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| Technical services sans human interface may be tax-free |
| HP Agarwal / New Delhi Dec 28, 2009, 00:35 IST |
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The expression “Fees for Technical Services” is defined in Explanation 2 in section 9(1)(vii) of the Income -tax Act as under:
“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)...,”
Significance of Fees for Technical Services lies in that such fees is deemed to accrue or arise in India merely by reason of the fact that it is paid by a Resident to a Non Resident.
As held in Skycell Communication Ltd. (2001) 251 ITR 53 [Mad], “The popular meaning associated with “technical” is “involving or concerning applied and industrial science”. In the modern day world, almost every facet of one’s life is linked to science and technology in as much as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.”
The expression “fees for technical services” again came up for consideration in a recent case of CIT vs Bharti Cellular Limited (2009) 319 ITR 139 [Del]. In the said case the assessees are engaged in the business of providing cellular telephone facilities to their subscribers. They however require interconnection access and ports facilities, besides their own equipment.
For providing the interconnection the assessee has entered into agreements with MTNL/ BSNL etc. MTNL/BSNL charge a fees from the asses-sees which seek such interconnection facility for completing their calls.
The issue is the true nature of the interconnection access/ports charges. According to Revenue the said interconnection/port access charges are in the nature of “fees for technical services”.
On the other hand, the assessee’s contention is that the mere collection of a fee for use of standard facilities provided to all those willing to pay for it does not amount to the fees having been received for technical services. Until and unless there is an element of human interface, the facility of interconnection/port access cannot be regarded as a technical service.
The High Court, after a brilliant analysis, observed that the expression “fees for technical services” means any consideration for rendering of any “managerial, technical or consultancy services”. The word “technical” is preceded by the word “managerial” and succeeded by the word “consultancy”. Since the expression “technical services” is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable.
The rule of noscitur a sociis is explained in Maxwell on the “Interpretation of Statutes” in the following words “Where two or more words which are susceptible of analogous meaning are coupled together, noscuntur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.”
From the above discussion, it is apparent that both the words “managerial” and “consultancy” involve a human element. And, both, managerial service and consultancy service are provided by humans.
Consequently, applying the rule of noscitur a sociis, the word “technical” as appearing in Explanation 2 to section 9(1)(vii) would also have to be construed as involving a human element. In the aforesaid case the facility provided by MTNL etc. for interconnection/port access is by machines. Hence the same was held as outside the scope of Fees for Technical Services.
Considered in above light, the expression “technical services” would have reference to only technical services rendered by a human; it would not include any service provided by machines or robots.
(Author is a Sr. Partner in S.S. Kothari Mehta & Co.)
Email: hp.agrawal@sskmin.com
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