TaxTMI 
TaxTMI 
2025 (6) TMI 897
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....entical sole substantive ground of taxability of the corresponding revenues derived from pilot training services provided to M/s. Flight Simulation Technique Centre (P) Ltd. in India. We thus treat the assessee's former appeal ITA No. 2200/Del/2024 as the "lead" case for the sake of convenience and brevity. 4. Now come the admitted relevant facts. This assessee's M/s. Ethiopian Airlines Group is an airline having its head office at Bole International Airport, P.O. 1755, Adis Ababa, Ethiopia. It had entered into an agreement of providing flight simulator and pilot training services to a Dubai (UAE) based entity, namely, Flight Simulation Technique Services "FSTC"; who in turn, had a group entity in the name and style of M/s. Flight Simulation Technique Centre (P) Ltd. "FSTL", in India. This last entity had further executed advance training simulator service agreements with various airlines, namely, Jet Airways, Vistara, Indigo, Goair etc. for training of licensed pilot on simulator. And that it is in this factual backdrop that the above indian entity performed its pilot training obligation through its Dubai based group entity; who in turn, had executed its agreement with the asse....
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.... 5.3 Flight Simulation Techniques CentrePvt. Ltd (FSTI), the payer is a company which is incorporated in India. It has an affiliate in UAE namely Flight Simulation Techniques Centre (FSTC). The survey action reveals that FSII specialises in the training of pilots for the Airline carrier B 787 for several domestic airlines operators such as Indigo, Go-Air, Jet Airways, Spice-jet, Air Asia, Vistara, etc. including training of other private persons. As per the scope of services as evident from aforesaid agreement, the EA agreed to make available the services of its B 787 simulator stationed at Bole International airport, Adias Ababa for the use by FISI/FTSC for training of pilots of various airline operators of India. Characterization of Income 5.4 In order to proceed, one should first appreciate the scheme of taxation of a non-resident in India. The chargeability of income in respect of a non-resident would be clear if one understands the scheme of taxation of non-residents in India. Unlike resident assesses, a non-resident is taxed in India in a limited way only to the extent of income that is sourced in India. Under the provisions of the Income-tax Act, a no....
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....re-determined price which is fixed on the basis of usage (use per hour basis) and that to for a fixed term. These are in fact the attributes of a passive income. Therefore, it is absolutely clear that the assessee's case is that of "business with" India as against "business in". In view of the above consideration received by the assessee company is not business income. 5.6 Now let us turn to ascertain whether the service income constitutes FTS. The FIS is defined in Explanation-2 as under: "Explanation 2. For the purposes of this clause, "fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries": As per Explanation 2 to Section 9(1)(vii), "fees for technical services (FTS) means an consideration (including any lump sum consideration) for the rendering of any managerial, tech....
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....of accrual of income is based on crystallization of the right to receive the income. Apparently, in the instant case the right to receive the income by the assessee company, from FSTC for providing simulator for training of pilots has not been disputed. Therefore, the income accrues or arises in India under section 5(2)(i) of the Act. Accordingly, the said income is sourced in India in the hands of the assessee. Second, the Source Rule was further explained by the Apex court in GVK Industries case (332 ITR 130) where in the Apex Court has held that the income of the recipient to be charged or chargeable in the country where the source of payment is located. As per the information available on the record, the form 15CA filed by the assessee (which became the basis of proceeding before the AO), the foreign remittances are made to by FSTC India to assessee company. There is no dispute to this fact. Therefore, even though the Ethiopian Airlines Group AY 2016-17/09 agreement for service facility including making available of simulator is made between two non-residents that is the assessee company and FSTC, a company incorporated in UAE, fact that source of payment of such income is in I....
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....dered services in India.. As per explanation below section 9(2) of the Income-tax Act, the interest or royalty or FTS would be deemed to be sourced in India if the same is utilized in India. This enactment overrides the scope of taxation under section 9(1)(v) 9(1)(vi) and 9(1)(vii) of the Act. This is an admitted position of law. 5.10 This concept is based on destination-based taxation as per which the source of service income is where the consumption of services takes place. Apparently, as per the details gathered during the survey action and submission furnished by the assessee before AO and also during this proceeding, the services of training of pilots in simulatorare utilized in India by the pilots and other crews of domestic airline operators such as indigo, spice-jet, Indian airlines, Air India etc. Therefore, clearly the consumption of services is in India. Accordingly, the services are utilized in India. Hence, the service income of assessee is sourced in India under section 9(1)(vii) of the Act. 5.11 The bright line test of utilization of services is where the cost of such services is borne. Accordingly, the source of income is the location of p....
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....f the Act. In view of the above, assessee's reliance on various orders of ITAT and High Court to demonstrate that income is not taxable being accrued or arises outside India are not acceptable as the views are contrary to the decision of Apex court in the case of GVK Industries (supra) and the provisions of law. 5.13 In view of the above, the aforesaid grounds taken by the assessee is rejected and the AO is directed to incorporate the direction appropriately while passing the final order." This is what leaves the assessee aggrieved. 5. We have given our thoughtful consideration to the assessee's and Revenue's vehement submissions reiterating their respective stands against and in support of the learned lower authorities' action treating the impugned receipts derived from providing simulator and other allied services to the ultimate payer entity in India. We find no reason to uphold the same on merits. This is for the precise reason that neither the assessee nor the Dubai based entity having a group company in India for providing any services in India which could held as taxable in India. 6. So far as the Revenue's stand that in light of the statutory amendment....
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....s the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 to Section 9(1)(VII) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been ....
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....ents are appointed in India for the said purpose. All these agents of the assessee, including the three agents in India, used the Maersk Net System. This system is a facility which enables the agents to access several information like tracking of cargo of a customer, transportation schedule, customer information, documentation system and several other informations. For the sake of convenience of all these agents, a centralised system is maintained so that agents are not required to have the same system at their places to avoid unnecessary cost. The system comprises of booking and communication software, hardware and a data communications network. The system is, thus, integral part of the international shipping business of the assessee and runs on a combination of mainframe and non-mainframe servers located in Denmark. The expenditure which is incurred for running this business is shared by all the agents. In this manner, the systems enable the agents to coordinate cargos and ports of call for its fleet. 9. Aforesaid are the findings of facts. It is clearly held that no technical services are provided by the assessee to the agents. Once these are accepted, by no stretch of ....