The Karnataka High Court (Bengaluru Bench) has recently ruled that when the reimbursement for the technical services provided by the investment banker falls within the employer-employee relationship, then such reimbursement of salary costs without a mark-up for the seconded employees could not be treated as Fees for Technical Services (FTS), and hence no withholding tax would be applicable on the same.
Therefore, reinforcing that genuine secondment arrangements with an employer-employee relationship with the Indian entity are not subject to withholding tax, the Court dismissed the appeals in favour of the Respondent company.
Reference was made to the decision in the case of Deputy Commissioner of Income Tax (International Taxation) and others vs. M/s. Flipkart Internet Pvt Ltd. – [(2025) SCC OnLine Kar 16629], where the Coordinate Bench of the Karnataka High Court has upheld the principle that the cost-to-cost reimbursement of salaries for seconded employees does not require a deduction of tax at source under Section 195 of the Income Tax Act
The Division Bench comprising Justice S.G. Pandit and Justice K.V. Aravind was considering the legality of the ITAT’s action in holding that services rendered by the Respondent (Investment banking company) were not in the nature of FTS, and as such, Section 9 of the Income Tax Act read with relevant treaty provisions were not applicable, when it’s the stance of the Department that the services rendered by the Respondent were of technical nature and same would not fall within the employer and employee relationship.
Cases Relied On:
Director of Income Tax (International Taxation) vs. Abbey Business Services India (P) Ltd – [(2020) 122 taxmann.com 174]
Deputy Commissioner of Income Tax (International Taxation) and others vs. M/s. Flipkart Internet Pvt Ltd. – [(2025) SCC OnLine Kar 16629]
Appearances:
Advocate E.I. Sanmathi, for the Appellant/ Revenue
NA, for the Respondent/ Taxpayer
