ADVICS CO., LTD.,JAPAN vs. THE OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), NEW DELHI

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ITITA 27/DEL/2026Status: DisposedITAT Delhi05 August 2026AY 2020-218 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue of employee cost reimbursement being taxable as FTS is squarely covered by the decision of a coordinate bench of the ITAT in the assessee's own case for AY 2017-18. The Tribunal respectfully followed the finding in that order, noting that there was no change in facts and circumstances for the subject year, as admitted by the Assessing Officer (AO) and Dispute Resolution Panel (DRP). The previous order had held that the expatriates were employees of the Indian AEs during their transfer, paid salaries by the AEs after due tax deductions, and had offered the income to tax. The Revenue had not brought on record material to substantiate its claim that the assessee rendered managerial/technical services to the Indian AEs through the expatriates. The payments were considered pure reimbursement of salary costs, not FTS, as they were taxable as salary in the hands of the expatriate employees. The expats worked under the direct control and supervision of the Indian AEs, who were the real and economic employers. Consequently, the addition made on account of cross-charge by the assessee from its Indian AEs was deleted. The Tribunal allowed the appeal on this ground. Grounds 11 and 12 (interest under section 234B and penalty under section 270A) were considered consequential.

What were the facts?

The assessee, Advics Co. Ltd., Japan, filed an appeal against the order dated 18.11.2025 passed by the ACIT, International Taxation, Circle 1(1), New Delhi, for Assessment Year 2020-21. The appeal challenges the enhancement of income by INR 2,84,45,521. The primary dispute revolves around the taxability of employee cost reimbursement as Fees for Technical Services (FTS). The assessee contended that the reimbursement of salary for expatriate employees seconded to Indian Associated Enterprises (AEs) is not FTS, as these employees are on the payroll of the Indian AEs and taxes have been withheld and paid on their salaries. The assessee also argued that the assessment order is barred by limitation and that reassessment proceedings were initiated improperly. The revenue, represented by the CIT DR, argued that the arrangement constitutes a manpower supply arrangement and the reimbursements are taxable as FTS, suggesting potential distinguishing facts from prior years.

What were the issues?

1. Whether the assessment order passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, dated November 18, 2025, is barred by limitation under Section 153 of the Act, rendering it void-ab-initio. 2. Whether the initiation of reassessment proceedings under section 148 of the Act is bad in law, invalidating the consequent assessment order. 3. Whether the addition of INR 2,84,45,521 on account of employee cost reimbursement is taxable as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act and Article 12 of the India-Japan Double Taxation Avoidance Agreement (DTAA). Assessee's Contentions: - The assessment order is barred by limitation and reassessment proceedings are bad in law. - Employee cost reimbursement is not FTS as per Section 9(1)(vii) of the Act, particularly Explanation 2 which excludes income chargeable under 'salaries'. - Indian AEs have withheld taxes under Section 192 on the entire salary paid to expatriates, evidenced by Form 16, and the expatriates have offered this income to tax. - There is an employee-employer relationship between expatriates and Indian AEs, meaning no service is rendered by the assessee to the Indian AEs. - The payments are pure reimbursement of actual employee costs without any element of income. - The issue is squarely covered by the ITAT's order in the assessee's own case for AY 2017-18 (ITA No 1053/Del/2022), where the facts are identical. Revenue's Contentions: - There may be distinguishing facts from the AY 2017-18 order. - The agreement clauses indicate the assessee bears transfer allowance, travel, and health expenses for administrative convenience and reimburses ADS. The personnel are on ADS's role and return to the assessee after secondment, constituting a manpower supply arrangement. - The contract wording, despite being a secondment contract, suggests a relationship other than what the assessee claims.

Which sections of the Income-tax Act were involved?

Section 9(1)(vii),Section 143(3),Section 144C(13),Section 148,Section 153,Section 192,Section 234B,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI

For Respondent: Ms. Shalini Verma, CIT
Hearing: 02.06.2026Pronounced: 05.08.2026

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘D’ NEW DELHI BEFORE SH. VIKAS AWASTHY, JUDICIAL MEMBER AND SH. KRINWANT SAHAY, ACCOUNTANT MEMBER I.T (IT) A. No.27/DEL/2026 (A.Y 2020-21) Advics Co. Ltd. The Office Of the 2-1 Showa Cho. Kariya, Vs. Assistant Commissioner Aichi 448-8688 of Income Tax Circle-1 Japan (1) (1) PAN No.AAICA7015J New Delhi Appellant by: Sh. K. M. Gupta, Advocate Sh. Harmeet Singh, CA Respondent by : Ms. Shalini Verma, CIT DR Date of Hearing 02.06.2026 Date of Pronouncement 05.08.2026

ORDER PER KRINWANT SAHAY AM Appeal in this case has been filed by the assessee against the order dated 18.11.2025 passed by the ACIT, International Taxation, Circle 1(1), Delhi for the A.Y. 2020-21. Grounds of appeal are as under :-

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1.

