The definition of "royalty" requires that the consideration received must be for the use of, or right to use, any copyright of a literary, artistic, or scientific work. As envisaged in the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (2021) 125 taxmann.com 42 (SC)/432 ITR 471 (SC), it is important that payments should be made for acquiring the right to use the copyright in the product and not the product itself.
For qualifying as FTS, the information provided should involve imparting any kind of commercial experience, skill, or expertise. The report should impart some information concerning industrial, commercial, or scientific experience to the clients for the service to be called FTS. Further, the service should make available technical knowledge, experience, skill, know-how, or processes to the clients.
The question in the case of HIRERIGHT LTD vs. ACIT, CIRCLE 2(1)(1) [2023-VIL-1277-ITAT-DEL] was whether payment for 'background screening and investigation services by a non-resident to its customers in India falls within the purview of Fees for Technical Services ("FTS") or royalty.'
The scope of the job was that the service provider provides human resource background screening services, including pre-employment background screening, employment, education, verification services, and investigative due diligence services. It verifies the details in respect of the concerned candidate, viz.
i) educational verification
ii) employment verification
iii) professional reference
iv) Other checks, including but not limited to global sanction checks, criminal checks, drug tests, etc.
The above service was not to use a copyrighted product and did not make available technical knowledge, experience, skill, know-how, or processes to the clients. Hence, the payment was neither considered towards royalty nor FTS. This is quite a succinct but effective judgement, and the ratio may be useful in such cases.
CAclubindia
