TDS disallowance on training and reimbursement payments deleted where no make-available service or embedded income existed.

Payments for pilot and staff training to non-residents were held not to attract disallowance under section 40(a)(i) because the training did not make available technical knowledge, experience, skill, know-how or processes under the treaty principle applied, and the assessee had acted under a bona fide belief that no tax was deductible. Mobilization expenses paid in foreign currency were also treated as reimbursement of transport-related costs without embedded income, so no TDS obligation arose. On both issues, the disallowances were deleted and the Revenue's challenge failed.

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Issues: (i) Whether disallowance under section 40(a)(i) was justified in respect of payments made for training of pilots and staff to non-residents; (ii) Whether disallowance under section 40(a)(i) was justified in respect of mobilization expenses paid in foreign currency.

Issue (i): Whether disallowance under section 40(a)(i) was justified in respect of payments made for training of pilots and staff to non-residents.

Analysis: The payment for training was examined in the context of section 9(1)(vii) and the relevant treaty principle of "make available". The training was found to be only a requirement for eligibility of pilots and staff under aviation regulations and did not amount to making available technical knowledge, experience, skill, know-how or processes. The assessee was also found to have acted under a bona fide belief that no tax was deductible at source, and the retrospective amendment relied upon by the Revenue was not treated as sufficient to sustain the disallowance.

Conclusion: The disallowance under section 40(a)(i) on account of training expenses was not justified and was rightly deleted, in favour of the assessee.

Issue (ii): Whether disallowance under section 40(a)(i) was justified in respect of mobilization expenses paid in foreign currency.

Analysis: The mobilization payments were treated as reimbursement of expenses incurred for transporting or mobilizing helicopters in India. On the facts found, there was no embedded income in such reimbursement and, therefore, no obligation to deduct tax at source arose. The deletion of the disallowance was supported by the earlier view taken in the assessee's own case.

Conclusion: The disallowance in respect of mobilization expenses was not justified and was rightly deleted, in favour of the assessee.

Final Conclusion: The Revenue's challenge to the deletion of both disallowances failed, and the assessment additions were not restored.

Ratio Decidendi: Where a payment for training does not make available technical knowledge or skill and the payer acts under a bona fide belief on the then-existing legal position, disallowance under section 40(a)(i) is not sustainable; similarly, pure reimbursement without embedded income does not attract tax deduction at source.

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