TaxTMI 
TaxTMI 
2022 (9) TMI 111
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....015-16. The nature of payment made by the assessee to non-resident was fee, training for developing soft skills. The amount payable to non-resident was grossed up and Tax Deducted at Source (TDS) was paid on the grossed up amount. Under section 248 of the Income Tax Act, 1916 (hereinafter called 'the Act'), the assessee filed an appeal before the CIT(A) contending that the sum paid to the non-resident is not taxable in the hands of the non-resident in India and therefore the assessee should be given the refund of the TDS paid out of its pocket. 3. Since India does not have a DTAA with Hongkong, the question that arises for consideration is as to whether the payment by the assessee to the non-resident can be regarded as a fee for technical services (FTS) within the meaning of Explanation to section 9(1)(vii) of the Act. Under Sec.5 of the Act, income of a non-resident, if it accrues or arises in India, the same shall be taxable in India. Explanation- 2 to Sec.9(1)(vii) of the Act, defines what is "FTS" for the purpose of Sec.9(1)(vii) of the Act and it reads thus: Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India....
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....ment for training services does not amount to Fees for technical services under the Income Tax Act, 1961 * Lloyds Register Industrial Services (India) (P.) Ltd v ACIT [2010] 36 SOT 293 (Mum) * Ershisanye Construction Group India (P.) Ltd v DCIT[2017] 84 taxmann.com 108 (Kolkata - Trib.) * ACIT v PCI Ltd [2011] 12 taxmann.com 59 (Delhi-Trib) Payment for training services does not amount to Fees for technical services under the India - USA DTAA * DDIT v Tetra Pak India P Ltd [2019] 111 taxmann.com 205 (Pune - Trib) * Renaissance Services BV v DDIT [2018] 94 taxmann.com 465 (Mumbai - Trib) 6. In addition to the above, learned Counsel for the assessee placed strong reliance on the decision of the Hon'ble Delhi High Court in the case of Director of Income Tax (International Taxation) Vs. Panalfa Autolectrick Ltd. [2014 49 taxmann.com 412 (Delhi). It was a case where the Court had to decide whether commission paid to a nonresident for procuring export order could be regarded as FTS. The Hon'ble Delhi High Court while rendering its decision that the payment could not be taxed as FTS has referred to OECD Report on e-commerce titled Tax Treaty Charaterization Issues arising fro....
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.... service via technological means does not make the service technical. This is especially important in the e-commerce environment as the technology underlying the internet is often used to provide services that are not, themselves, technical (e.g. offering on-line gambling services through the internet). 41. In that respect, it is crucial to determine at what point the special skill or knowledge is used. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for the provision of a service will not be a technical fee, however, unless that special skill or knowledge is required when the service is provided to the customer. For example, special skill or knowledge will be required to develop software and data used in a computer game that would subsequently be used in carrying on the business of allowing consumers to play this game on the internet for a fee. Similarly, special skill or knowledge is used to create a troubleshooting database that customers will pay to access over the Internet. In these examples, however, the relevant special skill or knowledge is not used when providing the service for which the fee is paid, i.e. allowing t....
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....oftware (which may well be done by someone other than the supplier) but rather making the software and data available to that client. The mere provision of access to such data and software does not require more than having available such a database and the necessary software. A payment relating to the provision of such access would not, therefore, relate to a service of a managerial nature. Consultancy services 45. For the Group, "consultancy services" refer to services constituting in the provision of advice by someone, such as a professional, who has special qualifications allowing him to do so. It was recognised that this type of services overlapped the categories of technical and managerial services to the extent that the latter types of services could well be provided by a consultant." We broadly agree with the aforesaid observations. However, in the case of selling agents, we add a note of caution that taxability would depend upon the nature of the character of services rendered and in a given factual matrix, the services rendered may possibly fall in the category of consultancy services. Paragraphs 41 and 42 do not emanate for consideration in the present case, and eff....
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....dership skills cannot be said to be providing advice by a professional. 9. Learned DR placed reliance on the following decisions and submitted that the services were in the nature of FTS and were rightly brought to tax by the CIT(A). In this regard, he referred to decisions where Tribunal has held that fees paid to non-residents for training services were held to be not taxable under DTAA. According to him, it is implicit in these decisions that the sum paid for providing training services is taxable under the Act, as otherwise, there was no occasion for tribunal to examine taxability under the DTAA, unless it is taxable under the Act. The decisions referred to by the learned DR, were as follows : 1. Santhik AB. v. ACTT on (2021) 190 ITI)11(1(Pune)(Trib.) S. 9(1)(vii):Income deemed to accrue or arise in India - Fees for technical services - Management fees -Indian subsidiaries - Most favoured Nation (MFN) clause -Not taxable as fees for technical services - Training services -Matter remanded - DTAA- India- Sweden I Art. 10, 12(4)(b) I Tribunal following the order passed in earlier assessment years held that management service fees received by assessee from its Indian subsidiarie....
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....l services, imparting of skill sets through trainings, were not taxable as fees for technical services within the meaning and scope of section 9 of the Act or article 12 of the Double Taxation Avoidance Agreement between India and the United States of America.( A Y. 2014- 15) 10. We have carefully considered the rival submissions. At the outset, we may deal with the argument of the learned DR that the decisions cited by him, implicitly hold that training fees is taxable under the Act. We do not think that the argument has no any force, because when there is a DTAA between India and the country of which the payee is a tax resident, the taxability has to be analyzed only from the definition of FTS as per the relevant DTAA and the definition in the Act, because irrelevant. Therefore, the fact that the tribunal has examined the payment from the terms of the treaty defining FTS, it does not follow that the Tribunals have held that training fee is taxable under the Act. 11. We agree with the contention of the learned counsel for the assessee that the nature of service rendered by the non-resident in the present case is neither in the nature of technical, managerial or consultancy servi....
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....able them to answe questions that may be asked before issue of Visa by Indian authorities. 15. The question whether training expenses would constitute FTS was considered by the Tribunal Mumbai in the case of Lloyds Register Industrial Services (India) Pvt.Ltd. (2010) 36 SOT 293 (Mumbai). The Mumbai Bench held that going by common sense training expenses cannot be called as "fee for technical services". The Mumbai Bench went on to hold that even highly qualified personnel might require training to carry out the job for which they are recruited and the person imparting training cannot be said to be rendering technical, managerial or consultancy service. It was held that such training was a continuous process because technology is changing very fast and one needs to keep touch with such technology and therefore, expenses incurred towards training cannot be termed as "fee for technical services". In the case of Cosmic Global Ltd., 48 taxmann.com 365 (Chennai.Trib), the question for consideration was as to whether an Assessee who got translation of the text from one language to another could be said to be rendering Technical service. The Chennai Bench of the Tribunal held that σ....