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TMI Blog2019 (10) TMI 990X X X X Extracts X X X X X X X X Extracts X X X X ..... income does not deemed to have accrued or arise in India and hence not liable for tax in India. Therefore, there is no need to interfere with the findings of the CIT(A). Payment made for survey of aircraft and routine service - Whether payment made to White Case , the consultancy firm, is not in the nature of FTS but failing to appreciate Article 15(1) of the Indo-UK Treaty - DTAA agreement in between India and UK - HELD THAT:- As per the agreement between the assessee company and General Dynamic Aviation Services (GDAS), the latter has rendered Aircraft/Records and Condition Survey services to the assessee company. GDAS only exercises its skill and knowledge in conducting the survey of the aircraft and issues a report to the assessee company expressing its opinion on the basis of the survey. The said company does not transfer or make available the skill or knowledge required for conducting the survey and generating the report to assessee company. Thus, the concerned remittance cannot be termed as Fees for Technical Services as per the relevant DTAA and is exempt from withholding of taxes. The payments made to GDAS are towards the reports to be issued by them to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of total income as per Section 4 and Section 5 of the Act. Thus, tax cannot be deductible, since payee is resident of UAE and does not have PE in India. Therefore, the CIT(A) was right in deleting the said addition. Payment made as a security deposit - Whether such amount was received back by the assessee in the subsequent year, accordingly it is not an expenditure on the part of the assessee? - HELD THAT:- From the perusal of records it can be seen that the assessee company entered into an agreement with M/s Control Risk Group PTE, Singapore. The assessee company was to make payment outside India to control risk for securing the business personnel security services in IPO. Thus, the assessee company made payment during the relevant assessment years towards providing business personnel security consultancy services for IPO. Thus, income cannot be deemed to have accrued or arise in India and hence the same is not liable for tax in India as M/s Control Risk Group PTE, Singapore does not have any PE in India. Thus, the CIT(A) rightly deleted this addition. There is no need to interfere with the findings of the CIT(A). Hence, Ground is dismissed. - I.T.A. No. 3253/DEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of fees for technical service and chargeable to tax in India without appreciating that this section is not applicable to the present case as the payments made by the appellant company are of nature of reimbursement of expenses etc and are not chargeable to tax in India since they either do not fall within the ambit of section 4 read with section 5(2) read with section 9(1) of the I.T. Act are not Covered as per the relevant DTAA of Indian with the other country and that the machinery provisions of section 195 do not apply to the said payment. 1.4 That the order passed by the learned CIT(Appeals) is bad in law as well as wrong on facts and erroneous in point of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the ground herein before appearing. ITA No. 3487/Del/2012 (A.Y. 2007-08) Revenue s appeal 1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the additions made by the AO, by holding that the payments made by the assessee towards hiring of aircra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for advertisement rights of the circlet ground cannot be characterized as Royalty but at the same time failing to appreciate that the assessee used such ground rights for finding sponsors for the India- Pakistan friendly match and such payment would fall within the precincts of section 9(i)(vi) of the Act and the Article 12 of the Indo-UAE DTAA. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made as a security deposit and that the such amount was received back by the assessee in the subsequent year, accordingly it is not an expenditure on the part of the assessee whereas it is found from records that this claim is not factually correct with regard to the receiving back the security deposit and hence it is an expenditure entry. 8. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made towards business and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service and chargeable to tax in India without appreciating that this section is not applicable to the present case as the payments made by the appellant company are nature of reimbursement of expenses etc and are not chargeable to tax in India since they either do not fall within the ambit of section 4 read with section 5(2) read with section 9(1) of the I.T. Act are not covered as per the relevant DTAA of India with the other country and that the machinery provisions of section 195 do not apply to the said payment. 