Training Fee Paid To Professional Trainer Doesn't Amounts To Fees for Technical Services, No TDS Deductible: ITAT

The two-member bench headed by N.V. Vasudevan (Vice-President) and Chandra Poojari (Accountant Member) have observed that the nature of service rendered by the non-resident is neither in the nature of technical, managerial, or consultancy service. The nature of service rendered clearly shows that the services rendered by non-residents cannot be termed as technical services for the mere reason that technology is used in providing service. The delivery of a service via technological means does not make the service technical.

The appellant/assessee is a company engaged in the business of rendering BPO services. The assessee made a payment of 2100 USD to a non-resident, viz., Stakeholder Centred Coaching (International Ltd.), referred to as the "non-resident." The non-resident was a tax resident of Hong Kong. It is a corporate body registered in Hong Kong. There was no Treaty for the Avoidance of Double Taxation (DTAA) between India and Hong Kong during the Assessment Year 2015-16. The nature of the payment made by the assessee to the non-resident was a fee for training to develop soft skills. The amount payable to a non-resident was grossed up, and Tax Deducted at Source (TDS) was paid on the grossed up amount.

The assessee filed an appeal with the CIT(A), claiming that the sum paid to the non-resident is not taxable in the non-resident's hands in India. Therefore, the assessee should be given a refund of the TDS paid out of its own pocket.

The issue raised was whether the payment by the assessee to the non-resident could be regarded as a fee for technical services (FTS) within the meaning of Explanation to section 9(1)(vii).

The assessee contended that payment for training services does not amount to FTS under the Income Tax Act.

The assessee contended that the technology used in providing a service is not indicative of whether the service is of a technical nature. Similarly, the delivery of a service via technological means does not make the service technical. Special skills or knowledge may be used in developing or creating inputs for a service business. The fee for the provision of a service will not be a technical fee, however, unless special skill or knowledge is required when the service is provided to the customer. The employees developing leadership skills through service provided by the non-resident do not use such knowledge when they provide BPO service to the customers of the assessee and, hence, the services rendered cannot be regarded as technical service. The service cannot be regarded as managerial service because the service rendered by the non-resident does not teach the employees of the assessee how the business has to be run but only relates to developing leadership skills, and hence the service provided by the non-resident cannot be regarded as managerial service. It cannot be regarded as a consultancy service because the provision of advice by someone who has special qualifications would be a consultancy service, but imparting training in leadership skills cannot be said to be providing advice by a professional.

The department contended that the services were in the nature of FTS. The fees paid to non-residents for training services were held to be not taxable under DTAA.

The ITAT noted that the service cannot be regarded as managerial service because the service rendered by the non-resident does not teach the employees of the assessee how the business has to be run but relates only to developing leadership skills. The service provided by the non-resident cannot be considered managerial.

The tribunal held that the sum paid to a non-resident cannot be regarded as FTS within the meaning of Section 9(1)(vii) and cannot be taxed in the hands of the non-resident in India. Consequently, the assessee would be entitled to grant a refund of taxes paid together with interest as per law.

Case Title: M/s. Infosys BPO Limited Versus DCIT

Citation: IT(IT)A No.989/Bang/2017

Date: 01.09.2022

Counsel For Appellant: CA Padam Chand Khincha

Counsel For Respondent: Addl. CIT(DR) K. R. Narayana

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