India: Reimbursements of salary costs not fees for technical services subject to withholding under UK treaty (tribunal decision); other direct and indirect tax developments

The Income-tax Appellate Tribunal (Mumbai Bench) held that reimbursements of salary costs of seconded employees received by a UK company from Indian affiliated entities on a cost-to-cost basis without markup were not taxable as fees for technical services (FTS) under the India-UK income tax treaty.

The tribunal found that because the seconded employees worked under the complete control and supervision of the Indian affiliated entities, those entities were the legal and economic employers of the seconded employees. Consequently, the salary reimbursements were “salaries” that did not constitute FTS, and there was no obligation to withhold tax under the treaty.

The case is: Goldman Sachs International v. ACIT (ITA No. 6033/Mum/2025)

Read a May 2026 report prepared by the KPMG member firm in India, which also includes summaries of the following indirect and indirect tax developments:

• Supreme Court advises High Courts to stay parallel proceedings on DDT treaty rate applicability: The Supreme Court advised High Courts to consider staying parallel proceedings while it adjudicates whether the dividend distribution tax (DDT) rate is restricted to the beneficial rate provided under an income tax treaty.
• Remote maintenance services do not constitute permanent establishment (PE): The Delhi Tribunal held that remote troubleshooting and software support services provided by a Canadian tax resident did not constitute a fixed place PE or a virtual service PE under the India-Canada income tax treaty.
• Retrospective amendment cannot create retroactive tax withholding obligations: The Mumbai Tribunal held that the retrospective amendment introduced by the Finance Act, 2012, cannot be used to retrospectively impose a withholding obligation on an Indian resident buyer for an indirect share transfer completed in 2005.
• Mere shareholding does not establish beneficial ownership of foreign company's income: The Delhi High Court held that rental income and capital gains earned by a British Virgin Islands company were not taxable in the hands of its Indian shareholders, because mere shareholding does not establish beneficial ownership of the company's underlying assets.
• Foreign company not treated as Indian tax resident under place of effective management test: The Ahmedabad Tribunal held that a foreign company could not be treated as an Indian tax resident based on place of effective management when the facts did not support a finding that the foreign company's key decisions were made in India.
• Capital gains deduction under section 54F precedes capital loss set-off: The Mumbai Tribunal held that a taxpayer is entitled to claim an exemption on long-term capital gains under section 54F of the Income-tax Act, 1961, before setting off long-term capital losses from the sale of other shares under section 70(3).
• GST not leviable on corporate guarantees provided without consideration: The Bombay High Court held that the issuance of corporate guarantees to banks on behalf of subsidiary companies without consideration did not constitute a taxable supply under the Central Goods and Services Tax Act, 2017.
• No need to read down statutory conditions for input tax credit (ITC): The Gujarat High Court upheld the constitutional validity of section 16(2)(c) of the CGST Act, 2017, holding that actual payment of tax by the supplier is a valid condition precedent for availing ITC.