No tax withholding on reimbursement of salary under secondment agreement

The ruling highlights that in case of secondment arrangements where an expatriate is seconded to an Indian Company to work under the direction, control and supervision of the Indian Company and the salary cost is also borne by the Indian Company, the Indian Company should be considered as the ‘economic employer’ and is not required to
withhold tax on the salary cost reimbursed to the Overseas Company.

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE, BENCH 'A'

I.T.A.No.87/Bang/2008
Assessment year: 2006-07

M/s IDS SOFTWARE SOLUTIONS (INDIA) PVT LTD,
6TH FLOOR, TOWER-D, CORPORATE BLOCK,
DIAMOND DISTRICT, AIRPORT ROAD, BANGALORE 560 008

Vs

INCOME-TAX OFFICER (INTERNATIONAL TAXATION),
WARD-19(1), BANGALORE


This appeal is by the assessee and is directed against the order of the Commissioner of Income-tax (Appeals) passed on 30.11.2007 by which he dismissed the appeal filed by the assessee against the order passed by the Assessing Officer u/s. 195(2) of the Income-tax Act on 31.7.2006.

2. The appeal arises this way. The assessee is a company engaged in the business of software development. It is a 100% Indian subsidiary of M/s. International Decisions Systems of USA, which is hereinafter referred to as "IDS" or the "US company". On 19.8.2005 it entered into an agreement with IDS. This agreement was for securing the services of certain personnel from IDS to assist the assessee in its business. The agreement would be hereinafter referred to as the "secondment agreement". A copy of the agreement has been placed at pages 1 to 6 of the paper book filed by the assessee and we shall notice the important terms thereof. The preamble narrates that the assessee is desirous of securing the services of managerial personnel to assist it in its business and that IDS, in order to assist the assessee in the conduct of its business "has agreed to second one of its employees to IDS India" upon the terms set out in the agreement. Article I of the agreement stated that IDS has agreed to second one employee to the assessee during the secondment period which was to commence from 19th August, 2005 and end on 31st December, 2007. Article II which is titled "Duties and Obligations" lists the obligations of IDS. This article requires the employee to be seconded to "act in accordance with the reasonable requests, instructions and directions of IDS India". The seconded employee was "reportable and responsible" to the assessee company and was required to devote the whole of his time, attention and skills to the duties required by the secondment arrangement. Clause (D) of the article stipulated that the assessee shall have the right at any time to approve or reject the employee chosen for secondment and if necessary, to request IDS to replace the employee if he is not, in the opinion of the assessee, qualified or meet the requirements of the secondment arrangement. Clause (E) clarified that during the secondment period, the seconded employee may be required to act or serve in various capacities such as "officers, authorized signatories, nominees or in any other lawful personal capacity" on behalf of the assessee as may be required. Clause (F) provided that if during the currency of the secondment agreement the employee ceased to be the employee of IDS (the US company), the obligation of IDS to second such employee would also cease. However, the obligation of IDS to second a suitable replacement to the assessee would continue. Clause (G) clarified that the assessee shall have the right to request additional employees for secondment subject to the agreement of IDS and availability of staff. Clause (H) stipulated that the seconded employee shall maintain strict confidentiality with regard to all the information to which he had access during the period of secondment including technical, financial or accounting information and information relating to price or cost or any other proprietary or business related information. He was to refrain from disclosing the information to anybody except with the written consent of the assessee. Article III listed out the duties and obligations of the assessee during the secondment period. The assessee was to reimburse IDS for the remuneration of the employee including but not limited to salary and bonus paid by IDS and all out of pocket expenses incurred by the seconded employee paid by IDS, including but not limited to business travel expenses and other miscellaneous expenses directly related to the secondment. The article clarified that the reimbursement would be of actual costs incurred by IDS without any mark up thereon. Article IV and V relate to the payment and the documentation which are not very relevant. Article VI provides for indemnity. It says that the US company will try to provide an appropriate employee for secondment but does not warranty for the quality of the seconded employee. The assessee was to indemnify IDS, the US company from all claims, demands, loss, damages etc., to which IDS may become liable as a consequence of any act or omission committed by the seconded employee. The other clauses of this agreement are not very relevant for our purposes.

