Fee for technical services test fails where accounting and HR support is administrative, not managerial or consultancy.

Payments for accounting support, payroll processing and employee data administration performed outside India were treated as administrative or data-processing services, not managerial, technical or consultancy services within section 9(1)(vii). As the foreign service provider had no permanent establishment in India and the payment was not chargeable to tax in India, no tax deduction at source was required and the disallowance under section 40(a)(i) could not be sustained. The deletion of the disallowance was upheld.

---

---

Issues: Whether payments made to the Malaysian associated enterprise for accounting and human resource support services constituted fee for technical services or managerial/consultancy services so as to attract tax deduction at source and disallowance under section 40(a)(i).

Analysis: The services were found to consist mainly of accounting support, payroll processing, employee data administration and related clerical functions performed outside India. The material on record showed that the foreign service provider had no permanent establishment in India. On the facts, the services were treated as data-processing or administrative in nature and not as services involving managerial, technical or consultancy expertise within the meaning of section 9(1)(vii). Since the payment was not chargeable to tax in India on that basis, the obligation to deduct tax at source did not arise and the disallowance under section 40(a)(i) could not be sustained.

Conclusion: The disallowance was rightly deleted and the assessee succeeded.

---