AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 990
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....ent made to Super Potato Company Ltd, Japan and Rs. 69,196/- to Creative Kitchen Planet Intt, Malaysia) made by the assessee company to various non resident recipients by holding that " Payment made by the appellant to Super Potato Co. Ltd (SPC, Japan) & Creative Kitchen Planners Intl. Malaysia were in the nature of Fees for Technical Services and therefore chargeable to tax in India. The appellant was required to withhold tax on these payments u/s 195" 1.2 That the learned CIT(A) has failed to appreciate that the payment is in the nature of reimbursements made to Super Potato (SPC) & Creative Kitchen Planners Intl. (CKP) (the non resident service provider) on account of actual expenses incurred by the non resident like air fare charges, travelling, boarding & lodging etc in India in pursuance of the respective agreements with the concerned parties, on the basis of back up invoice/ supports of third parties and there is no element of income present in such remittance which may be chargeable to tax under the provisions of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 1.3 That the learned CIT(A) has grossly erred in law in applying section 9(l)(vii) of the I.T.....
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.... 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. 4. 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 aircraft maintenance are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate the fact that the recipient was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provided in connection with maintenance or aircraft. 5. 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 crew support services are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate that it was not intended by the assessee to have such service in the form of training or transferring permanent expertise. 6. On the facts and in th....
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....s and therefore chargeable to tax in India. The appellant was required to withhold tax on these payments u/s 195" 1.2 That the learned CIT(A) has failed to appreciate that the payment is in the nature of reimbursements made to Super Potato (SPC), Creative Kitchen Planners Intl. (CKP) & Small, Wood, Reynolds Stewart .Singapore (the non resident service provider) on account of actual expenses incurred by the non resident like air fare charges, travelling, boarding & lodging etc in India in pursuance of the respective agreements with the concerned parties, on the basis of back up invoice/ supports of third parties and there is no element of income present in such remittance which may be chargeable to tax under the provisions of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 1.3 That the learned CIT(A) has grossly erred in law in applying section9(1 )(vii) of the I.T. Act, 1961 by treating the payment made by the appellant company to these non residents recipients in nature 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 natur....
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.... the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for aircraft maintenance are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate the fact that the recipient was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provided in connection with maintenance or aircraft. 5. 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 crew support services are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate that it was not intended by the assessee to have such service in the form of training or transferring permanent expertise. 5. 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 spon....
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....TS and is chargeable to tax in India as per the Assessing Officer. The items identified by the Assessing Officer for treating the assessee in default u/s 201 in respect to remittances made to the non-resident payees for different assessment years have been tabulated as under: Issue Party Name /Payee Country AY 2006-07 AY 2007-08 AY 2008-09 1. Hiring / Chartering of Aircraft Air Partner Inc. USA 37,22,865 - - 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 Super Potato Co. Ltd. Japan - 1,47,766 12,51,250 Smallwood, Reynolds, Steward Singapore - - 4,64,089 4. Annual Membership Fee of the Club Loch Lomond Golf Club UK - 50,25,025 2,52,200 5. Payment for aircraft/records and condition survey General Dynamic Aviation USA - 40,52,559 3,03,617 6. Payment for aircraft maintenance Gulf Stream Aerospace Ltd.....
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....n case of Industrial Engineering Projects Pvt. Ltd. 202 ITR 1014 and the Hon'ble Bombay High Court in case of Krupp Udhe GmbH 354 ITR 173. 6. The Ld. DR relied upon the order under Section 271 of the Act as well as the order of the CIT(A) on this issue. 7. We have heard both the parties and perused all the relevant records. It is pertinent to note that payments made to non residents in the present case the payments made to them are purely of reimbursement in nature and does not fall within the remuneration at all. The findings given by the CIT(A) that whether the payments are made directly to non-residents or part of their expense is reimbursed by the assessee has same effect, is not correct. In fact actual expenses in the nature of airfare charges, courier charges, telephone charges and local travelling expenses etc are paid by the non-residents and it is only reimbursement which was not an income of the non residents. The reliance upon 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 appeal....
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....is source rule, the nature of income should be 'royalty'. The term royalty has defined in Explanation 2 to section 9(1)(vi) and its clause (iva): .................... The appellant has hired aircraft on chartered basis from non-resident airlines. ..................The appellant is engaged in business of real estate and is not in aviation business. Therefore, it can not be inferred that the aircraft taken on hire by the appellant has been used in its business for producing goods or providing services in any manner. If at all it is to be inferred that air craft is in nature of equipment, then if the appellant hires a taxi, may be on chartered basis, that will also be an equipment for the appellant 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 leas....
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....hat since the payment is not chargeable to tax in India, there is no obligation cast on the appellant to withhold tax on it. This issue is decided in favour of the appellant. This disposes off relevant portion of ground no. 2.1 for AY 2006-07, 2007-08 & 2007-08 which are allowed." From the perusal of the above findings given by the CIT(A) and from the records produced before the Assessing Officer at the time of the proceedings under Section 201 of the Act, it can be seen that the assessee company entered into an agreement with London Air Charter Centre Ltd. (UK) and Air Partner PLC (UAE) 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 ....
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....ual member of partnership is not relevant for counting the period of 90 days as is clear from provisions of Article 15(2), which say that stay of any member of partnership shall be relevant. A similar interpretation has been given in case of Clifford Chance, UK vs. DCIT (2003-TII-53-ITAT-MUM-INTL), wherein Indo-UK treaty was involved as in the present case. In view of the discussion, it is clear that in present case, the payment made to White & Case is taxable in UK and not in India 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....
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....ilable to an individual as well as to a partnership firm and thus, tax is not required to be withheld on the concerned payment. Thus, the findings given by the CIT(A) is correct and there is no need to interfere with the same. Hence, Ground No. 2 is dismissed. 14. The Ld. DR submitted that as regards to Ground No. 3, the CIT(A) erred in deleting the addition made by the 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....
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...., unless the appellant has been enabled by the non-resident service provider to apply the said service in future on its own without resorting to the non-resident service provider, it cannot be said that the service has been made available. Hon'ble Bombay 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 A....
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....a view that the non-resident has provided FTS to the appellant. The nature of job done by Gulf Stream Aerospace Ltd., UK is like another 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....
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....w 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 appellant has b....
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....m 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 using it in its business. Further, even assuming that cricket ground is equipment, the appellant had no right to use it. The principle use of cricket ground is to play the ....
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....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 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 expendit....