INCOME TAX ACT, 1961

Section 9(1)(vii)

Income deemed to accrue or arise in India - Under section 9(1)(vii) - Fees for technical services - Fee payment made to non-resident termed as FTS on account of involvement of technology in providing service

Assessee claimed deduction of fee payment made to non-resident based at Hong Kong towards trainging for developing soft skills. AO treated the same as fee for technical services (FTS) within the meaning of Explanation to section 9(1)(vii). Held: Services rendered by non-resident could not be termed as technical service for the mere reason that technology was used in providing service. The delivery of a service via technological means did not make the service technical. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for provision of a service would not be a technical fee, unless that special skill or knowledge is required when the service is provided to the customer. The employees developing leadership skill through service provided by the non-resident did not use such knowledge when they provide BPO service to the customers of assessee and hence, services rendered could not be regarded as technical service. The service could not be regarded as managerial service because the service rendered by non-resident did not teach the employees of assessee as so how the business was to be run but related only developing leadership skills and hence service provided by non-resident could not be regarded as managerial services. It could not be regarded as consultancy service also because provision of advice by someone, such as a professional, who had special qualifications allowing him to do so, would be consultancy service but imparting training in leadership skills could not be said to be providing advice by a professional. Accordingly sum paid to non-resident could not be regarded as fees for technical services within the meaning of section 9(1)(vii) and could not be taxed in the hands of non-resident in India.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2016-17

SUBSCRIBE FOR FULL CONTENT