Tuesday, February 19, 2013

Testing services through machines are technical services, still not taxable as FTS as human intervention is missing

Merely because certificates have been provided by the humans after a test is carried out in a laboratory by automatic machines, it can’t be held that the services have been provided through the human skills. Such service is not “Fees for Technical Services”

In the instant case, the moot question that came up before the Tribunal was:
“Whether the payment made purely for standard facility provided by the Laboratory which is done automatically by the machines without any human intervention can be covered under the ambit of Fee for Technical Services”?

The Tribunal held in favour of assessee as under:

1) The expression “fees for technical services” has been defined as consideration for rendering managerial, technical or consultancy services. The word “technical” as appearing in the Explanation 2 to section 9(1)(vii)  is preceded by the word “managerial” and succeeded by the word “consultancy”. It can’t be read in isolation as it takes colour from the word “managerial and consultancy” between which it is sandwiched;

2) Managerial and consultancy services have to be rendered by human only and not by any means or equipment. Therefore, the word “technical” has to be construed in the same sense involving direct human involvement, without that technical services can’t be made available;

3) Where simply an equipment or sophisticated machine or standard facility is provided albeit developed or manufactured with the usage of technology, such a user can’t be characterized as providing technical services; and

4) One has to see whether any kind of human interface or human involvement is there for providing technical services. Merely because certificates have been provided by the humans after a test is carried out in a laboratory automatically by the machines, it can’t be held that services have been provided through the human skills - Siemens Ltd. v. CIT [2013] 30 taxmann.com 200 (Mumbai - Trib.)