1.4 That the order passed by the learned CIT(Appeals) is bad in law as well as wrong on facts and erroneous in point of law and right is reserved to assail the same on such other ground or grounds as may be advanced at the time of hearing for which the appellant craves leave to amend, vary or add to the ground herein before appearing. ITA No. 3488/Del/2012 (A.Y. 2008-09) Revenue s appeal 1. On the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting the additions made by the AO, by holding that the payments made by the assessee towards hiring of aircraft does not constitute the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for advertisement rights of the circlet ground cannot be characterized as Royalty but at the same time failing to appreciate that the assessee used such ground rights for finding sponsors for the India- Pakistan friendly match and such payment would fall within the precincts of section 9(i)(vi) of the Act and the Article 12 of the Indo-UAE DTAA. 6. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made as a security deposit and that the such amount was received back by the assessee in the subsequent year, accordingly it is not an expenditure on the part of the assessee whereas it is found from records that this claim is not factually correct with regard to the receiving back the security deposit and hence it is an expenditure entry. 7. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made towards business and personnel security consultancy se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Air Partner PLC UAE - 53,84,363 - Net Jets UK Ltd. UK - - 1,10,86,070 London Air Charter Center Ltd. UK - 6,92,145 - 2. Legal Consultancy Services White Case UK - 2,35,00,341 88,10,931 3. Reimbursement of expenses Creative Kitchen Planners Intl. Malaysia 69,169 1,00,622 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dallas Airmotive Inc. USA - - 97,56,000 10. Payment for Risk Assessment Control Risk Group (S) PTE Ltd. Singapore - 38,33,029 - Total 37,22,865 36,85,48,422 5,10,19,584 4. Being aggrieved by the order under Section 201 of the Income Tax Act, 1961, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the Assessee. 5. The Ld. AR submitted that as regards to assessee s appeals are concerned, the CIT(A) was not right in confirming the Assessing Officer s view for treating the assessee in default for non deduction of Tax at Source in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Pernod Ricard India Ltd. (supra) by the Ld. AR is apt. Therefore, the findings of the CIT(A) to this extent is set aside. Since the appeals of the assessee filed for A.Y. 2007-08 and 2008-09 are on identical issues both the appeals of the assessee are allowed. 8. Now we are taking up the appeals filed by the Revenue. The Ld. DR submitted that as regards to Ground No. 1, the CIT (A) erred in deleting the additions made by the Assessing Officer by holding that the payments made by the assessee towards hiring of aircraft does not constitute the nature of royalty. Further, holding that as per the definition of Royalty in section 9(i)(vi), the payment does not fall into the category of Royalty but failing to appreciate that such payments would fall under the clause (iva) of explanation 2 to section 9(l)(vi) of the Act read with Article 12 of the DTAA. 9. The Ld. AR relied upon the order u/s 201 of the Act and the order of the CIT(A). 10. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: 3.4 Finding Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant who is engaged in real estate business. This will give an absurd result. From the nature of royalty itself, it can be inferred that equipment should be of industrial, commercial or scientific nature and the appellant should use it in its business for earning income. This is not the case here. It says that where a ship or aircraft is leased on charter fully equipped and manned/crewed basis, it is covered by Article 8 of DTAA. However, if it is a bare boat lease, then it is covered by Article 7 or if DTAA contains clause of equipment royalty, then by Article 12. The logic is very simple. In present case, the appellant is not in business of flying aircraft and it has taken fully equipped and manned /crewed aircraft on charter basis, therefore payment of hire charges can not be in nature of royalty. . The AO has relied upon West Asia Maritime Ltd. vs. ITO, Chennai (2008) 111 ITD 155 and Poompuhar Shipping Corp. Ltd. vs. ITO (2008) 297 ITR (A.T.) for arriving at conclusion that aircraft hired by the appellant is in nature of equipment. The basic fact in case of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AE) both non-resident and made payments during the relevant assessment years towards the hiring of aircraft. The payment made by assessee company to the non-resident by availing a standard facility offered by the payee i.e. non-resident company. All transactions entered into by the assessee company with the non-resident payees are of similar character and cannot classified as Royalty as held by the Assessing Officer. The payment is for chartered plane hire outside India paid to non-resident outside India. Thus, the said income does not deemed to have accrued or arise in India and hence not liable for tax in India. Therefore, there is no need to interfere with the findings of the CIT(A). Ground No. 1 of the Revenue s appeal is dismissed. 