Infosys BPO Limited Vs DCIT (ITAT Bangalore)
Held that the training fee paid by the assessee to a professional trainer doesn’t amount to Fees for Technical Services and hence TDS u/s 195 not deductible
Facts-
The assessee is a company engaged in the business of rendering BPO services. The assessee made payment of 2100 US$ to a nonresident viz., Stakeholder Centered Coaching (International Ltd.,) hereinafter referred to as the ‘non-resident’. The non-resident was a tax resident of Hongkong. It is body corporate registered in Hongkong. It is undisputed that there was no Treaty for avoidance of Double Taxation (DTAA) between India and Hongkong during the relevant period i.e., period relevant to Assessment Year 2015-16. 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.
The CIT(A) in the appeal filed by the assessee u/s.248 of the Act, was of the view that the payment in the form of training, fees fall within the ambit of definition of FTS under the Act and is taxable in India.
Conclusion-
Tribunal in the case of Ershisanye Construction Group India (P) Ltd. has held that imparting training in language was the main nature of service and hence payment made cannot be said to be Fees for Technical Services and was therefore not chargeable to tax. Thus, TDS not to be deducted u/s 195.
Held that the decision of Tribunal, in the case of Ershisanye Construction Group India (P) Ltd., clearly support the plea of the assessee the sum paid to non-resident cannot be regarded as FTS within the meaning of Sec.9(1)(vii) of the Act and cannot be taxed in the hands of the non-resident in India.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal by the assessee against the order dated 28.02.2017 of CIT(A) – 12, Bengaluru, relating to Assessment Year 2016-17.
2. The assessee is a company engaged in the business of rendering BPO services. The assessee made payment of 2100 US$ to a nonresident viz., Stakeholder Centered Coaching (International Ltd.,) hereinafter referred to as the ‘non-resident’. The non-resident was a tax resident of Hongkong. It is body corporate registered in Hongkong. It is undisputed that there was no Treaty for avoidance of Double Taxation (DTAA) between India and Hongkong during the relevant period i.e., period relevant to Assessment Year 2015-16. 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 :—
(i) to (vi)…….
(vii) income by way of fees for technical services payable by—
(a) the Government ; or
(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.
Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.
Explanation 2.—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.
4. Since the assessee paid taxes on the amounts payable to the nonresident after grossing up and since the assessee has prayed for declaration that payments made to non-resident were not chargeable to tax under the Act, the assessee filed appeal u/s.248 of the Act directly before CIT(A) and hence there will be no order of the AO in such cases. The CIT(A) in the appeal filed by the assessee u/s.248 of the Act, was of the view that the payment in the form of training, fees fall within the ambit of definition of FTS under the Act and is taxable in India.
5. In this appeal before the Tribunal, the learned Counsel for the assessee filed before us a list of decisions wherein it has been held that payment for training services does not amount to FTS under the Act.
Payment for training services does not amount to Fees for technical services under the Income Tax Act, 1961
