Audit & Certification not come within Realm of FTS

AUDIT WORK & CERTIFICATION WOULD NOT COME WITHIN THE REALM OF FTS

In a recent ruling, the ISO Certification fee paid by Indian companies to Non-Resident can’t be treated as FTS as the audit work and certification would not come within the realm of FTS. Hence, not taxable in India in the absence of PE of NR in India.

TUV Bayren (India) Ltd. V. DIT[2015] (Bombay HC)

Facts

The assessee was a certification agency that was issuing ISO certificates to its clients. The nature of work is that the assessee is approached by certain parties for the issuance of this standard certificate.

The process of evaluation in the form of an audit of activities undertaken by the clients is carried out through the audit parties of the assessee. Based on the report of such an audit party, a certificate to individual clients/applicants is issued.

This is after reviewing the report and several stages of audit work that have been carried out. The certificates are issued for specific and certain periods.

AO submits that the services provided are clearly technical or consultancy in nature. It is not a simple certification agency as is projected by the assessee.

It has specified clients and handles these clients’ cases. To enable them to obtain certification so that the products of such clients are certified to meet with the International Quality standards and hence these are covered under FTS.

Ruling

It was held that the present case is completely covered by the judgment of the same Court in the case of DIT(IT) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.). As a result of the above discussion, none of the questions are substantial questions of law. The appeal fails and is dismissed.

These are neither technical nor managerial nor consultancy services. There is no advice given but insofar as this activity is concerned, the record indicates that the audit work and certification would not come within the realm of fees for technical services.

In the circumstances, there is nothing in the activities which could enable the revenue to bring them within the purview of section 9 (1)(vii) and Article 12(4) of the Indo-German Double Taxation Avoidance Agreement.

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