2016 (9) TMI 1032 - AT - Income Tax

TDS u/s 195 - Disallowance u/s 40(a)(i) - Held that - The assessee has acted under bonafide belief that no tax has to be deducted at source on these payments. Apart from the bonafide belief the Hon ble ITAT has further held that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means If such services made available technical knowledge, experience, skill, know-how, or processes, or consists of the developments and transfer of a technical plan or technical design . Since in the present case the training was given to pilots and other staff as per the requirement of the DGCA Rules therefore, training was only a part of the eligibility of the pilots and other staff for working in the industry of aviation and such training would not fall under the term service make available. Ld. CIT(A) has rightly held that the disallowance u/s 40(a)(i) is not justify as per the facts of the present case and the same was rightly deleted. Considering the totality of the facts and circumstances of the present case, we are of the view that the learned CIT (A) has passed a reasonable and judicious order. Therefore, we find no reason to deviate from or interfere with the findings of the learned CIT (A). Accordingly, we uphold his order. These grounds of appeal of the revenue stand rejected. TDS deductable for reimbursement of expenses - Held that - We have noticed that in the assessment order it has been categorically mentioned that mobilization of expenses of ₹ 43,90,000/- were paid to Canada Inc. for acquiring the aircrafts on lease. Mobilisation expenses pertain to expenses incurred on bringing the aircraft from the Country of Lessor to India and hence they are in the nature of expenditure incurred for acquiring the aircrafts as they are covered in the specific lease agreements with the Lessors. We have also perused the orders of CIT(A) where in para number 3.1 of the CIT(A). There is reference of order for previous year wherein it has been categorically mentioned that the TDS was not deductable for reimbursement of expenses by the assessee accompanied for transporting/mobilizing the helicopters in India and in the absence of any embedded income in the reimbursement of these expenses, the question of deducting TDS does not arise. Considering it we are of the view that the learned CIT (A) has passed a well reasoned and judicious order. Therefore, we find no reason to deviate from or interfere with the findings of the learned CIT (A). Accordingly, we uphold his order. This grounds of appeal of the revenue stand rejected.

Summary

Issues Involved:
1. Deletion of addition made by the AO on account of disallowance under section 40(a)(i) of the Act for non-deduction of TDS on payments made for training of pilots and staff.
2. Deletion of addition made by the AO on account of disallowance under section 40(a)(ia) of the Act due to non-deduction of TDS on mobilization expenses paid in foreign currency.

Issue-wise Detailed Analysis:

1. Deletion of Addition for Non-Deduction of TDS on Training Payments:
The Revenue challenged the CIT(A)'s decision to delete the addition of ?30,04,700/- made by the AO under section 40(a)(i) of the Income Tax Act, 1961 for non-deduction of TDS on payments made to foreign entities for training pilots and staff. The CIT(A) relied on the ITAT's decision in the assessee’s own case for earlier assessment years, where it was held that the assessee acted under a bona fide belief that no TDS was required on such payments. The ITAT noted that the training was part of the eligibility requirements under DGCA rules and did not constitute "fees for technical services" under the Indo-US DTAA. The ITAT concluded that the disallowance under section 40(a)(i) was not justified and upheld the CIT(A)’s decision to delete the addition.

2. Deletion of Addition for Non-Deduction of TDS on Mobilization Expenses:
The Revenue also contested the deletion of ?43,90,000/- disallowed by the AO under section 40(a)(ia) for non-deduction of TDS on mobilization expenses paid in foreign currency. The CIT(A) referenced a previous order which held that TDS was not deductible on the reimbursement of expenses for transporting/mobilizing helicopters to India, as there was no embedded income in these reimbursements. The ITAT reviewed the assessment order and CIT(A)’s findings, confirming that mobilization expenses were indeed reimbursements without embedded income, and thus, no TDS was required. The ITAT upheld the CIT(A)’s decision to delete the disallowance.

Conclusion:
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)’s order to delete the additions made by the AO for non-deduction of TDS on training payments and mobilization expenses. The ITAT found the CIT(A)’s order to be reasonable and judicious, with no grounds for interference. The appeal by the Revenue was thus dismissed.