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 info@uja.in

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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The information contained in this newsletter is general and purely informative in nature. This intent of this newsletter is not to provide any advice or address in concerns in particular. We take every effort and precaution to ensure that the contents of this newsletter are accurate. We however, suggest to take professional advice before acting on the information contained in this newsletter. Also, we cannot be held responsible or liable for any damage incurred due to reliance on the information contained in this newsletter.