Corporate trainers/management consultants may avail 44AD lower tax presumptive scheme

Gopal Nathani – [2022] 145 taxmann.com 63 (Article)

INFOSYS BPO LTD., case

In this case the assesse filed an appeal u/s 248 to claim refund of taxes paid u/s 195 on fee paid to foreign consultant who was engaged to provide training for developing soft skills. The assesse company contended that the sum paid to the non-resident was not taxable in the hands of the non-resident in India and therefore the assessee should be given the refund of the tax deducted at source paid. The Commissioner (Appeals) held the view that the payment in the form of training fees fell within the ambit of definition of fees for technical services under the Act and was taxable in India.

This dispute lead to research in the definition of fees for technical services as contained in Explanation 2 to section 9(1)(vii) which has essentially three elements viz, managerial services, technical services or consultancy services. Drawing reference to several decision in particular the decision in the case of Ershisanye Construction Group India (P.) Ltd. v. Dy. CIT [2017] 84 taxmann.com 108 (Kol. – Trib.) the Bangalore Bench in Infosys BPO Ltd. v. Dy. CIT (International taxation) [2021] 131 taxmann.com 293/[2022] 192 ITD 94/99 ITR (Trib) 607 (Bang. – Trib.) held that training expenses cannot be called as “fee for technical services”

The Tribunal held that payment made by the assessee to the non-resident for training for developing soft skills/leadership skills is not a professional or consultancy service so as to require any tax withholding u/s195. In particular, the bench elaborated that the nature of services rendered by the non-resident was neither in the nature of technical, managerial or consultancy services as defined under the Act because technology was used in providing service. The delivery of a service via technological means did not make the service technical. Special skill or knowledge may be used in developing or creating inputs to a service business. The fee for the provision of a service will not be a technical fee, unless that special skill or knowledge was required when the service was provided to the customers. The employees developing leadership skill through service provided by the non-resident do not use such knowledge when they provide business process outsourcing service to the customers of the assessee and hence, the services rendered could not be regarded as technical service. The service rendered by the non-resident did not teach the employees of the assessee how the business had to be run but related only to developing leadership skills and hence the service provided by the non-resident could not be regarded as managerial services. The provision of advice by someone, such as a professional, who has special qualifications allowing him to do so, would be consultancy service but imparting training in leadership skills could not be said to be providing advice by a professional, and could not be regarded as consultancy service. Therefore, the sum paid to the non-resident could not be regarded as fees for technical services within the meaning of section 9(1)(vii) of the Act and could not be taxed in the hands of the non-resident in India.

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