “fees for technical services”.
The Bombay High Court incase of Marks & Spencer
Reliance India Pvt Ltd held that supplying employees or
assisting Indian entities cannot constitute make available
of technical & consultancy services. Also, since, the Indian
entity has with held taxes on the salaries paid to the
seconded employees, the reimbursements cannot be
subject to tax for the second time.
Again, the Delhi ITAT in the case of AT & T
Communication Services (India) P Ltd. held that
reimbursements were not FTS and the seconded
employees were working under the control of the Indian
entity and not the foreign entity. In a very recent decision,
the Hon'ble Pune ITAT in the case of Faurecia
Automotive Holding V/s DCIT (ITA No. 784/Pun/2015)
stated that the amount received by the taxpayer from the
Indian entity was not chargeable to tax in the hands of the
taxpayer as such reimbursements were not within the scope
of the FTS within the definition of s. 9(1)(vii) of the Income
Tax Act.
Considering the fact that the Courts have conflicting views
on the said subject, suitable guidelines may be framed
laying down certain parameters wherein such payments
could be classified as “fees for technical services”.
From the judicial precedents above, it becomes clear that
when the control and supervision of the seconded employee
is in the hands of the overseas entity the Courts have
generally held that the services rendered by the seconded
employee partakes the nature of “fees for technical
services".
Comments :
The terms and conditions of the secondment agreement
should be carefully drafted to mitigate the risk of the
reimbursements being taxed. The provisions of the Income
Tax Act and the DTAA should be considered holistically.
This would be a welcome move since corporations would
have a clear understanding of the tax implications
affecting the secondment and would also keep them well
equipped from any surprise tax liabilities.
TAXATION TIMES
5
1. The taxpayer entered into an agreement for an
unlimited period with M/s Mahindra Residential
Developers Limited. The taxpayer had claimed
In a recent decision, the Hon'ble Chennai ITAT has
observed when the taxpayer acquired property by
perpetual lease exceeding a period of twelve years, the
same is to be construed as purchase within the meaning
of s. 54F and claim for deduction should be allowed.
Facts : The taxpayer had acquired a property by way of perpetual
lease deed agreement. The assessee had claimed an
exemption under s. 54F of the Income Tax Act 1961 ('ITA')
and the same was allowed by the Ld. Assessing Officer
('AO'). However, the Pr. CIT passed an order under s. 263
of the ITA deleting the exemption claimed stating that a
lease cannot be construed as an outright / absolute purchase
of property.
N Ramaswamy V/s Income Tax Officer, Non –
Corporate Ward 2(3), Chennai
The Ld. DR observed that only when the taxpayer
purchases a property by means of an outright sale, the
exemptions mentioned therein can be claimed. The Ld. AR
for the taxpayer on the other hand stated that by virtue of s.
2(47)(vi) r.w.s 269UA(2)(iii)(f) of the Act, the same is to be
construed as acquisition of property and therefore, eligible
for exemption under s. 54F of the Income Tax Act 1961.
Held :
3. s. 2(47) of the ITA states that an agreement or
arrangement which has the effect of transferring or
enabling the enjoyment of immovable property,
has to be considered as transfer in relation to capital
asset. In this case, admittedly, there was a perpetual
lease for an unlimited period and the taxpayer was
in possession of the house. Therefore, for the
purpose of s. 2(47)(vi), the transaction can be
construed as purchase of property within the
meaning of s. 54F of the ITA
2. s. 54F of the ITA states that a taxpayer has to
purchase within a period of one year before or after
the date on which the transfer took place or the
taxpayer has to construct a residential house within
a period of 3 years after the sale of the capital asset.
In the instant case, after the sale of the property, the
taxpayer entered into a perpetual lease for an
unlimited period. Also, the taxpayer has every right
to transfer the perpetual lease to a third party in the
open market and also has every right to continue in
possession of residential house;
exemption under s. 54F of the ITA and the question
here arises if the taxpayer has to purchase the
property absolutely for claiming exemption under
s. 54F or would a perpetual lease for unlimited
period would amount to purchase of property for
claiming exemption under s. 54F of the ITA;
TAXATION TIMES
Case Law
10
“
”
5. Accordingly, the claim of the taxpayer under s.
54F was allowed.
