The assessee made
payment to a laboratory in Germany for carrying out certain tests on circuit
breakers manufactured by the assessee and to certify that the said circuit
breakers met with international standards. The assessee claimed that as the said
tests were carried out by sophisticated machines without human intervention, the
services did not constitute “fees for technical services” as defined in
s. 9(1)(vii) of the Act. The AO & CIT(A) rejected the claim on the ground
that the services were “technical” in nature and that even assuming human
intervention was necessary, the same was present in the form of humans observing
the process, preparing the report, issuance of certificate and monitoring the
machines. On appeal by the assessee to the Tribunal, HELD allowing the
appeal:
(i) Explanation 2
to s. 9(1)(vii) defines the expression “fees for technical services” to
mean “any consideration for the rendering of any managerial, technical or
consultancy services”. The word “technical” is preceded by the word
“managerial” and succeeded by the word “consultancy”. Applying the
principle of noscitur a sociis, as the words “managerial and
consultancy” have a definite involvement of a human element, the word
“technical” has to be construed in the same sense involving direct human
involvement. If services are provided using an equipment or sophisticated
machine or standard facility, it cannot be characterized as “technical
services” so as to fall within s. 9(1)(vii) (Bharati Cellular Ltd 319
ITR 258 (Del) & Skycell Communications 251 ITR 53 (Mad) followed;
fact that Bharati Cellular has been set aside by the SC in Bharat
Cellular Ltd 330 ITR 239 (SC) does not affect this principle);
(ii) On facts, the
services provided by the German laboratory for testing the circuit breakers was
a standard service done automatically by machines and not requiring human
intervention. The fact that humans are required for observing the process,
preparing the report, issuance of certificate and for monitoring of machines is
not a relevant criterion. The test is whether the services are rendered by a
human or by a machine. If a human renders the technical services with the aid of
a machine, the services are “technical services”. But if the services are rendered by a machine
without human interface or intervention, then it is not “technical
services” as defined. The mere fact that certificates have been provided by
humans after the test is carried out by the machines does not mean that services
have been provided by human skills.
Contrast with Kotak Securities 340 ITR 333 (Bom) where a similar
argument that transaction charges paid to the stock exchange for the automated
BOLT system is not for “managerial services” was not
accepted
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