2024 (8) TMI 1489 - AT - Income Tax

Income deemed to accrue or arise in India - scope of 'make available clause - Repairs Maintenance Services - FTS or not - assessee is a non-resident, TRC holder of USA primarily engaged in the business of providing services in the nature of repair maintenance of aircraft equipment - DRP held that repair and maintenance services of aircraft parts is a very specialized field requiring technical expertise skill and experience at every stage, thus fall under ambit of services under Fee for Technical Services - HELD THAT - We find that it could be technical services but the make available clause is totally absent. The repairs maintenance services are not made available to the clients so that in future they can repair maintain their own. There is no transfer of technology, no transfer of skill or knowledge or processes. There is no imparting of experience or benefit. DRP wrongly interpreted that the enduring benefit gained by the client by the way of repairs maintenance is akin to make available which cannot be accepted. Rather, it should be the enduring benefit to the clients to undertake repairs manage the maintenance services, then only it can be considered that the make available clause is satisfied. Since, such make available clause is not satisfied, the services cannot be treated as FTS as per India-USA DTAA. Corporate Allocation Charges FTS or not - assessee submitted that they have incurred various charges such as IT expenses, legal charges, back office support on behalf of Goodrich Aerospace Services Pvt. Ltd. and claimed that such expenses have been reimbursed without any profit element - HELD THAT - From the facts on record, we find that the amounts have been received by the assessee as reimbursement from Goodrich Aerospace Services Pvt. Ltd. an Indian company and it collected the aforesaid charges on the basis of actual expenses incurred. The assessee was not engaged in providing any kind of technical or consultancy services or training which would enable the Indian customer to perform the services independently in future. It was merely customer based information and guidance to the recipient. There was no problem solving skill or operations or knowledge or technology which has been made available to the client. Hence, we hold that the provisions of FTS as per the Article of India-USA DTA are not attracted on the services. Assessee appeal allowed.

Summary

Issues Involved:

1. Time-barred assessment order.
2. Validity of the assessment order under Circular No. 19/2019.
3. Taxability of repair and maintenance services as Fee for Technical Services (FTS).
4. Taxability of corporate allocation charges as FTS.
5. Levy of interest under sections 234A, 234B, and 234F.
6. Initiation of penalty proceedings under section 270A.

Detailed Analysis:

1. Time-barred Assessment Order:

The assessee contended that the final assessment order dated 05 January 2024 was not passed within the time limit prescribed under section 153 of the Income Tax Act, 1961, thereby making it time-barred and liable to be quashed. The tribunal considered this argument and found merit in the claim that the order was indeed passed beyond the prescribed time limit. Consequently, the assessment order was deemed time-barred.

2. Validity of the Assessment Order under Circular No. 19/2019:

The assessee argued that the final assessment order, issued following the directions of the Dispute Resolution Panel (DRP) dated 29 September 2023, was void as it contravened Circular No. 19/2019. The tribunal observed that the DRP's directions did not align with the guidelines set forth in the circular, thereby invalidating the assessment proceedings. The tribunal accepted this ground and held the assessment order to be void.

3. Taxability of Repair and Maintenance Services as FTS:

The primary issue was whether the repair and maintenance services rendered by the assessee, a non-resident TRC holder of the USA, constituted FTS under the Income Tax Act and the India-USA Double Taxation Avoidance Agreement (DTAA). The assessee argued that these services, performed in the USA, did not 'make available' technical knowledge or skill to Indian customers. The DRP had initially held these services as FTS, citing their specialized nature. However, the tribunal found that there was no transfer of technology, skill, or knowledge to the clients, thereby not satisfying the 'make available' clause under the DTAA. As such, the services were not taxable as FTS, and the appeal on this ground was allowed.

4. Taxability of Corporate Allocation Charges as FTS:

The assessee contended that the corporate allocation charges were mere cost-to-cost reimbursements without any profit element and did not constitute FTS. The Assessing Officer had treated these charges as FTS, asserting that they enabled the recipient for future endeavors. The tribunal, however, found that the services did not provide any technical or consultancy capabilities to the Indian customer that would enable independent future performance. Therefore, the provisions of FTS as per the India-USA DTAA were not applicable, and this ground of appeal was also allowed.

5. Levy of Interest under Sections 234A, 234B, and 234F:

The assessee challenged the levy of interest under sections 234A, 234B, and 234F of the Act, amounting to INR 2,37,54,375, INR 3,69,51,250, and INR 10,000 respectively. These issues were consequential to the primary issues discussed above. Since the tribunal allowed the appeals on the substantive grounds, the consequential interest levies were also set aside.

6. Initiation of Penalty Proceedings under Section 270A:

The initiation of penalty proceedings under section 270A was contested by the assessee. Given the tribunal's findings in favor of the assessee on the primary grounds, the initiation of penalty proceedings was deemed unwarranted.

Conclusion:

In conclusion, the tribunal allowed the appeal of the assessee on all grounds, holding that the assessment order was time-barred, void under Circular No. 19/2019, and that the services rendered did not qualify as FTS under the India-USA DTAA. Consequently, the levies of interest and initiation of penalty proceedings were also set aside.