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TMI Blog2013 (2) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as non technical. The CIT (DR) had argued that for observing the process, preparing the report, issuance of certificate and for monitoring of machines, human involvement is definitely there, therefore, it cannot be held that there is no human intervention. This cannot be the criteria for understanding the term "technical services" as contemplated in Explanation 2 to section 9(1)(vii). If any person delivers any technical skills or services or make available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as "technical services". In such a situation there is a constant human endeavour and the involvement of the human interface. On the contrary, if any technology or machine developed by human and put to operation automatically, wherein it operates without any much of human interface or intervention, then usage of such technology cannot per se be held as rendering of "technical services" by human skills. It is obvious that in such a situation some human involvement could be there but it is not a constant endeavour of the human in the process. Merely because certificates have been provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO that the payment to be made to Pehla is in the nature of fees for technical services covered by section 9(1 )(vii) read with Explanation to section 9 of the Income-tax Act, 1961 and as per DT AA between India and Germany. Without prejudice to the above, the CIT(A) ought to have held that the payment to be made to Pehla was in the nature of business profits and as per Article 7 of the DT AA between India and Germany, the payment was not liable to tax in India in the absence of a Permanent Establishment (PE) in India to which such payment could be attributed". 2. Brief facts of the case are that the assessee was required to make payment to "Pehla Testing Laboratory" (hereinafter referred to as PTL) located at Berlin Siemensstadt 13623 Berlin, Germany for carrying out type tests of the circuit breakers manufactured by assessee in order to establish that the design and the product meets the requirement of the International Standards - IEC 62271-100. Pehala Lab is accredited by National Accreditation Board for Testing Calibration Laboratories (NABL) Germany, which carries out various kinds of tests for circuit breakers and other electronic devices to prove that the desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the expression "Technical Services" involves a human element, whereas in the case of assessee there is no involvement of human interface. 4. AO, however, rejected the assessee's contentions on the ground that firstly, type of the services provided by the Pehla Lab is of highly technical in nature and the payment is definitely covered by section 9(1)(vii) and secondly, the Explanation 2 to section 9 which was inserted by the Finance Act, 2007 with retrospective effect 1.6.1976 provides that, where the income is deemed or accrued or arise in India, such income shall be included in the total income of the non resident, whether or not the non resident has a residence or place of business or business connection in India. Reference was also made to CBDT Circular No.03 of 2008 dated 12.03.2008. AO further held that the decision of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 relied upon by assessee will not be applicable as the same was rendered upon the provision, prior to the amendment. Accordingly he held that payment made by assessee would qualify as fees for technical services as per the DTAA between India and Germ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rove that the design of the equipment meets the requirements stipulated by International Standards and were for the purpose of fulfillment of one of the Tender formalities laid down by the purchasers. For this purpose, the appellants had to send the circuit breakers (the product manufactured by the appellants) to Pehla Germany to obtain the type testing certificate. The circuit breakers undergo a destructive test in the laboratories. The breakers are not received back in India and are destroyed. Pehla carried out only type testing by using their sophisticated test equipments to impose both high voltage and high currents on the circuit breakers without human intervention and issued reports of the tests conducted". Thereafter he come to the conclusion that PTL is carrying out technical kind of services after observing as under: "3.10. Keeping this background in mind, it is now to be seen whether the services being provided by Pehla to the appellant fall in this spectrum. As per the flyer provided by the appellant, it is seen that by its own definition "Pehla is the competent authority for testing of all components relating to the transmission and distribution of high voltage powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, submitted that, it has been undisputed by the AO that the type testing carried out by Pehla by use of highly sophisticated test equipment is without any human intervention and this fact has also been admitted by the CIT (A) in Para 3.7 of his order, wherein his decision has been recorded. Once it is an admitted fact that no human intervention is involved in such kind of testing, it does not amount to rendering of any "technical services". He submitted that the word "technical service" as appearing in Explanation 2 to section 9(1) (vii) is sandwiched between the word "managerial" and "consultancy" and therefore the word "technical service" has to be read along with these two words. These words signify the involvement of human intervention as without human involvement managerial and consultancy services cannot be provided. A testing carried out purely by the machines cannot be held to be providing "technical services" within the meaning of section 9(1)(vii). In support of his contention, he has relied upon catena decisions, some of which are cited herein below: (a) CIT v. Bharati Cellular Ltd. [2009] 319 ITR 258 (Del.) (b) CIT v. Bharat Cellular Ltd. [2011] 330 ITR 239 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Bench, the matter related to transmission of electricity which is distinguishable from assessee's case. In support of his contention, he