Fees for Technical Services (FTS) is defined as consideration including lump sum for rendering of any managerial, technical or professional services including the services of technical or other personnel.

Following are not in the nature of FTS:   

• Consideration for any construction, assembly, and mining or like project

• Salary received by a person in connection with providing technical service

FTS income is taxable in India if services used/ utilized in India. Place of rendering service not relevant.

FTS deemed to accrue or arise in India shall be included in the total income of a non-resident whether or not the non-resident has a residence or place of business or business connection in India.

Hence, payment to NR for providing consultancy services not having place of business in India shall be taxable in India.

Case law for the same has been enumerated below.

Case: GVK Industries Ltd. Vs. Income Tax Officer

Facts:

The assessee being a company was incorporated to set up a power project. To prepare a scheme for raising the required finance and tie-up the required loan, assessee sought services of a consultant. For this it entered into an agreement with NRC, a Switzerland based company as financial advisor to its project.

The NRC sent invoice after successful rendering of services to the assessee. The invoice related to the payment of success fee. The assessee-company thereupon approached the Assessing Officer, for issuing a ‘No Objection Certificate’ to remit the said fee.

The AO viewed that services rendered by NRC would come within scope of technical service under section 9(1)(vii) and, thus, amount of success fee was taxable in India.

The assessee filed the writ petition with the High Court. The said writ was dismissed.

On this assessee appealed to the Supreme Court.

Held:

The assessee stated that as the NRC had no place of business in India. In addition, all the services rendered by it were from outside India. Thus, no part of success fee could be said to arise or accrue or deemed to arise or accrue in India attracting the liability under the provisions of the Act.

The exception of clause (b) of section 9(1)(vii) applies to a situation when fee is payable in respect of services utilized for business or profession carried out by an Indian payer outside India or for the purpose of making or earning of income by the Indian assessee, i.e., the payer, for the purpose of making or earning any income from a source outside India.

The said exception shall not apply to the case in hand. However, the Court noticed that the assessee desired to utilize expert services of qualified and experienced professional. For this, it approached the NRC in Switzerland.

The services rendered included financial structure and security package to be offered to the lender, study of various lending alternatives for the local and foreign borrowings. It means the NRC has acted as a consultant. The nature of service rendered by the NRC would come within the ambit of the term ‘consultancy service’.

Thus, the Court concluded that the tax at source should have been deducted as the amount paid as fee could be taxable under the head ‘fee for technical service’.

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