Case Law Details
Hindustan Aeronautics Ltd Vs ACIT (ITAT Bangalore)
ITAT held that fees paid by the assessee (HAL) to CGTM France for Payment for Flight Testing Services which includes (i) Air intake Survey (ii) Engine bay, FACEC bay and oil cooling systems (iii) Engine Accessories and FADEC vibrations (iv) Measurement of gas concentration of fire extinguishing systems and (v) Hot Fuel tests is not in the nature of fees for technical services (FTS) as mere rendering of services would not be taxable unless the person receiving the services is enabled to utilize such services on its own in the future without having recourse to the person providing the service.
In this case The ALH Shakti Engine was co-developed by Turbomeca (a company based at France) and the assessee i.e. Hindustan Aeronautics Ltd (HAL) and the assistance for conducting flight tests were provided by CGTM France a subsidiary of Turbomeca. The perusal of the details of technical services provided by CGTM France to the assessee shows that the technicians/engineers of CGTM carried out Air intake Survey relating to Air inlet distortion and installation losses. On the basis of test results, the assessee would look into various issues involving in the Shakti Engine and would carry out the requisite test for improving its engine. The fees paid towards the services in question here is purely towards the testing of Shakti Engines in order to identify the issues of Air inlet distortion and installation losses. The subsequent action of the assessee to carry out the improvement based on the test results given by CGTM France cannot be considered as a basis for ‘make available’ services rendered by CGTM France to the assessee. Conducting the test and subsequent improvement to the engines based on test results are independent activities and cannot be considered together. As contended by the assessee, the test conducted by CGTM France cannot be independently carried out by the assessee without the support of engineers from CGTM France and hence does not satisfy the conditions of ‘make available’ that the services rendered by CGTM France to the assessee. It is settled law that mere rendering of services would not be taxable unless the person receiving the services is enabled to utilize such services on its own in the future without having recourse to the person providing the service.
In view of the above, we are of the considered opinion that fees paid by the assessee (HAL) to CGTM France for Payment for Flight Testing Services which includes (i) Air intake Survey (ii) Engine bay, FACEC bay and oil cooling systems (iii) Engine Accessories and FADEC vibrations (iv) Measurement of gas concentration of fire extinguishing systems and (v) Hot Fuel tests 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.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
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