11. The Ld. DR submitted that as regards Ground No. 2, the CIT(A) erred in deleting the addition made by the Assessing Officer, by holding that payment made to White Case , the consultancy firm, is not in the nature of FTS but failing to appreciate Article 15(1) of the Indo-UK Treaty, deals with payments to individuals and does not apply to partnership firms. Further failing to appreciate that such payments would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the services were rendered in UK and the firm or its member did not have a fixed base in India or their stay in India did not exceed 90 days. Now, it is seen that exception to Article 13(4) as provided by Article 13(5)(e) brings the payment made by the appellant within the purview of Article 15 wherein such payment becomes taxable in UK and not in India. Without prejudice to this finding, even if it is assumed that payment is covered by Article 13(4), then criterion of make available has to be satisfied before the payment can be characterized as FTS. The meaning attached to the term make available has been explained in various judicial decisions. .. .. The AO has relied upon Intertek Testing Services India Pvt. Ltd. [2008] 307 ITR 418 (AAR), but has drawn a conclusion different from what has been drawn by Hon ble Special Bench, ITAT Mumbai in case of Mahindra Mahindra case. Thus, reliance of AO on the said decision of AAR is misplaced. From the discussion supra, it is seen that unless make available clause is satisfied, services cannot be characterized as FTS under Indo-UK Treaty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer, by holding that payment made for survey of aircraft and routine service are not in the nature of FTS since make available condition is not fulfilled, but failing to appreciate the fact the receipt was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provide in connection with review of aircraft- records and condition survey to DLF Ltd. and enable it to purchase a second hand aircraft. 15. The Ld. AR relied upon the order u/s 201 of the Act and order of the CIT(A). 16. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: 7.4 Finding: The appellant wanted to buy an old aircraft and entered into an agreement with General Dynamics Aviation Services, USA for making a survey report of said aircraft. It has made payment to General Dynamics Aviation Services, USA for the services provided which are in nature of review of maintenance history and records, review of required aircraft documentation, review of required flight manuals and supplements etc. The services are high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court in case of Diamond Services International (P) Ltd. Vs. Union of India [2008-TOIL-268-HC-MUM-IT], has reiterated the same principle. The AO has not established that the appellant has been trained by General Dynamics Aviation Services, USA in the field of survey of old aircraft so that that the appellant could in future generate such report on its own. In view of this, I hold that the payment made by the appellant to General Dynamics Aviation Services, USA is not in nature of FTS and is therefore not chargeable to tax in India. Hence the appellant is not liable to deduct tax on such payment. The issue is decided in favour of the appellant. From the perusal of records it can be seen that the assessee company entered into an agreement with M/s General Dynamic Aviation Service (USA) and made a payment. As per the agreement between the assessee company and General Dynamic Aviation Services (GDAS), the latter has rendered Aircraft/Records and Condition Survey services to the assessee company. GDAS only exercises its skill and knowledge in conducting the survey of the aircraft and issues a report to the assessee company expressing its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er repair job, which included both men and material. The AO has not pointed out any special feature of this repair job so as to label it as technical service within the meaning of sec 9(1)(vii) of the Act and Article 13(4) of Indo-UK DTAA. If it is to be a technical service, then any kind of repair of a motor vehicle shall be in nature of technical service, which appears to be absurd. The appellant contention is supported by ratio of decision in case of Lufthansa Cargo India Pvt. Ltd. Vs. DCIT [2005] 274 ITR 20 (Delhi). The services provided by non-resident does not qualify to be called technical services u/s 9(1)(vii) of the Act. Without prejudice to it, even if it is assumed that the services can be called technical services u/s domestic act, it needs to be examined whether these constitute technical services under Indo-UK DTAA. Article 13(4) of the treaty which