On the facts and in the circumstances of the case & in law, the Learned Assessing Officer ("Ld. АО") erred in enhancing the income of the Appellant by INR 2,84,45,521 against the returned income of INR 10,45,77,950. 2. On the facts and in the circumstances of the case & in law, the assessment order passed under section 143(3) read with section 144C(13) of the Act dated November 18, 2025 by the Ld. AO is barred by limitation in view of the provisions of Section 153 of the Act and therefore, is void-ab-initio, bad in law and liable to be quashed. 3. On the facts and in the circumstances of the case & in law, the initiation of the reassessment proceedings under section 148 of the Act is bad in law rendering the consequent assessment order invalid. 4. Addition of INR 2,84,45,521 on account of employee cost reimbursement taxable as Fees for Technical Services ('FTS') On the facts and in the circumstances of the case, the Ld. AO /Ld. DRP erred in holding that the salary reimbursement of expatriate employees by Indian entities to the Appellant is in the nature of "Fee for Technical Services" ['FTS'] as per provisions of section 9(1)(vii) of the Act as well as under Article 12 of the India- Japan Double Taxation Avoidance Agreement ('DTAA'). 5. On the facts and in the circumstances of the case, the Ld. AO/ Ld. DRP failed to appreciate that Explanation 2 of Section 9(1)(vii) of the Act excludes income chargeable to tax under the head "salaries". 6. On the facts and in the circumstances of the case & in law, the Ld. AO/DRP The lower authorities erred in not appreciating the fact that the Indian AEs have withheld taxes under section 192 of the Act on the entire salary paid to the expats and such expatriates as evidenced by Form 16 issued to the expatriates and such expatriates have offered the entire income to taxes in its return of income filed under the Act. 7. On the facts and in the circumstances of the case & in law, the Ld. AO/DRP erred in not appreciating that there exists employee-employer relationship between expatriates and the Indian companies i.e. Advics North India Private Limited ('Advics North India') and Advics South India Private Limited ('Advics North India') [hereinafter, Indian Associated Enterprises ('AEs') or Indian Entities] and thus no service is rendered by the Appellant to the Indian AEs. 8. On the facts and in the circumstances of the case & in law, the Ld. AO/DRP The lower authorities erred in not appreciating the fact that the Appellant has not performed any specific function apart from transfer of personnel in order to support the Indian AEs and thus there could be no FTS in absence of any service being rendered.

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9.

On the facts and in the circumstances of the case & in law, the Ld. AO/DRP erred in not appreciating the fact that the payments by the Indian AEs to the Appellant are towards pure reimbursement of actual employee cost and does not have any element of income. 10. On the facts and in the circumstances of the case & in law, the Ld. AO/ DRP has erred in not following the order of the Hon'ble Tribunal in the appellant's own case for the AY 2017-18 (ITA No 1053/Del/2022) wherein the issue had been decided in favour of the appellant and admittedly, there is no change in facts and circumstances vis-à-vis the subject year as admitted by the Ld. AO/DRP in their respective orders. Miscellaneous grounds 11. On the facts and circumstances of the case & in law, the Ld. AO erred in charging interest under section 234B of the Act amounting to INR 19,34,260 in the computation sheet. 12. On the facts and circumstances of the case & in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act. All the above grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays that appropriate relief be granted based on the said grounds of appeal and the facts and circumstances of the case.

3.

During proceedings before us it was brought to the notice of the Bench by the Ld. Counsel of assessee that the appeal on ground No. 1, 2 and 3 are general in nature. The main grounds of appeal are ground No.4, 5, 6, 7, 8, 9 and 10 and the only issue is the addition of Rs.28454521/- on account of employee cost reimbursement taxable as Fees for Technical Services (‘FTS’). The Ld. Counsel for the assessee brought it to the notice of the Bench that the Ld. AO / DRP has erred in not following the order of Hon’ble Tribunal in appellant’s own case for A.Y.2017-18 in ITA No.1053/Del/2022 wherein the same issue was decided in favour of the assessee and admittedly, there is no change in facts and circumstances viz-a-viz

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subject year as admitted by the Ld. AO/ DRP in their respective orders.

4.

The Ld. DR argued that the there may be some different and distinguishing facts between the year under consideration from the facts discussed in the order of assessment year 2017-18.

5.

The Ld. DR further argued that from the plain reading of clauses as mentioned in the agreement it is clear that the assessee company would be responsible to bear and pay transfer allowance, Travelling expenses, health expenses in the name of administrative convenience and will reimburse ADS on such payment made in relation to the period of secondment. He further argued that the personnel are actually on the role of ADS and ADS is merely releasing its personnel for assignment with ADSIND who shall be returning to the assesse company after the completion of the secondment period this arrangement is tantamount to the manpower supply arrangement. However, the assessee as a matter of precaution has worded the contract as secondment contract in such manner that relation between the assessee’s company its AE on account of secondment cannot be construe otherwise as clear from the article 15 of the contract.