3. On 7.6.2005 i.e., a little above two months earlier, a letter was written by one Nicholas P. Somers who was a member of the Board of Directors of IDS, the US company to one Dr. Srikanth Sunderarajan, a copy of which is placed at pages 12 and 13 of the paper book. The gist of the letter is as follows :

a) Dr. Sunderarajan was being offered employment with IDS Group Inc. as Executive Vice President, Worldwide Engineering and Managing Director of the assessee company;

b) He was required to split his time between the various offices of the IDS group and in doing so, he was to spend approximately 8 months in a calendar year in the Bangalore office of the assessee company, three months in the US office and one month in the UK office;

c) The annual base salary of Dr. Sundararajan was around $200000 and bonus ranging up to 50% of the salary based on incentives targets with a guarantee of bonus of $50,000 to be paid equally in December 2005 and April 2006;

d) Relocation expenses would be paid by IDS for Dr. Sundararajan and his family to move from Chennai where he was working for Cognizant Technology Solutions, to Bangalore;

e) He will be provided with a Tax Advisor who will be paid by IDS. In addition to leased accommodation, he will be provided a car and a driver. He will also be given some shares of IDS.

The other terms of the letter are not very material for our purpose. It can be gathered from the letter that Dr. Sundararajan, who was earlier employed with Cognizant Technology Solutions at Chennai was being offered employment with IDS at Bangalore in its Indian arm, which is the assessee company.

4. On 1.9.2005 a meeting of the Board of Directors of the assessee company was held at IDS centre, Minneapolis, USA with two directors being present. It was recognized in the minutes of the meeting that the Board of Directors were appraised of the need to have a person residing in India to oversee the programme implementation for IDS activities in India and in that connection it was decided to induct Srikanth Sundararajan as Additional Director on the Board of the assessee company in accordance with Section 260 of the Companies Act, 1956 r.w.clause 84 of the Articles of Association. The following resolution was passed at the meeting : "Resolved that Mr. Srikanth Sundararajan be and is hereby appointed Managing Director of the company w.e.f the date of the meeting pursuant to article 89 of the Articles of Association of the company and on the terms and conditions as embodied in the terms of appointment placed before the meeting and signed by the Chairman for the purpose of identification". The reference to the terms of appointment is obviously to the letter dated 7.6.2005 written by Nicholas P. Somers to Srikanth Sundararajan which we have already referred. It is further noted in the minutes of the meeting that Srikanth Sundararajan is authorized to operate the account held in HSBC Bank subject to the limits. Under a separate head in the minutes, titled "Authorisation", the following further duties were prescribed for Dr. Sundararajan :

(a) He is authorized to execute lease documents pertaining to the office premises to set up a 100% EOU ;

(b) He is authorized to initiate steps in executing legal agreements, filing of relevant documents for establishment of a hundred % EOU in the STP of India;

(c) He shall take steps to file applications to the various statutory agencies such as Customs, Central Excise etc., and to furnish undertakings and declarations;

(d) He is authorized to secure bank guarantees for customs bonding;

(e) He shall prefer applications to the Joint Director General, Foreign Trade for obtaining an Import, Exporter Code;

(f) He is authorized to complete all formalities under the laws regarding sales tax, profession tax, labour, shops and establishment Acts and other laws relating to the Karnataka state as well as central laws.

5. In accordance with the above arrangement, Dr. Sundararajan took charge as the Managing Director of the assessee company. The details of the cross charge of his salary that is to say the salary paid by IDS and charged to the assessee company are given at pages 21 and 22 of the assessee's paper book monthwise for the period 19.8.2005 to 31.3.2006. According to these details the total cross charge was US $ 65,040 out of which the assessee had credited US $ 39,226 to the account of IDS before the application u/s.195 was made. It is only in respect of the balance of US $ 25,813 that an application was filed by the assessee u/s.195 seeking permission to remit the amount to IDS without deduction of the tax. The taxes remitted on the above amount at the rate of 10% came to US $ 2,581 equivalent to INR 1,19,876/-.