4. s. 269UA(2)(iii)(f) of the ITA clearly states that
any lease for a term of not less than 12 years and
includes holding possession of such property
thereby taken, has to be construed as a transfer. In
other words, s. 269UA(2)(iii)(f) also defines
transfer which includes lease for a term not less
than twelve years. Therefore, in line with s.
269UA(2)(iii)(f), the acquisition of a property by
perpetual lease exceeding a period of 12 years has
to be construed as purchase within the meaning of
s. 54F.
TAXATION TIMES
11
2. The Hon'ble ITAT placed reliance on the decision
of the Hon'ble Supreme Court in the case of the Dy.
The Hon'ble Bombay High Court recently upheld the
orders of the lower authorities stating that the amount
of interest paid by the assessee on borrowed capital to
set up a plant not yet in operation can be allowed as
revenue expenditure.
The assessee had paid interest on capital borrowed and the
same was debited to it's Profit & Loss account. The Ld.
Assessing Officer was of the opinion that the interest paid
should be capitalized and accordingly disallowed the
interest. The CIT(A) and the Hon'ble ITAT deleted the
order of the Ld. AO and treated the expenses incurred as
revenue expenditure. Aggrieved, the IT Department,
preferred an appeal before the Hon'ble High Court
Facts :
Held :1. The Revenue placed reliance on Explanation 8 to
s. 43(1) of the ITA to claim that the taxpayer was
not eligible to claim interest on borrowings since
the machines were not put to use during the
assessment year under consideration. Provisions
of s. 36(1)(iii) were general in nature & hence
these need to be construed harmoniously
construed with Explanation 8 to s. 43(1).
The Commissioner of Income Tax v/s Zuari
Industries Ltd.
- Capital must be borrowed by the
assessee;
Commissioner of Income Tax V/s Core Health
Care Ltd. [2008] 167 Taxman 206 (SC) wherein
the following question of law arose :
“Whether interest paid in respect of
borrowings on capital assets not put to use in
the concerned financial year can be
permitted as allowable deduction under s.
36(1)(iii) of the Income Tax Act 1961?”
Explanation 8 to s. 43(1) as well as concept of
actual cost has no application to s. 36(1)(iii) of
the ITA.
- It should have been borrowed for the
purpose of the business;- The assessee should have paid interest
on the same.
Thus, it is inter alia germane whether the
borrowing has been made for the purpose of the
business. s. 36(1)(iii) does not distinguish
between capital borrowed for revenue purpose
or capital borrowed for capital purpose. s.
36(1)(iii) emphasizes on user of capital and not
the asset which comes into existence as a result
of such borrowed capital.
The Hon'ble Supreme Court held that interest
on money borrowed for the purpose of business,
is necessary item of expenditure. For allowing
such an expenditure, the following conditions
should be satisfied :
3. Therefore, in line with the decision of the
Supreme Court (supra), the ITAT allowed the
claim of interest by the taxpayer.
“
”
TAXATION TIMES
Deposit of TDS/TCS collected for month of
January 2020
Quarterly TDS certificates (in respect of
TDS for payments other than salary) for
Quarter Oct 2019 - Dec 2019
Ÿ Monthly Return for PT for more than INR
20,000/- for January 2020
Ÿ Challan cum statement under s. 194IA and
194IB for Jan 2020
Tax Calendar - Feb 2020
7th
Feb 2020
15th
Feb 2020
28th
Feb 2020
12
Issue of TDS certificate under s. 194IA and
194IB for December 201914
th
Feb 2020
TAXATION TIMES
Noti�cations & Circulars
13
https://www.incometaxindia.gov.in/communications/circular/circular_no_4_2020.pdf
The CBDT has issued a circular explaining the obligations of employers with regard to deduction from salaries under s.
192 of the Income Tax Act 1961 for FY 2019 – 2020.
TAXATION TIMES
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