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6.

On the other hand the Ld. Counsel for the assessee argued that this issue has been clearly and categorically discussed in the order of the coordinate Bench of ITAT in assessee’s own case in A.Y.2017- 18.

7.

We have heard rival arguments of both the parties and we have also gone through the submissions filed by the Ld. Counsel for the assessee. We find that this issue is squarely covered by the decision of the coordinate Bench of ITAT in assessee’s own case which is as under :-

“3. We have heard the rival submissions and have gone through the documents before us, including the ITAT’s order in the assessee’s own case for AY 2017-18 (supra). Right at the outset, it deserves to be mentioned that the Ld. DRP has stressed on the theory of Substance over Form and has interpreted the wording in the contract to the extent that FTS is disguised as being something other than a man- power agreement, or a partnership, or a joint venture agreement. We find that there is nothing available on record to show that the facts are in any way different from AY 2017-18 and thus, we respectfully follow the finding given in that order for deciding the case in favour of the assessee. For the sake of reference the relevant head notes from the AY 2017-18 case deserve to be extracted: -  “FTS is defined under article 12(4) of the India-Japan DTAA to mean "payments of any amount to any person other than payments to an employee of a person making payments and to any individual for independent personal services referred to in article 14, in consideration for the services of a managerial, technical or consultancy nature, including the provisions of services of technical or other personnel." It is the case of the Revenue that the expats were seconded to the AEs for rendering managerial/technical services and hence the payments made are in the nature of FTS. According to Revenue the expats are employees of the assessee and not of the Indian AEs and hence this was contract for service and salary reimbursement cost is

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taxable as FTS It is, however, a fact corroborated with evidence that the expats were employees of Indian AEs during the term of their transfer and were paid salaries by AEs after due deduction of tax on the entire amounts either disbursed in India or in Japan. [Para 10]  The Assessing Officer/DRP has observed that services in the nature of managerial and technical nature were provided by the assessee to the Indian AEs through the expats and accordingly the impugned receipts in the nature of reimbursement towards salary cost of expats are FTS. Although there is no specific reference in TTA/MOU, it has always been the case of the assessee that the expats were seconded to the AEs to carry on routine business activities of Indian AEs as their employees. No material/evidence has been brought on record by the Revenue to substantiate its claim that the assessee rendered any managerial/consultancy/technical services to the Indian AEs through the expats in furtherance of its business in India. Further, the payment made by the Indian AEs is a pure reimbursement of salary costs of expats which has been cross charged by raising debit notes on the Indian AEs. It cannot be regarded as FTS in the hands of the assessee as the same is taxable as salary in the hands of the expatriate employees. [Para 10.1]  From the perusal of the TTA along with their respective MOUs, it can be inferred that the expats worked under the direct control and supervision of the Indian AEs and that during the entire period of secondment, the AE are the real and economic employer of these expats. Article 2 of the respective MOU entered into with both the Indian AEs clearly states that the expats would work as per the instructions and orders of the Indian Alis. [Para 10.2]  The fact on record reveals that the assessee has duly furnished the relevant TTA(s) along with their MOU entered into between the assessee and Indian AEs by way of additional evidence filed before the DRP vide letter dated 8- 10-2021 and the employment contracts entered into between the assessee and the expats which has not been taken into cognizance by the DRP/Assessing Officer. The assessee has transferred/provided the required personnel to the Indian AEs in order to support the business of the Indian AEs in terms of TTA/MOU. There is no provision of

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any service, be it managerial or technical by the assessee through the expats seconded employees to the Indian AEs under the TTA/MOU. The employment contracts entered into between the expats and the respective Indian AEs read with MOU makes it clear that the Indian AEs are under an obligation to pay expat's salary and the appropriate taxes have to be withheld thereon. Accordingly, the Indian AEs have duly deducted tax under section 192 and deposited the same into the Government account for the salaries paid to the expats in India as well as abroad (remitted solely for administrative convenience). The expats have offered the entire salary income to tax in their respective returns of income filed under the relevant provisions of the Act which is supported by Form 16 issued to the expats by their respective employers i.e. Indian AEs. [Para 10.3]  In the light of the above factual matrix and legal position, it is held that the impugned receipts are in the nature of employee salary reimbursement cost not having any element of income and not taxable in India as FTS under the provisions of the India-Japan DTAA. Consequently, the addition made on account of cross charge by the assessee from its Indian AEs is deleted. [Para 17]”

8.

Considering the clear findings of the ITAT on this issue in assessee’s own case the appeal filed by the assessee is allowed. Appeal on ground No. 11 and 12 are consequential in nature.

9.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open Court on 05.08.2026.

.SD Sd Sd/- Sd Sd/- (VIKAS AWASTHY) (KRINWANT SAHAY) JUDICIAL MEMBER ACCOUNTANT MEMBR Dated :05/08/2026 *Neha Sr. PS*

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