6. On 24.1.2006 the assessee company made an application to the ITO, Ward-11(2), Bangalore seeking permission to remit the amount to IDS without deduction of tax at source. It was explained in the application that Dr. Sundararajan was for all practical purposes an employee of the assessee during the secondment period and the salary received by him from IDS the US company in respect of services rendered in India was being offered to tax in India in his individual capacity. It was pointed out that the assessee intended to provide in its books the amount due to IDS, the US company which was nothing but the salary and other benefits provided by the US company to Dr. Sundararajan and which has been offered by him to tax in India. It was thus claimed that the proposed remittance was in the nature of salary and other benefits on which tax has already been deducted and paid in India. A statement showing the taxes paid for Dr. Sundararajan was enclosed as proof. The assessee also attached as Annexure -5 all the documentation that was required to demonstrate that Dr. Sundararajan was an employee of IDS. The assessee also submitted that there was no agreement for technical services between IDS and the assessee company. It was thus contended that section 195 of the Income-tax Act had no application to the facts of the case and a plea was made for permission to remit the amount without deduction of tax at source. Since the secondment agreement was to end on 31.12.2007, the assessee pleaded for issue of a certificate of non-deduction of tax till that date.

7. The Assessing Officer examined the assessee's claim and firstly held that the payments made by the assessee to IDS cannot be considered to be mere reimbursements so that they can be exempt from tax. Secondly he held that the proposed remittance cannot be considered as salary because there was no employer-employee relationship between the assessee and IDS, the US company. According to the Assessing Officer, the remittance would fall to be considered as "fees for technical services" as defined in Explanation 2 below section 9 (1)(vii) of the Income-tax Act as also under the Article 12(4) of the Double Tax Avoidance Agreement between India and USA. It would appear that the assessee had contended before the Assessing Officer that no technical services were made available to the assessee company by IDS, but this plea was rejected by the Assessing Officer who held that the remittance was by way of fees for technical services and, therefore, the assessee was liable to deduct tax therefrom. Accordingly, he directed the assessee to deduct tax at the rate of 10% of the remittance. The assessee was to remit US $ 25,813. The Assessing Officer directed the assessee to deduction US$ 2,581 from the same. This order was passed by the Assessing Officer on 31.7.2000.

8. The assessee filed an appeal before the Commissioner of Income-tax (Appeals). It appears that detailed written submissions were furnished before the CIT(A). The contention of the assessee was that it was not liable to deduct tax u/s.195 for the following reasons :

a) that the payment was only reimbursement of expenses and not of income nature and hence, no liability to deduct tax;

b) that there was an employer-employee relationship between the assessee and Dr. Sundararajan and the payment/remittance was in the nature of salary for the services rendered by him to the assessee and not for any services rendered by IDS, the US company; and

c) that the Assessing Officer was not right in taking the view that the payment represented fees for technical services rendered by IDS and hence tax was deductible.

The Commissioner of Income-tax (Appeals) held against the assessee on all the above three points and hence the present appeal by the assessee.

