Ethiopian Airlines Group Vs ACIT (ITAT Delhi)
Conclusion: Income earned by assessee airlines from providing simulator training services to Flight Simulation Technique Services (FSTC), a Dubai-based company, was not taxable in India as simulators were standard facilities provided in Ethiopia and not tailored to any specific user therefore, general facilities used by all customers could not be considered technical services.
Held: Assessee had an agreement with a Dubai-based company, FSTC, to provide flight simulator and pilot training services. FSTC’s group company in India, Flight Simulation Technique Centre (P) Ltd. (FSTL), had signed contracts with airlines like Jet Airways, Vistara, Indigo, and GoAir to provide simulator training for pilots. FSTL routed the training services through FSTC, which in turn engaged assessee for the simulator services in Adis Ababa. Assessee received ₹1,70,86,740/- for these services. AO treated this amount as fees for technical services (FTS) taxable in India, and Dispute Resolution Panel (DRP) upheld the assessment. DRP looked into whether the payment made by an Indian company, FSTI, to Ethiopian Airlines (EA) was taxable in India as FTS. Assessee contended that the agreement was between EA and a UAE-based group company, not with FSTI directly. It claimed that since both parties were non-residents and services were provided outside India, the income was not taxable in India. However, during a survey, it was found that FSTI India had actually made the payment to EA without deducting tax at source. DRP noted that the simulator services were used to train pilots of Indian airlines, and though the services took place in Ethiopia, the payment came from India and benefited Indian entities. Therefore, DRP held that this made the income taxable in India, as the services were used in India and the payment was from an Indian company. It also said the service involved technical expertise and fell under the definition of FTS. It rejected assessee’s arguments and directed the AO to treat the amount as taxable under Indian tax law. Assessee aggrieved by the order appealed before Tribunal. It was held that neither assessee nor the Dubai-based entity had provided any services in India that could be taxed under Indian law. It also disagreed with Revenue’s reliance on the retrospective amendment to section 9(1)(vii) and the India-Ethiopia DTAA, noting that the services were not customized and did not fall under the definition of FTS. Appellate tribunal observed that the simulators were standard facilities provided in Ethiopia and not tailored to any specific user. Citing rulings from the Delhi High Court in SFDC Ireland and the Supreme Court in Kotak Securities and A.P. Moller Maersk, it held that general facilities used by all customers could not be considered technical services. Based on this, Tribunal held that the receipts were not taxable as FTS.