deals with FTS contains make available clause, which has to be satisfied before a service can be called technical service. The AO has not made out a case that the appellant has been got trained by the non-resident service provider to do such repair job on its own in future. Thus, make available requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is in the nature of FTS. The appellant has hired service of a pilot for a short duration and it is analogous to engaging a driver for one s car. It is not understandable how the services provided by a driver are in nature of technical service. Such kind of services are not meant to be covered under provisions of section 9(1)(vii) of the Act. Without prejudice to it, even if it is assumed that the services can be called technical services u/s domestic act, it needs to be examined whether these constitute technical services under Indo-Canada DTAA. Article 12(4) which deals with FTS contains make available clause, which has to be satisfied before a service can be called technical service. The appellant has argued that though some degree of training has been provided, still it can not be said that the appellant has been trained to fly the aircraft on its own. The argument of the appellant carries weight. Flying of aircraft is not like learning how to drive a vehicle. For this, DGCA guidelines have to be observed and only after having experience of flying an aircraft for certain hours, licence to fly an aircraft is given. The AO has not established that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry defines Equipment as Things needed for a particular purpose . MacMillan Dictionary defines it as Machine or Tools needed for a job. The Merriam Websters dictionary defines an equipment as All fixed assets other than land and building used in a business enterprises. A fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. [ICAI Accounting Standard (AS), 10, Accounting for fixed assets, para 6.1]. From these definitions, a reasonable guidance can be taken that an equipment is an asset other than land and building and which is used in a business enterprises. Now, a cricket ground is a fixed asset but it is land and building . Further, it is not used in business of the appellant, who is engaged in real estate business. In any case, the appellant is not supposed to do anything with cricket ground under agreement with Percept D Mark Gulf LLC. Therefore, by no stretch of imagination, cricket ground fits into definition of equipment and even if by definition, it is equipment, it is not equipment for the appellant as appellant is not usin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... publicity expenses during the year which was for securing the ground rights which enabled it to find any other sponsors for the event. Thus, the payment in this respect does not come under the purview of the definition of Royalty as provided under Section 9(1)(vi) of the Act. The payment made by the assessee company merely enabled it to find a sponsor for the event in order to share the ground. Thus, no income was received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India to the Non-Resident payee in terms of Section 5(2) read with Section 9 of the Act. There is no income chargeable to tax within the scope of total income as per Section 4 and Section 5 of the Act. Thus, tax cannot be deductible, since payee is resident of UAE and does not have PE in India. Therefore, the CIT(A) was right in deleting the said addition. There is no need to interfere with the findings of the CIT(A). Hence, Ground No. 6 is dismissed. 26. The Ld. DR submitted that as regards to Ground No. 7, the CIT(A) has erred in deleting the addition made by the Assessing Officer, by holding that payment made as a security deposit and tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 12.4 Finding: The services provided to the appellant are in nature of technical services within the meaning of section 9(1)(vii) of the Act. This is not disputed by the appellant even. However, Article 12(4) of Indo-Singapore treaty contains make available clause. The meaning attached to this clause has been discussed supra in issue no. 2 and it has been held that unless the services provided by non-resident equip the recipient of services with adequate expertise to the extent that the recipient is in a position to utilize those services own their own, the services can not be characterized as FTS. In present case, the AO has not established how the risk control report given by M/s Control Risk Group(S) PTE Ltd., Singapore to the appellant has enabled the appellant to do such job on its own in future without taking help of M/s Control Risk Group(S) PTE Ltd, Singapore. There is nothing in the agreement which shows that appellant has been given any training in this regard by M/s Control Risk Group(S) PTE Ltd, Singapore. In view of this, It can not be said that requirement of make available has been satisfied. Hence, I h ..... 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