9. The first submission of the learned representative for the assessee was that the amount sought to be remitted represented salary for services rendered by Dr. Sundararajan and since the assessee has deducted the tax payable thereon and remitted the same to the Indian tax authorities there was no further liability to deduct tax u/s.195. In order to appreciate the contention, we have to understand the relevant tests for determining whether there is, between two persons, an employer-employee relationship. We may look at some of the relevant authorities where a company and director are involved, the question being whether the director can be said to be an employee of the company. We may first refer to the judgement of the Bombay High Court in CIT Vs. Lady Navajbai R. J. Tata (1947) 15 ITR 8. There the question was whether gratuity received by the lady from a company was taxable u/s.7 of the Indian Income-tax Act, 1922, as salary or u/s.12 of the said Act, as income from other sources. She was a permanent director of the company. She did not attend office everyday like the other directors but attended only the board meetings. She was consulted by the other directors in all important matters. The articles of association of the company provided that the companies business shall be managed by the directors and their monthly remuneration was Rs.100/- plus other sums voted as payable to them. The assessee received Rs.40,000/- from the company as her remuneration and the question was whether this amount was taxable as her salary. Sir Leonard Stone, the Hon'ble Chief Justice of the High Court who presided over the Division Bench noticed that the assessee was only a permanent director under the articles and apart from the articles there was no other contract between her and the company. Even the articles did not appoint her as manager or managing director. On these findings, the Hon'ble Chief Justice held that the assessee was not a servant or an employee of the company and the amount paid to her could not be assessed as salary. Hon'ble Justice Chagla held that though it is true that a director holds an office under the company and is either appointed or elected by the company, it cannot be said that every person who holds an office is necessarily an employee. The following observations at page 14 of the judgment are important: "In the case of a director, there may be special terms in the Articles of Association, or there may be an independent contract which may bring about contractual relationship between the company and the director and constitute the director an employee of the company ; but independently of such special contract, a director of a company is not the employee of the company". In the case of K.R. Kothandaraman Vs CIT, Madras (1966) 62 ITR 345, the question before the Madras High Court was whether the Managing Director of a company who was getting a fixed monthly remuneration and percentage of profits was a servant of the company so that these amounts could be assessed as his salary. His Lordship Justice Veeraswami (as his Lordship then was), speaking for the Division Bench observed that the solution to the question would lie in the terms of the agreement between the company and the Managing Director. In that case the appointment of the assessee as Managing Director of the company was made in terms of the Articles of Association of the company, but the terms of the appointment were left to be regulated by a separate agreement. The agreement invested the assessee with extensive powers of management covering the entire conduct and exigencies of the business but he was to exercise them subject to the superintendence, direction and control of the Board of Directors and subject to the Memorandum and Articles. The Division Bench noticed the judgement the Supreme Court in Lakshminarayan Ramgopal & Son Ltd., Vs Government of Hyderabad (1954) 25 ITR 449 in which it was held that a master is one who not only directs what and when a thing is to be done but also how it should be done, and though the division bench observed that "we are not certain that this test is necessarily the only test in deciding whether the relationship of master and servant exists, for one has to take note of various changing factors in human and industrial relationships which regulate and change or alter the concept of the relationship of master and servant" nevertheless held, applying the test laid down by the Supreme Court that "We are satisfied that the terms of the agreement and the functions assigned to the assessee and the reservation to the Board of Directors of the right of superintendence, direction and control show that the relationship between the company and the assessee is that of an employer and an employee". Referring to the judgement of the Bombay High Court (supra), the Madras High Court further observed that though a director may not be a servant of the company merely by the reason of that capacity, but there is nothing to prevent him from being a servant of the company too under a special contract of service which he may enter into with the company. The question of the same person having a dual capacity namely that of a Managing Director and also that of an employee of the company has thus been accepted both by the Bombay and the Madras High Courts in the decisions noticed above. A similar view had earlier been expressed by the Scottish Court of Sessions in Anderson Vs James Sutherland (1941) S.C. 203 to the effect that the Managing Director has two functions and two capacities; qua Managing Director he is a party to a contract with the company, and this contract is a contract of employment, a contract of service and not a contract for service. Ram Prashad Vs CIT, New Delhi (1972) 86 ITR 122 was a case decided by the Supreme Court where the question was whether the Managing Director of a company who received monthly remuneration as also a percentage of gross profits for his services, could be considered as a servant of the company so that the amount received by him can be assessed as salary or whether it would be business income in his hands. The Supreme Court laid down the following propositions :

a) For ascertaining whether a person is a servant a rough and ready test is whether under the terms of the employment, the employer exercises a supervisory control in respect of the work entrusted to him

b) A Managing Director may have a dual capacity - as Managing Director as well as an employee. In the capacity of a Managing Director, he may be regarded as having not only the capacity as persona of a director but also has the persona of an employee,

c) The nature of his employment may be determined by the Articles of Association of the company and/or the agreement, if any, under which a contractual relationship between him and the company is brought about.
d) The control which the company exercises over the Managing Director need not necessarily be one which tells him what to do from day to day, nor is it necessary that the company's supervision over him should be a continuous exercise of the power to oversee or superintend the work to be done. The control and supervision is exercised and is exercisable in terms of the Articles of Association by the Board of Directors and the company in its general meeting.

e) If the powers of the Managing Director have to be exercised within the terms and limitations prescribed there under, and subject to the control and supervision of the directors, he would be considered as the servant of the company.

