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TMI Blog2024 (6) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961 (in short 'the Act'). 3. Briefly the facts are, the assessee, a resident corporate entity, is stated to be engaged in the business of flying, operating, letting on hire, lease and charter hire of helicopters and providing aviation services in respect of helicopters. For the assessment year under dispute, the assessee filed its return of income on 30.11.2015 declaring NIL income under the normal provisions of the Act and book-profit of Rs.10,72,11,670/- under section 115JB of the Act. In course of assessment proceedings, while examining the book-profit computed by the assessee, the Assessing Officer noticed that the assessee has reduced an amount of Rs.43,60,42,388/-, being the lower of the brought forward loss or unabsorbed depreciation, in terms of clause (iii) under Explanation 1 to section 115JB of the Act. Noticing this, the Assessing Officer called upon the assessee to furnish a detailed working. In response, the assessee furnished its reply, stating that the deduction has been incorrectly computed and the correct figure of deduction should be Rs. 51,20,83,841/-. In this context, the assessee furnished a detailed working of deduction. However, while comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit can be computed accordingly. 7. Learned Departmental Representative agreed for restoration of the issue to the Assessing Officer for factually verifying assessee's claim. 8. Having considered rival submissions and perused the materials on record, we are of the view that assessee's claim of deduction for computing book profit under section 115JB of the Act requires fresh verification in the light of the Chart furnished by the assessee, which has been reproduced in the order. Accordingly, the issue is restored back to the Assessing Officer for fresh adjudication after factually verifying assessee's claim by referring to the Chart depicted above. Needless to mention, the Assessing Officer must provide reasonable opportunity of being heard before deciding the issue. Grounds are allowed for statistical purposes. ITA Nos.1482 to 1487/Del/2020 (Revenue's Appeals) AYs: 2011-12 to 2016-17 9. The common issue arising in all these appeals relates to disallowance made under section 40(a)(i) of the Act. Of course, in ITA No.1482/Del/2020 pertaining to assessment year 2011-12, there is additional issue of deletion of disallowance of Rs. 62,62,516/-, being advances written off. 10. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied at the hands of the UAE entities in absence of PE in India, either under Article 7 or 22 of the treaty provision. Therefore, there was no statutory requirement upon the assessee to deduct tax at source. 12. The Assessing Officer, however, did not find merit in the submissions of the assessee. He held that activity of repair and maintenance of helicopters constituted consultancy, technical and managerial services, hence, qualifies as FTS under Section 9(1)(vii) of the Act. Accordingly, he completed the assessments for all the assessment years under dispute by treating the payments made to the foreign entities as FTS and thereby disallowing payments under section 40(a)(i) of the Act. Against the additions so made, assessee preferred appeals before learned Commissioner (Appeals). Being convinced with the submissions of the assessee, learned Commissioner (Appeals) deleted the additions in all the assessment years. 13. While doing so, learned Commissioner (Appeals) observed that the repair and maintenance activities are undertaken on helicopter parts and not on the helicopters per se and those parts were sent outside India for repairs and after repairing the repaired parts w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Protocol, however, in view of the ratio laid down by the Hon'ble Supreme Court in case of Assessing Officer (International Taxation) Vs. Nestle SA [2023] 458 ITR 756 (SC), the make available condition contained in other DTAAs cannot be imported into the treaties with Spain, Netherlands and France without specific notification by the Government. 17. Without prejudice, he submitted that even payments made to the residents of Spain, Netherlands and France cannot fall into the category of FTS as they are not in the nature of technical, consultancy or managerial services. He submitted, the services are for repair/overhaul of parts of the helicopters sent to those countries and no part of the service was rendered in India. He submitted, the services are in the nature of routine maintenance and repair of helicopter parts and, as such, are standardized services. Thus, he submitted, they cannot fall in the definition of FTS, either under Section 9(1)(vii) of the Act or the respective treaty provisions. In support of such contention, he relied upon a decision of the Hon'ble Supreme Court in case of CIT Vs. Kotak Securities Ltd. [2016] 383 ITR 1 (SC). He also relied upon a decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er income in terms with Article 7 or 22, respectively. On reading of Article 7 it becomes clear that business profits can be taxed in the source country only if the resident of other country has a PE in the source country. In the facts of the present appeal, admittedly, none of the entities had any PE in India. Therefore, the payments made to them cannot be taxed in India as business profits. Even, they cannot be taxed as other income in India as Article 22 of India - UAE treaty makes it clear that the other income can only be taxed in the country of residence. Thus, in our view, the payments made to the entities in UAE are not taxable in India as per the treaty provisions, hence, there is no requirement for deduction of tax at source on the payments made. 24. The only countries that are left now is the second category comprising of Netherlands, Spain and France. Admittedly, the definition of FTS in the treaty provisions with these countries are wider in scope and do not contain the make available clause. However, it requires to be examined whether the nature of services would fall within the category of technical consultancy or managerial services. As per the work process followe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, he held that it represented the business loss of the assessee, which is allowable as deduction under section 37 of the Act. 27. We have considered rival submissions and perused the materials on record. Undisputedly, the Assessing Officer has disallowed assessee's claim primarily for the reason that the assessee failed to furnish adequate evidence in support of its claim. However, learned Commissioner (Appeals) after examining the facts and materials on record has recorded the following factual findings: i. The amount in dispute represents the advances given earlier by the assessee in its normal course of business for purchase of spare & consumables, repairs and maintenance, freight & clearing forwarding charges, lodging boarding charges, etc. ii. The amount has become irrecoverable owing to nonfulfillment of certain conditions. iii. Advances were pertaining to two to three years prior to assessment year 2011-12 and that no expenses were booked by the assessee. 28. The Revenue has not brought any contrary materials on record to disturb the aforesaid factual finding of learned Commissioner (Appeals). Therefore, we do not find any infirmity in the decision of learned f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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