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2021 (5) TMI 478 - AT - Income TaxIncome taxable in India - TDS on payment to Federal Aviation Agency FAA -USA - Airport Authority of India (AAI) has entered into Memorandum of Agreement with Federal Aviation Administration, USA (FAA), for providing technical assistance to AAI by way of providing its personnel and meeting on ATFM requirements and assisting AAI in connection with ATFM by development of detailed quantitative requirements, detailed ATFM system architecture and draft ATFM implementation plan - Whether the payment is made a sovereign state (FAA) by another sovereign state (AAI) is not taxable and hence no TDS is deductible or not? - HELD THAT:- Organization under the Government with budgetary support of the state and recourses of its own but not a Government unto itself. The employees of both the organizations namely AAI and FAA are called Government employees for the convenience of implementation agreements. The agreement between AAI and FAA is of a commercial character (acta jure gestionis) and state is not liable for the actions or contracts entered between the parties which is different from acts of state and its sovereign capacity (acta jure imperii). Hence, the payments are not excluded from the purview of Section 196 on this ground. FAA per se cannot be treated as a foreign sovereign Government. There is no general immunity from taxation unless specified which is found absent by going through the agreements entered between the two organizations. That leads to a conclusion that the taxability is determined based on the law of the land and the treaties entered between two nations as sovereign entities. In case of presence of a treaty or agreements like DTAA, they may take precedence in determination of the taxability of the entities involved. Reference is also invited to the Provisions of Section 10(15A) wherein the payments made to foreign Government are exempt. Article 285 and Article 289 provides for collection of taxes and the exemption of items from the purview of taxation. Thus, we find that wherever the legislature intended to accord exemption, they have been specifically provided for in the Income Tax Act. The words used "The Government" cannot be used to connote "A foreign Government" too. To conclude, we hereby hold that the transactions between the AAI and FAA and the profits arise thereof would be subjected to provisions of Indian Income Tax Act. Whether based on the agreements, the payment is in the nature of reimbursement are not? - On going through the agreements, we find that the agreement dated 13.11.2006 signed between the Joint Secretary, Ministry of Civil Aviation and the FAA Administrator was primarily on the pedestal of incurring of expenses on reimbursement basis for providing technical assistance. A concurrent reading of Section 4(2) and Section 195(1), denotes that the liability to deduct tax arise only when the payee is a non-resident and the amount payable to him is chargeable to tax in India. From the perusal of the agreement, since the payments are on cost to cost basis which do not involve any element of profit, the reimbursement is not liable for any Income Tax payable and accordingly the provisions of TDS are not to be attracted. The Hon'ble Calcutta High Court in the case of Dunlop Rubber Company Ltd.[1982 (2) TMI 24 - CALCUTTA HIGH COURT] held that reimbursement of actual expenditure from an Indian company cannot be treated as taxable. Reimbursement by the vary definition doesn't include income element and hence provisions of TDS are not attracted. Reliance is being placed on the judgment of Hon'ble Jurisdictional High Court in the case of CIT Vs Industrial Engineering Projects [1992 (7) TMI 38 - DELHI HIGH COURT] wherein it was held that reimbursement expenses cannot be regarded as revenue receipt, hence, no TDS is deductible. Whether the services rendered are in the nature of FIS chargeable to tax under DTAA or not? - The concept of make available requires that the fruits of the services should remain available to the service recipient in some concrete shape such as technical knowledge, experience, skills, etc. The assistance provided by FAA in preparation of QRs and development of ATFM system are neither any licensed product of FAA nor exclusive patents of FAA. The assistance rendered on reimbursable basis is based on the agreement between MoCA and FAA of US. ATFM technology per se has not been made available to the AAI for any perpetual use. The provision of assistance to MoCA in developing and modernization of civil aviation structure, review analysis and documentation of a traffic flow management system is a dynamic process requiring further development of the process by the MoCA, India. This is a case of assistance and technical cooperation between FAA and AAI sans any commercial interest by the rendering party. Based on the manner of transacting, agreements, services provided, reimbursement received, we unhesitatingly hold that as the "make available" clause contained in article 12(4)(b) has not been satisfied in the facts and circumstances of the present case, the payment made by the assessee could not be regarded as for the purpose of "fees for included services" (FIS). Appeals of the assessee are allowed.
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