10. It seems to us that if the above decisions are to be applied to a particular case, it would be necessary to see whether the director was appointed under the Articles of the company and whether in addition to the Articles, there was an independent or special contract between the company and the director, in which case alone it can be said that the director was an employee of the company. In the present case, as the facts earlier narrated would show, there was first an offer letter written by Nicholas P. Somers who was a director of IDS Group Inc. to Dr. Sundararajan in which all the terms of employment were put down in writing. This was accepted by Dr. Sundararajan. The appointment was confirmed in the meeting of the Board of Directors of the assessee company held on 1.9.2005. Actually he was appointed as the Managing Director of the assessee company with effect from 1.9.2005 and we have already seen that a resolution was passed to that effect. The minutes of the Board meeting also make reference to the various resolutions passed in the Board meeting empowering Dr. Sundararajan to initiate the process of setting shop in India (Bangalore). The secondment agreement was entered into after the letter of offer dt.7.6.2005 but before the appointment was made in the Board meeting. There is no dispute that the services of Dr. Sundararajan were seconded to the assessee company by virtue of the secondment agreement though his name does not find a mention in the secondment agreement obviously because his appointment was made about 15 days later. Be that as it may, the question is whether, apart from the Board resolution appointing Dr. Sundararajan as the Managing Director of the assessee company, there was any independent or special contract with him. We are inclined to view the secondment agreement as a contract governing the relationship between the assessee company and Dr. Sundararajan, though the contract as such is between the assessee company and IDS. In our humble opinion, the special contract need not be between the assessee company and Dr. Sundararajan; so long as the relationship between them is defined in a contract, provided that contract is between connected and relevant parties, that should suffice. It has to be remembered that the services of Dr. Sundararajan, who was appointed as Executive Vice President of Worldwide Engineering and Managing Director of the assessee company, were seconded by IDS to the assessee company and his appointment as Managing Director of the assessee company is traceable only to the relationship between the assessee company and its parent company in USA. We have called for the Memorandum and Articles of Association of the assessee company and the same was filed. Clause 84 of the Articles of Association says that the Board of Directors may from time to time, by ordinary resolution increase or reduce the number of directors within the limits specified in Article 74. In Article 74 a minimum of 2 and a maximum of 12 directors are prescribed. It was pursuant to this article that Dr. Sundararajan was inducted as Additional director and in the Board Meeting held on 1.9.2005, was by resolution appointed the Managing Director of the assessee company. Clause 85 of the Articles stipulate that the director appointed by the Board shall hold office only till the following annual general meeting, but shall be eligible at such annual general meeting for election as director. Clause 86 provides that notwithstanding anything contained in the articles or in any agreement between the company and the director, the company may by ordinary resolution of which special notice has been given in accordance with section 190 of the Companies Act, remove such director including the Managing Director, if any, before the expiration of the period of his office and such removal shall be without prejudice to any contract of service between him and the company. Clause 89 of the articles, states that the Board of Directors may appoint one of the directors as the Managing Director of the company who shall have such powers and duties as may, from time to time, be determined by resolutions of the Board. It also says that the remuneration and the term of officer of such Managing Director shall, subject to the provisions of the Companies Act, be fixed or varied by a resolution of the Board. It is in accordance with this clause that various resolutions were passed in the Board meeting held on 1.9.2005, which we have already referred to, outlining the duties and responsibilities of the Managing Director.

11. The secondment agreement, as we have already held, constitutes an independent contract of service in respect of the employment of Dr. Sundararajan with the assessee company. It may be true that IDS, the US company is the employer of Dr. Sundararajan in a legal sense but since his services have been seconded to the assessee company under the secondment agreement and further since the assessee company is to reimburse the emoluments paid by IDS to Dr. Sundararajan, it is the assessee company which for all practical purposes is to be looked upon as the employer of Dr. Sundararajan during the relevant period. In this behalf we were referred to the views expressed by Professor Klaus Voegel in his treatise on Double Taxation Conventions under the heading "International Hiring Agreements" at page 885. The view put forth by him is reproduced hereunder :

"The question of who is the employer arises particularly in situations in which the employee is sent abroad to work for a foreign enterprise as well. In such cases, the determination of employer rests on the degree of personal and economic dependence of the employee towards the enterprises involved. Accordingly, the foreign enterprise does not quality as an employer merely because the employee performs services for it or because the enterprise was issuing to the employee instructions regarding his work, or places tools, etc., at his disposals (of Hinnekens. L. Interfax 331 (1988). The situation is different if the employee works exclusively for the enterprise in the State of employment and was released for the period in question by the enterprise in his State of residence (BFH 114 (1986) re Germany's DTC with Spain)."

If this view is applied to the present case, the assessee company can be considered as the economic employer because the services are rendered by Dr. Sundararajan to it, the salary is met or borne by it. Be that as it may, the person who actually controls the services of Dr. Sundararajan is the assessee company. Under the secondment agreement he is to act in accordance with the reasonable requests, instructions and directions of the assessee company. He shall devote the whole of his time, attention and skills to the assessee company. He is reportable and responsible to the assessee company. He can be rejected by the assessee company in which case the US company is bound to replace him. Under clause 86 of the Articles of Association of the assessee company, which we have already noticed, the assessee company may remove Dr. Sundararajan before the expiration of the period of his office. Clause 89 of the articles empowers the Board of Directors of the assessee company to regulate the powers and duties of Dr. Sundararajan by passing appropriate resolutions which they have already done. Thus reading the Articles of Association as well as the second agreement together, it seems to us that Dr. Sundararajan was an employee of the assessee company, subject to the supervision and control of its Board of Directors, in addition to being the Managing Director of the assessee company.

