https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=63567 https://www.taxtmi.com/caselaws?id=63567 Applicability of DTAAs with USA UK regarding payments for repairs - Determination of whether payments made for repairs to foreign companies are taxable as fees for technical services u/s 9(1)(vii)(b) - Whether the income from wet-leasing of aircrafts is earned from sources outside India - Penalty u/s 271C for non-deduction of tax at source - HELD THAT:- It is clarified that the observations were made in the context of a non-resident earning income from a source within India, under section 9(1)(vi)(c), but the principle stated therein is equally applicable to a resident under section 9(1)(vii)(b) of the Act in determining whether income was earned from a source outside India. Lastly, it is submitted that it is indisputable that payments to the non-resident have been made for overhaul repairs for earning income from the activity of wet-leasing. There is therefore a direct nexus between the payments and the earning of income from sources outside India. We are satisfied that the assessee s immediate source of income is from the activity of wet-leasing of aircrafts under contracts made outside India to non-resident parties. A miniscule fraction of the lease rental (0.2%) has been earned from an Indian party. But, this cannot detract from the fact that virtually entire income has been earned from non-residents through the activity of wet-leasing of the aircrafts carried on outside India. The assessee s activity of wet-leasing of aircrafts is a distinct activity which constitutes a source from which income has been earned. Revenue is not correct in identifying this leasing activity with the transportation activity of the lessee, LCAG, Germany. The sources from which the assessee has earned income are therefore outside India as the income earning activity is situated outside India. It is towards this income earning activity that the payments for repairs have been made outside India. The payments therefore fall within the purview of the exclusionary clause of section 9(1)(vii)(b). Thus, even assuming that the payments for such maintenance repairs were in the nature of fees for technical services, it would not be chargeable to tax. We allow the assessee s appeal on this point by holding that the payments for repairs of aircrafts was made for earning income from sources outside India and, therefore, to be excluded from fees for technical services under section 9(1)(vii)(b) of the Act. Business of wet-leasing of aircrafts - Assessee s business of wet-leasing of aircrafts is composed of a number of operations such as acquisition of aircrafts, wet-leasing, maintenance of crew and engineering personnel, aircrafts maintenance and establishment, etc. It is settled law that profits of a business cannot be said to accrue only in the place where sales take place or the revenue is earned, but they arc embedded in each distinct operation of the business, both on the revenue and the expenditure side. For this legal proposition, we are supported by the decision of the Supreme Court in the case of Anglo French Textile Co. Ltd. v. CIT [ 1953 (12) TMI 1 - SUPREME COURT] . Normally, we would have referred the matter to the Assessing Officer to verify the figures arid work out the apportionment on a reasonable basis. However, we need not go into this arithmetical exercise because we have already held that the payments made to Technik and other foreign companies for maintenance repairs are not in the nature of fees for technical services as defined in Explanation 2 to section 9(1)(vii)(b). Further, in any event these payments are not taxable for the reason that they have been made for earning income from sources outside India and therefore fall within exclusionary clause of section 9(1)(vii)(b). In view of our decision allowing the main ground relating to chargeability of tax, the alternate grounds have become academic. We therefore do not propose to go into them though considerable arguments were advanced on the alternate grounds. Conclusion: The appeals filed by the assessee were allowed, and the appeals filed by the Revenue were dismissed. The court held that the payments for repairs were not taxable as fees for technical services, the income from wet-leasing was earned from sources outside India, and the penalties u/s 271C were deleted. Case-Laws Income Tax Wed, 30 Jun 2004 00:00:00 +0530