In the recent case of PCIT v. Boeing India (P) Ltd. (2023) 146 taxmann.com 131 (Del.), the issue at hand was whether the foreign company, who had deputed one of its employees to look after the affairs of the Indian company, was liable for tax under Section 195 of the Act, once the nature of the payment had been determined as salary and tax had been deducted at source under Section 192 of the Act. The Indian company was to reimburse the salary of the deputed employee, Mr. Peter Laser, without any mark-up, and the foreign company was to bear the cost of the salary.
The learned counsel pointed out that even if the payment was considered in the nature of technical fees, Article 12.4 of the applicable tax treaty was applicable, and not Article 13.4 as contended by the learned DR. Further, Article 12.4 specifically excluded payments mentioned in Article 15, which stated that salaries and other similar remuneration paid to a resident of a Contracting State, such as Mr. Laser, in respect of an employment exercised in the other Contracting State (India), were taxable in India and cannot be considered as fees for technical services.
Additionally, Section 9 of the Act also supported the argument that the payment in question could not be treated as fees for technical services. Explanation 2 to Section 9(1)(vii) defines the expression “fees for technical services” and states that any consideration that would be considered as income under the head “salaries” cannot be considered as fees for technical services.
The Court agreed with the view of the ITAT that Section 195 of the Act had no application once the nature of payment had been determined as salary and tax had been deducted at source under Section 192 of the Act. There was no dispute that the assessee had deducted tax at source under Section 192 of the Act, and the Court was in agreement with the ITAT’s opinion on the matter.
In conclusion, the Court found in favor of the assessee and held that once the nature of the payment had been determined as salary and tax had been deducted at source under Section 192 of the Act, Section 195 of the Act had no application. The payment was considered as salary and not as fees for technical services, and thus, taxable in India in accordance with the provisions of the tax treaty and the Act
