Hindustan Aeronautics Limited Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that payment made towards service charges to CGTM France doesn’t fall under the category of ‘fees for technical service’. Accordingly, TDS u/s 195 of the Income Tax Act not deductible.
Facts- M/s. Hindustan Aeronautics Limited (HAL) having its registered office at Bangalore, is engaged in the business of design and development of engines of flights & helicopters. HAL entered into an agreement with Turbomeca for designing Dhurve/Shakti engine. The Shakti engine was co-developed by Turbomeca (company based at France) and HAL and the assistance for conducting flight tests were provided by CGTM, France a subsidiary of Turbomeca.
On verification, it was noticed that HAL has made the payments to CGTM, France for providing technical assistance for Shakti Air Flight Test without deduction of TDS.
The payments made by the assessee company to CGTM, France for providing technical assistance was covered by the definition of FTS as defined in Section 9(l)(vii) of the Act. The sum paid by the assessee company to the CGTM, France is therefore chargeable to tax under the Act. As the Assessee Company had not complied with the provisions of Sec. 195 of the Act on remittances made to CGTM, France, proceedings under Section 201 of the Act were initiated and the assessee company was asked to show cause by issue of Notice on 17-12-2014 as to why it should not be treated as an Assessee in default for failure to deduct tax at source in respect of the aforesaid payments.
Conclusion- Tribunal, in assessee own case, had held that fees paid by the assessee to CGTM France is not in the nature of fees for technical services and hence does not attract the provisions of sec. 195 with regard to requirement for deduction of tax at source on payment of fees for technical services of an resident outside India. As a result, no disallowance is warranted u/s 40(a)(ia) of the expenses claimed by the assessee towards payment of service charges to CGTM France.
We are of the opinion that there is merit in the argument of ld. A.R. since the Tribunal has already held that there was no question of deduction of TDS on the payment made to CGTM, France for the service rendered by them to the assessee and the payment made to them does not fall under the “fees for technical service.” Hence, it does not attract the provisions of section 195 of the Act so as to deduct TDS. Accordingly, we allow the grounds taken by the assessee on the same issue as stated in the order of the Tribunal cited (supra) in both the appeals.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These two appeals by assessee are directed against different orders of CIT(A) dated 9.11.2022 for the assessment years 2010-11 & 2013-14. There are common grounds in both these appeals except figures and hence, we reproduce grounds in IT(IT)A No.7/Bang/2018 which are as follows:
1. The Order is bad in law and on facts
1.1 The Order passed by the lid. CIT(A) under section 250 r.w.s 201(1) and 201(1 A) of the Act, is bad in law and on facts.
2. Erroneous dismissal of appeal filed before the Ld. CIT(A)
2.1. The Ld. CIT(A) failed to appreciate that the favorable ITAT order dated 10 March 2022 passed in case of the Appellant for AY 2009-10 was in respect of regular assessment proceedings, and not against the TDS proceedings under section 20 1 ( 1 ) and 20 1 ( 1 A) ofthe Act for AY 20 1 0- 1 1 .
2.2 Consequentially, the Ld. CIT(A) erred in holding that there remained no issue for adjudication. Therefore, the Ld. CIT(A) erred in treating the appeal as infructuous and disposed-off the appeal as dismissed. Total tax effect – Rs.11,09,949/-
2. Facts of the case in both the appeals are common. Hence, we consider the facts in IT(IT)A No.8/Bang/2023, which are as follows:
2.1 M/s. Hindustan Aeronautics Limited (HAL/“assessee company”) having its registered office at Bangalore, is engaged in the business of design and development of engines of flights & helicopters. The Assessee Company entered into an agreement with Turbomeca for designing Dhurve/Shakti engine. The Shakti engine was co-developed by Turbomeca (company based at France) and HAL and the assistance for conducting flight tests were provided by CGTM, France a subsidiary of Turbomeca.
2.2 On verification, it was noticed that the assessee company, HAL has made the payments to CGTM, France for providing technical assistance for Shakti Air Flight Test. The details of total payments made to CGTM, France is as shown under:
(Amount in Euros)
