Domestic Tax – TDS in Case of Secondment Agreement
The case emphasizes the conflict that took place between Mahanagar Gas Ltd. and GAIL & British Gas. The case belongs to the Domestic Tax genre, applicable for the Assessment Year 2009-10, under the Sec 192, 40(a) (ia).The case was placed at ITAT court of Mumbai. Mahanagar Gas Ltd. is a natural gas distributor and is one of the renowned companies in India.
The conflict fuelled from the Secondment Agreement signed by the two companies, when the employees of British Gas were assigned work for Mahanagar Gas for a defined time period of 2-3 years. The remuneration in the secondment agreement was paid to the employees of British Gas by GAIL and British Gas itself for the specified duration, as was agreed upon the contractual terms. The secondment agreement terms also specified that the cost incurred will be compensated by Mahanagar Gas to both the venture partners accordingly.
The secondment agreement clearly mentioned that the duties and responsibilities of the companies towards their employees and allocation of their remunerations along with other benefits were provided by the two partner companies, which in future could be claimed by Mahanagar Gas, if the companies failed to adopt the norms, as stated in the employment terms of the agreement. The agreement also highlighted that British Gas was responsible as well as liable for paying tax for employee’s remuneration to the Indian government.
To manage its costs further, British Gas had cut-off the Tax Deducted at Source (TDS) on the salary paid to the employees and paid it to Government of India. Besides, it has been evident in the case that British Gas had deducted the TDS from the employees’ salary, which was equal to that of the amount for the second time. As the curricular 720 (30/8/95) states that the deduction of tax for the amount paid could be done only under one section and only once in a month.
The investigation further revealed that employees who were assigned job positions in another organization under the Secondment Agreement, were not the employees of the assessee (Mahanagar Gas) and thus, the salary paid to the employees in the way of reimbursement was not liable for any TDS deduction, as per the court’s judgment under section 40(a) (ia)/192. Similar judgments can be observed in the cases including IDS Software Solutions vs. ITO (ITAT Bangalore), Cisco Systems Services B.E vs. ADIT (IT) (ITAT Bangalore), CIT vs. Bruhat Bangalore Mahanagar Palike (Karnataka High Court), Centrica India Offshore Pvt. Ltd vs. CIT (Delhi High Court) and Faqir Chand Gulati vs. Uppal (Supreme Court).