Receipts From Provision Of Background Screening And Investigation Services To Clients In India Is Not Royalty/FTS: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that receipts from the provision of background screening and investigation services to clients in India are not royalties or fees for technical services (FTS).

The bench of G.S. Pannu (President) and Astha Chandra (Judicial Member) has observed that the services rendered by the assessee do not involve any technical skill or knowledge or consultancy or make available any technical knowledge, experience, skill, know-how, or processes to the clients. The assessee's role is restricted to the verification of information provided by various candidates proposed to be hired by its clients.

The assessee/appellant is a foreign company and a tax resident of the UK. It is engaged in the business of providing human resource background screening services, including pre-employment background screening, employment, education, verification services, and investigative due diligence services.

The exact nature of services rendered by the assessee primarily includes verification of the details in respect of the candidate, such as educational verification, employment verification, professional references, and other checks, including but not limited to global sanction checks, criminal checks, drug tests, etc. The assessee does not have any permanent establishment (PE) in India.

The AO held that the revenue received by the assessee from the provision of background screening and investigation services is in the nature of royalty or FTS under the provisions of Article 13 of the Double Taxation Avoidance Agreement between India and the UK.

The assessee submitted that the income of the assessee cannot be characterised as royalty income or FTS as the clients provide the list of candidates to the assessee and the role of the assessee is limited to the background check of those candidates. A manual or online report is handed over to the client. The services performed by the assessee do not involve any right to use or transfer copyright or know-how.

The ITAT noted that the assessee is a tax resident of the UK and does not have a PE in India, and hence it has opted to be governed by the provisions of the India-UK DTAA, which are more beneficial to the assessee. The provision of services by the assessee and the nature thereof are also not in dispute. A perusal of the agreement of the assessee with Barclays shows the exact nature of the services performed by the assessee.

The tribunal held that the role of the assessee is limited to the validation of the data provided by the candidate and providing relevant facts captured during the course of validation. The clients make an independent decision to hire the candidate. Hence, in our view, the services should not be considered FTS under Article 13(4) of the India-UK DTAA.

Case Title: HireRight Ltd. Versus ACIT

Case No.: ITA No. 373/Del/2023

Date: 06.09.2023

Counsel For Appellant: Ajay Vohra

Counsel For Respondent: Vizay B. Vasanta

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