Payment for ‘Background screening and investigation services’ is neither Fees for Technical Services (“FTS”) nor royalty

The definition of Royally requires that the consideration received must be for the use of or right to use, any copyright of a literary artistic, or scientific work. As envisaged in the decision of the Hon’ble Supreme Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED Versus THE COMMISSIONER OF INCOME TAX & ANR. - 2021 (3) TMI 138 - Supreme Court, Important is that payments should be made for acquiring the right to use the copyright in the product and not the product itself.

For qualifying as FTS, the information provided should involve imparting of any kind of commercial experience, skill or expertise. The report should impart some information concerning industrial, commercial or scientific experience to the clients for the service to be called FTS. Further the service should make available a technical knowledge, experience, skill, know-how or processes to the clients.

The question in the case of HireRight Ltd. Versus ACIT, Circle 2 (1) (1), International Taxation, New Delhi - 2023 (9) TMI 478 - ITAT DELHI was whether payment for ‘background screening and investigation services by a non-resident to its customers in India fall within the purview of Fees for Technical Services (“FTS”) or royalty?’. The scope of the job was that the service provider provides human resource background screening services including pre-employment background screening, employment, education, verification services and investigative due diligence services. It verifies the details in respect of the concerned candidate viz. i) educational verification ii) employment verification iii) professional reference iv) other checks including but not limited to global sanction check, criminal check, drugs test, etc.

The above service was not to use a copyrighted product and did not make available a technical knowledge, experience, skill, know-how or processes to the clients. Hence the payment was neither considered towards royalty or FTS. This is quite a succinct but effective judgement and the ratio may be useful in such cases.