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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short] dated 08.07.2025 for the Assessment Year 2017-18 raising following grounds of appeal :-
“1.That on the facts and circumstances of the case and in law, the Ld. CIT(A), grossly erred in upholding the assessment order passed by the Learned Assessing Officer ("Ld. AO") and confirming the disallowance in terms of Section 40(a)(i) of the Act on account of repair and maintenance overhauling charges amounting to INR 29,27,08,376 alleging non-deduction of tax at source while making payments to non-resident entities.
2.That on the facts and circumstances of the case and in law the Hon'ble CIT(A)/Ld. AO erred in not appreciating that the services availed in connection with repair and maintenance overhauling charges do not fall within the ambit of 'Fees for Technical Services' as defined under Section 9(1)(vii) of the Act.
3.That on the facts and circumstances of the case and in law, the Hon'ble CIT{A)/Ld. AO erred in not recording any specific finding as to whether the alleged services qualify as 'Managerial' or 'Technical' or 'Consultancy' in terms of Explanation 2 to Section 9(1)(vii) of the Act.
4.That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) /Ld. AO has grossly erred in completely disregarding the submissions placed on record and not adjudicating the same as regards as chargeability as per relevant DTAA between India and respective payee countries.
5.That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/ Ld. AO, erred in not taking into consideration the beneficial provisions of Section 90 of the Act available to the respective payees for which relevant documentation was placed on record.
6.That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) /Ld. AO erred in not appreciating that the payments made in relation to repair and maintenance overhauling charges are not chargeable to tax in India under the provisions of the applicable DTAA between India and the respective payee countries. Such payments neither qualify as 'Fees for Technical Services' nor taxable as 'Business Profits' in terms of the relevant articles of the respective DTAAs.
7.That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in considering the entries reflecting in Form 15CA as regards 'Fees for Technical Services' / 'Fees for Included Services' without appreciating that the same being merely a reporting mechanism and could not override the actual nature of the underlying transaction.
8.That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred in not appreciating that the very same issue has already been adjudicated in favour of the Appellant by the coordinate bench of the Hon'ble ITAT in the Appellant's own case for earlier years, and therefore, the principle of judicial discipline and consistency ought to have been followed.
9.That on the facts and in the circumstances of the case, the Hon'ble CIT(A) has erred in not considering the complete submission placed on record.
10.That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the initiation of penalty proceedings under section 270A(1) r.w.s 270A (9)(a) of the Act by holding that the Appellant had misreported the particulars of income during the year under consideration.
11.That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in confirming the levy of interest under Section 234B of the Act.
12.That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has further erred in confirming the levy of interest under Section 234D of the Act.”
At the time of hearing, ld. AR of the assessee brought to our notice brief facts of the case that the assessee is engaged in the business of flying, operating, letting on hire, lease and charter hire of helicopter and providing aviation services in respect of helicopters. He submitted that for the year under consideration, the assessee filed its return of income declaring tax liability of Rs.82,48,868 under the provisions of the Minimum Alternate Tax ('MAT) of the Income-tax Act, 1961 (for short ‘the Act’). He further submitted that the case was selected for scrutiny and assessment was completed under section 143(3) of the Act wherein the AO made a disallowance of Helicopter repair and overhauling charges amounting to Rs.29,27,08,376 in terms of Section 40{a)(i) of the Act on account of alleged non-deduction of tax at source, considering the same as 'Fee for Technical Services' in terms of section 9(1)(vii) of the Act. He submitted that aggrieved by the aforesaid disallowance, the assessee preferred an appeal before the ld. CIT (A), however, the ld. CIT (A) upheld the order of the AO and confirmed the impugned disallowance :
Disregarding the detailed submissions and documentation placed on record, particularly with respect to the examining the taxability of the repair and overhauling charges in terms of the relevant Double Taxation Avoidance Agreements (‘DTAAs') with the respective payee countries;
Without appreciating that the non-resident recipient entities were eligible to claim the beneficial treaty provisions in terms of Section 90(2) of the Act basis the relevant documentation placed on record;
Without following the binding decision of the Hon'ble Delhi Income-tax Appellate Tribunal ('ITAT') in the Appellant's own case for AY 2011-12 to AY 2016-17 on the very same issue with identical facts and circumstances.
Ld. AR further submitted that the assessee has therefore filed the present appeal before the ITAT challenging the impugned disallowance made in terms of Section 40{a)(i) of the Act.
Ld. AR further submitted that the present issues is covered in assessee’s own case in ITA No.1397/Del/20201 for AYs 2011-12 to AY 2016-17 vide order dated 31.01.2024 and copy of the order is placed on record. He submitted that the coordinate Bench duly considered the process followed by the assessee for repair and maintenance as regards - Helicopter parts were periodically shipped outside India for repair / overhaul after obtaining requisite internal approvals;
Where necessary, defective parts were replaced and the cost of materials was charged by the overseas vendor and Repairs were undertaken at the vendors' facilities abroad and the repaired components were subsequently returned to India.
In this regard, he referred to para 18 on Page 14 of the order. Further he submitted that the ITAT held that :
With regard to payments made to entities in countries viz. USA, UK, Australia, Canada and Singapore the respective treaties have 'make available clause' to qualify as Fee for Technical Services'. Considering repair and overhaul activities performed outside India did not result in 'make available' of technical knowledge enabling the Assessee to apply the same independently without the aid and assistance of the non-resident service providers, therefore, the same do not qualify as 'Fee for Technical Services'. and referred to para 21 & 22 on Page 17 & 18 of the aforesaid order.
