DHL Air Ltd. Vs. Dy. CIT (IT) (ITAT Mumbai)
The impugned expenditure has been incurred by the assessee in pursuance of maintenance contract between the assessee and M/s. EAT, Germany. In the case of Kandla Port Trust (supra), it was held that the payment made for annual maintenance contracts would not fall under the category of fee for technical services within the meaning of provisions of section 194J of the Act. In the case of DDRC SRL Diagnostic (P) Ltd. (supra), the co-ordinate bench has noticed that the CBDT has expressed the view in Circular No. 715 (supra) that routine, normal maintenance contracts which includes supply of spares will be covered by section 194C of the Act. The bench further noticed that the revenue could not produce any material to show that the clarifications issued by the CBDT would not apply to the facts available in the case before it. Accordingly the bench held that the provisions of section 194C shall apply to the payment made towards maintenance contracts.
In the instant case also, no material was placed before us to show that the clarifications issued by the CBDT would not apply to the facts of the present case. Hence, consistent with the view taken in the above cited cases, we hold that the payment made towards annual maintenance contracts would fall under the category of works contract. In that view of the matter, the payment given by the assessee would constitute business receipts in the hands of M/s. EAT and the same is not taxable in India, since it does not have PE in India. In that case, there is merit in the contentions of the assessee that it is not required to deduct tax at source under section 195 of the Act, as no part of the amount paid to M/s. EAT is chargeable in India in the hands of M/s. EAT. Accordingly we set aside the order passed by assessing officer on this issue and direct him to delete the impugned additions.
Tax deduction at source—Under section 195—Payment for normal annual maintenance contract
Conclusion: Payment made for annual maintenance contracts could not be classified as fee for technical services within the meaning of provisions of section 194J. Such payments constituted business receipts in the hands of non-resident recipient and as the same was not having PE in India, liability to withhold tax under section 195 did not get attracted.
Full Text of the ITAT Order is as follows:-
The assessee has filed this appeal challenging the order dated 27-1-2017 passed by the assessing officer under section 143(3) read with section 144C(13) of the Act of the Act pursuant to the direction given by the Dispute Resolution Panel (Dispute Resolution Panel).
2. At the time of hearing learned Authorized Representative did not press ground No. 5. Accordingly the same is dismissed as not pressed.
3. Remaining grounds give rise to following issues :–
(a) Dis allowance made under section 40(a)(i) of the Act in respect of maintenance of aircraft and engine/repairs and maintenance of aircraft.
(b) Dis allowance under section 40(a)(i) of the Act in respect of traveling and accommodation charges.
4. The assessee has taken an alternative ground that if income is computed under section 44BBA of the Act, the above said dis allowances are not called for.
5. Facts relating to the case are stated in brief. The assessee- company is tax resident of UK. It filed its return of income declaring total loss of Rs. 174.40 lakhs. The assessee took an aircraft under dry lease agreement from DHL Aviation, Netherlands B.V, and in turn, leased out the same under wet lease agreement to an Indian company named M/s. Blue Dart Aviation Limited (BDAL). Both assessee- company and BDAL are held at Deutsche Post AG and hence the assessee- company and BDAL are associated enterprises (AE).
6. Under wet lease agreement, lessor shall provide aircraft to the lessee and is also fully responsible for functioning of the aircraft, i.e., it should also provide competent personnel for operation of the aircraft and should also ensure that there is no interruption in service due to strike or injuries to crew members or due to inferior quality working. The assessee should also ensure that the aircraft is properly maintained and all necessary maintenance services are carried out at regular intervals.
7. During the year under consideration, the assessee claimed following expenses :–
