It was ruled by the Delhi High Court that Fee for Technical Services (FTS) as included u/s 9(1)(vii) of the Income Tax Act, 1961 is related to the transfer of ‘distinctive’, ‘specialized’ knowledge, skill, expertise and know-how by a service provider.
Therefore a division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar noted that the support furnished via the taxpayer-respondent concerning rules and regulations for clearance of customs frontiers is not ‘specialised knowledge’ to make the service ‘Fee for Technical Services (FTS)‘.
It observed, “FTS is firstly concerned with rendition of specialized knowledge, skill, expertise and know-how. It is principally concerned with the transfer of knowledge, skill and expertise. Those three attributes must be those which are possessed by the service provider and are distinctive and special qualities that it possesses.”
With the appeal of the income tax department, the court was dealing, asserting that the service directed via the taxpayer comprises the transfer of Technical Knowledge and Training and Personnel Management, qualifying as FTS.
The Department relied on the usage of the expression “complicated function” as appearing under the head of Technical Knowledge to sustain their submission.
“We find that under the head of “Technical Knowledge”, the assessee is only stated to have assisted the Indian entity in dealing with customs brokerage and other services to be provided at destinations including assisting customers in clearance of shipments through customs and preparation of required documentation.…rules and regulations about clearance of customs frontiers was not specialized skill or knowledge acquired or possessed by the assessee. These rules are in the public domain and have been framed by competent authorities operating in different jurisdictions. A fortiori, imparting instructions in respect of those statutory regulations would also not qualify FTS,” it stated.
Court mentioned the International Management Group (UK) Ltd. v. Commissioner of Income Tax (2024) whereby the scope of FTS was discussed in some detail by the High Court.
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It was held therein that provided the ordinary meanings of the terms ‘managerial’, ‘technical’ and ‘consultancy’, the fundamental concept underlying the definition of fees for technical services is that the services should have the application by the service provider of specialized knowledge, skill or expertise on behalf of a client.
The Court dismissed the appeal of the department.
| Case Title | M/S Expeditors International Of Washington Inc vs. Commissioner Of Income Tax International Tax- 1 New Delhi |
| Citation | ITA 202/2022 |
| Date | 13.02.2025 |
| Appellant by | Mr Puneet Rai, SSC with Mr Ashvini Kr., Mr Rishabh Nangia, Mr Nikhil Jain, Ms Srishti Sharma |
| Respondent by | Mr Deepak Chopra, Mr Rohan Khare and Mr Priyam Bhatnagar |
| Delhi High Court | Read Order |
