Siemens Limited vs. CIT (ITAT Mumbai)

S. 9(1)(vii): Services rendered by machines is not “fees for technical services”

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.