gave an example of conducting of blood test, which nowadays are done through sophisticated machines, but it is certified by the Pathologist who analyses the report. This kind of conducting blood test is definitely said to be done by the Pathologist only who is human and not a service through machine. He also relied upon the decision of the Cochin Refineries reported in (1996), 222 ITR 354 (Ker.), wherein the matter related to carrying out certain tests conducted by a foreign company at the instance of the Indian company and the payments made to the person of the foreign company was treated as FTS within the meaning of section 9(1)(vii). Thus in the case of assessee also same has to be treated as FTS. He further relied upon the decision of the ITAT in the case of Ashapura Minichem Ltd. v. Assistant Director of Income-tax, International Taxation 1(1), Mumbai, reported in [2010], 40 SOT 220. In this case bauxite testing services conducted by Chinese company in its Laboratories and preparing of test report was held to be taxable under section 9(1)(v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services and is taxable within the meaning of section 9(1)(vii). Assessee in pursuance of its tender formalities with the Gujarat Energy Transmission Corporation Ltd and Maharashtra State Electricity Transmission Company Ltd. was required to obtain type testing certificate of the circuit breakers manufactured by it. For this purpose it has sent the circuit breakers to be tested in the Laboratory of PTL, wherein the circuit breakers undergo destructive tests in the Laboratories. Once it passes through the test in the Laboratories, certificate is given by the PTL for the quality of the product manufactured by assessee. Whether such a payment for this kind of testing falls within the realm of fees for "technical services". Section 9(1)(vii) provides that income by way of Fee for Technical Services shall deemed to accrue or arise in India. Explanation 2 defines the "fees for technical services" as under: Section 9(1)(vii) "(vii) income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f noscitur a sociis gets attracted, which means that the meaning of the word or expression is to be gathered from the surrounding word i.e. from the context. Coupling of the words together shows that they are to be understood in the same sense. The word "managerial and consultancy" is a definite indicative of the involvement of a human element. Managerial services and consultancy services has to be given 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 cannot be held to be made available. Where simply an equipment or sophisticated machine or standard facility is provided albeit developed or manufactured with the usage of technology, such a user cannot be characterized as providing technical services. The Hon'ble Delhi High Court in the case of CIT v. Bharati Cellular Ltd. (supra) in this regard has observed and held as under: "13** ** ** "In the said Explanation the expression "fees for technical services" means any consideration for rendering of any " managerial, technical or consultancy services" . The word " te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the service of consultancy also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant. 15. 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. But, the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to section 9(1)(vii) of the said Act. This is so because the expression " technical services" takes colour from the expressions " managerial services" and " consultancy services" which necessarily involve a human element or, wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices" as contemplated in Explanation 2 to section 9(1)(vii). If any person delivers any technical skills or services or make available any such services through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as "technical services". In such a situation there is a constant human endeavour and the involvement of the human interface. On the contrary, if any technology or machine developed by human and put to operation automatically, wherein it operates without any much of human interface or intervention, then usage of such technology cannot per se be held as rendering of "technical services" by human skills. It is obvious that in such a situation some human involvement could be there but it is not a constant endeavour of the human in the process. Merely because certificates have been provided by the humans after a test is carried out in a Laboratory automatically by the machines, it cannot be held that services have been provided through the human skills. Therefore, the contention raised by the learned CIT (DR) does not appeal much to us. 15. The Hon'ble Judge in the case of Skycells Communications Ltd. (Supra) while inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the payments made to the cable operator. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. 6. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n intervention or not. 17. Lastly coming to the learned DR's contentions that the judgment of the Hon'ble Delhi High Court in the case of Bharati Cellular Ltd. (Supra) has been set aside by the Hon'ble Supreme Court, it is however, seen that the Hon'ble Supreme Court has set aside the matter to the Assessing Officer with regard to examination and to establish whether technical services provided, involved any kind of human intervention or not during the process of call communication. The Hon'ble Supreme Court has not reversed or adversely commented on the provisions or principles of law discussed by the Hon'ble Delhi High Court. It was on the fact of the case that the matter was set aside to examine the nature of the technical services and to examine the involvement of the human in the process. 18. In our final conclusion we hold that the learned CIT (A) was not correct in holding that the payment made by assessee to Pehla Testing Lab was in any manner in the nature of "fees for technical services" within the ambit of section 9(1)(vii) read with Explanation 2 and accordingly there was no requirement in law to deduct tax at service on such payment. In the result this issue is dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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