ITAT rules training fees does not fall under technical services

ITAT rules training fees does not fall under technical services

The tribunal said that as per the law, the assessee was entitled to a refund of tax with the interest amount

The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT) has held that Tax Deducted at Source (TDS) is not deductible on training fees paid to professional trainers. This is because it does not amount to fees for technical services.

The two-member bench headed by N.V. Vasudevan (vice-president) and Chandra Poojari (accountant member) observed that the nature of service rendered by the non-resident was neither technical, managerial nor consultancy service. It could not be termed as technical, for the mere reason that technology was used in providing the service, whereas the delivery of service via technological means does not make it technical.

The appellant-assessee is engaged in the business of rendering BPO services. The assessee made a payment of 2100 USD to Stakeholder Centred Coaching (International Ltd.), referred to as the 'non-resident.'

The non-resident is a corporate body registered in Hong Kong. There was no Double Taxation Avoidance Agreement (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 the non-resident was grossed up and TDS was paid on the amount.

The assessee filed an appeal with the Commissioner of Income Tax (Appeals), claiming that the sum paid to the non-resident was not taxable in the non-resident's hands in India. Therefore, the assessee should be given a TDS refund. It contended that the payment for training services did not amount to Fees for Technical Services (FTS) under the Income Tax Act.

The assessee maintained that the technology used in providing a service was not indicative of whether it was technical in nature. Similarly, the delivery of service via technological means did not make the service technical. Special skills or knowledge may be used in developing or creating inputs for a service business; however, it would not be technical fees unless a special skill or knowledge was required at the time of providing the service to the customer.

The BPO service could not be regarded as a technical, managerial, or consultancy service.

The revenue department contended that the services were FTS, hence, the fees paid to the non-resident for training services were not taxable under DTAA.

The tribunal noted that the service could not be termed as managerial because the service rendered by the non-resident did not teach the employees of the assessee how the business was to be run. It was only related to developing leadership skills.

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 at the hands of the non-resident in India. It ruled that as per the law, the assessee was entitled to a refund of tax with interest amount.