Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2019 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (11) TMI 689 - AT - Income TaxTDS u/s 195 - Payments made to non residents - fees for technical services as per the provisions of section 9(1)(vii) of the Act as well as relevant Double Taxation Avoidance Agreement (DTAA) - whether the part of the consideration which is attributable to imparting of training outside India could be taxed as FTS. i.e., the payment made to M/s. Lufthansa, Germany and M/s. Alteon, Singapore? - HELD THAT:- We need to notice is as to what is simulator fee. A flight simulator is a device that artificially re-creates aircraft flight and the environment in which it flies, for pilot training, design, or other purposes. It includes replicating the equations that govern how aircraft fly, how they react to applications of flight controls, the effects of other aircraft systems, and how the aircraft reacts to external factors such as air density, turbulence, wind shear, cloud, precipitation, etc. Flight simulation is used for a variety of reasons, including flight training (mainly of pilots), the design and development of the aircraft itself, and research into aircraft characteristics and control handling qualities. Therefore flight simulator is essential part of training imparted to the pilots and crew of aircraft. The fact that the charges for use of the simulator is separately quantified on hourly basis does not mean that the Assessee is hiring the same or making payment for a right to use the same. Without the imparting of training by the instructors, the hiring of simulator on its own does not have any purpose. It cannot therefore be said that the Assessee paid royalty for use of simulator. CIT(A) has rightly held that the action of the AO in treating the payments to non-residents and any part of it as royalty is unsustainable. As far as payment to M/s.CAE Aviation Dubai, is concerned, the CIT(A) held that the payment is not in the nature of Royalty. The question whether it is FTS does not arise because of the absence of a clause relating to FTS in the DTAA regarding FTS and the settled position of law that in the absence of a clause in a treaty not dealing with a particular item of income, the same should not be regarded as residuary income but income from business and in the absence of Permanent Establishment in India (PE) of the non-resident in India, the same cannot be taxed. We have already made a reference to the decision of the ITAT Bangalore in the case of ABB FZ-LLC Vs. ITO (IT) Ward-1(1) Bangalore, [2016 (11) TMI 368 - ITAT BANGALORE] which was a case rendered in the context of DTAA between India and UAE. The decision of the CIT(A) is in line with the decision referred to above and is a correct interpretation of the treaty. We find no grounds to interfere with the decision of the CIT(A) on this issue. The appeals of the revenue are accordingly dismissed. Retrospective amendment to the law - The law is by now well settled that tax deduction at source obligation cannot be fastened on a person on the basis of a retrospective amendment to the law, which was not in force when the payments were made. The revenue seeks to rely upon the Explanation inserted as Explanation 2 to section 195 by the Finance Act of 2002 w.r.e.f 1-4-1961. The aforesaid amendment lays down that even if the payment by a resident in India to a non-resident constitutes business income in the hands of the non-resident then irrespective of the existence or non-existence of a permanent establishment of the non-resident in India, tax is liable to the deducted at source by the resident in India making payment to non-resident. Admittedly, for the A.Y. 2007-08 & 2008-09, such provision did not exist. At the time when the Assessee made payments to the non-resident such a provision did not exist. It is not possible for the Assessee to foresee an obligation to deduct tax at source by a retrospective amendment to the law. In such circumstances, the question that arises for consideration is as to, whether a liability to deduct tax at source can be fastened on an assessee on the basis of a retrospective amendment to the law. The amendment brought in by the Finance Act with retrospective effect, which was passed in the year subsequent to the year under consideration, should not be considered for penalizing the assessee by treating him as an Assessee in default. CIT(A) erred in holding that FTS was taxable in India only because of the retrospective amendment to the law and he erred in not holding that the liability to deduct tax at source arises at the time of making payment and therefore there would be no obligation to deduct tax at source. Accordingly, the order of the CIT(A) holding Assessee to be an Assessee in default u/s.201(1) of the Act to the extent of the payment relating to FTS and consequent liability towards interest u/s.201(1A) of the Act is hereby cancelled. The appeals of the Assessee are allowed.
|