Income Tax Act | 'Fee For Technical Services' Means Transfer Of 'Specialised'/ 'Distinctive' Knowledge Or Skill By Service Provider: Delhi HC

A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar thus observed that assistance provided by the assessee-respondent with respect to rules and regulations for clearance of customs frontiers is not 'specialised knowledge' to make the service 'FTS'.

It observed, “FTS is firstly concerned with rendition of specialized knowledge, skill, expertise and know-how. It is principally concerned with a transfer of knowledge, skill and expertise. Those three attributes must be those which are possessed by the service provider and are distinctive and special qualities that it possesses.”

The Court was dealing with the Income Tax Department's appeal, claiming that the service rendered by the assessee included the transfer of Technical Knowledge and Training and Personnel Management, qualifying as FTS.

The Department relied on the usage of the expression “complicated function” as appearing under the head of Technical Knowledge to sustain their submission.

The High Court however found the submission 'misconceived' since it found that the complicated function which was spoken of was restricted to apprising persons of the various rules and regulations prevalent in a multitude of countries and concerned with clearance of goods.

“We find that under the head of “Technical Knowledge”, the assessee is only stated to have assisted the Indian entity in dealing with customs brokerage and other services to be provided at destinations including assisting customers in clearance of shipments through customs and preparation of required documentation.…rules and regulations pertaining to clearance of customs frontiers was clearly not specialized skill or knowledge acquired or possessed by the assessee. These rules are in the public domain and have been framed by competent authorities operating in different jurisdictions. A fortiori, imparting instructions in respect of those statutory regulations would also not qualify FTS,” it said.

Court cited International Management Group (UK) Ltd. v. Commissioner of Income Tax (2024) whereby the scope of FTS was discussed in some detail by the High Court.

It was held therein that given the ordinary meanings of the terms 'managerial', 'technical' and 'consultancy', the fundamental concept underlying the definition of fees for technical services is that the services must involve the application by the service provider of specialized knowledge, skill or expertise on behalf of a client.

As such, the Court dismissed the Department's appeal.

Appearance: Mr. Puneet Rai, SSC with Mr. Ashvini Kr., Mr. Rishabh Nangia, JSCs, Mr. Nikhil Jain and Ms. Srishti Sharma, Advs. for Appellant; Mr. Deepak Chopra, Mr. Rohan Khare and Mr. Priyam Bhatnagar, Advs. for Respondent

Case title: Commissioner Of Income Tax International Tax- 1 New Delhi v. M/S Expeditors International Of Washington Inc

Citation: 2025 LiveLaw (Del) 196

Case no.: ITA 202/2022

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