Payments for carrying out tests for the purpose of certification do not amount to Fees for Technical Services (FTS) under the Income-Tax Act, and therefore, not liable to tax in India, according to a recent order by the Income-tax Appellate Tribunal (ITAT) Mumbai, a quasi-judicial body for deciding tax disputes. Under the I-T Act, FTS is liable to tax in India. 

The tax office believes it has the latitude to demand payment. In this case, the appeal before ITAT was filed by Siemens and the income sought to be taxed was the payment the company made to Pehla Testing Laboratory, Berlin, which conducted tests on Siemens' products for certification. 

ITAT ruled that even though the testing was carried out with sophisticated technology, payments for the service would not amount to FTS as there was no human element involved. 

Involvement of human element is an essential feature of the services related to FTS, ITAT observed. ITAT accepted the argument of Siemens represented bySunil Lala of KPMG that the judicial orders in the past which took a contrary view could not be used against the taxpayer company as none of them dealt with the legal principle that technical services cannot be rendered in the absence of human intervention. 

This order, according to tax experts, is the first of its kind, considering that tax judiciaries in India have taken totally opposite views in the past in similar cases such as Havells India, Cochin Refineries, South West Mining and Searle India. The ITAT order was pronounced on February 12, 2013. (Economic Times)