Article 12 of India-Korea DTAA, section 9(1)(vii) of the Act – Fees paid to foreign company for providing shortlist of candidates as per job description, were not in the nature of FTS u/s 9(1)(vii) of the Act

9. TS-141-TAT-2020 (Ind) D&H Secheron Electrodes Pvt. Ltd. vs.
ITO ITA No. 104/Ind/2018 A.Y.: 2016-17 Date of order: 6^th March, 2020

Article 12 of India-Korea DTAA, section
9(1)(vii) of the Act – Fees paid to foreign company for providing shortlist of
candidates as per job description, were not in the nature of FTS u/s 9(1)(vii)
of the Act

FACTS

The assessee was
engaged in the business of manufacture of welding electrodes and was looking
for engineers for development of certain products. Hence, it entered into an
agreement with a Korean company (‘Kor Co’) for providing a list of engineers
matching the job description provided by it. On the basis of the list provided,
the assessee interviewed the candidates and recruited them if found suitable.
For its service, the assessee made payments to Kor Co without withholding tax.

According to the A.O., since the said services were technical in nature,
the assessee was liable to withhold tax. Therefore, the A.O. treated the
assessee as ‘assessee in default’ and initiated proceedings u/s 201 and u/s
201(1A) of the Act. The CIT(A) upheld the view of the
A.O.

Being aggrieved,
the assessee filed an appeal before the Tribunal.

HELD

(1) In the contract between the
assessee and Kor Co, the assessee had not sought any technical expertise from
the latter.

(2) The process involved in the services provided
by Kor Co was as follows:

(a) Assessee provided detailed job description to
Kor Co;

(b) After matching the job description with the
profile of candidates available in its database, Kor Co shortlisted candidates
for the assessee and had merely provided the list of such candidates to the
assessee;

(c) Kor Co had guaranteed that if the appointed
candidate were to voluntarily leave the job within the first 90 days of
employment, Kor Co would provide suitable replacement at no cost to the
assessee.

(3) The assessee had evaluated the
shortlisted candidates on its own by interviewing them and taking tests. The
decision whether the relevant candidates were suitable as per its requirements
was solely that of the assessee and Kor Co had not provided any inputs for the
same.

(4) Having regard to the nature of
the services provided by Kor Co, the payments made by the assessee to Kor Co
were not in the nature of ‘fees for technical services’ as defined in
Explanation 2 to section 9(1)(vii). Accordingly, the assessee was not required
to withhold tax from such payments.

Note: Apparently, though the assessee had also
referred to Article 12 of the India-Korea DTAA, the Tribunal concluded only in
the context of section 9(1)(vii) of the Act.