He further submitted that consequently, no obligation to deduct tax under Section 195 of the Act arose, and accordingly disallowance under Section 40(a)(i) of the Act was not sustainable. Further, the aforesaid order has not been contested further before the Hon'ble Delhi High Court by the Revenue.
In addition to this, he relied on the ITAT in the case of Goodrich Corporation vs. ACIT International Taxation in ITA No. 988/Del/2024 and copy of which is placed on record, wherein it was held that repair services performed outside India without transfer of technical knowledge do not satisfy the 'make available' test under the DTAA and therefore cannot be characterized as FTS and referred para 6 on Page 4 of the said order. He submitted that the above decision was also upheld by the Hon'ble Delhi High Court and copy is placed on record. Accordingly, in view of the above, ld. AR pleaded that the appeal may be allowed.
On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities, however, he did not controvert the submissions of the ld. AR of the assessee.
Considered the rival submissions and material placed on record. We observed that the issue involved in the present case is squarely covered in favour of the assessee by the decision of coordinate Bench in assessee’s own case (supra). Relevant paragraphs of the aforesaid order is reproduced below :-
“18.We have considered rival submissions in the light of decisions relied upon and perused the materials on record. Undisputedly, in the assessment years under dispute, the assessee had made payments to certain non-residents towards repair and maintenance of helicopter parts. As per the process followed by the assessee for repair and maintenance, it’s engineering department identifies helicopter parts required for or are due for maintenance/overhaul in terms with DGCA guidelines. Once the engineering department identifies the helicopter parts required for maintenance/overhaul, it puts up a request to the Procurement Department. On receipt of request, the Procure Department issues repair orders and sends the parts to be repaired to the respective non-resident entities, who undertake the repairing/overhauling of such parts. On receipt of such repair order and parts, the non-resident entities issue an estimate/quote of charges for repair and maintenance work. On approval of such estimate/quote by the Procurement Department, the non-resident companies undertake necessary repair and maintenance work of the said parts. After repair/overhaul, the non-resident entities send the repaired parts/item along with invoices for repair and maintenance work carried out. On receipt of the invoices and helicopter parts, the assessee makes the payments after taking necessary declaration and documents from the non-resident entity. It is further evident, to support its contention that there was no requirement for deduction of tax at source as the income of the non-residents are not taxable in India, the assessee had furnished the details of maintenance/repair, sample copies of invoices, sample copies of airway bills evidencing that the parts of the helicopters were sent outside India for carrying out necessary repair and sample copies of Form 15CB and 15CA etc. The Assessing Officer, however, held that the services rendered by the non-residents are technical and consultancy in nature, hence, quantifies as FTS requiring withholding of tax under section 195.
19.On a careful reading of section 195(1) of the Act, it is very much clear that the provision gets triggered only when the payment made to the non-resident entity is chargeable to tax under the provisions of the Act. Thus, what is required to be examined is whether the payments made by the assessee to nonresidents are chargeable to tax under the provisions of Act. As discussed earlier, in the assessment years in dispute the assessee has made payment to entities resident in USA, UK, UAE, Australia, Canada, Singapore, Spain, Netherlands and France. Undisputedly, India has entered into DTAAs with all these countries. However, the provisions in the treaties with the respective countries are at variance.
20.Insofar as taxability of FTS is concerned, treaties can be classified in the following categories:
i.In the first category USA, UK, Australia, Canada and Singapore are placed since the definition of FTS under these treaties are more or less identical and contain make available condition to qualify as FTS.
ii.In the second category countries like, Netherlands, Spain and France can be put in as the definition of FTS in the treaties are wider in scope and do not contain make available clause.
iii.In the third category UAE can be put as in the treaty with UAE there is no provision concerning FTS.
21.Insofar as the countries falling in the first category, such as, USA, UK, Australia, Canada and Singapore, admittedly, the treaty provisions have make available clause. Therefore, to treat a particular receipt to be in the nature of FTS, it has to be demonstrated that in course of rendition of services, the service provider had made available technical knowledge, know-how, skill etc. to the service recipient so as to enable him to perform such services in future independently without any assistance of the service provider.
22.In the facts of the present appeal, the Assessing Officer has failed to demonstrate with cogent evidence that the make available condition enshrined in the concerned treaties are satisfied. In fact, learned first appellate authority has recorded a categorical factual finding that in course of rendition of service technical knowledge, know-how, skill, etc. has not been made available to the service recipient by the service provider. Thus, in absence of any contrary material brought on record by the Revenue, we concur with the view expressed by learned first appellate authority. Once the payments do not qualify as FTS under the respective treaty provisions, in terms with section 90(2) of the Act, treaty provisions being more beneficial would override the provisions contained in the domestic law. That being the legal position, in our view, the payments made to the residents of USA, UK, Australia, Canada and Singapore, being not chargeable to tax in India, section 195 is not applicable. Accordingly, we hold that the assessee was not required to deduct tax at source while making payment to residents of the aforesaid countries.”
Respectfully following the aforesaid decision in assessee’s own case, we are inclined to allow the grounds raised by the assessee and the appeal filed by the assessee is allowed.
In the result, the appeal of the assessee is allowed.