12. For the above reasons, we hold that Dr. Sundararajan was an employee of the assessee company during the relevant time and the amount payable to him was not to suffer tax deducted at source at the time of remittance to IDS since the tax has been deducted and paid to the Indian Income-tax authorities.

13. The next question is whether the amount can be considered as fees for technical services within the meaning of Explanation 2 below section 9(1)(vii) of the Income-tax Act. Under this Explanation fees for technical services means any consideration including lumpsum consideration for the rendering of any managerial, technical or consultancy services, including the provision of services of technical or other personnel, but considerable reliance was placed by the department to contend that the agreement is one for rendering technical services, is merely a clause ensuring secrecy and confidentiality of the information accessed by the seconded employee in the course of his employment with the assessee company. Such confidentiality extends not only to technical information, which would be the case if the agreement is one for rendering technical service but also to financial or accounting information, price or cost data and any other proprietary or business related information. Article VI which provides for indemnity, that is to say, the liability of the assessee company to indemnify the US company from all claims, demands, etc., consequent to any act or omission by the seconded employee is also inconsistent with the claim of the department that this is an agreement for rendering technical services. The Article further provides that nothing in the agreement shall be construed as a warranty of the quality of the seconded employee. It is not usual to find such a stipulation in an agreement for rendering technical services.

14. The Department has drawn our attention to the ruling of the Authority for Advance Rulings in the case of AT & S India P. Ltd., (2006) 287 ITR 421. In this case the agreement entered into by the Indian company with its Austrian parent company was titled "Foreign Collaboration Agreement". Article 4 of the agreement obliged the Austrian company to provide all assistance and cooperation to the Indian company in its venture by providing appropriate support technology. Article 4.2 required the Austrian company to offer the services of its technical experts to the assessee for working on the project that was being executed. There was another agreement called the secondment agreement between the Indian and Austrian companies and it inter alia provided that the Austrian company can at any time remove the seconded person and replace him with similarly qualified persons. Referring to the secondment agreement, the AAR observed that a plain reading of the above clause would show that the Austrian company retained the right over the seconded personnel and had the power to remove any seconded personnel from the assessee subject only to the condition that a suitable replacement should be made. In the present case under the secondment agreement it is the assessee company which has control and supervision of the work of the seconded employee namely, Dr. Sundararajan. He was appointed as Managing Director by the Board of Directors of the assessee company and not by IDS. In fact, the assessee company could even terminate the services of Dr. Sundararajan as Managing Director during the period of eight months during which he was to serve the assessee company. There was no separate foreign collaboration agreement of the kind which was entered into between the Indian and the Austrian companies in the ruling of the AAR. It appears to us on a reading of the ruling of the AAR that in that case the secondment agreement was subservient to the foreign collaboration agreement. These are thus the features which distinguish the present case from the decision of the AAR. We are, therefore, unable to apply the said decision to the present case.

15. The department has also relied on another ruling of the AAR in South West Mining Ltd., In Re (2005) 278 ITR 233.This is a clear case of technical consultants visiting India for collecting random samples for the purpose of sending reports from abroad on the basis of the analysis of the samples. The question was whether the fees paid to the non-resident consultant were fees for technical services. There can be no doubt that the services rendered by the non-resident consultants were technical and consultancy services. In this case there was no secondment agreement. It was a clear and simple case of rendering technical services. This case has nothing in common with the present case.

16. For the above reasons we are also not able to hold that the payment to IDS represented fees for technical services.

17. In the result, we hold that the assessee was not liable to deduct tax from the amount representing reimbursement of the salary paid by IDS to Dr. Sundararajan while remitting the same to IDS u/s.195 of the Income-tax Act. The salary paid by the assessee to Dr. Sundararajan has been made the subject of tax deducted at source and the same has been remitted to the Indian Income-tax authorities.

18. The appeal of the assessee is accordingly allowed with no order as to costs.

Order pronounced in the open court on this 21.01.2009.