Payment for annual maintenance contracts could not be classified as fee for technical services

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

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