2024 (11) TMI 1194 - AT - Income Tax

Taxability of receipts towards repairs and maintenance services rendered by the assessee - Fee for Technical Services (FTS) u/s 9(1)(vii) of the Income Tax Act or the DTAA between India-Singapore - 'make available' clause - assessee provides repair and maintenance service for aircraft equipment to Indian customers and primary business of the Assessee for which the assessee charge repair and maintenance fees - DR pleaded that the ld AO had applied source rule in the instant case and stated that services of Airbus are rendered in France which is in public knowledge HELD THAT - We find DRs argument to be completely absurd and devoid of merit in view of the fact that no consideration was received by the assessee from Airbus. Further, this was not even the case of the ld AO for treating the receipts as FTS in the hands of the assessee. We further find that the issue in dispute is squarely covered in the case of Goodrich Corporation 2024 (8) TMI 1489 - ITAT DELHI which is a sister concern of the assessee, wherein, exactly the identical issue was subject matter of consideration as held that 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. The Id. 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. As such 'make available' clause is not satisfied, the services cannot be treated as FTS as per India-USA DTAA. We hold that the revenue earned by the assessee from rendition of repairs and maintenance services of aircraft equipment cannot be construed as FTS both under the Act as well as under the treaty. Accordingly, Ground Nos. 4 and 5 raised by the assessee are allowed. Chargeability of interest u/s 234A and 234B - If the return of income is filed beyond the prescribed due date u/s 139(1) of the Act, then interest u/s 234A of the Act shall be leviable - AO is directed to examine this fact and decide accordingly. The chargeability of interest u/s 234B of the Act would be consequential in nature.

Issues Involved:

1. Taxability of income received for repair and maintenance services under the India-Singapore tax treaty.
2. Chargeability of interest under sections 234A and 234B of the Income Tax Act.
3. Initiation of penalty proceedings under section 270A of the Income Tax Act.

Detailed Analysis:

1. Taxability of Income for Repair and Maintenance Services:

The primary issue in the appeals was whether the income received by the assessee, a company incorporated in Singapore, for providing repair and maintenance services for aircraft equipment to Indian customers is taxable in India. The assessee argued that these services were rendered entirely outside India, and thus, the income should not be taxable under the India-Singapore Double Taxation Avoidance Agreement (DTAA). The assessee contended that the services did not qualify as "Fee for Technical Services" (FTS) under Section 9(1)(vii) of the Income Tax Act or the DTAA, as there was no transfer of technology or technical knowledge to the Indian customers that would enable them to perform the repairs independently.

The Assessing Officer (AO) held that the income should be taxed as FTS, asserting that the services involved technical expertise and were utilized by businesses in India. The AO argued that the place of service rendition was irrelevant if the services were used for business in India and relied on the "source rule" for taxation.

The Tribunal examined the nature of the services and the contractual arrangements, emphasizing that the repairs were conducted outside India, with no technology or know-how being transferred to the Indian clients. The Tribunal relied on precedents where similar services were not considered FTS, notably the Delhi Tribunal's decision in the case of Global Vectra Helicorp Ltd. The Tribunal concluded that the services did not meet the "make available" criteria under the DTAA, as no enduring benefit or technical knowledge was imparted to the Indian customers. Consequently, the income from repair and maintenance services was not taxable as FTS under the Act or the DTAA.

2. Chargeability of Interest under Sections 234A and 234B:

The assessee challenged the imposition of interest under sections 234A and 234B of the Income Tax Act. Interest under section 234A is levied for delay in filing the return of income, while section 234B pertains to interest for default in payment of advance tax. The Tribunal directed the AO to verify whether the return was filed beyond the due date under section 139(1) and to determine the applicability of interest under section 234A accordingly. The interest under section 234B was deemed consequential, depending on the final tax liability.

3. Initiation of Penalty Proceedings under Section 270A:

The assessee contested the initiation of penalty proceedings under section 270A, which deals with penalties for under-reporting or misreporting of income. Given the Tribunal's decision on the non-taxability of the repair and maintenance services income, the basis for the penalty was negated. The Tribunal held that the penalty proceedings would not be sustainable in light of the favorable decision on the main issue.

Conclusion:

The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on the primary issue of taxability of repair and maintenance services. The Tribunal's decision emphasized the significance of the "make available" clause in determining the nature of technical services under the DTAA. The directions regarding interest and penalty were consequential to the resolution of the main issue.

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