In a recent case of Additional Director of Income-tax (IT) v. Mark & Spencer Reliance India (P.) Ltd, an assessee entered into an agreement with M&S Plc. of UK based company whereby the assessee was provided personnel to carry out the functions in the area of management, to setting up of business, property selection and retail operation, product and merchandise selection and to setting up merchandise team. It had paid 4.83 crore towards salary  expenditure of employees deputed under seconded agreement.

So, the Assessing Officer held that the assessee had committed a default by remitting the money without deduction of tax which was chargeable to tax as Fees for Technical Services (FTS).

On appeal, the Commissioner (Appeals) held that the remittance was only part reimbursement of expenses and could not be treated as income deemed to accrue or arise in India as income being FTS as per Indo-UK DTAA.

As per the definition for fees for technical services means payment of any kind to any person in consideration for service or services of technical nature if such services make available technical knowledge, experience, skill know how or process which enables the person acquiring the services to apply technology contained therein. Thus, expatriation of employee under seconded agreement without transfer of technology would not fall under the term make available as per the article 13(4)(c) of Indo-UK DTAA.

So, it was held that merely providing the employees or assisting the assessee in the business and in the area of consultancy, management, etc. would not constitute make available of the services of any technical or consultancy in nature.   Similar decisions were held in case of CIT v. De Beers India Minerals (P.) Ltd and  Mahindra & Mahindra Ltd. v. Dy. CIT.

Also, the entire amount of salary received by these personnel has been subjected to tax in India at the highest average rate of tax. Therefore, there is no question of any default on the part of the assessee. It is pertinent to mention that payment by the assessee is actually payment made to the employees deputed in India under seconded agreement but routed through M&S Plc. UK.

Since the said payment to the employees is already subjected to tax in India, therefore, there is no question of treating the assessee-in-default for non-deduction of tax at source, and thus Payment to seconded employees is not FTS and there is no need for deducting TDS.