Facts
An Indian Company (Taxpayer) made payments to a German Laboratory (GL) for carrying out certain laboratory tests on circuit breakers so as to establish that the design and the product meets the international standards. The tests were done automatically by machines without any human intervention and on completion of these tests a certificate was issued by the authorities of GL for the quality of the product tested. The tax authority contented that the amount paid to GL was taxable in India as the payment was for technical services covered u/s. 9(1)(vii) of the Act. The CIT (A) upheld the view of tax authority. Aggrieved, the Taxpayer appealed to the Tribunal.
Held
Relying on Delhi High Court’s (HC) decision in the case of CIT v. Bharati Cellular Ltd [(2009) (319 ITR 139) (Del)] and Madras HC’s decision in the case of Skycell Communications Ltd vs. DCIT [(2001) 251 ITR 53 (Mad.)], Tribunal observed as below:
• The word “technical” as appearing in FTS definition is preceded by the word “managerial” and succeeded by the word “consultancy” and therefore, it takes colour from these words and cannot be read in isolation. Based on the principle of “noscitur a sociis”1 the word technical should be understood in the same sense as the words surrounding it.
• Managerial and consultancy services can be provided by humans only and cannot be provided by means or any equipment. Therefore, the word “technical” has to be construed in the same sense involving direct human involvement, without which technical services cannot be held to be made available.
• Where simply an equipment or sophisticated machine or standard facility is provided (though that facility may itself have been developed or manufactured with the usage of technology), such a user cannot be characterised as providing technical services.
• As against that if a person delivers his technical skills or services or makes available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services may be regarded as “technical services”. In such a situation, there is a constant human endeavour and the involvement of the human interface.
• If any technology or machine is developed by human and the same is put to operation automatically, wherein it operates without any amount of human interface or intervention, then the usage of such technology cannot per se be held as rendering of technical services by human skills. In such a situation, some human involvement could be there but it is not a “constant endeavour of the human” in the process.
Applying the above principles, the Tribunal ruled that the services rendered by GL were not technical in nature, as there was not much human involvement for carrying out the tests in the laboratory which were mostly done by machines, though under observations of technical experts. Further, the services were more of a standard facility through the usage of machines and human activities were limited to providing test certificate and test reports. Therefore, merely because the test was observed and the certificates were provided by the humans, it cannot be said that the services have been provided through human skills.
